PR Newswire | Jul 21, 2020 07:45AM EDT

07/21 06:45 CDT

Prologis Reports Second Quarter 2020 Earnings Results SAN FRANCISCO, July 21, 2020

SAN FRANCISCO, July 21, 2020 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, reported results for the second quarter of 2020.

Net earnings per diluted share was $0.54 for the quarter compared with $0.60 for the second quarter of 2019. Core funds from operations* per diluted share was $1.11 compared with $0.77 for the same period in 2019. The second quarter of 2020 included $0.23 of net promote income, while the same period in 2019 had no net promote income.

"Our results for the quarter were excellent, driven by strong operating performance and record promote income. I'm proud of our team who has worked tirelessly to navigate the current environment," said Hamid R. Moghadam, chairman and CEO, Prologis. "While e-commerce is clearly a tailwind, demand is broad-based across a variety of categories-a trend we saw accelerate in June."

OPERATING PERFORMANCE

Owned & 2Q20 Notes Managed

Period End 95.7% Occupancy

Leases 42MSF 39MSF operating portfolio and ~3MSF development portfolio Commenced

Retention 80.9% Up 540bps from 1Q 2020

Prologis Share 2Q20 Notes

Net Effective 22.0% Led by U.S. at 27.7% Rent Change

Cash Rent 9.6% Change

Cash Same 2.9% Impacted by 42bps of bad debt Store NOI*

DEPLOYMENT ACTIVITY

Prologis Share 2Q20

Building Acquisitions $8M

Weighted avg stabilized cap rate 7.6%

Development Stabilizations $333M

Estimated weighted avg yield 6.7%

Estimated weighted avg margin 33.2%

Estimated value creation $111M

Development Starts $66M

Estimated weighted avg margin 48.0%

Estimated value creation $32M

% Build-to-suit 100%

Total Dispositions and Contributions $304M

Weighted avg stabilized cap rate (excluding land and other real estate)6.0%

BALANCE SHEET & LIQUIDITYPrologis ended the quarter with $4.6 billion in liquidity, while debt as a percentage of total market capitalization was 20 percent. At June 30, the company's unconsolidated co-investment ventures had liquidity of approximately $3.3 billion and a loan-to-value ratio of approximately 18 percent. The combined investment capacity of Prologis and its open-ended vehicles, at levels in line with their current credit ratings, is over $13 billion.

During the quarter, Prologis and its co-investment ventures completed $1.6 billion of debt activity at a weighted average rate of 1.8 percent and a weighted average term of almost 13 years. This activity excludes the previously announced (euro)313 million principal amount of 2022 and 2024 notes tendered.

"While the credit markets were turbulent through much of the quarter, we again demonstrated our ability to raise very attractive debt across our co-investment ventures and global markets," said Tim Arndt, treasurer, Prologis. "We issued over 40 billion of unsecured bonds in Japan for Prologis, raised $525 million of new private placement notes for USLF and completed a new (euro)500 million green bond issuance in PELF. Our platform allows us to be agile and strategic when sourcing capital, even when there is significant dislocation."

At quarter end, the company's weighted average rate on its share of total debt was 2.3 percent with a weighted average remaining term of 9.1 years.

COMMUNITIESRacial Justice: Prologis stands in solidarity with the Black community to end racial injustice, hatred and violence. To date, the Prologis Foundation has committed $1 million toward organizations engaged in the fight against systemic racism, with donations made to the Equal Justice Initiative, the NAACP Legal Defense and Educational Fund, the National Urban League, the Center for Policing Equity, Year Up and the Dream Corps.

COVID-19 Relief: In addition to the Prologis Foundation's $5 million global relief fund to provide financial support to nonprofits and community-based organizations, the company has offered buildings and yard space to agencies and relief organizations through its Space for Good program. Year-to-date, Prologis has donated an additional $5.5 million of in-kind rent in 13 markets globally.

2020 GUIDANCE"While the economic impact of COVID-19 remains unknown, the combination of what we see in our proprietary data, the pace of rent collections, and dialogue with our customers gives us a more positive outlook for the back half of the year," said Thomas S. Olinger, chief financial officer, Prologis. "Year-over-year Core FFO growth at the midpoint, excluding promotes, is extremely strong, at over 12.5%, with leverage flat. Additionally, we continue to have significant dividend coverage of 1.6x and expect to generate free cash flow after dividends of $1 billion in 2020."

2020 GUIDANCE January 2020 April 2020 Current

Earnings (per diluted share)

Net Earnings $1.98 to $2.13 $1.81 to $1.88 $2.06 to $2.18

Core FFO* $3.67 to $3.75 $3.55 to $3.65 $3.70 to $3.75



Operations

Year-end occupancy 96.0% to 97.0% 94.5% to 96.0% 95.0% to 96.0%

Cash Same Store NOI* -4.25% to 5.25% 1.75% to 3.25%^1 2.5% to 3.5%^1 Prologis share



Capital Deployment - Prologis Share (in millions)

Development $2,200 to $2,500$1,900 to $2,200 $1,900 to $2,200 stabilizations

Development starts $2,000 to $2,400$500 to $800 $800 to $1,200

Building acquisitions $500 to $700 $450 $500 to $600

Building contributions$600 to $900 $650 $700 to $900

Building and land $1,300 to $1,500$250 $500 to $800 dispositions

Realized Development $300 to $400 $280 $300 to $400 gains

Net Proceeds (Uses) ($600) to ($700)($50) to ($350) ($100)



Strategic Capital (in millions)

Strategic capital revenue, excl promote $350 to $360 $345 to $355 $360 to $370 revenue

Net promote income, incl in Core FFO* $115 $115 $150 range



G&A (in millions)

General & administrative $275 to $285 $270 to $280 $265 to $275 expenses



1At the midpoint, this includes an estimated 75 basis point decline in average occupancy and a total of 75 basis points of bad debt expense.



This is a non-GAAP financial measure. See the Notes and Definitions in our*supplemental information for further explanation and a reconciliation to the most directly comparable GAAP measure.

The earnings guidance described above includes potential gains recognized from real estate transactions but excludes any future or potential foreign currency or derivative gains or losses as our guidance assumes constant foreign currency rates. In reconciling from net earnings to Core FFO*, Prologis makes certain adjustments, including but not limited to real estate depreciation and amortization expense, gains (losses) recognized from real estate transactions and early extinguishment of debt, impairment charges, deferred taxes and unrealized gains or losses on foreign currency or derivative activity. The difference between the company's Core FFO* and net earnings guidance for 2020 relates predominantly to these items. Please refer to our second quarter Supplemental Information, which is available on our Investor Relations website at http://ir.prologis.com and on the SEC's website at www.sec.gov for a definition of Core FFO* and other non-GAAP measures used by Prologis, along with reconciliations of these items to the closest GAAP measure for our results and guidance.

July 21, 2020, CALL DETAILSThe call will take place on Tuesday, July 21, 2020, at 9:00 a.m. PT/12:00 p.m. ET. To access a live broadcast of the call, please dial +1 (833) 968-2252 (toll-free from the United States and Canada) or +1 (778) 560-2807 (from all other countries) and enter conference code 6049156. A live webcast can be accessed from the Investor Relations section of www.prologis.com.

ABOUT PROLOGISPrologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of June 30, 2020, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 963 million square feet (89 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 5,500 customers principally across two major categories: business-to-business and retail/online fulfillment.

FORWARD-LOOKING STATEMENTSThe statements in this document 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, 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 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) national, international, regional and local economic and political climates; (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; (v) maintenance of real estate investment trust 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) risk related to the current coronavirus pandemic, and (xi) those additional factors discussed in reports filed with the Securities and Exchange Commission by us under the heading "Risk Factors." We undertake no duty to update any forward-looking statements appearing in this document except as may be required by law.

dollars in millions, except per share/unit data Three Months ended Six Months ended June 30, June 30,

2020 2019 2020 2019

Rental and other revenues $945 $701 $1,827 $1,399

Strategic capital revenues 321 89 417 163

Total revenues 1,266 790 2,244 1,562

Net earnings attributable to common stockholders 405 384 894 731

Core FFO attributable to common stockholders/unitholders* 853 506 1,453 980

AFFO attributable to common stockholders/unitholders* 822 620 1,555 1,087

Adjusted EBITDA attributable to common stockholders/unitholders* 1,111 823 2,123 1,478

Estimated value creation from development stabilizations - Prologis Share 111 223 381 432

Common stock dividends and common limited partnership unit distributions 444 347 888 695

Per common share - diluted:

Net earnings attributable to common stockholders $0.54 $0.60 $1.23 $1.15

Core FFO attributable to common stockholders/unitholders* 1.11 0.77 1.95 1.50

Business line reporting:

Real estate operations* 0.82 0.70 1.58 1.38

Strategic capital* 0.29 0.07 0.37 0.12

Core FFO attributable to common stockholders/unitholders* 1.11 0.77 1.95 1.50

Realized development gains, net of taxes* 0.08 0.29 0.30 0.35

Dividends and distributions per common share/unit 0.58 0.53 1.16 1.06

* This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation.

in thousands June 30, 2020 March 31, 2020 December 31, 2019

Assets:

Investments in real estate properties:

Operating properties $42,184,980 $42,429,391 $31,287,833

Development portfolio 2,060,821 1,836,794 1,869,267

Land 1,692,512 1,463,982 1,101,646

Other real estate investments 2,640,499 2,382,132 965,668

48,578,812 48,112,299 35,224,414

Less accumulated depreciation 5,931,378 5,662,351 5,437,662

Net investments in real estate properties 42,647,434 42,449,948 29,786,752

Investments in and advances to unconsolidated entities 7,201,006 6,834,758 6,237,371

Assets held for sale or contribution 1,948,508 1,975,524 720,685

Net investments in real estate 51,796,948 51,260,230 36,744,808

Cash and cash equivalents 549,129 807,871 1,088,855

Other assets 2,875,780 2,939,146 2,198,187

Total assets $55,221,857 $55,007,247 $40,031,850

Liabilities and Equity:

Liabilities:

Debt $15,666,872 $15,676,592 $11,905,877

Accounts payable, accrued expenses and other liabilities 2,808,776 2,554,785 2,054,189

Total liabilities 18,475,648 18,231,377 13,960,066

Equity:

Stockholders' equity 32,242,928 32,259,442 22,653,127

Noncontrolling interests 3,589,800 3,591,986 2,775,394

Noncontrolling interests - limited partnership unitholders 913,481 924,442 643,263

Total equity 36,746,209 36,775,870 26,071,784

Total liabilities and equity $55,221,857 $55,007,247 $40,031,850

Three Months Ended Six Months Ended

June 30, June 30,

in thousands, except per share amounts 2020 2019 2020 2019

Revenues:

Rental $944,366 $700,689 $1,823,173 $1,397,496

Strategic capital 320,658 89,144 417,249 162,949

Development management and other 1,100 539 3,943 1,979

Total revenues 1,266,124 790,372 2,244,365 1,562,424

Expenses:

Rental 232,109 181,138 459,727 369,206

Strategic capital 81,545 37,206 128,119 75,264

General and administrative 64,664 66,276 134,353 135,977

Depreciation and amortization 398,195 284,376 744,165 568,385

Other 7,979 3,515 22,553 7,349

Total expenses 784,492 572,511 1,488,917 1,156,181

Operating income before gains on real estate transactions, net 481,632 217,861 755,448 406,243

Gains on dispositions of development properties and land, net 86,416 196,941 249,166 239,382

Gains on other dispositions of investments in real estate, net (excluding 43,939 27,254 75,430 173,021 development properties and land)

Operating income 611,987 442,056 1,080,044 818,646

Other income (expense):

Earnings from unconsolidated co-investment ventures, net 47,443 45,876 94,558 98,963

Earnings from other unconsolidated ventures, net 6,699 2,680 48,314 6,259

Interest expense (81,298) (59,122) (156,940) (119,629)

Foreign currency and derivative gains (losses) and interest and other income, (59,809) 6,353 53,890 22,997 net

Gains (losses) on early extinguishment of debt, net (23,573) (385) (66,340) (2,501)

Total other income (expense) (110,538) (4,598) (26,518) 6,089

Earnings before income taxes 501,449 437,458 1,053,526 824,735

Current income tax expense (48,673) (18,190) (76,593) (30,909)

Deferred income tax expense 2,162 (8,442) (831) (9,235)

Consolidated net earnings 454,938 410,826 976,102 784,591

Net earnings attributable to noncontrolling interests (37,115) (13,864) (53,256) (28,509)

Net earnings attributable to noncontrolling interests - limited partnership (11,650) (11,686) (25,620) (22,260)units

Net earnings attributable to controlling interests 406,173 385,276 897,226 733,822

Preferred stock dividends (1,634) (1,492) (3,269) (2,991)

Net earnings attributable to common stockholders $404,539 $383,784 $893,957 $730,831

Weighted average common shares outstanding - Diluted 765,830 655,447 746,027 654,766

Net earnings per share attributable to common stockholders - Diluted $0.54 $0.60 $1.23 $1.15

Three Months Ended Six Months Ended

June 30, June 30,

in thousands 2020 2019 2020 2019

Net earnings attributable to common stockholders $404,539 $383,784 893,957 730,831

Add (deduct) NAREIT defined adjustments:

Real estate related depreciation and amortization 389,072 275,743 725,004 550,630

Gains on other dispositions of investments in real estate, net (excluding (43,939) (27,254) (75,430) (173,021) development properties and land)

Reconciling items related to noncontrolling interests 602 (11,920) (14,791) (25,390)

Our share of reconciling items related to unconsolidated co-investment ventures 65,613 58,354 130,977 112,054

Our share of reconciling items related to other unconsolidated ventures 8,061 2,581 10,846 5,593

NAREIT defined FFO attributable to common stockholders/unitholders* $823,948 $681,288 $1,670,563 $1,200,697

Add (deduct) our defined adjustments:

Unrealized foreign currency and derivative losses (gains), net 66,791 3,451 (42,756) (4,037)

Deferred income tax expense (benefit) (2,162) 8,442 831 9,235

Reconciling items related to noncontrolling interests (234) 15 (419) 35

Our share of reconciling items related to unconsolidated co-investment ventures 2,037 (1,745) 3,315 (2,889)

FFO, as modified by Prologis attributable to common stockholders/unitholders* $890,380 $691,451 $1,631,534 $1,203,041

Adjustments to arrive at Core FFO attributable to common stockholders/unitholders*:

Gains on dispositions of development properties and land, net (86,416) (196,941) (249,166) (239,382)

Current income tax expense on dispositions 22,993 7,645 29,718 10,044

Losses on early extinguishment of debt and other, net 26,573 385 74,340 2,501

Reconciling items related to noncontrolling interests (52) (2) (2,597) (2)

Our share of reconciling items related to unconsolidated co-investment ventures (30) 3,654 2,671 4,238

Our share of reconciling items related to other unconsolidated ventures 3 4 (33,830) 7

Core FFO attributable to common stockholders/unitholders* $853,451 $506,196 $1,452,670 $ 980,447

Adjustments to arrive at Adjusted FFO ("AFFO") attributable to commonstockholders/unitholders*, including our share of unconsolidated ventures lessnoncontrolling interest:

Gains on dispositions of development properties and land, net 86,416 196,941 249,166 239,382

Current income tax expense on dispositions (22,993) (7,645) (29,718) (10,044)

Straight-lined rents and amortization of lease intangibles (31,229) (25,402) (56,732) (54,951)

Property improvements (37,817) (25,634) (51,456) (34,332)

Turnover costs (45,488) (40,631) (84,884) (80,969)

Amortization of debt premium, financing costs and management contracts, net 2,701 4,575 4,194 9,055

Stock compensation expense 27,998 20,186 59,806 51,944

Reconciling items related to noncontrolling interests 9,302 5,604 14,349 10,968

Our share of reconciling items related to unconsolidated ventures (20,216) (14,032) (2,134) (24,508)

AFFO attributable to common stockholders/unitholders* $822,125 $620,158 $1,555,261 $1,086,992



*This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation.

Three Months Ended Six Months Ended

June 30, June 30,

in thousands 2020 2019 2020 2019

Net earnings attributable to common stockholders $ 404,539 $383,784 $ 893,957 $ 730,831

Gains on other dispositions of investments in real estate, net (excluding (43,939) (27,254) (75,430) (173,021) development properties and land)

Depreciation and amortization expenses 398,195 284,376 744,165 568,385

Interest expense 81,298 59,122 156,940 119,629

Current and deferred income tax expense, net 46,511 26,632 77,424 40,144

Net earnings attributable to noncontrolling interests - limited partnership 11,650 11,686 25,620 22,260 unitholders

Pro forma adjustments 2,394 (240) 53,602 2,307

Preferred stock dividends 1,634 1,492 3,269 2,991

Unrealized foreign currency and derivative losses (gains), net 66,791 3,451 (42,756) (4,037)

Stock compensation expense 27,998 20,186 59,806 51,944

Losses on early extinguishment of debt and other, net 26,573 385 74,340 2,501

Adjusted EBITDA, consolidated* $1,023,644 $763,620 $1,970,937 $1,363,934

Reconciling items related to noncontrolling interests (11,635) (24,005) (44,003) (48,176)

Our share of reconciling items related to unconsolidated ventures 98,657 83,814 196,475 162,081

Adjusted EBITDA attributable to common stockholders/unitholders* $1,110,666 $823,429 $2,123,409 $1,477,839



*This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation.

Adjusted EBITDA.We use Adjusted EBITDA attributable to common stockholders/unitholders ("Adjusted EBITDA"), a non-GAAP financial measure, as a measure of our operating performance. The most directly comparable GAAP measure to Adjusted EBITDA is net earnings.

We calculate Adjusted EBITDA beginning with consolidated net earnings attributable to common stockholders and removing the effect of: interest expense, income taxes, depreciation and amortization, impairment charges, gains or losses from the disposition of investments in real estate (excluding development properties and land), gains from the revaluation of equity investments upon acquisition of a controlling interest, gains or losses on early extinguishment of debt and derivative contracts (including cash charges), similar adjustments we make to our FFO measures (see definition below), and other items, such as, stock based compensation and unrealized gains or losses on foreign currency and derivatives. We also include a pro forma adjustment to reflect a full period of NOI on the operating properties we acquire or stabilize during the quarter and to remove NOI on properties we dispose of during the quarter, assuming all transactions occurred at the beginning of the quarter. The pro forma adjustment also includes economic ownership changes in our ventures to reflect the full quarter at the new ownership percentage.

We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view our operating performance, analyze our ability to meet interest payment obligations and make quarterly preferred stock dividends on an unleveraged basis before the effects of income tax, depreciation and amortization expense, gains and losses on the disposition of non-development properties and other items (outlined above), that affect comparability. While all items are not infrequent or unusual in nature, these items may result from market fluctuations that can have inconsistent effects on our results of operations. The economics underlying these items reflect market and financing conditions in the short-term but can obscure our performance and the value of our long-term investment decisions and strategies.

We calculate our Adjusted EBITDA, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our Adjusted EBITDA 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 Adjusted EBITDA measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

While we believe Adjusted EBITDA is an important measure, it should not be used alone because it excludes significant components of net earnings, such as our historical cash expenditures or future cash requirements for working capital, capital expenditures, distribution requirements, contractual commitments or interest and principal payments on our outstanding debt and is therefore limited as an analytical tool.

Our computation of Adjusted EBITDA may not be comparable to EBITDA reported by other companies in both the real estate industry and other industries. We compensate for the limitations of Adjusted EBITDA by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of Adjusted EBITDA and a reconciliation to Adjusted EBITDA from consolidated net earnings attributable to common stockholders.

Business Line Reportingis a non-GAAP financial measure.Core FFO and development gains are generated by our three lines of business: (i) real estate operations; (ii) strategic capital; and (iii) development. The real estate operations line of business represents total Prologis Core FFO, less the amount allocated to the Strategic Capital line of business. The amount of Core FFO allocated to the Strategic Capital line of business represents the third party share of asset management fees, Net Promotes and transactional fees that we earn from our consolidated and unconsolidated co-investment ventures less costs directly associated to our strategic capital group. Realized development gains include our share of gains on dispositions of development properties and land, net of taxes. To calculate the per share amount, the amount generated by each line of business is divided by the weighted average diluted common shares outstanding used in our Core FFO per share calculation. Management believes evaluating our results by line of business is a useful supplemental measure of our operating performance because it helps the investing public compare the operating performance of Prologis' respective businesses to other companies' comparable businesses. Prologis' computation of FFO by line of business may not be comparable to that reported by other real estate investment trusts as they may use different methodologies in computing such measures.

Calculation of Per Share Amounts

Three Months Ended Six Months Ended

Jun. 30, Jun. 30,

in thousands, except per share amount 2020 2019 2020 2019

Net earnings

Net earnings attributable to common stockholders $ 404,539 $ 383,784 $ 893,957 $ 730,831

Noncontrolling interest attributable to exchangeable limited 11,763 11,759 25,812 22,416 partnership units

Adjusted net earnings attributable to common stockholders - Diluted $ 416,302 $ 395,543 $ 919,769 $ 753,247

Weighted average common shares outstanding - Basic 737,992 630,271 718,278 629,990

Incremental weighted average effect on exchange of 21,539 19,556 20,884 19,637 limited partnership units

Incremental weighted average effect of equity awards 6,299 5,620 6,865 5,139

Weighted average common shares outstanding - Diluted 765,830 655,447 746,027 654,766

Net earnings per share - Basic $ 0.55 $ 0.61 $ 1.24 $ 1.16

Net earnings per share - Diluted $ 0.54 $ 0.60 $ 1.23 $ 1.15

Core FFO

Core FFO attributable to common stockholders/unitholders $ 853,451 $ 506,196 $ 1,452,670 $ 980,447

Noncontrolling interest attributable to exchangeable limited 187 159 330 353 partnership units

Core FFO attributable to common stockholders/unitholders - Diluted $ 853,638 $ 506,355 $ 1,453,000 $ 980,800

Weighted average common shares outstanding - Basic 737,992 630,271 718,278 629,990

Incremental weighted average effect on exchange of 21,539 19,556 20,884 19,637 limited partnership units

Incremental weighted average effect of equity awards 6,299 5,620 6,865 5,139

Weighted average common shares outstanding - Diluted 765,830 655,447 746,027 654,766

Core FFO per share - Diluted $ 1.11 $ 0.77 $ 1.95 $ 1.50

Estimated Value Creation represents the value that we expect to create through our development and leasing activities. We calculate Estimated Value Creation by estimating the Stabilized NOI that the property will generate and applying a stabilized capitalization rate applicable to that property. Estimated Value Creation is calculated as the amount by which the value exceeds our TEI and does not include any fees or promotes we may earn. Estimated Value Creation for our Value-Added Properties that are sold includes the realized economic gain.

Estimated Weighted Average Marginis calculated on development properties as Estimated Value Creation, less estimated closing costs and taxes, if any, on properties expected to be sold or contributed, divided by TEI.

Estimated Weighted Average Stabilized Yieldis calculated on the active properties in the Development Portfolio as Stabilized NOI divided by TEI. The yields on a Prologis Share basis were as follows:

Pre-Stabilized 2021 and Thereafter Expected 2020 Expected Completion Completion Total Development Portfolio Developments

U.S. 6.1 % 6.3 % 5.4 % 6.2 %

Other Americas 8.7 % 6.8 % 8.8 % 7.2 %

Europe 5.8 % 5.4 % 5.5 % 5.5 %

Asia 6.2 % 5.5 % 5.5 % 5.5 %

Total 6.1 % 6.0 % 5.5 % 5.8 %

FFO, as modified by Prologis attributable to common stockholders/unitholders ("FFO, as modified by Prologis"); Core FFO attributable to common stockholders/unitholders ("Core FFO"); AFFO attributable to common stockholders/unitholders ("AFFO"); (collectively referred to as "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, 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, Core FFO and AFFO, 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 revenues 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

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:

(i) deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

current income tax expense related to acquired tax liabilities that (ii) were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in earnings that is excluded from our defined FFO measure;

foreign currency exchange gains and losses resulting from (a) debt transactions between us and our foreign entities, (b) third-party debt (iii)that is used to hedge our investment in foreign entities, (c) derivative financial instruments related to any such debt transactions, and (d) mark-to-market adjustments associated with other derivative financial instruments.

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

In addition to FFO, as modified by Prologis,we also use Core FFO. To arrive at CoreFFO,we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognized directly in FFO, as modified by Prologis

(i) gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;

(ii) income tax expense related to the sale of investments in real estate;

impairment charges recognized related to our investments in real estate(iii)generally as a result of our change in intent to contribute or sell these properties;

(iv) gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and

(v) expenses related to natural disasters.

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.

AFFO

To arrive at AFFO, we adjust Core FFO to include realized gains from the disposition of land and development properties and recurring capital expenditures and exclude the following items that we recognize directly in Core FFO:

(i) straight-line rents;

(ii) amortization of above- and below-market lease intangibles;

(iii)amortization of management contracts;

(iv) amortization of debt premiums and discounts and financing costs, net of amounts capitalized, and;

(v) stock compensation expense.

We use AFFO 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, and (v) 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:

* The current income tax expenses that are excluded from our modified FFO measures represent the taxes and transaction costs that are payable. * Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of logistics facilities are not reflected in FFO. * Gains or losses from non-development property dispositions and impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions. * The deferred income tax benefits and expenses that are excluded from our modified FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our modified FFO measures do not currently reflect any income or expense that may result from such settlement. * The foreign currency exchange gains and losses that are excluded from our modified FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements. * The gains and losses on extinguishment of debt or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our obligation at less or more than our future obligation. * The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete Consolidated Financial Statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our modified FFO measures to our net earnings computed under GAAP.

Guidance.The following is a reconciliation of our annual guided Net Earnings per share to our guided Core FFO per share:

Low High

Net Earnings (a) $ 2.06 $ 2.18

Our share of:

Depreciation and amortization 2.20 2.23

Net gains on real estate transactions, net of taxes (0.60) (0.70)

Unrealized foreign currency gains and other, net 0.04 0.04

Core FFO $ 3.70 $ 3.75



Earnings guidance includes potential future gains recognized from real (a)estate transactions, but excludes future foreign currency or derivative gains or losses as these items are difficult to predict.

Prologis Sharerepresents our proportionate economic ownership of each entity included in our total owned and managed portfolio whether consolidated or unconsolidated.

Rent Change (Cash)represents the percentage change in starting rental rates per the lease agreement, on new and renewed leases, commenced during the period compared with the previous ending rental rates in that same space. This measure excludes any short-term leases of less than one-year, holdover payments, free rent periods and introductory (teaser rates) defined as 50% or less of the stabilized rate.

Rent Change (Net Effective)represents the percentage change in net effective rental rates (average rate over the lease term), on new and renewed leases, commenced during the period compared with the previous net effective rental rates in that same space. This measure excludes any short-term leases of less than one year and holdover payments.

Retention is the square footage of all leases commenced during the period that are rented by existing tenants divided by the square footage of all expiring and in-place leases during the reporting period. The square footage of tenants that default or buy-out prior to expiration of their lease and short-term leases of less than one year, are not included in the calculation.

Same Store.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, 2020 as the properties in our Owned and Managed operating portfolio, including the property NOI for both consolidated properties and properties owned by the unconsolidated co-investment ventures at January 1, 2019 and owned throughout the same three-month period in both 2019 and 2020. 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 Owned and Managed 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, 2019) 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 an analytical tool 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:

Three Months Ended

Jun. 30,

dollars in thousands 2020 2019 Change (%)

Reconciliation of Consolidated Property NOI to Same Store Property NOImeasures:

Rental revenues $ 944,366 $ 700,689

Rental expenses (232,109) (181,138)

Consolidated Property NOI $ 712,257 $ 519,551

Adjustments to derive same store results:

Property NOI from consolidated properties not included in same (232,199) (50,693) store portfolio and other adjustments (a)

Property NOI from unconsolidated co-investment ventures included 484,296 473,863 in same store portfolio (a)(b)

Third parties' share of Property NOI from properties included in (395,378) (388,017) same store portfolio (a)(b)

Prologis Share of Same Store Property NOI - Net Effective (b) $ 568,976 $ 554,704 2.6 %

Consolidated properties straight-line rent and fair value lease (9,407) (11,972) adjustments included in the same store portfolio (c)

Unconsolidated co-investment ventures straight-line rent and fair (10,082) (5,970) value lease adjustments included in the same store portfolio (c)

Third parties' share of straight-line rent and fair value lease 8,421 5,645 adjustments included in the same store portfolio (b)(c)

Prologis Share of Same Store Property NOI - Cash (b)(c) $ 557,908 $ 542,407 2.9 %



We exclude properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period and properties acquired or disposed of to third parties during the period. We also exclude net termination and renegotiation fees to allow us to evaluate the growth or decline in each property's rental revenues without regard to one-time items that are not indicative of the property's recurring operating performance. Net (a) termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recorded due to the adjustment to straight-line rents over the lease term. Same Store Property NOI is adjusted to include an allocation of property management expenses for our consolidated properties based on the property management services provided to each property (generally, based on a percentage of revenues). On consolidation, these amounts are eliminated and the actual costs of providing property management services are recognized as part of our consolidated rental expense.

We include the Property NOI for the same store portfolio for both consolidated properties and properties owned by the co-investment ventures based on our investment in the underlying properties. In order to calculate our share of Same Store Property NOI from the co-investment ventures in which we own less than 100%, we use the (b) co-investment ventures' underlying Property NOI for the same store portfolio and apply our ownership percentage at June 30, 2020 to the Property NOI for both periods, including the properties contributed during the period. We adjust the total Property NOI from the same store portfolio of the co-investment ventures by subtracting the third parties' share of both consolidated and unconsolidated co-investment ventures.

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 further remove certain noncash items (straight-line rent and (c) amortization of fair value lease adjustments) included in the financial statements prepared in accordance with U.S. GAAP to reflect a Same Store Property NOI - Cash measure.

We manage our business and compensate our executives based on the same store results of our Owned and Managed 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.

Weighted Average Interest Rate is based on the effective rate, which includes the amortization of related premiums and discounts and finance costs.

Weighted Average Stabilized Capitalization ("Cap") Rateis calculated as Stabilized NOI divided by the Acquisition Price.

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SOURCE Prologis, Inc.