filings.toolsItem 16. Form 10-K Summary
334K characters. Original on sec.gov · Markdown
Item 16. Form 10-K Summary
Not Applicable.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III
REP****ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Prologis, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Prologis, Inc. and subsidiaries (the Company) as of December 31, 2023, and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 13, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the Company’s evaluation of the expected holding period for operating properties
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company had $75,435 million of operating properties as of December 31, 2023. The Company tests the recoverability of operating properties whenever events or changes in circumstances, including shortening the expected holding period of such assets, indicate that the carrying amount of these assets may not be recoverable.
We identified the assessment of the Company’s evaluation of the expected holding period for operating properties as a critical audit matter. Subjective auditor judgment was required to assess the relevant events or changes in circumstances that the Company used to evaluate its expected holding period. A shortening of the expected holding period could indicate a potential impairment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to determining the expected holding period of operating properties and any related changes. We evaluated the Company’s expected holding period by inquiring of the Company regarding changes to the expected holding period, considering certain factors related to the current economic environment, reading minutes of the meetings of the Company’s Board of Directors, reading external communications with investors and analysts, and analyzing documents prepared by the Company regarding proposed real estate transactions and potential changes to the expected holding period.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Denver, Colorado
February 13, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Prologis, L.P. and the Board of Directors of Prologis, Inc.:
Prologis, L.P.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Prologis, L.P. and subsidiaries (the Operating Partnership) as of December 31, 2023, and 2022, the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the Operating Partnership’s evaluation of the expected holding period for operating properties
As discussed in Notes 2 and 4 to the consolidated financial statements, the Operating Partnership had $75,435 million of operating properties as of December 31, 2023. The Operating Partnership tests the recoverability of operating properties whenever events or changes in circumstances, including shortening the expected holding period of such assets, indicate that the carrying amount of these assets may not be recoverable.
We identified the assessment of the Operating Partnership’s evaluation of the expected holding period for operating properties as a critical audit matter. Subjective auditor judgment was required to assess the relevant events or changes in circumstances that the Operating Partnership used to evaluate its expected holding period. A shortening of the expected holding period could indicate a potential impairment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to determining the expected holding period of operating properties and any related changes. We evaluated the Operating Partnership’s expected holding period by inquiring of the Operating Partnership regarding changes to the expected holding period, considering certain factors related to the current economic environment, reading minutes of the meetings of the Board of Directors of Prologis, Inc., reading external communications with investors and analysts, and analyzing documents prepared by the Operating Partnership regarding proposed real estate transactions and potential changes to the expected holding period.
/s/ KPMG LLP
We have served as the Operating Partnership’s auditor since 2002.
Denver, Colorado
February 13, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Prologis, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Prologis, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023, and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 13, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Denver, Colorado
February 13, 2024
PROLOGIS, INC.
CONS****OLIDATED BALANCE SHEETS
(In thousands, except per share data)
| December 31, | |||||||
| 2023 | 2022 | ||||||
| ASSETS | |||||||
| Investments in real estate properties | $ | 88,666,575 | $ | 81,623,396 | |||
| Less accumulated depreciation | 10,931,485 | 9,036,085 | |||||
| Net investments in real estate properties | 77,735,090 | 72,587,311 | |||||
| Investments in and advances to unconsolidated entities | 9,543,970 | 9,698,898 | |||||
| Assets held for sale or contribution | 461,657 | 531,257 | |||||
| Net investments in real estate | 87,740,717 | 82,817,466 | |||||
| Cash and cash equivalents | 530,388 | 278,483 | |||||
| Other assets | 4,749,735 | 4,801,499 | |||||
| Total assets | $ | 93,020,840 | $ | 87,897,448 | |||
| LIABILITIES AND EQUITY | |||||||
| Liabilities: | |||||||
| Debt | $ | 29,000,501 | $ | 23,875,961 | |||
| Accounts payable and accrued expenses | 1,766,018 | 1,711,885 | |||||
| Other liabilities | 4,430,601 | 4,446,509 | |||||
| Total liabilities | 35,197,120 | 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 December 31, 2023 and 2022 | 63,948 | 63,948 | |||||
| Common stock; $0.01 par value; 924,391 and 923,142 shares issued and outstanding at December 31, 2023 and 2022, respectively | 9,244 | 9,231 | |||||
| Additional paid-in capital | 54,249,801 | 54,065,407 | |||||
| Accumulated other comprehensive loss | (514,201 | ) | (443,609 | ) | |||
| Distributions in excess of net earnings | (627,068 | ) | (457,695 | ) | |||
| Total Prologis, Inc. stockholders’ equity | 53,181,724 | 53,237,282 | |||||
| Noncontrolling interests | 4,641,996 | 4,625,811 | |||||
| Total equity | 57,823,720 | 57,863,093 | |||||
| Total liabilities and equity | $ | 93,020,840 | $ | 87,897,448 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, INC.
CO****NSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Revenues: | ||||||||||||
| Rental | $ | 6,818,542 | $ | 4,913,171 | $ | 4,147,994 | ||||||
| Strategic capital | 1,200,232 | 1,039,585 | 590,750 | |||||||||
| Development management and other | 4,695 | 20,936 | 20,696 | |||||||||
| Total revenues | 8,023,469 | 5,973,692 | 4,759,440 | |||||||||
| Expenses: | ||||||||||||
| Rental | 1,624,793 | 1,205,738 | 1,041,316 | |||||||||
| Strategic capital | 385,542 | 303,356 | 207,171 | |||||||||
| General and administrative | 390,406 | 331,083 | 293,167 | |||||||||
| Depreciation and amortization | 2,484,891 | 1,812,777 | 1,577,942 | |||||||||
| Other | 53,354 | 40,336 | 22,435 | |||||||||
| Total expenses | 4,938,986 | 3,693,290 | 3,142,031 | |||||||||
| Operating income before gains on real estate transactions, net | 3,084,483 | 2,280,402 | 1,617,409 | |||||||||
| Gains on dispositions of development properties and land, net | 462,270 | 597,745 | 817,017 | |||||||||
| Gains on other dispositions of investments in real estate, net | 161,039 | 589,391 | 772,570 | |||||||||
| Operating income | 3,707,792 | 3,467,538 | 3,206,996 | |||||||||
| Other income (expense): | ||||||||||||
| Earnings from unconsolidated entities, net | 307,227 | 310,872 | 404,255 | |||||||||
| Interest expense | (641,332 | ) | (309,037 | ) | (266,228 | ) | ||||||
| Foreign currency, derivative and other gains and other income, net | 87,221 | 241,621 | 165,278 | |||||||||
| Gains (losses) on early extinguishment of debt | 3,275 | (20,184 | ) | (187,453 | ) | |||||||
| Total other income (expense) | (243,609 | ) | 223,272 | 115,852 | ||||||||
| Earnings before income taxes | 3,464,183 | 3,690,810 | 3,322,848 | |||||||||
| Total income tax expense | (211,038 | ) | (135,412 | ) | (174,258 | ) | ||||||
| Consolidated net earnings | 3,253,145 | 3,555,398 | 3,148,590 | |||||||||
| Less net earnings attributable to noncontrolling interests | 193,931 | 190,542 | 208,867 | |||||||||
| Net earnings attributable to controlling interests | 3,059,214 | 3,364,856 | 2,939,723 | |||||||||
| Less preferred stock dividends | 5,841 | 6,060 | 6,152 | |||||||||
| Net earnings attributable to common stockholders | $ | 3,053,373 | $ | 3,358,796 | $ | 2,933,571 | ||||||
| Weighted average common shares outstanding – Basic | 924,351 | 785,675 | 739,363 | |||||||||
| Weighted average common shares outstanding – Diluted | 951,791 | 811,608 | 764,762 | |||||||||
| Net earnings per share attributable to common stockholders – Basic | $ | 3.30 | $ | 4.28 | $ | 3.97 | ||||||
| Net earnings per share attributable to common stockholders – Diluted | $ | 3.29 | $ | 4.25 | $ | 3.94 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, INC.
CONSOLIDATED ST****ATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Consolidated net earnings | $ | 3,253,145 | $ | 3,555,398 | $ | 3,148,590 | ||||||
| Other comprehensive income: | ||||||||||||
| Foreign currency translation gains, net | 20,763 | 373,405 | 305,929 | |||||||||
| Unrealized gains (losses) on derivative contracts, net | (92,703 | ) | 71,639 | 17,542 | ||||||||
| Comprehensive income | 3,181,205 | 4,000,442 | 3,472,061 | |||||||||
| Net earnings attributable to noncontrolling interests | (193,931 | ) | (190,542 | ) | (208,867 | ) | ||||||
| Other comprehensive loss (income) attributable to noncontrolling interests | 1,348 | (10,400 | ) | (7,985 | ) | |||||||
| Comprehensive income attributable to common stockholders | $ | 2,988,622 | $ | 3,799,500 | $ | 3,255,209 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, INC.
CO****NSOLIDATED STATEMENTS OF EQUITY
(In thousands)
| Common Stock | Accumulated | Distributions | |||||||||||||||||||||||||||||
| Number | Additional | Other | in Excess of | Non- | |||||||||||||||||||||||||||
| Preferred | of | Par | Paid-in | Comprehensive | Net | controlling | Total | ||||||||||||||||||||||||
| Stock | Shares | Value | Capital | Income (Loss) | Earnings | Interests | Equity | ||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | 63,948 | 739,381 | $ | 7,394 | $ | 35,488,634 | $ | **(**1,193,739 | ) | $ | **(**2,394,690 | ) | $ | 4,353,033 | $ | 36,324,580 | ||||||||||||||
| Consolidated net earnings | - | - | - | - | - | 2,939,723 | 208,867 | 3,148,590 | |||||||||||||||||||||||
| Effect of equity compensation plans | - | (389 | ) | (4 | ) | 38,114 | - | - | 78,062 | 116,172 | |||||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | 74,404 | 74,404 | |||||||||||||||||||||||
| Redemption of noncontrolling interests | - | 835 | 8 | 37,238 | - | - | (190,482 | ) | (153,236 | ) | |||||||||||||||||||||
| Consolidation of other venture | - | - | - | - | - | - | 25,759 | 25,759 | |||||||||||||||||||||||
| Acquisitions by noncontrolling interests | - | - | - | - | - | - | 130,416 | 130,416 | |||||||||||||||||||||||
| Foreign currency translation gains, net | - | - | - | - | 298,413 | - | 7,516 | 305,929 | |||||||||||||||||||||||
| Unrealized gains on derivative contracts, net | - | - | - | - | 17,073 | - | 469 | 17,542 | |||||||||||||||||||||||
| Reallocation of equity | - | - | - | (2,347 | ) | - | - | 2,347 | - | ||||||||||||||||||||||
| Dividends ($2.52 per common share) and other distributions | - | - | - | (31 | ) | - | (1,872,861 | ) | (375,054 | ) | (2,247,946 | ) | |||||||||||||||||||
| Balance at December 31, 2021 | $ | 63,948 | 739,827 | $ | 7,398 | $ | 35,561,608 | $ | **(**878,253 | ) | $ | **(**1,327,828 | ) | $ | 4,315,337 | $ | 37,742,210 | ||||||||||||||
| Consolidated net earnings | - | - | - | - | 3,364,856 | 190,542 | 3,555,398 | ||||||||||||||||||||||||
| Effect of equity compensation plans | - | 393 | 4 | 66,647 | - | - | 121,074 | 187,725 | |||||||||||||||||||||||
| Duke Transaction, net of issuance costs | - | 182,661 | 1,827 | 18,551,852 | - | - | 219,565 | 18,773,244 | |||||||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | 13,295 | 13,295 | |||||||||||||||||||||||
| Redemption of noncontrolling interests | - | 261 | 2 | 12,445 | - | - | (101,427 | ) | (88,980 | ) | |||||||||||||||||||||
| Foreign currency translation gains, net | - | - | - | - | 364,725 | - | 8,680 | 373,405 | |||||||||||||||||||||||
| Unrealized gains on derivative contracts, net | - | - | - | - | 69,919 | - | 1,720 | 71,639 | |||||||||||||||||||||||
| Reallocation of equity | - | - | - | (127,134 | ) | - | - | 127,134 | - | ||||||||||||||||||||||
| Dividends ($3.16 per common share) and other distributions | - | - | - | (11 | ) | - | (2,494,723 | ) | (270,109 | ) | (2,764,843 | ) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 63,948 | 923,142 | $ | 9,231 | $ | 54,065,407 | $ | **(**443,609 | ) | $ | **(**457,695 | ) | $ | 4,625,811 | $ | 57,863,093 | ||||||||||||||
| Consolidated net earnings | - | - | - | - | - | 3,059,214 | 193,931 | 3,253,145 | |||||||||||||||||||||||
| Effect of equity compensation plans | - | 410 | 5 | 84,719 | - | - | 195,987 | 280,711 | |||||||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | 32,157 | 32,157 | |||||||||||||||||||||||
| Redemption of noncontrolling interests | - | 839 | 8 | 48,349 | - | - | (118,164 | ) | (69,807 | ) | |||||||||||||||||||||
| Foreign currency translation gains, net | - | - | - | - | 19,867 | - | 896 | 20,763 | |||||||||||||||||||||||
| Unrealized losses on derivative contracts, net | - | - | - | - | (90,459 | ) | - | (2,244 | ) | (92,703 | ) | ||||||||||||||||||||
| Reallocation of equity | - | - | - | 51,328 | - | - | (51,328 | ) | - | ||||||||||||||||||||||
| Dividends ($3.48 per common share) and other distributions | - | - | - | (2 | ) | - | (3,228,587 | ) | (235,050 | ) | (3,463,639 | ) | |||||||||||||||||||
| Balance at December 31, 2023 | $ | 63,948 | 924,391 | $ | 9,244 | $ | 54,249,801 | $ | **(**514,201 | ) | $ | **(**627,068 | ) | $ | 4,641,996 | $ | 57,823,720 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Operating activities: | ||||||||||||
| Consolidated net earnings | $ | 3,253,145 | $ | 3,555,398 | $ | 3,148,590 | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
| Straight-lined rents and amortization of above and below market leases | (613,005 | ) | (267,709 | ) | (148,239 | ) | ||||||
| Equity-based compensation awards | 267,648 | 175,356 | 113,028 | |||||||||
| Depreciation and amortization | 2,484,891 | 1,812,777 | 1,577,942 | |||||||||
| Earnings from unconsolidated entities, net | (307,227 | ) | (310,872 | ) | (404,255 | ) | ||||||
| Operating distributions from unconsolidated entities | 680,192 | 410,483 | 440,034 | |||||||||
| Increase in operating receivables from unconsolidated entities | (82,375 | ) | (63,947 | ) | (14,223 | ) | ||||||
| Amortization of debt discounts and debt issuance costs, net | 74,589 | 23,736 | 8,656 | |||||||||
| Gains on dispositions of development properties and land, net | (462,270 | ) | (597,745 | ) | (817,017 | ) | ||||||
| Gains on other dispositions of investments in real estate, net | (161,039 | ) | (589,391 | ) | (772,570 | ) | ||||||
| Unrealized foreign currency and derivative losses (gains), net | 71,627 | (92,201 | ) | (173,026 | ) | |||||||
| Losses (gains) on early extinguishment of debt, net | (3,275 | ) | 20,184 | 187,453 | ||||||||
| Deferred income tax expense | 17,708 | 12,638 | 1,322 | |||||||||
| Increase in accounts receivable and other assets | (102,610 | ) | (71,307 | ) | (328,511 | ) | ||||||
| Increase in accounts payable and accrued expenses and other liabilities | 255,059 | 109,030 | 176,858 | |||||||||
| Net cash provided by operating activities | 5,373,058 | 4,126,430 | 2,996,042 | |||||||||
| Investing activities: | ||||||||||||
| Real estate and other development | (3,399,114 | ) | (3,118,379 | ) | (2,639,872 | ) | ||||||
| Real estate acquisitions | (4,195,714 | ) | (2,492,108 | ) | (2,320,448 | ) | ||||||
| Duke Transaction, net of cash acquired | (33,009 | ) | (92,052 | ) | - | |||||||
| Tenant improvements and lease commissions on previously leased space | (388,814 | ) | (339,234 | ) | (329,059 | ) | ||||||
| Property improvements | (303,042 | ) | (211,358 | ) | (169,933 | ) | ||||||
| Proceeds from dispositions and contributions of real estate | 1,764,322 | 2,063,623 | 4,222,290 | |||||||||
| Investments in and advances to unconsolidated entities | (284,185 | ) | (442,366 | ) | (798,103 | ) | ||||||
| Return of investment from unconsolidated entities | 348,276 | 76,994 | 58,275 | |||||||||
| Proceeds from the settlement of net investment hedges | 37,113 | 59,281 | 3,305 | |||||||||
| Payments on the settlement of net investment hedges | (2,230 | ) | (3,458 | ) | (16,513 | ) | ||||||
| Proceeds from repayment of notes receivable backed by real estate | 37,000 | - | - | |||||||||
| Net cash used in investing activities | (6,419,397 | ) | (4,499,057 | ) | (1,990,058 | ) | ||||||
| Financing activities: | ||||||||||||
| Proceeds from issuance of common stock | - | - | 743 | |||||||||
| Dividends paid on common and preferred stock | (3,228,589 | ) | (2,494,723 | ) | (1,872,861 | ) | ||||||
| Noncontrolling interests contributions | 21,107 | 13,295 | 74,404 | |||||||||
| Noncontrolling interests distributions | (235,050 | ) | (270,109 | ) | (375,054 | ) | ||||||
| Settlement of noncontrolling interests | (69,807 | ) | (88,980 | ) | (153,236 | ) | ||||||
| Tax paid with shares withheld | (24,536 | ) | (27,688 | ) | (19,855 | ) | ||||||
| Debt and equity issuance costs paid | (58,660 | ) | (45,654 | ) | (23,318 | ) | ||||||
| Net proceeds from (payments on) credit facilities | (567,076 | ) | 294,164 | 323,336 | ||||||||
| Repurchase of and payments on debt | (272,203 | ) | (1,381,005 | ) | (2,560,174 | ) | ||||||
| Proceeds from the issuance of debt | 5,755,096 | 4,116,489 | 3,597,690 | |||||||||
| Net cash provided by (used in) financing activities | 1,320,282 | 115,789 | (1,008,325 | ) | ||||||||
| Effect of foreign currency exchange rate changes on cash | (22,038 | ) | (20,796 | ) | (39,628 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 251,905 | (277,634 | ) | (41,969 | ) | |||||||
| Cash and cash equivalents, beginning of year | 278,483 | 556,117 | 598,086 | |||||||||
| Cash and cash equivalents, end of year | $ | 530,388 | $ | 278,483 | $ | 556,117 |
See Note 18 for information on noncash investing and financing activities and other information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| December 31, | |||||||
| 2023 | 2022 | ||||||
| ASSETS | |||||||
| Investments in real estate properties | $ | 88,666,575 | $ | 81,623,396 | |||
| Less accumulated depreciation | 10,931,485 | 9,036,085 | |||||
| Net investments in real estate properties | 77,735,090 | 72,587,311 | |||||
| Investments in and advances to unconsolidated entities | 9,543,970 | 9,698,898 | |||||
| Assets held for sale or contribution | 461,657 | 531,257 | |||||
| Net investments in real estate | 87,740,717 | 82,817,466 | |||||
| Cash and cash equivalents | 530,388 | 278,483 | |||||
| Other assets | 4,749,735 | 4,801,499 | |||||
| Total assets | $ | 93,020,840 | $ | 87,897,448 | |||
| LIABILITIES AND CAPITAL | |||||||
| Liabilities: | |||||||
| Debt | $ | 29,000,501 | $ | 23,875,961 | |||
| Accounts payable and accrued expenses | 1,766,018 | 1,711,885 | |||||
| Other liabilities | 4,430,601 | 4,446,509 | |||||
| Total liabilities | 35,197,120 | 30,034,355 | |||||
| Capital: | |||||||
| Partners’ capital: | |||||||
| General partner – preferred | 63,948 | 63,948 | |||||
| General partner – common | 53,117,776 | 53,173,334 | |||||
| Limited partners – common | 848,160 | 843,263 | |||||
| Limited partners – Class A common | 469,561 | 464,781 | |||||
| Total partners’ capital | 54,499,445 | 54,545,326 | |||||
| Noncontrolling interests | 3,324,275 | 3,317,767 | |||||
| Total capital | 57,823,720 | 57,863,093 | |||||
| Total liabilities and capital | $ | 93,020,840 | $ | 87,897,448 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Revenues: | ||||||||||||
| Rental | $ | 6,818,542 | $ | 4,913,171 | $ | 4,147,994 | ||||||
| Strategic capital | 1,200,232 | 1,039,585 | 590,750 | |||||||||
| Development management and other | 4,695 | 20,936 | 20,696 | |||||||||
| Total revenues | 8,023,469 | 5,973,692 | 4,759,440 | |||||||||
| Expenses: | ||||||||||||
| Rental | 1,624,793 | 1,205,738 | 1,041,316 | |||||||||
| Strategic capital | 385,542 | 303,356 | 207,171 | |||||||||
| General and administrative | 390,406 | 331,083 | 293,167 | |||||||||
| Depreciation and amortization | 2,484,891 | 1,812,777 | 1,577,942 | |||||||||
| Other | 53,354 | 40,336 | 22,435 | |||||||||
| Total expenses | 4,938,986 | 3,693,290 | 3,142,031 | |||||||||
| Operating income before gains on real estate transactions, net | 3,084,483 | 2,280,402 | 1,617,409 | |||||||||
| Gains on dispositions of development properties and land, net | 462,270 | 597,745 | 817,017 | |||||||||
| Gains on other dispositions of investments in real estate, net | 161,039 | 589,391 | 772,570 | |||||||||
| Operating income | 3,707,792 | 3,467,538 | 3,206,996 | |||||||||
| Other income (expense): | ||||||||||||
| Earnings from unconsolidated entities, net | 307,227 | 310,872 | 404,255 | |||||||||
| Interest expense | (641,332 | ) | (309,037 | ) | (266,228 | ) | ||||||
| Foreign currency, derivative and other gains and other income, net | 87,221 | 241,621 | 165,278 | |||||||||
| Gains (losses) on early extinguishment of debt | 3,275 | (20,184 | ) | (187,453 | ) | |||||||
| Total other income (expense) | (243,609 | ) | 223,272 | 115,852 | ||||||||
| Earnings before income taxes | 3,464,183 | 3,690,810 | 3,322,848 | |||||||||
| Total income tax expense | (211,038 | ) | (135,412 | ) | (174,258 | ) | ||||||
| Consolidated net earnings | 3,253,145 | 3,555,398 | 3,148,590 | |||||||||
| Less net earnings attributable to noncontrolling interests | 116,657 | 98,611 | 127,075 | |||||||||
| Net earnings attributable to controlling interests | 3,136,488 | 3,456,787 | 3,021,515 | |||||||||
| Less preferred unit distributions | 5,841 | 6,060 | 6,152 | |||||||||
| Net earnings attributable to common unitholders | $ | 3,130,647 | $ | 3,450,727 | $ | 3,015,363 | ||||||
| Weighted average common units outstanding – Basic | 939,635 | 799,153 | 751,973 | |||||||||
| Weighted average common units outstanding – Diluted | 951,791 | 811,608 | 764,762 | |||||||||
| Net earnings per unit attributable to common unitholders – Basic | $ | 3.30 | $ | 4.28 | $ | 3.97 | ||||||
| Net earnings per unit attributable to common unitholders – Diluted | $ | 3.29 | $ | 4.25 | $ | 3.94 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, L.P.
CONSOLIDATED STATEME****NTS OF COMPREHENSIVE INCOME
(In thousands)
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Consolidated net earnings | $ | 3,253,145 | $ | 3,555,398 | $ | 3,148,590 | ||||||
| Other comprehensive income: | ||||||||||||
| Foreign currency translation gains, net | 20,763 | 373,405 | 305,929 | |||||||||
| Unrealized gains (losses) on derivative contracts, net | (92,703 | ) | 71,639 | 17,542 | ||||||||
| Comprehensive income | 3,181,205 | 4,000,442 | 3,472,061 | |||||||||
| Net earnings attributable to noncontrolling interests | (116,657 | ) | (98,611 | ) | (127,075 | ) | ||||||
| Other comprehensive loss (income) attributable to noncontrolling interests | (404 | ) | 292 | 692 | ||||||||
| Comprehensive income attributable to common unitholders | $ | 3,064,144 | $ | 3,902,123 | $ | 3,345,678 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, L.P.
CONSO****LIDATED STATEMENTS OF CAPITAL
(In thousands)
| General Partner | Limited Partners | Non- | ||||||||||||||||||||||||||||
| Preferred | Common | Common | Class A Common | controlling | ||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Units | Amount | Interests | Total | |||||||||||||||||||||
| Balance at January 1, 2021 | 1,279 | $ | 63,948 | 739,381 | $ | 31,907,599 | 12,142 | $ | 523,954 | 8,595 | $ | 345,553 | $ | 3,483,526 | $ | 36,324,580 | ||||||||||||||
| Consolidated net earnings | - | - | - | 2,939,723 | - | 50,034 | - | 31,758 | 127,075 | 3,148,590 | ||||||||||||||||||||
| Effect of equity compensation plans | - | - | (389 | ) | 38,110 | 1,286 | 78,062 | - | - | - | 116,172 | |||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | - | - | 74,404 | 74,404 | ||||||||||||||||||||
| Redemption of limited partnership units | - | - | 835 | 37,246 | (2,105 | ) | (190,482 | ) | - | - | - | (153,236 | ) | |||||||||||||||||
| Consolidation of other venture | - | - | - | - | - | - | - | - | 25,759 | 25,759 | ||||||||||||||||||||
| Issuance of units related to acquisitions | - | - | - | - | 1,031 | 130,416 | - | - | - | 130,416 | ||||||||||||||||||||
| Foreign currency translation gains (losses), net | - | - | - | 298,413 | - | 4,982 | - | 3,226 | (692 | ) | 305,929 | |||||||||||||||||||
| Unrealized gains on derivative contracts, net | - | - | - | 17,073 | - | 285 | - | 184 | - | 17,542 | ||||||||||||||||||||
| Reallocation of capital | - | - | - | (2,347 | ) | - | 133 | - | 2,214 | - | - | |||||||||||||||||||
| Distributions ($2.52 per common unit) and other | - | - | - | (1,872,892 | ) | - | (40,287 | ) | - | (22,233 | ) | (312,534 | ) | (2,247,946 | ) | |||||||||||||||
| Balance at December 31, 2021 | 1,279 | $ | 63,948 | 739,827 | $ | 33,362,925 | 12,354 | $ | 557,097 | 8,595 | $ | 360,702 | $ | 3,397,538 | $ | 37,742,210 | ||||||||||||||
| Consolidated net earnings | - | - | - | 3,364,856 | - | 57,620 | - | 34,311 | 98,611 | 3,555,398 | ||||||||||||||||||||
| Effect of equity compensation plans | - | - | 393 | 66,651 | 1,064 | 121,074 | - | - | - | 187,725 | ||||||||||||||||||||
| Duke Transaction, net of issuance costs | - | - | 182,661 | 18,553,679 | 2,140 | 217,385 | - | - | 2,180 | 18,773,244 | ||||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | - | - | 13,295 | 13,295 | ||||||||||||||||||||
| Redemption of limited partnership units | - | - | 261 | 12,447 | (918 | ) | (101,427 | ) | - | - | - | (88,980 | ) | |||||||||||||||||
| Foreign currency translation gains (losses), net | - | - | - | 364,725 | - | 5,785 | - | 3,187 | (292 | ) | 373,405 | |||||||||||||||||||
| Unrealized gains on derivative contracts, net | - | - | - | 69,919 | - | 1,109 | - | 611 | - | 71,639 | ||||||||||||||||||||
| Reallocation of capital | - | - | - | (127,134 | ) | - | 38,931 | - | 88,203 | - | - | |||||||||||||||||||
| Distributions ($3.16 per common unit) and other | - | - | - | (2,494,734 | ) | - | (54,311 | ) | - | (22,233 | ) | (193,565 | ) | (2,764,843 | ) | |||||||||||||||
| Balance at December 31, 2022 | 1,279 | $ | 63,948 | 923,142 | $ | 53,173,334 | 14,640 | $ | 843,263 | 8,595 | $ | 464,781 | $ | 3,317,767 | $ | 57,863,093 | ||||||||||||||
| Consolidated net earnings | - | - | - | 3,059,214 | - | 50,490 | - | 26,784 | 116,657 | 3,253,145 | ||||||||||||||||||||
| Effect of equity compensation plans | - | - | 410 | 84,724 | 1,536 | 195,987 | - | - | - | 280,711 | ||||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | - | - | 32,157 | 32,157 | ||||||||||||||||||||
| Redemption of limited partnership units | - | - | 839 | 48,357 | (1,416 | ) | (118,164 | ) | - | - | - | (69,807 | ) | |||||||||||||||||
| Foreign currency translation gains, net | - | - | - | 19,867 | - | 316 | - | 176 | 404 | 20,763 | ||||||||||||||||||||
| Unrealized losses on derivative contracts, net | - | - | - | (90,459 | ) | - | (1,444 | ) | - | (800 | ) | - | (92,703 | ) | ||||||||||||||||
| Reallocation of capital | - | - | - | 51,328 | - | (52,180 | ) | - | 852 | - | - | |||||||||||||||||||
| Distributions ($3.48 per common unit) and other | - | - | - | (3,228,589 | ) | - | (70,108 | ) | - | (22,232 | ) | (142,710 | ) | (3,463,639 | ) | |||||||||||||||
| Balance at December 31, 2023 | 1,279 | $ | 63,948 | 924,391 | $ | 53,117,776 | 14,760 | $ | 848,160 | 8,595 | $ | 469,561 | $ | 3,324,275 | $ | 57,823,720 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, L.P
CONSOLIDATED ST****ATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Operating activities: | ||||||||||||
| Consolidated net earnings | $ | 3,253,145 | $ | 3,555,398 | $ | 3,148,590 | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
| Straight-lined rents and amortization of above and below market leases | (613,005 | ) | (267,709 | ) | (148,239 | ) | ||||||
| Equity-based compensation awards | 267,648 | 175,356 | 113,028 | |||||||||
| Depreciation and amortization | 2,484,891 | 1,812,777 | 1,577,942 | |||||||||
| Earnings from unconsolidated entities, net | (307,227 | ) | (310,872 | ) | (404,255 | ) | ||||||
| Operating distributions from unconsolidated entities | 680,192 | 410,483 | 440,034 | |||||||||
| Increase in operating receivables from unconsolidated entities | (82,375 | ) | (63,947 | ) | (14,223 | ) | ||||||
| Amortization of debt discounts and debt issuance costs, net | 74,589 | 23,736 | 8,656 | |||||||||
| Gains on dispositions of development properties and land, net | (462,270 | ) | (597,745 | ) | (817,017 | ) | ||||||
| Gains on other dispositions of investments in real estate, net | (161,039 | ) | (589,391 | ) | (772,570 | ) | ||||||
| Unrealized foreign currency and derivative losses (gains), net | 71,627 | (92,201 | ) | (173,026 | ) | |||||||
| Losses (gains) on early extinguishment of debt, net | (3,275 | ) | 20,184 | 187,453 | ||||||||
| Deferred income tax expense | 17,708 | 12,638 | 1,322 | |||||||||
| Increase in accounts receivable and other assets | (102,610 | ) | (71,307 | ) | (328,511 | ) | ||||||
| Increase in accounts payable and accrued expenses and other liabilities | 255,059 | 109,030 | 176,858 | |||||||||
| Net cash provided by operating activities | 5,373,058 | 4,126,430 | 2,996,042 | |||||||||
| Investing activities: | ||||||||||||
| Real estate and other development | (3,399,114 | ) | (3,118,379 | ) | (2,639,872 | ) | ||||||
| Real estate acquisitions | (4,195,714 | ) | (2,492,108 | ) | (2,320,448 | ) | ||||||
| Duke Transaction, net of cash acquired | (33,009 | ) | (92,052 | ) | - | |||||||
| Tenant improvements and lease commissions on previously leased space | (388,814 | ) | (339,234 | ) | (329,059 | ) | ||||||
| Property improvements | (303,042 | ) | (211,358 | ) | (169,933 | ) | ||||||
| Proceeds from dispositions and contributions of real estate | 1,764,322 | 2,063,623 | 4,222,290 | |||||||||
| Investments in and advances to unconsolidated entities | (284,185 | ) | (442,366 | ) | (798,103 | ) | ||||||
| Return of investment from unconsolidated entities | 348,276 | 76,994 | 58,275 | |||||||||
| Proceeds from the settlement of net investment hedges | 37,113 | 59,281 | 3,305 | |||||||||
| Payments on the settlement of net investment hedges | (2,230 | ) | (3,458 | ) | (16,513 | ) | ||||||
| Proceeds from repayment of notes receivable backed by real estate | 37,000 | - | - | |||||||||
| Net cash used in investing activities | (6,419,397 | ) | (4,499,057 | ) | (1,990,058 | ) | ||||||
| Financing activities: | ||||||||||||
| Proceeds from issuance of common partnership units in exchange for contributions from Prologis, Inc. | - | - | 743 | |||||||||
| Distributions paid on common and preferred units | (3,320,929 | ) | (2,571,267 | ) | (1,935,381 | ) | ||||||
| Noncontrolling interests contributions | 21,107 | 13,295 | 74,404 | |||||||||
| Noncontrolling interests distributions | (142,710 | ) | (193,565 | ) | (312,534 | ) | ||||||
| Redemption of common limited partnership units | (69,807 | ) | (88,980 | ) | (153,236 | ) | ||||||
| Tax paid with shares of the Parent withheld | (24,536 | ) | (27,688 | ) | (19,855 | ) | ||||||
| Debt and equity issuance costs paid | (58,660 | ) | (45,654 | ) | (23,318 | ) | ||||||
| Net proceeds from (payments on) credit facilities | (567,076 | ) | 294,164 | 323,336 | ||||||||
| Repurchase of and payments on debt | (272,203 | ) | (1,381,005 | ) | (2,560,174 | ) | ||||||
| Proceeds from the issuance of debt | 5,755,096 | 4,116,489 | 3,597,690 | |||||||||
| Net cash provided by (used in) financing activities | 1,320,282 | 115,789 | (1,008,325 | ) | ||||||||
| Effect of foreign currency exchange rate changes on cash | (22,038 | ) | (20,796 | ) | (39,628 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 251,905 | (277,634 | ) | (41,969 | ) | |||||||
| Cash and cash equivalents, beginning of year | 278,483 | 556,117 | 598,086 | |||||||||
| Cash and cash equivalents, end of year | $ | 530,388 | $ | 278,483 | $ | 556,117 |
See Note 18 for information on noncash investing and financing activities and other information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
PROLOGIS, INC. AND PROLOGIS, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NO****TE 1. DESCRIPTION OF THE 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 17 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 December 31, 2023, the Parent owned a 97.58% common general partnership interest in the OP and substantially all of the preferred units in the OP. The remaining 2.42% 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.
Information with respect to the square footage, number of buildings and acres of land is unaudited.
NOTE 2. SUMMA****RY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Consolidation. We consolidate all entities that are wholly owned and those in which we own less than 100% of the equity but control the entity, as well as any variable interest entities (“VIEs”) in which we are the primary beneficiary. We evaluate our ability to control an entity and whether the entity is a VIE and we are the primary beneficiary through consideration of substantive terms of the arrangement to identify which enterprise has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses and the right to receive benefits from the entity.
For entities that are not defined as VIEs, we first consider whether we are the general partner or the limited partner (or the equivalent in such investments that are not structured as partnerships). We consolidate entities in which we are the general partner and the limited partners in such entities that do not have rights that would preclude control. For entities in which we are the general partner but do not control the entity as the other partners hold substantive participating or kick-out rights, we apply the equity method of accounting since, as the general partner, we have the ability to exercise significant influence over the operating and financial policies of the venture. For ventures for which we are a limited partner, or our investment is in an entity that is not structured similar to a partnership, we consider factors such as ownership interest, voting control, authority to make decisions and contractual and substantive participating rights of the partners. In instances where the factors indicate that we have a controlling financial interest in the venture, we consolidate the entity. In instances where we do not have a controlling interest in the venture, we apply the equity method of accounting when the factors indicate we have the ability to exercise significant influence over the venture.
Use of Estimates. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Although we believe the assumptions and estimates we made are reasonable and appropriate, as discussed in the applicable sections throughout the Consolidated Financial Statements, different assumptions and estimates could materially impact our reported results.
Foreign Operations. The U.S. dollar is the functional currency for our consolidated subsidiaries and unconsolidated entities operating in the U.S. and Mexico. The functional currency for our consolidated subsidiaries and unconsolidated entities operating in other countries is the principal currency in which the entity’s assets, liabilities, income and expenses are denominated, which may be different from the local currency of the country of incorporation or where the entity conducts its operations. The functional currencies of entities outside of the U.S. and Mexico generally include the Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Singapore dollar and Swedish krona. We take part in business transactions denominated in these and other local currencies where we operate.
For our consolidated subsidiaries whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars at the time we consolidate those subsidiaries’ financial statements. Generally, assets and liabilities are translated at the exchange rate in effect at the balance sheet date. The resulting translation adjustments are included in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) in the Consolidated Balance Sheets. Certain balance sheet items, principally equity and capital-related accounts, are reflected at the historical exchange rate. Income statement accounts are translated using the average exchange rate for the period; income statement accounts that represent significant nonrecurring transactions are translated at the rate in effect at the date of the transaction. We translate our share of the net income or loss of our unconsolidated entities at the average exchange rate for the period other than significant nonrecurring transactions of the unconsolidated entities which are translated at the rate in effect at the date of the transaction.
We and certain of our consolidated subsidiaries have intercompany and third-party debt that is not denominated in the entity’s functional currency. When the debt is remeasured against the functional currency of the entity, a gain or loss can result. The resulting adjustment is reflected in Foreign Currency, Derivative and Other Gains and Other Income, Net in the Consolidated Statements of Income, unless it is intercompany debt that is deemed to be long-term in nature or third-party debt that has been designated as a nonderivative net investment hedge and then the adjustment is recorded as a cumulative translation adjustment in AOCI/L.
Acquisitions. We apply a screen test to evaluate if substantially all the fair value of the acquired property is concentrated in a single identifiable asset or group of similar identifiable assets to determine whether a transaction is accounted for as an asset acquisition or business combination. As the fair value of most of our real estate acquisitions is concentrated in either a single identifiable asset or a group of similar identifiable assets, our real estate transactions are generally accounted for as asset acquisitions, which permits the capitalization of transaction costs to the basis of the acquired property. We measure the real estate assets acquired through an asset acquisition based on their cost or total consideration exchanged. The difference between the cost and the estimated fair value (excess or bargain consideration) is allocated to the real estate properties and related lease intangibles on a relative fair value basis. All other assets and liabilities assumed, including debt, and real estate assets that we intend to sell in the next twelve months are recorded at fair value. At a property level, we allocate the fair value to the components which include building, land, improvements and intangible assets or liabilities related to acquired leases. Purchase price allocations for a business combination are recorded at fair value.
When we obtain control of an unconsolidated entity and the acquisition qualifies as a business combination, we account for the acquisition in accordance with the guidance for a business combination achieved in stages. We remeasure our previously held interest in the unconsolidated entity at its acquisition-date fair value and recognize any resulting gain or loss in earnings.
We allocate the purchase price using principally Level 2 and Level 3 inputs (further defined in Fair Value Measurements below) as follows:
Investments in Real Estate Properties. We value operating properties as if vacant. We estimate fair value by applying an income approach methodology using either a discounted cash flow analysis or applying a capitalization rate to the estimated net operating income, defined as rental revenues less rental expenses, of a property. Key assumptions include market rents and rent growth, and discount and capitalization rates. Estimates of future cash flows are based on a number of factors including historical operating results, known trends and market and economic conditions. We determine the discount or capitalization rate by market, based on recent transactions and other market data and adjust if necessary, based on the property characteristics. The fair value of land is generally based on relevant market data, such as a comparison of the subject site to similar parcels that have recently been sold or are currently being offered on the market for sale. At a property level, we allocate the fair value to building, land and improvements.
Lease Intangibles. We determine the portion of the purchase price related to acquired in-place leases as intangible assets and liabilities as follows:
Above and Below Market Leases. We recognize an asset or liability for acquired leases with in-place rents that are higher or lower than our estimate of current market rents in each of the applicable markets. The above or below market lease intangibles are valued using a discounted cash flow approach through which we recognize the present value of the difference in cash flows
between in-place and market rents. The value is recorded in either Other Assets or Other Liabilities, as appropriate, and is amortized over the remaining term of the respective leases, including any bargain renewal options, to rental revenues.
Foregone Rent. We calculate the value of the revenue and recovery of costs which would be foregone during a reasonable lease-up period, if the space was vacant, in each of the applicable markets. The values are recorded in Other Assets and amortized over the remaining life of the respective leases to amortization expense.
Leasing Commissions. We recognize an asset for leasing commissions based on our estimate of the cost to lease space in the applicable markets. The value is recorded in Other Assets and amortized over the remaining life of the respective leases to amortization expense.
Investments in Unconsolidated Entities. We estimate the fair value of the entity by using similar valuation methods as those used for the consolidated real estate properties and debt. We apply our ownership percentage to the estimated net asset value of the entity to determine the fair value of our investment.
Debt. We estimate the fair value of debt based on contractual future cash flows discounted using borrowing spreads and market interest rates that would be available to us for the issuance of debt with similar terms and remaining maturities. In the case of publicly traded debt, we estimate the fair value based on available market data. Any discount or premium to the principal amount is included in the carrying value and amortized to interest expense over the remaining term of the related debt using the effective interest method.
Noncontrolling Interests. We estimate the portion of the fair value of the net assets owned by third parties based on the fair value of the consolidated net assets, principally real estate properties and debt.
Working Capital. We estimate the fair value of other acquired assets and assumed liabilities using the best information available.
Fair Value Measurements. The objective of fair value is to determine the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). We estimate fair value using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that we would realize on disposition. The fair value hierarchy consists of three broad levels:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 — Unobservable inputs for the asset or liability.
Fair Value Measurements on a Recurring Basis. We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. We determine the fair value of our derivative financial instruments using widely accepted valuation techniques. The technique utilized depends on the type of derivative financial instrument being valued, principally foreign currency contracts and interest rate contracts, and involves the contractual term of the derivative, observable market-based inputs and implied volatilities.
We determine the fair values of our interest rate contracts using a market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments through a discounted cash flow analysis. We base the variable cash payments on an expectation of future interest rates, or forward curves, derived from observable market interest rate curves through the contractual term of the debt. We determine the fair values of our foreign currency contracts by comparing the contracted forward exchange rate to the current market exchange rate. We build a foreign exchange forward curve to determine the foreign exchange forward rate that pertains to the specific maturity date. Using this foreign exchange forward rate, spot rates and the interest rate curve of the domestic currency as inputs, we calculate the mark-to-market value of the foreign currency contract.
We incorporate credit valuation adjustments to appropriately reflect nonperformance risk for us and the respective counterparty in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
We have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy. Although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, we assess the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.
Fair Value Measurements on a Nonrecurring Basis. Assets measured at fair value on a nonrecurring basis generally consist of real estate assets and investments in unconsolidated entities that were subject to impairment charges due to our evaluation of recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. As discussed below, our analysis of recoverability is primarily triggered based on the shortening of the expected hold period due to our change in intent to sell a property in the near term. We estimate the fair value of our investments based on expected sales prices in the market (Level 2) or by applying an income approach methodology using a discounted cash flow analysis (Level 3).
Fair Value of Financial Instruments. We estimate the fair value of our senior notes for disclosure purposes based on quoted market prices for the same (Level 1) or similar (Level 2) issues when current quoted market prices are available. We estimate the fair value of our credit facilities, term loans, secured mortgage debt and other debt by discounting the future cash flows using rates and borrowing spreads currently available to us (Level 3).
Real Estate Assets. Real estate assets are carried at depreciated cost. We capitalize costs incurred in developing, redeveloping and improving real estate assets as part of the investment basis. We expense costs for repairs and maintenance as incurred.
Depreciation and Amortization. We charge the depreciable portions of real estate assets to depreciation expense on a straight-line basis over the respective estimated useful lives. Depreciation on development buildings commences when the asset is ready for its intended use, which we define as the earlier of when a property that was developed has been completed for one year, or is 90% occupied. We generally use the following useful lives: 5 to 7 years for capital improvements, 10 years for standard tenant improvements, 15 to 25 years for depreciable land improvements, 25 to 40 years for operating properties acquired based on the age of the building and 40 years for operating properties we develop. We depreciate building improvements on land parcels subject to land leases over the shorter of the estimated life of the building improvement or the contractual term of the underlying land lease. Capitalized leasing costs are amortized over the estimated remaining lease term. The weighted average lease term for leases that commenced during 2023, based on square feet, was 66 months.
Capitalization of Costs. During the land development and construction periods of qualifying projects, we capitalize interest costs, insurance, real estate taxes and general and administrative costs of the personnel performing the development; if such costs are incremental and identifiable to a specific activity to ready the asset for its intended use. We capitalize transaction costs related to the acquisition of land for future development and operating properties that qualify as asset acquisitions. We capitalize incremental, third-party costs incurred to successfully originate a lease that result directly from obtaining a lease and would not have been incurred if the lease had not been obtained. Leasing costs that meet the requirements for capitalization are presented as a component of Other Assets and all other capitalized costs are included in the investment basis of the real estate assets.
Recoverability of Real Estate Assets. We assess the carrying values of our respective long-lived assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. This assessment is primarily triggered based on the shortening of the expected hold period due to a change in our intent to sell a property in the near term. We have processes to monitor our intent with regard to our investments and the estimated disposition value in comparison to the current carrying value. If our assessment of potential triggering events indicates that the carrying value of a property that we expect to sell in the near term is not recoverable, we recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the property. We determine the fair value of the property based on the estimated proceeds from disposition that are based on quoted market values, third-party appraisals or discounted cash flow models that utilize the future net operating income from the property and expected market capitalization rates. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. Changes in economic and operating conditions could impact our intent and the assumptions used in determining the fair value that could result in future impairment.
At least annually or more frequently given the presence of a triggering event, we assess the recoverability of our assets based on our intent as follows:
for real estate properties that we intend to hold long-term; including land held for development, properties currently under development and operating properties; recoverability is assessed based on the estimated undiscounted future net operating income from the property and the terminal value, including anticipated costs to develop;
for real estate properties we intend to sell, including properties currently under development and operating properties; recoverability is assessed based on estimated proceeds from disposition that are based on the future net operating income from the property, expected market capitalization rates and anticipated costs to develop;
for land parcels we intend to sell, recoverability is assessed based on the estimated proceeds from disposition; and
for costs incurred related to the potential acquisition of land and operating properties and future development projects, recoverability is assessed based on the probability that the acquisition or development is likely to occur at the measurement date.
Assets Held for Sale or Contribution. We classify a property as held for sale or contribution when certain criteria are met in accordance with GAAP. Assets classified as held for sale are expected to be sold to a third party and assets classified as held for
contribution are generally newly developed assets we intend to contribute to an unconsolidated co-investment venture within twelve months. When the criteria are met, the respective assets and liabilities are presented separately in the Consolidated Balance Sheets and depreciation is not recognized. Assets held for sale or contribution are reported at the lower of carrying amount or estimated fair value less costs to sell.
Investments in Unconsolidated Entities. We present our investments in certain entities generally under the equity method. We use the equity method when we have the ability to exercise significant influence over operating and financial policies of the venture but do not have control of the entity. Under the equity method, we initially recognize these investments (including advances) in the balance sheet at our cost, including formation costs and net of deferred gains from the contribution of properties (recognized prior to January 1, 2018), if applicable. The transaction costs related to the formation of equity method investments are also capitalized. We subsequently adjust the accounts to reflect our proportionate share of net earnings or losses recognized and accumulated other comprehensive income or loss, distributions received, contributions made, sales and redemptions of our investments and certain other adjustments, as appropriate. When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss in value is other than temporary. If we conclude it is other than temporary, we recognize an impairment charge to reflect the equity investment at fair value.
With regard to distributions from unconsolidated entities, we have elected the nature of distribution approach as the information is available to us to determine the nature of the underlying activity that generated the distributions. In accordance with the nature of distribution approach, cash flows generated from the operations of an unconsolidated entity are classified as a return on investment (cash inflow from operating activities) and cash flows that are generated from property sales, debt refinancing or sales and redemptions of our investments are classified as a return of investment (cash inflow from investing activities).
Cash and Cash Equivalents. We consider all cash on hand, demand deposits with financial institutions and short-term highly liquid investments with original maturities of three months or less to be cash equivalents. Our cash and cash equivalents are financial instruments that are exposed to concentrations of credit risk. We invest our cash with high-credit quality institutions both domestically and internationally. Cash balances may be invested in money market accounts that are not insured. We have not realized any losses of such cash investments or accounts and believe that we are not exposed to any significant credit risk.
Derivative Financial Instruments. We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest. We may use derivative financial instruments, primarily foreign currency contracts to manage foreign currency exchange rate risk related to both our foreign investments and the related earnings. In addition, we occasionally use interest rate contracts to manage interest rate risk and limit the impact of future interest rate changes on earnings and cash flows, principally related to variable-rate debt and in anticipation of fixed-rate debt issuances.
We do not use derivative financial instruments for trading or speculative purposes. Each derivative transaction is customized and not exchange-traded. We recognize all derivatives at fair value within the line items Other Assets or Other Liabilities. We do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure. Management reviews our derivative positions, overall risk management strategy and hedging program, on a regular basis. We only enter into transactions that we believe will be highly effective at offsetting the underlying risk. Our use of derivatives involves the risk that counterparties may default on a derivative contract; therefore we: (i) establish exposure limits for each counterparty to minimize this risk and provide counterparty diversification; (ii) contract with counterparties that have long-term credit ratings of single-A or better; (iii) enter into master agreements that generally allow for netting of certain exposures; thereby significantly reducing the actual loss that would be incurred should a counterparty fail to perform its contractual obligations; and (iv) set minimum credit standards that become more stringent as the duration of the derivative financial instrument increases. Based on these factors, we consider the risk of counterparty default to be minimal.
Designated Derivatives. We may choose to designate our derivative financial instruments, generally foreign currency contracts to hedge our net investment in foreign operations or generally interest rate contracts to hedge future interest payments on variable debt and anticipated fixed-rate debt issuances. At inception of the transaction, we formally designate and document the derivative financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. We formally assess both at inception and at least quarterly thereafter, the effectiveness of our hedging transactions. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures hedged, fluctuations in the value of the derivative financial instruments will generally be offset by changes in the cash flows or fair values of the underlying exposures being hedged.
Changes in the fair value of derivatives that are designated and qualify as net investment hedges of our foreign operations or cash flow hedges are recorded in AOCI/L. For net investment hedges, these amounts offset the translation adjustments on the underlying net assets of our foreign investments and are recorded in AOCI/L. This includes debt issued in a currency that is not the same functional currency of the borrowing entity that we may designate as a nonderivative net investment hedge. We compare the net equity available from our foreign investments first to the derivative financial instruments designated as net investment hedges followed by any nonderivative net investment hedges. If the total notional amount of the derivative and nonderivative financial instruments exceeds the net equity available, that excess portion is considered unhedged and the translation of that excess portion is recognized in Foreign Currency, Derivative and Other Gains and Other Income, Net.
For cash flow hedges, we hedge exposure to the variability of existing cash flows and future cash flows related to variable-rate debt and anticipated fixed-rate debt issuances, respectively, typically over a period of 10 years, with a range of 5 to 30 years. We report the effective portion of the gain or loss as a component of *AOCI/*L and reclassify it to the applicable line item in the Consolidated Statements of Income, generally Interest Expense, over the corresponding period of the underlying hedged item. The ineffective portion of the change in fair value of a derivative financial instrument is recognized in earnings, generally Interest Expense, at the time the ineffectiveness occurred. To the extent the hedged forecasted interest payments on debt related to our interest rate contracts are paid off, the remaining balance in AOCI/L is recognized in Interest Expense in the Consolidated Statements of Income.
Undesignated Derivatives. We also use derivatives, such as foreign currency forwards and option contracts, that are not designated as hedges to manage foreign currency exchange rate risk related to the translation of our results of operations. The changes in fair values of these derivatives that were not designated as hedging instruments are immediately recognized in earnings within the line item Foreign Currency, Derivative and Other Gains and Other Income, Net. These gains or losses are generally offset by lower or higher earnings due to the translation at exchange rates that were different than our expectations. In addition, we may choose to not designate our interest rate contracts. If an interest rate contract is not designated as a hedge, the changes in fair value of this instrument is immediately recognized in earnings within the line item Interest Expense in the Consolidated Statements of Income*.*
Noncontrolling Interests. Noncontrolling interests represent the share of consolidated entities owned by third parties. We recognize each noncontrolling holder’s respective share of the estimated fair value of the net assets at the date of formation or acquisition. Noncontrolling interests are subsequently adjusted for the noncontrolling holder’s share of additional contributions, distributions and their share of the net earnings or losses of each respective consolidated entity. We allocate net income to noncontrolling interests based on the weighted average ownership interest during the period. The net income that is not attributable to us is reflected in the line item Net Earnings Attributable to Noncontrolling Interests. We do not recognize a gain or loss on ownership transactions with a consolidated entity that do not result in a change in control and recognize the difference between the carrying amount of the noncontrolling interest and the consideration paid or received as additional paid-in-capital.
Certain limited partnership interests, including OP units, are exchangeable into our common stock. Common stock issued upon exchange of a holder’s noncontrolling interest is accounted for at the carrying value of the surrendered limited partnership interest and the difference between the carrying value and the fair value of the common stock issued is recorded to additional paid-in-capital.
Revenue Recognition.
Rental Revenues and Recoveries. We lease our operating properties to customers under agreements that are classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Generally, under the terms of our leases, the majority of our rental expenses are recovered from our customers, including common area maintenance, real estate taxes and insurance. Rental expenses recovered through reimbursements received from customers are recognized in Rental Revenues in the Consolidated Statements of Income. We generally record amounts reimbursed by our customers (“rental recoveries”) as revenues in the period that the applicable expenses are incurred. We account for and present rental revenue and rental recoveries as a single component under Rental Revenues as the timing of recognition is the same, the pattern with which we transfer the right of use of the property and related services to the lessee are both on a straight-line basis and our leases qualify as operating leases. We perform credit analyses of our customers prior to the execution of our leases and continue these analyses for each individual lease on an ongoing basis in order to ensure the collectability of rental revenue. We recognize revenue to the extent that amounts are determined to be collectible.
Strategic Capital Revenues. Strategic capital revenues include revenues or fees we earn from the management services we provide to unconsolidated entities. These fees are determined in accordance with the terms specific to each arrangement and may include recurring fees such as asset management and property management fees or transactional fees for leasing, acquisition, development, construction, financing and tax services provided. We recognize these fees as we provide the services or on a cost basis for development fees.
We may also earn incentive returns (“promotes” or “promote revenues”) directly from third-party investors in the co-investment ventures based on the cumulative returns of the venture over a three-year period or the stabilization of individual development projects owned by the venture. The returns are determined by both the operating performance and real estate valuation of the venture, including highly variable inputs such as capitalization rates, market rents, interest rates and foreign currency exchange rates. As these key inputs are highly volatile and out of our control, and such volatility can materially impact our promotes period over period, we recognize promote revenues at the end of the performance period. We include the third-party investors’ share of promotes in Strategic Capital Revenues.
We also earn fees from ventures that we consolidate. Upon consolidation, these fees are eliminated from our earnings and the third-party investors’ share of these fees are recognized as a reduction of Net Earnings Attributable to Noncontrolling Interests.
Development Management and Other Revenues. Development management and other revenues principally include development and construction management fees from third parties and are recognized as we provide the services or on a cost basis.
Gains on Real Estate Transactions, Net. Throughout the Notes to the Consolidated Financial Statements, Gains on Real Estate Transactions, Net collectively refers to Gains on Dispositions of Development Properties and Land, Net and Gains on Other Dispositions of Investments in Real Estate, Net.
We recognize gains on the disposition of real estate when control transfers to the buyer, generally when consideration and title are exchanged and the risks and rewards of ownership transfer. We recognize losses from the disposition of real estate when known.
Beginning January 1, 2018 with the adoption of the new revenue recognition guidance, we recognize the entire gain attributed to contributions of real estate properties to unconsolidated entities. We previously recognized a gain on contribution only to the extent of the third-party ownership in the unconsolidated entity acquiring the property and deferred the portion of the gain related to our ownership through a reduction to our investment in the applicable unconsolidated entity. We adjusted our proportionate share of net earnings or losses recognized in future periods to reflect the entities’ recorded depreciation expense as if it were computed on our lower basis in the contributed properties rather than on the entity’s basis. For deferred gains from partial sales recorded prior to the adoption of the revenue recognition standard, we continue to recognize these gains over the lives of the underlying real estate properties or at the time of disposition to a third party. If our ownership interest in an unconsolidated entity decreases and the decrease is expected to be permanent, we recognize the amounts relating to previously deferred gains to coincide with our new ownership interest.
Gains on Dispositions of Development Properties and Land, Net. We present gains separately based on the type of real estate sold or contributed. We present gains on sales to third parties or contributions to our unconsolidated co-investment ventures as Gains on Dispositions of Development Properties and Land, Net when the property was included in our land portfolio or when we developed the property with the intent to sell or contribute.
Gains on Other Dispositions of Investments in Real Estate, Net. We present all other gains on sales to third parties or contributions to our unconsolidated entities of primarily operating properties and other real estate transactions as Gains on Other Dispositions of Investments in Real Estate, Net. We also include gains or losses on the remeasurement of equity investments to fair value upon acquisition of a controlling interest if the transaction is considered the acquisition of a business and gains or losses upon the partial redemption or sale of our investment in an unconsolidated entity.
Rental Expenses. Rental expenses principally include the cost of our property management and leasing personnel, utilities, repairs and maintenance, property insurance, real estate taxes and the other costs of managing our properties. We are also a lessee of land under leases which generally meet the criteria to be accounted for as operating leases.
Strategic Capital Expenses. Strategic capital expenses generally include the direct expenses associated with the asset management of the co-investment ventures provided by our employees who are assigned to our Strategic Capital Segment and the costs of our Prologis Promote Plan (“PPP”) based on earned promotes. For further discussion on the PPP, see Note 12. In addition, in order to achieve efficiencies and economies of scale, all of our property management and leasing functions are provided by property management and leasing personnel who are assigned to our Real Estate Segment. These individuals perform the property-level management and leasing of the properties in our owned and managed portfolio, which includes properties we consolidate and those we manage that are owned by the unconsolidated co-investment ventures. We allocate the costs of our property management and leasing teams to the properties we consolidate (included in Rental Expenses) and the properties owned by the unconsolidated co-investment ventures (included in Strategic Capital Expenses) by using the square feet owned by the respective portfolios.
Equity-Based Compensation. We account for equity-based compensation by measuring the cost of employee services received in exchange for an award of an equity instrument based on the fair value of the award on the grant date. We recognize the cost of the award on a straight-line basis over the period during which an employee is required to provide service in exchange for the award, generally the vesting period.
Income Taxes. Under the IRC, to qualify as a REIT, we are required to distribute at least 90% of our taxable income, and meet certain income, asset and stockholder tests. REITs which meet these certain income, asset and stockholder tests are generally not required to pay federal income taxes if they distribute 100% of their taxable income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates and may not be able to qualify as a REIT for the four subsequent taxable years. Even as a REIT, we may be subject to certain foreign, state and local taxes on our own income and property, and to federal income and excise taxes on our undistributed taxable income.
We have elected taxable REIT subsidiary (“TRS”) status for some of our consolidated subsidiaries. This allows us to provide services that would otherwise be considered impermissible for REITs. Many of the foreign countries in which we have operations do not recognize REITs or do not accord REIT status under their respective tax laws to our entities that operate in their jurisdiction. In the U.S., we are taxed in certain states in which we operate. Accordingly, we recognize income tax expense for the federal and state income taxes incurred by our TRSs, taxes incurred in certain states and foreign jurisdictions, and interest and penalties associated with our unrecognized tax benefit liabilities.
We evaluate tax positions taken in the Consolidated Financial Statements under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, we may recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities.
We recognize deferred income taxes in certain taxable entities. For federal income tax purposes, certain acquisitions have been treated as tax-free transactions resulting in a carry-over tax basis in assets and liabilities. For financial reporting purposes and in accordance with purchase accounting, we record all of the acquired assets and assumed liabilities based on their relative fair value at date of acquisition, as discussed above. For our taxable subsidiaries, including certain international jurisdictions, we recognize the deferred income tax liabilities that represent the tax effect of the difference between the tax basis carried over and the relative fair value of the tangible and intangible assets at date of acquisition. Any subsequent increases or decreases to the deferred income tax liability recorded in connection with these acquisitions, are reflected in earnings.
If taxable income is generated in these subsidiaries, we recognize a benefit in earnings as a result of the reversal of the deferred income tax liability previously recorded at the acquisition date and we record current income tax expense representing the entire current income tax liability. If the reversal of the deferred income tax liability results from a sale or contribution of assets, the classification of the reversal to the Consolidated Statements of Income is based on the taxability of the transaction. If the sale or contribution is of the real estate asset and results in a taxable transaction, the reversal is recorded to deferred income tax benefit. If the sale or contribution is the disposition of the entity that owns the asset, the reversal is recorded through gains.
Deferred income tax expense is generally a function of the period’s temporary differences (items that are treated differently for tax purposes than for financial reporting purposes) and the utilization of tax net operating losses (“NOL”) generated in prior years that had been previously recognized as deferred income tax assets. We provide for a valuation allowance for deferred income tax assets if we believe all or some portion of the deferred income tax asset may not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances that causes a change in the estimated ability to realize the related deferred income tax asset is included in deferred tax expense.
Environmental Costs. We incur certain environmental remediation costs, including cleanup costs, consulting fees for environmental studies and investigations, monitoring costs, and legal costs relating to cleanup, litigation defense, and the pursuit of responsible third parties. We expense costs incurred in connection with operating properties and properties previously sold. We capitalize costs related to undeveloped land as development costs and record any expected future environmental liabilities at the time of acquisition. We maintain a liability for the estimated costs of environmental remediation expected to be incurred in connection with undeveloped land, acquired operating properties and properties previously sold that we adjust as appropriate as information becomes available.
Accounting Pronouncements.
New Accounting Standards Issued but not yet Adopted
Segment Reporting. In November 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) to improve reportable segments disclosure requirements. The ASU requires existing annual segment disclosures to also be disclosed on an interim basis, and also requires additional disclosures around significant segment expenses and disclosures to identify the title and position of the CODM. The standard is effective for us on January 1, 2024. We do not expect the standard to have a material impact on our Consolidated Financial Statements as we anticipate the primary change will be additional disclosures in Note 17.
NOTE 3. D****UKE 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 operating industrial 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 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):
| Net investments in real estate | $ | 24,915 | |
| Cash and other assets | 441 | ||
| Debt | (4,162 | ) | |
| Intangible liabilities, net of intangible assets (1) | (1,457 | ) | |
| Accounts payable, accrued expenses and other liabilities | (719 | ) | |
| Noncontrolling interests | (2 | ) | |
| Total purchase price, including transaction costs | $ | 19,016 |
(1)
Intangible assets of $836.6 million and intangible liabilities of $2.3 billion were included within Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets. The acquired lease intangibles from the Duke Transaction will be amortized over the terms of the respective leases with a weighted average remaining lease term of 64 months at acquisition.
NOTE 4. REAL EST****ATE
Investments in real estate properties consisted of the following at December 31 (dollars and square feet in thousands):
| Square Feet | Number of Buildings | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||
| Operating properties: | |||||||||||||||||||||||
| Buildings and improvements | 630,955 | 597,362 | 2,960 | 2,825 | $ | 52,626,191 | $ | 48,650,334 | |||||||||||||||
| Improved land | 22,809,306 | 20,388,461 | |||||||||||||||||||||
| Development portfolio, including land costs: | |||||||||||||||||||||||
| Prestabilized | 13,369 | 4,874 | 45 | 15 | 1,838,805 | 597,553 | |||||||||||||||||
| Properties under development | 26,438 | 44,011 | 85 | 121 | 2,528,650 | 3,614,601 | |||||||||||||||||
| Land (1) | 3,775,553 | 3,338,121 | |||||||||||||||||||||
| Other real estate investments (2) | 5,088,070 | 5,034,326 | |||||||||||||||||||||
| Total investments in real estate properties | 88,666,575 | 81,623,396 | |||||||||||||||||||||
| Less accumulated depreciation | 10,931,485 | 9,036,085 | |||||||||||||||||||||
| Net investments in real estate properties | $ | 77,735,090 | $ | 72,587,311 |
(1)
At December 31, 2023, and 2022, our land was comprised of 8,197 and 7,188 acres, respectively.
(2)
Included in other real estate investments were: (i) land parcels we own and lease to third parties; (ii) non-strategic real estate assets, primarily acquired from the Duke Transaction, that we do not intend to operate long term; (iii) non-industrial real estate assets that we intend to redevelop as industrial properties or other higher use assets; and (iv) energy assets. Energy assets include solar panels, battery storage and mobility solutions.
At December 31, 2023, we had investments in real estate assets in the U.S. and other Americas (Brazil, Canada and Mexico), Europe (Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden and the United Kingdom (“U.K.”)) and Asia (China, Japan, and Singapore).
Acquisitions
The following table summarizes our real estate acquisition activity, excluding the Duke Transaction as discussed in Note 3 and energy assets, for the years ended December 31 (dollars and square feet in thousands):
| 2023 (1) | 2022 | 2021 (2) | ||||||||||
| Number of operating properties | 85 | 23 | 31 | |||||||||
| Square feet | 17,503 | 5,169 | 6,760 | |||||||||
| Acres of land | 1,620 | 2,218 | 2,684 | |||||||||
| Acquisition cost of net investments in real estate, excluding other real estate investments | $ | 4,194,468 | $ | 1,828,256 | $ | 2,517,644 | ||||||
| Acquisition cost of other real estate investments | $ | 101,382 | $ | 641,168 | $ | 525,499 |
(1)
Included in 2023 is our acquisition of a real estate portfolio comprised of 70 operating properties in the U.S., aggregating 13.8 million square feet, for cash consideration of $3.1 billion.
(2)
Included in 2021 is our acquisition of additional ownership interest in certain unconsolidated other ventures that we acquired from our partners and subsequently resulted in the consolidation of the real estate assets.
Dispositions
The following table summarizes our dispositions of net investments in real estate which include contributions to unconsolidated co-investment ventures and dispositions to third parties for the years ended December 31 (dollars and square feet in thousands):
| 2023 | 2022 | 2021 | |||||||||
| Dispositions of development properties and land, net (1) | |||||||||||
| Number of properties | 22 | 21 | 41 | ||||||||
| Square feet | 8,437 | 7,676 | 16,482 | ||||||||
| Net proceeds | $ | 1,449,644 | $ | 1,398,585 | $ | 2,629,750 | |||||
| Gains on dispositions of development properties and land, net | $ | 462,270 | $ | 597,745 | $ | 817,017 | |||||
| Other dispositions of investments in real estate, net (2) | |||||||||||
| Number of properties | 25 | 103 | 97 | ||||||||
| Square feet | 2,794 | 8,718 | 20,806 | ||||||||
| Net proceeds | $ | 641,214 | $ | 1,271,639 | $ | 2,536,622 | |||||
| Gains on other dispositions of investments in real estate, net | $ | 161,039 | $ | 589,391 | $ | 772,570 |
(1)
The gains we recognize in Gains on Dispositions of Development Properties and Land, Net in the Consolidated Statements of Income are principally driven by the contribution of newly developed properties to our unconsolidated co-investment ventures and occasionally sales to a third party.
(2)
In 2023 and 2021, we sold our ownership interest in unconsolidated joint ventures. The net proceeds and gains from these transactions are included in the table.
Leases
As a Lessor
We lease our real estate properties to customers under agreements that are classified primarily as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Our weighted average lease term remaining was 52 months based on square feet for all leases in effect at December 31, 2023.
The following table summarizes the minimum lease payments due from our customers on leases for space in our operating properties, prestabilized and under development properties, other real estate investments and assets held for sale or contribution at December 31, 2023 (in thousands):
| 2024 | $ | 4,985,561 | ||
| 2025 | 4,793,495 | |||
| 2026 | 4,250,129 | |||
| 2027 | 3,514,299 | |||
| 2028 | 2,753,907 | |||
| Thereafter | 10,201,357 | |||
| Total | $ | 30,498,748 |
These amounts do not reflect future rental revenue from the renewal or replacement of existing leases and exclude reimbursements of rental expenses. These amounts also exclude rental increases that are not fixed.
As a Lessee
We had approximately 135 land and office space leases in which we were the lessee at both December 31, 2023 and 2022, which primarily qualify as operating leases with remaining lease terms of 1 to 74 years at December 31, 2023. Our lease liabilities were $597.6 million and $638.8 million at December 31, 2023, and 2022, respectively.
The following table summarizes the fixed, future minimum rental payments, excluding variable costs, for leases that had commenced at December 31, 2023, with amounts discounted at lease commencement by our incremental borrowing rates to calculate the lease liabilities of our leases (in thousands):
| 2024 | $ | 75,926 | ||
| 2025 | 62,009 | |||
| 2026 | 51,669 | |||
| 2027 | 46,372 | |||
| 2028 | 38,848 | |||
| Thereafter | 1,110,251 | |||
| Total undiscounted rental payments | 1,385,075 | |||
| Less imputed interest | 787,512 | |||
| Total lease liabilities | $ | 597,563 |
The weighted average remaining lease term for these leases was 30 years and 31 years at December 31, 2023, and 2022, respectively. We do not include renewal options in the lease term for calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to exercise the option. We assigned a collateralized interest rate to each lease based on the term of the lease and the currency in which the lease was denominated. The weighted average discount rate was 3.6% and 3.4% at December 31, 2023, and 2022, respectively.
NOTE 5. UNCONSO****LIDATED 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 11 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 generally 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 at December 31 (in thousands):
| 2023 | 2022 | |||||||
| Unconsolidated co-investment ventures | $ | 8,379,265 | $ | 8,073,927 | ||||
| Other ventures | 1,164,705 | 1,624,971 | ||||||
| Total | $ | 9,543,970 | $ | 9,698,898 |
Unconsolidated Co-Investment Ventures
The following table summarizes our investments in the individual co-investment ventures at December 31 (dollars in thousands):
| Ownership Percentage | Investment in and Advances to | |||||||||||||||
| Co-Investment Venture | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Prologis Targeted U.S. Logistics Fund, L.P. (“USLF”) | 27.3 | % | 26.2 | % | $ | 2,256,939 | $ | 2,397,544 | ||||||||
| FIBRA Prologis (1) | 45.1 | % | 47.9 | % | 959,421 | 888,710 | ||||||||||
| Prologis Brazil Logistics Venture (“PBLV”) and other joint ventures (2) | 20.0 | % | 20.0 | % | 192,987 | 181,354 | ||||||||||
| Prologis European Logistics Fund (“PELF”) | 25.1 | % | 23.8 | % | 2,098,180 | 1,837,615 | ||||||||||
| Prologis European Logistics Partners (“PELP”) (2) | 50.0 | % | 50.0 | % | 2,027,299 | 1,949,002 | ||||||||||
| Nippon Prologis REIT, Inc. (“NPR”) (3) (4) | 15.1 | % | 15.1 | % | 595,920 | 614,933 | ||||||||||
| Prologis Japan Core Logistics Fund ("PJLF") (4) (5) | 16.3 | % | - | 45,736 | - | |||||||||||
| Prologis China Core Logistics Fund, LP (“PCCLF”) | 15.5 | % | 15.5 | % | 80,229 | 92,863 | ||||||||||
| Prologis China Logistics Venture I, LP, II, LP and III, LP (“Prologis China Logistics Venture”) (2) | 15.0 | % | 15.0 | % | 122,554 | 111,906 | ||||||||||
| Total | $ | 8,379,265 | $ | 8,073,927 |
(1)
At December 31, 2023, we owned 520.7 million units of FIBRA Prologis that had a closing price of Ps 80.75 ($4.78) per unit on the Mexican Stock Exchange. We have granted FIBRA Prologis a right of first refusal with respect to stabilized properties that we plan to sell in Mexico.
(2)
We have one partner in each of these co-investment ventures.
(3)
At December 31, 2023, we owned 0.4 million units of NPR that had a closing price of ¥271,400 ($1,918) per share on the Tokyo Stock Exchange. For any properties we develop and plan to sell in Japan, we have committed to offer those properties to NPR if we determine the properties meet NPR’s investment objectives.
(4)
At December 31, 2023, and 2022, we had receivables from NPR and PJLF of $161.2 million and $161.4 million, respectively, related to customer security deposits that originated through a leasing company owned by us that pertain to properties previously contributed to NPR and PJLF. We have a corresponding payable to NPR’s and PJLF's customers in Other Liabilities. These amounts are repaid to us as the leases turn over.
(5)
In 2023, we formed PJLF with two investors through the initial contribution of assets for which we received cash and equity ownership. We account for our investment in PJLF under the equity method of accounting.
The amounts recognized in Strategic Capital Revenues and Earnings from Unconsolidated Entities, Net depend on the size, real estate valuations, operations and transactions of the unconsolidated co-investment ventures, the timing of revenues earned through promotes and transactional fees, as well as fluctuations in foreign currency exchange rates and our ownership interest. We recognized Strategic Capital Expenses for direct costs associated with the asset management of these ventures, allocated property-level management and leasing costs for the properties owned by the ventures and compensation expenses under the PPP. For additional discussion on the PPP, see Note 12.
The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures for the years ended December 31 (in thousands):
| 2023 | 2022 | 2021 | ||||||||||
| Recurring fees | $ | 450,682 | $ | 455,385 | $ | 395,765 | ||||||
| Transactional fees | 60,467 | 67,048 | 78,552 | |||||||||
| Promote revenue (1) | 674,629 | 503,779 | 77,199 | |||||||||
| Total strategic capital revenues from unconsolidated co-investment ventures (2) | $ | 1,185,778 | $ | 1,026,212 | $ | 551,516 |
(1)
Includes promote revenue primarily earned from unconsolidated co-investment ventures in the U.S. in 2023 and Europe in 2022.
(2)
These amounts exclude strategic capital revenues from other ventures.
The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures on a U.S. GAAP basis (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to these ventures at December 31 and for the years ended December 31 (dollars and square feet in millions):
| U.S. | Other Americas (1) | Europe (2) | Asia | Total | |||||||||||||||||||||||||||||||||||
| At: | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Key property information: | |||||||||||||||||||||||||||||||||||||||
| Ventures | 1 | 1 | 2 | 2 | 2 | 2 | 4 | 3 | 9 | 8 | |||||||||||||||||||||||||||||
| Operating properties | 745 | 739 | 275 | 260 | 1,007 | 989 | 228 | 217 | 2,255 | 2,205 | |||||||||||||||||||||||||||||
| Square feet | 126 | 123 | 65 | 60 | 223 | 219 | 94 | 89 | 508 | 491 | |||||||||||||||||||||||||||||
| Financial position: | |||||||||||||||||||||||||||||||||||||||
| Total assets ($) | 11,884 | 12,617 | 4,106 | 3,744 | 23,504 | 22,502 | 10,226 | 9,964 | 49,720 | 48,827 | |||||||||||||||||||||||||||||
| Third-party debt ($) | 4,185 | 3,468 | 915 | 919 | 5,804 | 5,315 | 3,983 | 3,811 | 14,887 | 13,513 | |||||||||||||||||||||||||||||
| Total liabilities ($) | 4,930 | 4,143 | 997 | 1,011 | 7,849 | 7,292 | 4,429 | 4,279 | 18,205 | 16,725 | |||||||||||||||||||||||||||||
| Our investment balance ($) (3) | 2,257 | 2,398 | 1,152 | 1,070 | 4,126 | 3,786 | 844 | 820 | 8,379 | 8,074 | |||||||||||||||||||||||||||||
| Our weighted average ownership (4) | 27.3 | % | 26.2 | % | 39.3 | % | 41.0 | % | 31.9 | % | 31.0 | % | 15.2 | % | 15.2 | % | 28.1 | % | 27.4 | % |
| U.S. | Other Americas (1) | Europe (2) | Asia | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Information: | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| For the years ended: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues ($) | 1,315 | 1,182 | 1,039 | 427 | 383 | 321 | 1,695 | 1,424 | 1,387 | 654 | 629 | 653 | 4,091 | 3,618 | 3,400 | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings ($) | 344 | 292 | 312 | 191 | 137 | 120 | 341 | 493 | 1,070 | 74 | 114 | 160 | 950 | 1,036 | 1,662 | ||||||||||||||||||||||||||||||||||||||||||||
| Our earnings from unconsolidated co-investment ventures, net ($) | 95 | 79 | 82 | 67 | 47 | 43 | 112 | 150 | 214 | 13 | 19 | 27 | 287 | 295 | 366 |
(1)
PBLV and our other Brazilian joint ventures are combined as one venture for the purpose of this table.
(2)
In September 2022, PELF acquired a real estate portfolio that primarily included 125 industrial operating properties.
(3)
Prologis’ investment balance is presented at our adjusted basis. The difference between our ownership interest of a venture’s equity and our investment balance at December 31, 2023, and 2022, results principally from four types of transactions: (i) deferred gains from the contribution of property to a venture prior to January 1, 2018 ($534.9 million and $546.9 million, respectively); (ii) recording additional costs associated with our investment in the venture ($91.7 million and $90.4 million, respectively); (iii) receivables, principally for fees and promotes ($199.9 million and $193.7 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to NPR, as discussed above.
(4)
Represents our weighted average ownership interest in all unconsolidated co-investment ventures based on each entity’s contribution of total assets before depreciation, net of other liabilities.
Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures
Certain unconsolidated 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 commitments are generally used for the acquisition or development of properties but may be used for the repayment of debt or other general uses. The venture may obtain financing for the acquisition of properties and therefore the acquisition price of additional investments that the venture could make may be more than the equity commitment. Depending on market conditions, the investment objectives of the ventures, our liquidity needs and other factors, we may make additional contributions of properties or additional cash investments in these ventures.
At December 31, 2023, our outstanding equity commitments were $606.9 million, principally for USLF and Prologis China Logistics Venture. The equity commitments expire from 2024 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 6. ASSETS HEL****D 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 December 31, 2023, and 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 in the Consolidated Balance Sheets represented real estate investment balances and the related assets and liabilities.
Assets held for sale or contribution consisted of the following at December 31 (dollars and square feet in thousands):
| 2023 | 2022 | |||||||
| Number of operating properties | 12 | 21 | ||||||
| Square feet | 3,469 | 4,061 | ||||||
| Total assets held for sale or contribution | $ | 461,657 | $ | 531,257 | ||||
| Total liabilities associated with assets held for sale or contribution – included in Other Liabilities | $ | 14,182 | $ | 4,536 |
NOTE 7. OTHER ASSETS AND OTHER LIABILITIES
The following table summarizes our other assets and liabilities, net of amortization and depreciation, if applicable, at December 31 (in thousands):
| 2023 | 2022 | |||||||
| Acquired lease intangibles, net of $1.4 billion and $1.1 billion of accumulated amortization | $ | 1,010,615 | $ | 1,183,006 | ||||
| Rent leveling | 914,480 | 715,679 | ||||||
| Leasing commissions | 749,773 | 650,127 | ||||||
| Lease right-of-use assets (1) | 683,707 | 735,430 | ||||||
| Accounts receivable | 325,698 | 377,996 | ||||||
| Prepaid assets | 248,597 | 239,483 | ||||||
| Fixed assets | 208,030 | 119,897 | ||||||
| Value added taxes receivable | 155,909 | 143,317 | ||||||
| Derivative assets | 87,319 | 227,236 | ||||||
| Other notes receivable | 72,730 | 116,537 | ||||||
| Management contracts | 10,702 | 11,048 | ||||||
| Deferred income taxes | 1,231 | 5,732 | ||||||
| Other | 280,944 | 276,011 | ||||||
| Total other assets | $ | 4,749,735 | $ | 4,801,499 | ||||
| Acquired lease intangibles, net of $720.1 million and $290.1 million of accumulated amortization | $ | 2,206,906 | $ | 2,373,050 | ||||
| Lease liabilities (1) | 597,563 | 638,811 | ||||||
| Tenant security deposits | 438,100 | 419,409 | ||||||
| Unearned rents | 319,946 | 305,299 | ||||||
| Environmental liabilities | 178,201 | 209,935 | ||||||
| Deferred income taxes | 118,682 | 99,757 | ||||||
| Derivative liabilities | 94,161 | 6,682 | ||||||
| Indemnification liability | 47,832 | 44,356 | ||||||
| Value added taxes payable | 33,805 | 15,160 | ||||||
| Deferred income | 27,423 | 24,481 | ||||||
| Liabilities associated with assets held for sale or contribution | 14,182 | 4,536 | ||||||
| Other | 353,800 | 305,033 | ||||||
| Total other liabilities | $ | 4,430,601 | $ | 4,446,509 |
(1)
For the amortization of the future minimum rental payments into rental expense and G&A expense on our land and office leases, respectively, refer to Note 4.
The following table summarizes the expected future amortization of leasing commissions and forgone rent (included in acquired lease intangibles above) into amortization expense and above and below market leases (included in acquired lease intangibles above) and rent leveling net assets into rental revenues, all based on the balances at December 31, 2023 (in thousands):
| Amortization Expense | Net Increase to Rental Revenues | |||||||
| 2024 | $ | 391,395 | $ | 491,011 | ||||
| 2025 | 317,912 | 299,106 | ||||||
| 2026 | 256,933 | 181,588 | ||||||
| 2027 | 199,057 | 102,828 | ||||||
| 2028 | 146,550 | 55,424 | ||||||
| Thereafter | 367,716 | 81,644 | ||||||
| Total | $ | 1,679,563 | $ | 1,211,601 |
NOTE 8. DEBT
All debt is incurred by the OP or its consolidated subsidiaries. The following table summarizes our debt at December 31 (dollars in thousands):
| 2023 | 2022 | |||||||||||||||||||
| Weighted Average | Amount | Weighted Average | Amount | |||||||||||||||||
| Interest Rate (1) | Years (2) | Outstanding (3) | Interest Rate (1) | Years (2) | Outstanding (3) | |||||||||||||||
| Credit facilities | 5.9% | 3.1 | $ | 979,313 | 4.2% | 2.8 | $ | 1,538,461 | ||||||||||||
| Senior notes (4) | 2.9% | 10.1 | 25,311,647 | 2.3% | 10.3 | 19,786,253 | ||||||||||||||
| Term loans and unsecured other | 2.8% | 3.7 | 2,330,520 | 2.3% | 4.9 | 2,106,592 | ||||||||||||||
| Secured mortgage (5) | 3.9% | 3.4 | 379,021 | 3.0% | 4.3 | 444,655 | ||||||||||||||
| Total | 3.0**%** | 9.3 | $ | 29,000,501 | 2.5**%** | 9.2 | $ | 23,875,961 |
(1)
The weighted average interest rates presented represent the effective interest rates (including amortization of debt issuance costs and noncash premiums or discounts) at the end of the period for the debt outstanding and include the impact of designated interest rate swaps, which effectively fix the interest rate on certain variable rate debt.
(2)
The weighted average years represents the remaining maturity in years on the debt outstanding at period end.
(3)
We borrow in the functional currencies of the countries where we invest. Included in the outstanding balances at December 31 were borrowings denominated in the following currencies:
| 2023 | 2022 | ||||||||||||||||||||||||
| Weighted Average Interest Rate | Amount Outstanding | % of Total | Weighted Average Interest Rate | Amount Outstanding | % of Total | ||||||||||||||||||||
| British pound sterling | 2.1 | % | $ | 1,299,628 | 4.5 | % | 2.1 | % | $ | 1,228,483 | 5.1 | % | |||||||||||||
| Canadian dollar | 5.0 | % | 829,886 | 2.9 | % | 4.5 | % | 814,491 | 3.4 | % | |||||||||||||||
| Chinese renminbi | 3.7 | % | 241,820 | 0.8 | % | - | - | - | |||||||||||||||||
| Euro | 2.0 | % | 10,083,601 | 34.8 | % | 1.3 | % | 7,991,301 | 33.5 | % | |||||||||||||||
| Japanese yen | 1.0 | % | 3,085,970 | 10.6 | % | 1.0 | % | 3,308,009 | 13.9 | % | |||||||||||||||
| U.S. dollar | 4.1 | % | 13,459,596 | 46.4 | % | 3.6 | % | 10,533,677 | 44.1 | % | |||||||||||||||
| Total | 3.0 | % | $ | 29,000,501 | 100.0 | % | 2.5 | % | $ | 23,875,961 | 100.0 | % |
(4)
Senior notes are due from February 2024 to June 2061 with effective interest rates ranging from 0.3% to 5.4% at December 31, 2023.
(5)
Secured mortgage debt is due from June 2024 to September 2033 with effective interest rates ranging from 2.5% to 8.1% at December 31, 2023. The debt was principally secured by 21 operating properties, two prestabilized properties and one land parcel with an aggregate undepreciated cost of $1.1 billion at December 31, 2023.
Credit Facilities
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 2021 global senior credit facility (the "2021 Global Facility") as the 2023 Global Facility, increasing 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"). On August 25, 2023, we amended and restated the Yen Credit Facility, increasing its borrowing capacity by ¥3.5 billion for total commitments of ¥58.5 billion ($413.5 million at December 31, 2023). We have the ability to increase the borrowing capacity of the Yen Credit Facility to ¥75.0 billion ($530.1 million at December 31, 2023), subject to obtaining additional lender commitments. The Yen Credit Facility is initially scheduled to mature in August 2027; 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.
Our Credit Facilities are utilized to support our cash needs for development and acquisition activities on a short-term basis. The original maturity of our borrowings under the Credit Facilities ranges from overnight to three months. The following table summarizes information about our Credit Facility activity and available liquidity (dollars in millions):
| 2023 | 2022 | 2021 | ||||||||||
| Credit Facility activity for the years ended December 31: | ||||||||||||
| Weighted average daily interest rate | 4.3 | % | 1.7 | % | 1.3 | % | ||||||
| Weighted average daily borrowings | $ | 411 | $ | 519 | $ | 60 | ||||||
| Maximum borrowings outstanding at any month-end | $ | 1,587 | $ | 1,538 | $ | 491 | ||||||
| Available liquidity at December 31: | ||||||||||||
| Aggregate lender commitments | ||||||||||||
| Credit Facilities | $ | 6,477 | $ | 5,441 | $ | 4,940 | ||||||
| Less: | ||||||||||||
| Borrowings outstanding | 979 | 1,538 | 491 | |||||||||
| Outstanding letters of credit | 24 | 38 | 7 | |||||||||
| Current availability | $ | 5,474 | $ | 3,865 | $ | 4,442 | ||||||
| Cash and cash equivalents | 530 | 278 | 556 | |||||||||
| Total liquidity | $ | 6,004 | $ | 4,143 | $ | 4,998 | ||||||
Senior Notes
The senior notes are unsecured and our obligations are effectively subordinated in certain respects to any of our debt that is secured by a lien on real property, to the extent of the value of such real property. The senior notes require interest payments be made quarterly, semi-annually or annually. The majority of the senior notes are redeemable at any time at our option, subject to certain prepayment penalties. Such repurchase and other terms are governed by the provisions of indenture agreements, various note purchase agreements or trust deeds. The following table summarizes the issuances of senior notes during 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 | $ | 1,200,000 | 4.9% | 17.7 | June 2033 – 2053 | |||||||||
| May | € | 750,000 | $ | 808,425 | 4.6% | 10.0 | May 2033 | |||||||||
| June | $ | 2,000,000 | $ | 2,000,000 | 5.1% | 13.2 | June 2028 – 2053 | |||||||||
| Total | $ | 5,362,550 | 4.7**%** | 13.9 | ||||||||||||
(1)
The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date.
Early Extinguishment of Debt
We repurchased, redeemed or repaid certain debt before the maturity date in an effort to reduce our borrowing costs and extend our debt maturities. As a result, the difference between the recorded debt (including premiums, discounts and related debt issuance costs) and the consideration we paid to retire the debt, including fees, was recognized as gains or losses. Fees associated with the restructuring of debt that meets the modification criteria, along with existing unamortized premium or discount and debt issuance costs, are amortized over the term of the new debt.
We recognized $3.3 million of gains and $20.2 million and $187.5 million of losses on the early extinguishment of debt in 2023, 2022 and 2021, respectively. The losses during 2021 were driven by the redemption of $1.5 billion of senior notes with a weighted average interest rate of 3.6% and stated maturities between 2024 and 2025.
Term Loans
The following table summarizes our outstanding term loans at December 31 (dollars and borrowing currency in thousands):
| Term Loan | Borrowing Currency | Issuance Date | Lender Commitment at 2023 | Amount Outstanding at 2023 | Amount Outstanding at 2022 | Interest Rate | Maturity Date | |||||||||||||||
| Borrowing Currency | USD | USD | USD | |||||||||||||||||||
| March 2017 Yen Term Loan (1) | JPY | March 2017 | ¥ | 12,000,000 | $ | 84,820 | $ | 84,820 | $ | 90,994 | 0.9% and 1.0% | March 2027 – 2028 | ||||||||||
| October 2017 Yen Term Loan | JPY | October 2017 | ¥ | 10,000,000 | $ | 70,684 | 70,684 | 75,828 | 0.9% | October 2032 | ||||||||||||
| December 2018 Yen Term Loan (1) | JPY | December 2018 | ¥ | 20,000,000 | $ | 141,368 | 141,368 | 151,656 | 1.2% and TIBOR + 0.7% | December 2031 – June 2033 | ||||||||||||
| January 2019 Yen Term Loan (1) | JPY | January 2019 | ¥ | 15,000,000 | $ | 106,026 | 106,026 | 113,742 | TIBOR + 0.5% to 0.6% | January 2028 – 2030 | ||||||||||||
| March 2019 Yen Term Loan | JPY | March 2019 | ¥ | 85,000,000 | $ | 600,812 | 600,812 | 644,540 | TIBOR + 0.4% | March 2026 | ||||||||||||
| June 2022 Yen Term Loan (1) | JPY | June 2022 | ¥ | 25,000,000 | $ | 176,710 | 176,710 | 189,570 | 1.1% and 1.2% | June 2032 – 2034 | ||||||||||||
| 2022 Canadian Term Loan (2) | CAD | August 2022 | C$ | 300,000 | $ | 226,403 | 226,403 | 221,593 | CDOR + spread | August 2025 | ||||||||||||
| 2022 U.S. Dollar Term Loan | USD | October 2022 | $ | 500,000 | $ | 500,000 | 500,000 | 500,000 | SOFR + 0.8% | March 2025 | ||||||||||||
| December 2022 Yen Term Loan | JPY | December 2022 | ¥ | 15,000,000 | $ | 106,026 | 106,026 | 113,742 | 1.4% | December 2033 | ||||||||||||
| 2023 Yen Term Loan | JPY | April 2023 | ¥ | 10,000,000 | $ | 70,684 | 70,684 | - | 1.5% | April 2031 | ||||||||||||
| 2023 Chinese Term Loan (1) | CNH | September 2023 | CN¥ | 1,720,000 | $ | 242,845 | 242,845 | - | 3.5% and 3.6% | September 2024 – 2026 | ||||||||||||
| Subtotal | 2,326,378 | 2,101,665 | ||||||||||||||||||||
| Debt issuance costs, net | (4,683 | ) | (5,007 | ) | ||||||||||||||||||
| Total term loans | $ | 2,321,695 | $ | 2,096,658 |
(1)
This term loan includes more than one lender commitment each bearing a different interest rate and maturity date.
(2)
Our term loan in Canada ("2022 Canadian Term Loan") bears interest at the Canadian Dollar Offered Rate ("CDOR") plus a spread over the applicable benchmark. As the CDOR interest rate will transition to the Canadian Overnight Repo Rate Average prior to June 28, 2024, we anticipate modifying the interest rate on this loan prior to this transition and do not expect it to have a material impact on our Consolidated Financial Statements.
Long-Term Debt Maturities
Scheduled principal payments due on our debt for each year through the period ended December 31, 2028, and thereafter were as follows at December 31, 2023 (in thousands):
| Unsecured | ||||||||||||||||||||
| Credit | Senior | Term Loans | Secured | |||||||||||||||||
| Maturity | Facilities | Notes | and Other | Mortgage | Total | |||||||||||||||
| 2024 (1) (2) | $ | - | $ | 331,500 | $ | 101,656 | $ | 97,363 | $ | 530,519 | ||||||||||
| 2025 (3) | - | 35,342 | 727,338 | 177,442 | 940,122 | |||||||||||||||
| 2026 (4) | 355,000 | 1,317,668 | 742,053 | 3,980 | 2,418,701 | |||||||||||||||
| 2027 (5) | 624,313 | 1,741,171 | 50,535 | 4,156 | 2,420,175 | |||||||||||||||
| 2028 | - | 2,589,430 | 104,612 | 3,041 | 2,697,083 | |||||||||||||||
| Thereafter | - | 19,876,190 | 608,418 | 86,094 | 20,570,702 | |||||||||||||||
| Subtotal | 979,313 | 25,891,301 | 2,334,612 | 372,076 | 29,577,302 | |||||||||||||||
| Unamortized premiums (discounts), net | - | (465,832 | ) | 591 | 7,936 | (457,305 | ) | |||||||||||||
| Unamortized debt issuance costs, net | - | (113,822 | ) | (4,683 | ) | (991 | ) | (119,496 | ) | |||||||||||
| Total | $ | 979,313 | $ | 25,311,647 | $ | 2,330,520 | $ | 379,021 | $ | 29,000,501 |
(1)
We expect to repay the amounts maturing in the next twelve months with cash generated from operations, proceeds from dispositions of real estate properties, or as necessary, with additional borrowings.
(2)
Included in the 2024 maturities was the 2023 Chinese Term Loan ($101.7 million at December 31, 2023) that can be extended until 2026, subject to the prevailing interest rate at the time of extension.
(3)
Included in the 2025 maturities was the 2022 Canadian Term Loan ($226.4 million at December 31, 2023) that can be extended until 2027.
(4)
Included in the 2026 maturities was the 2022 Global Facility ($355.0 million at December 31, 2023) that can be extended until 2027.
(5)
Included in the 2027 maturities was the 2023 Global Facility ($624.3 million at December 31, 2023) that can be extended until 2028.
Interest Expense
The following table summarizes the components of interest expense for the years ended December 31 (in thousands):
| 2023 (1) | 2022 | 2021 | ||||||||||
| Gross interest expense | $ | 683,363 | $ | 345,398 | $ | 299,115 | ||||||
| Amortization of debt discounts (premiums), net | 51,980 | 6,602 | (7,478 | ) | ||||||||
| Amortization of debt issuance costs, net | 22,609 | 17,134 | 16,134 | |||||||||
| Interest expense before capitalization | $ | 757,952 | $ | 369,134 | $ | 307,771 | ||||||
| Capitalized amounts | (116,620 | ) | (60,097 | ) | (41,543 | ) | ||||||
| Net interest expense | $ | 641,332 | $ | 309,037 | $ | 266,228 | ||||||
| Total cash paid for interest, net of amounts capitalized | $ | 457,021 | $ | 234,131 | $ | 278,861 |
(1)
Interest expense increased in 2023, as compared to 2022, principally due to the financing of acquisition and development activity through the issuance of senior notes in 2023, the assumption of $4.2 billion of debt in the Duke Transaction which was marked to fair value in October 2022 and higher interest rates on new issuances and our credit facilities. We issued $5.4 billion of senior notes during 2023 and $3.3 billion during 2022, with a weighted average interest rate of 4.7% and 2.3%, respectively, at the issuance date.
Financial Debt Covenants
Our senior notes, term loans and Credit Facilities outstanding at December 31, 2023 were subject to certain financial covenants under their related documents. At December 31, 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 9. STOCKHOLD****ERS’ EQUITY OF PROLOGIS, INC.
Shares Authorized
At December 31, 2023, 2.1 billion shares were authorized to be issued by the Parent, of which 2.0 billion shares represent common stock and 0.1 billion shares represent preferred stock. Our board of directors (the “Board”) may, without stockholder approval, classify or reclassify any unissued shares of our stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of such shares.
Common Stock
Our at-the-market program allows us to sell up to $1.5 billion in aggregate gross sales proceeds of shares of common stock through twenty designated agents. These agents earn a fee of up to 2% of the gross sales price per share of common stock as agreed to on a transaction-by-transaction basis. We have not issued any shares of common stock under this program.
On October 3, 2022, we issued 182.7 million common shares in the Duke Transaction. See Note 3 for more detail on these transactions.
Under the 2020 Long-Term Incentive Plan, certain of our employees and outside directors are able to participate in equity-based compensation plans. See Note 12 for additional information on equity-based compensation plans.
We may also issue common stock upon redemption of common limited partnership units in the OP.
Share Purchase Program
We have a share purchase program for the repurchase of outstanding shares of our common stock on the open market or in privately negotiated transactions for an aggregate purchase price of up to $1.0 billion. During 2021, 2022 and 2023, we did not purchase any common stock of Prologis, Inc. in connection with our share purchase program.
Preferred Stock
At December 31, 2023 and 2022 our Series Q preferred stock outstanding had a dividend rate of 8.54% and will be redeemable at our option on or after November 13, 2026. Holders have, subject to certain conditions, limited voting rights and all holders are entitled to receive cumulative preferential dividends based on liquidation preference. The dividends are payable quarterly when, and if, they have been declared by the Board, out of funds legally available for the payment of dividends.
Ownership Restrictions
For us to qualify as a REIT, five or fewer individuals may not own more than 50% of the value of our outstanding stock at any time during the last half of our taxable year. Therefore, our charter restricts beneficial ownership (or ownership generally attributed to a person under the REIT rules), by a person, or persons acting as a group, of issued and outstanding common and preferred stock that would cause that person to own or be deemed to own more than 9.8% (by value or number of shares, whichever is more restrictive) of our issued and outstanding common stock. Furthermore, subject to certain exceptions, no person shall at any time directly or indirectly acquire ownership of more than 25% of any of the preferred stock. These provisions assist us in protecting and preserving our REIT status and protect the interests of stockholders in takeover transactions by preventing the acquisition of a substantial block of outstanding shares of stock.
Shares of stock owned by a person or group of people in excess of these limits are subject to redemption by us. The provision does not apply where a majority of the Board, in its sole and absolute discretion, waives such limit after determining that our status as a REIT for federal income tax purposes will not be jeopardized.
Dividends
To comply with the REIT requirements of the IRC, we are generally required to make common and preferred stock dividends (other than capital gain distributions) to our stockholders in amounts that together at least equal (i) the sum of (a) 90% of our “REIT taxable income” computed without regard to the dividends paid deduction and net capital gains and (b) 90% of the net income (after tax), if any, from foreclosure property; minus (ii) certain excess noncash income. Our common stock distribution policy is to distribute a percentage of our cash flow that ensures that we will meet the distribution requirements of the IRC and that allows us to also retain cash to meet other needs, such as capital improvements and other investment activities.
The taxability of our dividends for the years ended December 31, 2023, 2022 and 2021 are presented below. The taxability of dividends paid in 2023 was based on management’s estimates as our tax return for the year ended December 31, 2023 has not been filed. As the statute of limitations is generally three years, our tax returns for certain years remain subject to examination and consequently the taxability of the dividends is subject to change.
In 2023, 2022 and 2021, we paid all of our dividends in cash.
The following summarizes the taxability of our common and preferred stock dividends for the years ended December 31:
| 2023 | 2022 | 2021 | ||||||||||
| Common Stock: | ||||||||||||
| Ordinary income | $ | 3.29 | $ | 3.08 | $ | 2.45 | ||||||
| Qualified dividend | 0.00 | 0.02 | 0.00 | |||||||||
| Capital gains | 0.19 | 0.06 | 0.07 | |||||||||
| Total dividend | $ | 3.48 | $ | 3.16 | $ | 2.52 | ||||||
| Preferred Stock – Series Q: | ||||||||||||
| Ordinary income | $ | 4.05 | $ | 4.16 | $ | 4.15 | ||||||
| Qualified dividend | 0.00 | 0.02 | 0.01 | |||||||||
| Capital gains | 0.22 | 0.09 | 0.11 | |||||||||
| Total dividend | $ | 4.27 | $ | 4.27 | $ | 4.27 |
Common stock dividends are characterized for federal income tax purposes as ordinary income, qualified dividend, capital gains, non-taxable return of capital or a combination of the four. Common stock dividends that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and generally reduce the stockholder’s basis in the common stock. To the extent that a dividend exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common stock, it will generally be treated as a gain from the sale or exchange of that stockholder’s common stock. At the beginning of each year, we notify our stockholders of the taxability of the common stock dividends paid during the preceding year.
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.
NOTE 10. PARTNERS’ CAPI****TAL OF PROLOGIS, L.P.
Distributions paid on the common limited partnership units, and the taxability of those distributions, are similar to dividends paid on the Parent’s common stock disclosed above.
On October 3, 2022, we issued 2.1 million common limited partnership units in the OP in the Duke Transaction. In 2021, we issued 1.0 million limited partnership units to our partner as partial consideration for the acquisition of additional ownership interest in an unconsolidated other venture.
We issued Class A Units in the OP through an acquisition of a portfolio of properties in 2015. The Class A Units generally have the same rights as the existing common limited partnership units of the OP, except that the Class A Units are entitled to a quarterly distribution equal to $0.64665 per unit so long as the common limited partnership units receive a quarterly distribution of at least $0.40 per unit (in the event the common limited partnership units receive a quarterly distribution of less than $0.40 per unit, the Class A Unit distribution would be reduced by a proportionate amount). Class A Units are convertible into common limited partnership units at an initial conversion rate of one-for-one. The conversion rate will be increased or decreased to the extent that, at the time of conversion, the net present value of the distributions paid with respect to the Class A Units are less or more than the distributions paid on common limited partnership units from the time of issuance of the Class A Units until the time of conversion. At December 31, 2023 and 2022, the Class A Units were convertible into 8.2 million common limited partnership units and 8.0 million common limited partnership units, respectively. The OP may redeem the Class A Units at any time after October 7, 2025, for an amount in cash equal to the then-current number of the common limited partnership units into which the Class A Units are convertible, multiplied by $43.11, subject to the holders’ right to convert the Class A Units into common limited partnership units. Distributions paid to the Class A Units were $2.58660 annually during the years ended December 31, 2023, 2022 and 2021.
NOTE 11. NONCO****NTROLLING INTERESTS
Prologis, L.P.
We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, 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.
As discussed in Note 1, the Parent has complete responsibility, power and discretion in the day-to-day management of the OP. The Parent, through its majority interest, has the right to receive benefits from and incur losses of the OP. In addition, the OP does not have either substantive liquidation rights or substantive kick-out rights without cause or substantive participating rights that could be exercised by a simple majority of noncontrolling interests. The absence of such rights renders the OP as a VIE. Accordingly, the Parent is the primary beneficiary and therefore consolidates the OP.
Prologis, Inc.
The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent. The 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 at December 31 (dollars in thousands):
| Our Ownership Percentage | Noncontrolling Interests | Total Assets | Total Liabilities | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
| Prologis U.S. Logistics Venture | 55.0 | % | 55.0 | % | $ | 3,147,790 | $ | 3,182,858 | $ | 7,142,889 | $ | 7,225,438 | $ | 156,303 | $ | 158,453 | |||||||||||||||
| Other consolidated entities (1) | various | various | 176,485 | 134,909 | 2,369,959 | 1,737,311 | 333,114 | 259,524 | |||||||||||||||||||||||
| Prologis, L.P. | 3,324,275 | 3,317,767 | 9,512,848 | 8,962,749 | 489,417 | 417,977 | |||||||||||||||||||||||||
| Limited partners in Prologis, L.P. (2)(3) | 1,317,721 | 1,308,044 | - | - | - | - | |||||||||||||||||||||||||
| Prologis, Inc. | $ | 4,641,996 | $ | 4,625,811 | $ | 9,512,848 | $ | 8,962,749 | $ | 489,417 | $ | 417,977 |
(1)
Includes two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. The limited partnership units outstanding at December 31, 2023 and 2022 were exchangeable into cash or, at our option, 0.3 million shares of the Parent’s common stock.
(2)
We had 8.6 million Class A Units at December 31, 2023 and 2022, that were convertible into 8.2 million and 8.0 million, respectively, limited partnership units of the OP at the end of each year. See Note 10 for further discussion of our Class A Units.
(3)
There were limited partnership units in the OP, excluding the Class A Units, that were exchangeable into cash or, at our option, 9.1 million and 10.0 million shares of the Parent’s common stock, at December 31, 2023 and 2022, respectively. Also included are the vested OP Long-Term Incentive Plan Units (“LTIP Units”) associated with our long-term compensation plans of 5.7 million and 4.6 million shares of the Parent’s common stock at December 31, 2023 and 2022, respectively. See further discussion of LTIP Units in Note 12.
NOTE 12. LON****G-TERM COMPENSATION
2020 Long-Term Incentive Plan
The 2020 Long-Term Incentive Plan ("2020 LTIP") provides for grants of awards to officers, directors, employees and consultants of the Parent or its subsidiaries. Awards can be in the form of: full value awards, stock appreciation rights and stock options (non-qualified options and incentive stock options). Full value awards generally consist of: (i) common stock; (ii) restricted stock units (“RSUs”); (iii) OP LTIP units (“LTIP Units”) and (iv) Prologis Outperformance Plan (“POP”) OP LTIP units (“POP LTIP Units”). Awards may be made under the 2020 LTIP until it is terminated by the Board or until the ten-year anniversary of the effective date of the plan.
The awards have been issued under the following components of our equity-based compensation plans and programs at December 31, 2023: (i) POP; (ii) Prologis Promote Plan (“PPP”); (iii) annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iv) annual bonus exchange program. Under all of these components, certain employees may elect to receive their equity award payout either in the form of RSUs or other equity of the Parent or LTIP Units of the OP.
At December 31, 2023, we had 32.7 million shares reserved or available for issuance, including 7.5 million shares of common stock to be issued upon vesting of awards previously granted and 17.7 million shares of common stock remaining available for future issuance under equity compensation plans. Each LTIP Unit and POP LTIP Unit counts as one share of common stock for purposes of calculating the limit on shares that may be issued.
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, as discussed in the table below. The 2023 – 2025 performance period has an absolute maximum cap of $100 million. If an award is earned at the end of the initial three-year performance period, then 20% of the POP award is paid 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.
Each participant is eligible to receive a percentage of the total compensation pool based on the number of participation points allocated to the participant, or in the case of certain executive officers, a set percentage of the compensation pool. If the performance criteria are met, the participants’ points or compensation pool percentage will be paid in the form of common stock, restricted stock units, POP LTIP Units or LTIP Units, as elected by the participant. Annually, a participant may exchange their participation points or compensation pool percentage for POP LTIP Units. If the performance criteria are not met, the participants’ points, compensation pool percentage and POP LTIP Units will be forfeited.
At December 31, 2023, all awards were equity classified. The grant date fair value was calculated using a Monte Carlo valuation model.
The following table details the assumptions used for each grant based on the year it was granted (dollars in thousands):
| 2023 | 2022 | 2021 | ||||||||||
| Risk free interest rate | 4.2 | % | 1.0 | % | 0.2 | % | ||||||
| Prologis expected volatility | 35.0 | % | 31.0 | % | 32.0 | % | ||||||
| MSCI US REIT Index expected volatility | 31.0 | % | 29.0 | % | 29.0 | % | ||||||
| Grant date fair value | $ | 28,300 | $ | 30,400 | $ | 30,300 |
Total remaining compensation cost related to the POP at December 31, 2023, was $60.3 million, prior to adjustments for capitalized amounts due to our development activities. The remaining compensation cost will be recognized through 2032, with a weighted average period of 2.7 years.
The performance criteria were met for the last three years and the absolute maximum cap was earned and awarded in January of the following year. 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.
Other Equity-Based Compensation Plans and Programs
Awards may be issued in the form of RSUs or LTIP Units at the participants’ elections under the following equity-based compensation plans and programs. 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. The service period is generally four years, except for awards under the annual bonus exchange program. Dividends and distributions are paid with respect to both RSUs and LTIP Units during the vesting period, and therefore they are considered participating securities. We do not allocate undistributed earnings to participating securities as our net earnings per share or unit would not be materially different. The value of the dividend is charged to retained earnings for RSUs and the distribution is charged to Net Earnings Attributable to Noncontrolling Interests in the OP for LTIP Units in the Consolidated Financial Statements of the Parent.
Prologis Promote Plan (“PPP”)
Under the PPP, we establish a compensation pool for certain employees up to 40% of the third-party portion of promotes earned by Prologis from the co-investment ventures. The awards may be settled in some combination of cash and full value awards, at our election.
Annual LTI Equity Award Program (“Annual LTI Award”)
The Annual LTI Award provides for grants to certain employees subject to our performance against benchmark indices that relate to the most recent year’s performance.
Annual Bonus Exchange Program
Under our bonus exchange program, generally all our employees may elect to receive all or a portion of their annual cash bonus in equity. Equity awards granted through the bonus exchange are valued at a premium to the cash bonus exchanged and vest over three years, excluding certain executive officers. As certain executive officers do not receive a bonus exchange premium for participating in the bonus exchange program, the equity they receive upon exchange for their cash bonuses does not have a vesting period.
Summary of Award Activity
RSUs
Each RSU represents the right to receive one share of common stock of the Parent.
The following table summarizes the activity for RSUs for the year ended December 31, 2023 (units in thousands):
| Unvested RSUs | Weighted Average Grant Date Fair Value | |||||||
| Balance at January 1, 2023 | 1,533 | $ | 100.59 | |||||
| Granted | 1,164 | 104.89 | ||||||
| Vested and distributed | (553 | ) | 117.46 | |||||
| Forfeited | (47 | ) | 113.85 | |||||
| Balance at December 31, 2023 | 2,097 | $ | 98.23 |
The fair value of stock awards granted and vested was $122.1 million and $65.0 million for 2023, respectively, and $98.9 million and $48.6 million for 2022, respectively, based on the weighted average grant date fair value per unit.
Total remaining compensation cost related to RSUs outstanding, excluding POP, at December 31, 2023, was $119.0 million, prior to adjustments for capitalized amounts due to our development activities. The remaining compensation cost will be recognized through 2028, with a weighted average period of 1.4 years.
LTIP Units
An LTIP Unit represents a partnership interest in the OP. After vesting and the satisfaction of certain conditions, an LTIP Unit may be exchangeable for a common limited partnership unit in the OP and then redeemable for a share of common stock or cash at our option.
The following table summarizes the activity for LTIP Units for the year ended December 31, 2023 (units in thousands):
| Unvested LTIP Units | Weighted Average Grant Date Fair Value | |||||||
| Balance at January 1, 2023 | 4,214 | $ | 73.31 | |||||
| Granted | 2,585 | 100.20 | ||||||
| Vested LTIP Units | (1,381 | ) | 109.44 | |||||
| Forfeited | (39 | ) | 106.45 | |||||
| Balance at December 31, 2023 | 5,379 | $ | 76.72 |
The fair value of unit awards granted and vested was $259.0 million and $151.1 million for 2023, respectively, and $188.8 million and $84.3 million for 2022, respectively, based on the weighted average grant date fair value per unit.
Total remaining compensation cost related to LTIP Units, excluding POP, at December 31, 2023, was $189.2 million, prior to adjustments for capitalized amounts due to our development activities. The remaining compensation cost will be recognized through 2030, with a weighted average period of 1.5 years.
Other Plans
The Prologis 401(k) Plan (the “401(k) Plan”) includes a matching employer contribution of $0.50 for every dollar contributed by an employee, up to 12% of the employee’s annual compensation (within the statutory compensation limit). The matching employer contribution was previously up to 6% of the employee's annual compensation. In the 401(k) Plan, vesting in the matching employer contributions is based on the employee's years of service, with 100% vesting at the completion of one year of service. Our contributions under the matching provisions were $8.9 million, $8.1 million and $5.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
We have a non-qualified savings plan that allows highly compensated employees the opportunity to defer the receipt and income taxation of a certain portion of their compensation in excess of the amount permitted under the 401(k) Plan. There has been no employer matching within this plan in the three-year period ended December 31, 2023.
NOT****E 13. INCOME TAXES
Components of Earnings Before Income Taxes
The following table summarizes the components of earnings before income taxes for the years ended December 31 (in thousands):
| 2023 | 2022 | 2021 | ||||||||||
| Domestic | $ | 2,891,644 | $ | 2,423,809 | $ | 2,208,168 | ||||||
| International | 572,539 | 1,267,001 | 1,114,680 | |||||||||
| Earnings before income taxes | $ | 3,464,183 | $ | 3,690,810 | $ | 3,322,848 |
Summary of Current and Deferred Income Taxes
The following table summarizes the components of the provision for income taxes for the years ended December 31 (in thousands):
| 2023 | 2022 | 2021 | ||||||||||
| Current income tax expense (benefit): | ||||||||||||
| U.S. federal | $ | (953 | ) | $ | (6,645 | ) | $ | 58,906 | ||||
| International | 175,121 | 112,489 | 103,488 | |||||||||
| State and local | 19,162 | 16,930 | 10,542 | |||||||||
| Total current income tax expense | 193,330 | 122,774 | 172,936 | |||||||||
| Deferred income tax expense (benefit): | ||||||||||||
| U.S. federal | 12,936 | 3,359 | 2,895 | |||||||||
| International | 4,772 | 9,279 | (1,573 | ) | ||||||||
| Total deferred income tax expense | 17,708 | 12,638 | 1,322 | |||||||||
| Total income tax expense | $ | 211,038 | $ | 135,412 | $ | 174,258 |
Current Income Taxes
We recognize current income tax expense for the federal and state income taxes incurred by our TRSs and taxes incurred in certain states and foreign jurisdictions. Current income tax expense fluctuates from period to period based primarily on the timing of our taxable income. Taxable income incurred over the last three years was principally due to the following: (i) the contribution of real estate properties to our unconsolidated co-investment ventures and sales to third parties; (ii) recurring and transactional strategic capital fees earned; (iii) taxable earnings from unconsolidated co-investment ventures; and (iv) adjustments to acquired tax liabilities.
During the years ended December 31, 2023, 2022 and 2021, cash paid for income taxes, net of refunds, was $149.1 million, $130.0 million and $148.7 million, respectively.
Deferred Income Taxes
The deferred income tax expense recognized in 2023, 2022 and 2021 was principally due to changes in temporary differences and utilization of NOLs.
The following table summarizes the deferred income tax assets and liabilities at December 31 (in thousands):
| 2023 | 2022 | |||||||
| Gross deferred income tax assets: | ||||||||
| NOL carryforwards | $ | 246,768 | $ | 229,410 | ||||
| Basis difference – real estate properties | 48,460 | 94,610 | ||||||
| Basis difference – equity investments | 18,051 | 17,042 | ||||||
| Section 163(j) interest limitation | 1,689 | 2,218 | ||||||
| Capital loss carryforward | 7,161 | 6,903 | ||||||
| Other – temporary differences | 9,142 | 9,250 | ||||||
| Total gross deferred income tax assets | 331,271 | 359,433 | ||||||
| Valuation allowance | (305,063 | ) | (295,834 | ) | ||||
| Gross deferred income tax assets, net of valuation allowance | 26,208 | 63,599 | ||||||
| Gross deferred income tax liabilities: | ||||||||
| Basis difference – real estate properties | 98,529 | 116,102 | ||||||
| Basis difference – equity investments | 43,457 | 40,333 | ||||||
| Other – temporary differences | 1,673 | 1,189 | ||||||
| Total gross deferred income tax liabilities | 143,659 | 157,624 | ||||||
| Net deferred income tax liabilities | $ | 117,451 | $ | 94,025 |
At December 31, 2023, we had NOL carryforwards as follows (in thousands):
| U.S. | Europe | Mexico | Japan | Other | |||||||||||||||
| Gross NOL carryforward | $ | 72,151 | $ | 608,128 | $ | 170,656 | $ | 68,754 | $ | 32,399 | |||||||||
| Tax-effected NOL carryforward | 18,345 | 157,593 | 53,622 | 9,219 | 7,989 | ||||||||||||||
| Valuation allowance | 17,741 | 150,836 | 53,622 | 9,219 | 7,989 | ||||||||||||||
| Net deferred tax asset – NOL carryforward | $ | 604 | $ | 6,757 | $ | - | $ | - | $ | - | |||||||||
| Expiration periods | 2024 – 2043 | 2024 – indefinite | 2024 – 2034 | 2024 – 2033 | 2024 – indefinite |
The deferred tax asset valuation allowance at December 31, 2023, was adequate to reduce the total deferred tax asset to an amount that we estimate will more likely than not be realized.
Liability for Uncertain Tax Positions
During the years ended December 31, 2023, 2022 and 2021, we believe that we had complied with the REIT requirements of the IRC. The statute of limitations for our tax returns is generally three years. As such, our tax returns that remain subject to examination would be primarily from 2020 and thereafter. Liabilities or any related settlements for uncertain tax positions for the years ended December 31, 2023, 2022 and 2021 were not material to our Consolidated Financial Statements.
NOTE 14. EARNINGS PER CO****MMON 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 for the years ended December 31 was as follows (in thousands, except per share and unit amounts):
| Prologis, Inc. | 2023 | 2022 | 2021 | |||||||||
| Net earnings attributable to common stockholders – Basic | $ | 3,053,373 | $ | 3,358,796 | $ | 2,933,571 | ||||||
| Net earnings attributable to exchangeable limited partnership units (1) | 77,806 | 92,236 | 82,092 | |||||||||
| Adjusted net earnings attributable to common stockholders – Diluted | $ | 3,131,179 | $ | 3,451,032 | $ | 3,015,663 | ||||||
| Weighted average common shares outstanding – Basic | 924,351 | 785,675 | 739,363 | |||||||||
| Incremental weighted average effect on exchange of limited partnership units (1) | 23,693 | 21,803 | 20,913 | |||||||||
| Incremental weighted average effect of equity awards | 3,747 | 4,130 | 4,486 | |||||||||
| Weighted average common shares outstanding – Diluted (2) | 951,791 | 811,608 | 764,762 | |||||||||
| Net earnings per share attributable to common stockholders: | ||||||||||||
| Basic | $ | 3.30 | $ | 4.28 | $ | 3.97 | ||||||
| Diluted | $ | 3.29 | $ | 4.25 | $ | 3.94 |
| Prologis, L.P. | 2023 | 2022 | 2021 | |||||||||
| Net earnings attributable to common unitholders | $ | 3,130,647 | $ | 3,450,727 | $ | 3,015,363 | ||||||
| Net earnings attributable to Class A Units | (26,784 | ) | (34,311 | ) | (31,758 | ) | ||||||
| Net earnings attributable to common unitholders – Basic | 3,103,863 | 3,416,416 | 2,983,605 | |||||||||
| Net earnings attributable to Class A Units | 26,784 | 34,311 | 31,758 | |||||||||
| Net earnings attributable to exchangeable other limited partnership units | 532 | 305 | 300 | |||||||||
| Adjusted net earnings attributable to common unitholders – Diluted | $ | 3,131,179 | $ | 3,451,032 | $ | 3,015,663 | ||||||
| Weighted average common partnership units outstanding – Basic | 939,635 | 799,153 | 751,973 | |||||||||
| Incremental weighted average effect on exchange of Class A Units | 8,110 | 8,026 | 8,004 | |||||||||
| Incremental weighted average effect on exchange of other limited partnership units | 299 | 299 | 299 | |||||||||
| Incremental weighted average effect of equity awards of Prologis, Inc. | 3,747 | 4,130 | 4,486 | |||||||||
| Weighted average common units outstanding – Diluted (2) | 951,791 | 811,608 | 764,762 | |||||||||
| Net earnings per unit attributable to common unitholders: | ||||||||||||
| Basic | $ | 3.30 | $ | 4.28 | $ | 3.97 | ||||||
| Diluted | $ | 3.29 | $ | 4.25 | $ | 3.94 |
(1)
Earnings allocated to the exchangeable OP units not held by the Parent have been included in the numerator and exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.
(2)
Our total weighted average potentially dilutive shares and units outstanding for the years ended December 31 consisted of the
following:
| 2023 | 2022 | 2021 | ||||||||||
| Class A Units | 8,110 | 8,026 | 8,004 | |||||||||
| Other limited partnership units | 299 | 299 | 299 | |||||||||
| Equity awards | 7,455 | 6,298 | 6,719 | |||||||||
| Prologis, L.P. | 15,864 | 14,623 | 15,022 | |||||||||
| Common limited partnership units | 15,284 | 13,478 | 12,610 | |||||||||
| Prologis, Inc. | 31,148 | 28,101 | 27,632 |
NOTE 15. FINANCIAL INSTRUMENTS AND FAIR VALU****E 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. See Note 2 for our derivative financial instruments policy.
The following table presents the fair value of our derivative financial instruments recognized within Other Assets and Other Liabilities in the Consolidated Balance Sheets at December 31 (in thousands):
| 2023 | 2022 | |||||||||||||||
| Asset | Liability | Asset | Liability | |||||||||||||
| Undesignated derivatives | ||||||||||||||||
| Foreign currency contracts | ||||||||||||||||
| Forwards | ||||||||||||||||
| Brazilian real | $ | - | $ | 291 | $ | 35 | $ | 494 | ||||||||
| British pound sterling | 9,608 | 9,862 | 29,187 | 648 | ||||||||||||
| Canadian dollar | 4,480 | 1,225 | 12,074 | 2 | ||||||||||||
| Chinese renminbi | 1,630 | 50 | 657 | 364 | ||||||||||||
| Euro | 19,252 | 8,229 | 51,317 | 2,801 | ||||||||||||
| Japanese yen | 45,149 | 589 | 34,022 | 2,344 | ||||||||||||
| Mexican peso | - | - | - | - | ||||||||||||
| Swedish krona | 3,304 | 2,279 | 6,292 | - | ||||||||||||
| Options | ||||||||||||||||
| Mexican peso | 1,263 | - | - | - | ||||||||||||
| Designated derivatives | ||||||||||||||||
| Foreign currency contracts | ||||||||||||||||
| Net investment hedges | ||||||||||||||||
| British pound sterling | 1,759 | 7,030 | 23,534 | - | ||||||||||||
| Canadian dollar | 756 | 5,608 | 24,552 | - | ||||||||||||
| Interest rate contracts | ||||||||||||||||
| Cash flow hedges | ||||||||||||||||
| Euro | 118 | 27,034 | 44,982 | - | ||||||||||||
| U.S. dollar | - | 31,964 | 584 | 29 | ||||||||||||
| Total fair value of derivatives | $ | 87,319 | $ | 94,161 | $ | 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 years ended December 31 (in millions, except for weighted average forward rates and number of active contracts):
| 2023 | 2022 | 2021 | ||||||||||||||||||
| CAD | EUR | GBP | JPY | Other | Total | CAD | EUR | GBP | JPY | Other | Total | CAD | EUR | GBP | JPY | Other | Total | |||
| Notional amounts at January 1 ($) | 283 | 601 | 349 | 331 | 81 | 1,645 | 175 | 749 | 383 | 250 | 105 | 1,662 | 163 | 474 | 207 | 252 | 66 | 1,162 | ||
| New contracts ($) | 15 | 173 | 192 | 140 | (10) | 510 | 172 | 658 | 264 | 181 | 92 | 1,367 | 225 | 437 | 308 | 76 | 91 | 1,137 | ||
| Matured, expired or settled contracts ($) | (85) | (250) | (99) | (87) | (15) | (536) | (64) | (806) | (298) | (100) | (116) | (1,384) | (213) | (162) | (132) | (78) | (52) | (637) | ||
| Notional amounts at December 31 ($) | 213 | 524 | 442 | 384 | 56 | 1,619 | 283 | 601 | 349 | 331 | 81 | 1,645 | 175 | 749 | 383 | 250 | 105 | 1,662 | ||
| Weighted average forward rate at December 31 | 1.30 | 1.16 | 1.27 | 115.40 | 1.29 | 1.18 | 1.31 | 109.79 | 1.26 | 1.22 | 1.20 | 103.14 | ||||||||
| Active contracts at December 31 | 74 | 72 | 96 | 96 | 103 | 97 | 90 | 96 | 72 | 86 | 70 | 74 |
The following table summarizes the undesignated derivative financial instruments exercised and associated realized and unrealized gains (losses) in Foreign Currency, Derivative and Other Gains and Other Income, Net in the Consolidated Statements of Income for the years ended December 31 (in millions, except for number of exercised contracts):
| 2023 | 2022 | 2021 | ||||||||||
| Exercised contracts | 218 | 158 | 161 | |||||||||
| Realized gains (losses) on the matured, expired or settled contracts | $ | 60 | $ | 145 | $ | (8 | ) | |||||
| Unrealized gains (losses) on the change in fair value of outstanding contracts | $ | (58 | ) | $ | 39 | $ | 88 |
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 AOCI/L in the Consolidated Balance Sheets and reflected within the AOCI/L table below.
Foreign Currency Contracts
The following table summarizes the activity of our foreign currency contracts designated as net investment hedges for the years ended December 31 (in millions, except for weighted average forward rates and number of active contracts):
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| CAD | CNH | GBP | Total | CAD | GBP | Total | CAD | GBP | Total | |||||||||||||||||||||||
| Notional amounts at January 1 ($) | 534 | - | 440 | 974 | 535 | 432 | 967 | 377 | 135 | 512 | ||||||||||||||||||||||
| New contracts ($) | 467 | 100 | 343 | 910 | 964 | 440 | 1,404 | 535 | 432 | 967 | ||||||||||||||||||||||
| Matured, expired or settled contracts ($) | (485 | ) | (100 | ) | (351 | ) | **(**936 | ) | (965 | ) | (432 | ) | **(**1,397 | ) | (377 | ) | (135 | ) | **(**512 | ) | ||||||||||||
| Notional amounts at December 31 ($) | 516 | - | 432 | 948 | 534 | 440 | 974 | 535 | 432 | 967 | ||||||||||||||||||||||
| Weighted average forward rate at December 31 | 1.33 | - | 1.26 | 1.29 | 1.28 | 1.25 | 1.37 | |||||||||||||||||||||||||
| Active contracts at December 31 | 6 | - | 4 | 6 | 4 | 6 | 4 |
Interest Rate Contracts
The following table summarizes the activity of our interest rate contracts designated as cash flow hedges for the years ended December 31 (in millions):
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| EUR | USD | Total | EUR | USD | CAD | JPY | Total | EUR | USD | Total | |||||||||||||||||||||||||
| Notional amounts at January 1 ($) | 447 | 150 | 597 | 165 | - | - | - | 165 | 165 | 250 | 415 | ||||||||||||||||||||||||
| New contracts ($) | 1,113 | 2,300 | 3,413 | 1,004 | 400 | 184 | 104 | 1,692 | - | - | - | ||||||||||||||||||||||||
| Matured, expired or settled contracts ($) | (860 | ) | (1,900 | ) | **(**2,760 | ) | (722 | ) | (250 | ) | (184 | ) | (104 | ) | **(**1,260 | ) | - | (250 | ) | **(**250 | ) | ||||||||||||||
| Notional amounts at December 31 ($) | 700 | 550 | 1,250 | 447 | 150 | - | - | 597 | 165 | - | 165 |
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 December 31 (in millions):
| 2023 | 2022 | 2021 | ||||||||||
| British pound sterling | $ | 1,305 | $ | 1,237 | $ | 624 | ||||||
| Canadian dollar | $ | 373 | $ | 370 | $ | - |
The following table summarizes the unrealized gains (losses) in Foreign Currency, Derivative and Other Gains and Other Income, Net in the Consolidated Statements of Income on the remeasurement of the unhedged portion of our euro denominated debt and accrued interest, for the years ended December 31 (in millions):
| 2023 | 2022 | 2021 | ||||||||||
| Unrealized gains (losses) on the unhedged portion | $ | (23 | ) | $ | 44 | $ | 81 |
Accumulated Other Comprehensive Income (Loss) ("AOCI/L")
The change in AOCI/L in the Consolidated Statements of Equity 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 AOCI/L.
The following table presents these changes in AOCI/L for the years ended December 31 (in thousands):
| Unrealized gains (losses) on cash flow hedges (1) | Our share of derivatives from unconsolidated co-investment ventures | Derivative net investment hedges | Debt designated as nonderivative net investment hedges (2) | Foreign currency translation adjustments | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Balance at January 1, 2021 | $ | (22,893 | ) | $ | (10,970 | ) | $ | 228,169 | $ | 204,638 | $ | (1,592,683 | ) | $ | (1,193,739 | ) | ||||||||
| Other comprehensive income (loss), net | 8,851 | 8,222 | 9,792 | (10,075 | ) | 298,696 | 315,486 | |||||||||||||||||
| Balance at December 31, 2021 | $ | **(**14,042 | ) | $ | **(**2,748 | ) | $ | 237,961 | $ | 194,563 | $ | **(**1,293,987 | ) | $ | **(**878,253 | ) | ||||||||
| Other comprehensive income, net | 44,587 | 25,332 | 95,012 | 135,420 | 134,293 | 434,644 | ||||||||||||||||||
| Balance at December 31, 2022 | $ | 30,545 | $ | 22,584 | $ | 332,973 | $ | 329,983 | $ | **(**1,159,694 | ) | $ | **(**443,609 | ) | ||||||||||
| Other comprehensive income (loss), net | (76,289 | ) | (14,170 | ) | (22,447 | ) | (75,881 | ) | 118,195 | **(**70,592 | ) | |||||||||||||
| Balance at December 31, 2023 | $ | **(**45,744 | ) | $ | 8,414 | $ | 310,526 | $ | 254,102 | $ | **(**1,041,499 | ) | $ | **(**514,201 | ) |
(1)
We estimate an additional expense of $3.7 million will be reclassified to Interest Expense in the Consolidated Statements of Income over the next 12 months from December 31, 2023, due to the amortization of previously settled derivatives designated as cash flow hedges. The amounts reclassified for the years ended December 31, 2023, 2022 and 2021 were not material to our Consolidated Financial Statements.
(2)
Reclassification of amounts out of AOCI/L due to the remeasurement of the unhedged portion of our euro denominated debt and accrued interest is included herein.
Fair Value Measurements
We have estimated the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that we would realize on disposition. See Note 2 for more information on our fair value measurements policy.
Fair Value Measurements on a Recurring Basis
At December 31, 2023 and 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 December 31, 2023 and 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, as detailed in our accounting policy in Note 2. At December 31, 2023 and 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 Notes 3 and 4 and assets held for sale or contribution in Note 6.
Fair Value of Financial Instruments
At December 31, 2023 and 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 December 31, 2023 and 2022, as compared with those in effect when the debt was issued or assumed, including lower borrowing spreads due to our credit ratings. See Note 8 for more information on our debt activity.
The following table reflects the carrying amounts and estimated fair values of our debt at December 31 (in thousands):
| 2023 | 2022 | |||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| Credit Facilities | $ | 979,313 | $ | 979,313 | $ | 1,538,461 | $ | 1,538,461 | ||||||||
| Senior notes | 25,311,647 | 23,121,936 | 19,786,253 | 16,604,241 | ||||||||||||
| Term loans and unsecured other | 2,330,520 | 2,322,827 | 2,106,592 | 2,092,264 | ||||||||||||
| Secured mortgage | 379,021 | 357,731 | 444,655 | 420,964 | ||||||||||||
| Total | $ | 29,000,501 | $ | 26,781,807 | $ | 23,875,961 | $ | 20,655,930 |
NOTE 16. COMMITMENTS AND CONTINGENCIES
Environmental Matters
A majority of the properties we acquire, including land, are subjected to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain land parcels we acquire in connection with the development of the land. We have acquired certain properties that may have been leased to or previously owned by companies that discharged hazardous materials. We establish a liability at the time of acquisition to cover such costs and adjust the liabilities as appropriate when additional information becomes available. We record our environmental liabilities in Other Liabilities in the Consolidated Balance Sheets. We purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liabilities that would have a material adverse effect on our business, financial condition or results of operations.
Indemnification Agreements
We have entered into agreements whereby we indemnify certain co-investment ventures, or our venture partners, outside of the U.S. for taxes that may be assessed with respect to certain properties we contributed to these ventures. Our contributions to these ventures are generally structured as contributions of shares of companies that own the real estate assets. Accordingly, the capital gains associated with the step up in the value of the underlying real estate assets, for tax purposes, are deferred and transferred at contribution. We have generally indemnified these ventures to the extent that the ventures incur capital gains or withholding tax as a result of a direct sale. The agreements limit the amount that is subject to our indemnification with respect to each property to 100% of the actual tax liabilities related to the capital gains that are deferred and transferred by us to the ventures at the time of the initial contribution less any deferred tax assets transferred with the property.
The outcome under these agreements is uncertain as it depends on the method and timing of dissolution of the related venture or disposition of any properties by the venture. We record liabilities related to the indemnification agreements in Other Liabilities in the Consolidated Balance Sheets. We continue to monitor these agreements and the likelihood of the sale of assets that would result in recognition and will adjust the potential liability in the future as facts and circumstances dictate.
Off-Balance Sheet Liabilities
We have issued performance and surety bonds, standby letters of credit and guarantees in connection with certain development and energy projects. Performance and surety bonds and letters of credit are commonly required by public agencies, including utilities, from real estate and energy asset developers. They are renewable and expire on the completion of the improvements and infrastructure. We typically issue performance and surety bonds that have terms of four years and standby letters of credit that have terms of a year to an indefinite period of time. Guarantees are provided on behalf of subsidiaries in support of such subsidiaries' payment obligations in connection with the development of energy assets. They expire upon the satisfaction of the payment obligation in accordance with the contract terms. At December 31, 2023, and 2022, we had $498.5 million and $456.0 million, respectively, outstanding under such arrangements.
We may be required under capital commitments or we may choose to make additional capital contributions to certain of our unconsolidated entities, representing our proportionate ownership interest, should additional capital contributions be necessary to fund development or acquisition costs, repayment of debt or operational shortfalls. See Note 5 for further discussion related to equity commitments to our unconsolidated co-investment ventures.
Litigation
From time to time, we are party to a variety of legal proceedings arising in the ordinary course of business. We believe that, with respect to any such matters that we are currently a party to, the ultimate disposition of any such matter will not have material adverse effect on our business, financial position or results of operations.
NOTE 17. 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:
Real Estate Segment. This operating segment represents the ownership and development of operating properties and is the largest component of our revenue and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. The Real Estate Segment also includes development activities that lead to rental operations, including land held for development and properties currently under development, and other real estate investments, including energy assets. Within this line of business, we utilize the following: (i) our land bank; (ii) the development and leasing expertise of our local teams; and (iii) our customer relationships.
Strategic Capital Segment. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.
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 ("CODMs") 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 in the Consolidated Financial Statements are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment are not allocated but reflected as non-segment items (G&A expenses and real estate adjustments for depreciation and gains and losses on contributions and sales) due to how our CODMs utilize segment information for planning and execution of our business strategy.
The following reportable business segment revenues, net operating income and assets are presented in thousands:
| Years Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Revenues: | ||||||||||||
| Real estate segment: | ||||||||||||
| U.S. | $ | 6,558,051 | $ | 4,726,072 | $ | 3,967,180 | ||||||
| Other Americas | 110,305 | 92,751 | 98,620 | |||||||||
| Europe | 95,915 | 56,731 | 55,533 | |||||||||
| Asia | 58,966 | 58,553 | 47,357 | |||||||||
| Total real estate segment | 6,823,237 | 4,934,107 | 4,168,690 | |||||||||
| Strategic capital segment: | ||||||||||||
| U.S. | 833,402 | 215,416 | 171,761 | |||||||||
| Other Americas | 89,783 | 82,462 | 58,655 | |||||||||
| Europe | 181,651 | 644,832 | 249,600 | |||||||||
| Asia | 95,396 | 96,875 | 110,734 | |||||||||
| Total strategic capital segment | 1,200,232 | 1,039,585 | 590,750 | |||||||||
| Total revenues | 8,023,469 | 5,973,692 | 4,759,440 | |||||||||
| Segment net operating income: (1) | ||||||||||||
| Real estate segment: | ||||||||||||
| U.S. (2) | 4,954,565 | 3,555,627 | 2,966,498 | |||||||||
| Other Americas | 84,922 | 67,552 | 72,424 | |||||||||
| Europe | 68,200 | 24,738 | 31,163 | |||||||||
| Asia | 37,403 | 40,116 | 34,854 | |||||||||
| Total real estate segment | 5,145,090 | 3,688,033 | 3,104,939 | |||||||||
| Strategic capital segment: | ||||||||||||
| U.S. (2) | 629,336 | 59,561 | 59,991 | |||||||||
| Other Americas | 62,765 | 63,464 | 47,247 | |||||||||
| Europe | 78,626 | 557,676 | 203,779 | |||||||||
| Asia | 43,963 | 55,528 | 72,562 | |||||||||
| Total strategic capital segment | 814,690 | 736,229 | 383,579 | |||||||||
| Total segment net operating income | 5,959,780 | 4,424,262 | 3,488,518 | |||||||||
| Non-segment items: | ||||||||||||
| General and administrative expenses | (390,406 | ) | (331,083 | ) | (293,167 | ) | ||||||
| Depreciation and amortization expenses | (2,484,891 | ) | (1,812,777 | ) | (1,577,942 | ) | ||||||
| Gains on dispositions of development properties and land, net | 462,270 | 597,745 | 817,017 | |||||||||
| Gains on other dispositions of investments in real estate, net | 161,039 | 589,391 | 772,570 | |||||||||
| Operating income | 3,707,792 | 3,467,538 | 3,206,996 | |||||||||
| Earnings from unconsolidated entities, net | 307,227 | 310,872 | 404,255 | |||||||||
| Interest expense | (641,332 | ) | (309,037 | ) | (266,228 | ) | ||||||
| Foreign currency, derivative and other gains and other income, net | 87,221 | 241,621 | 165,278 | |||||||||
| Gains (losses) on early extinguishment of debt, net | 3,275 | (20,184 | ) | (187,453 | ) | |||||||
| Earnings before income taxes | $ | 3,464,183 | $ | 3,690,810 | $ | 3,322,848 |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Segment assets: | ||||||||
| Real estate segment: | ||||||||
| U.S. | $ | 76,633,566 | $ | 71,858,560 | ||||
| Other Americas | 2,029,438 | 1,831,956 | ||||||
| Europe | 2,366,539 | 1,952,160 | ||||||
| Asia | 793,916 | 1,031,135 | ||||||
| Total real estate segment | 81,823,459 | 76,673,811 | ||||||
| Strategic capital segment: (3) | ||||||||
| U.S. | 10,499 | 10,817 | ||||||
| Europe | 25,280 | 25,280 | ||||||
| Asia | 203 | 231 | ||||||
| Total strategic capital segment | 35,982 | 36,328 | ||||||
| Total segment assets | 81,859,441 | 76,710,139 | ||||||
| Non-segment items: | ||||||||
| Investments in and advances to unconsolidated entities | 9,543,970 | 9,698,898 | ||||||
| Assets held for sale or contribution | 461,657 | 531,257 | ||||||
| Cash and cash equivalents | 530,388 | 278,483 | ||||||
| Other assets | 625,384 | 678,671 | ||||||
| Total non-segment items | 11,161,399 | 11,187,309 | ||||||
| Total assets | $ | 93,020,840 | $ | 87,897,448 |
(1)
Net Operating Income ("NOI") from the Real Estate Segment is calculated directly from the Consolidated Financial Statements as Rental Revenues and Development Management and Other Revenues less Rental Expenses and Other Expenses. NOI from the Strategic Capital Segment is calculated directly from the Consolidated Financial Statements as Strategic Capital Revenues less Strategic Capital Expenses.
(2)
This includes compensation and personnel costs for employees who were located in the U.S. but also support other geographies.
(3)
Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital Segment. Goodwill was $25.3 million at December 31, 2023, and 2022.
NOTE 18. SUPPLEM****ENTAL CASH FLOW INFORMATION
Our significant noncash investing and financing activities for the years ended December 31, 2023, 2022 and 2021 included the following:
We recognized lease right-of-use assets and lease liabilities related to leases in which we are the lessee within Other Assets and Other Liabilities on the Consolidated Balance Sheets, including any new leases, renewals and modifications of $43.0 million in 2023, $162.5 million in 2022 and $71.4 million in 2021 for both assets and liabilities.
We capitalized $38.6 million, $34.9 million and $25.6 million in 2023, 2022 and 2021, respectively, of equity-based compensation expense.
We received $379.1 million, $695.7 million and $902.0 million of ownership interests in certain unconsolidated co-investment ventures, primarily as a portion of our proceeds from the contribution of properties to these entities during 2023, 2022 and 2021, respectively.
We issued 0.8 million, 0.3 million and 0.8 million shares in 2023, 2022 and 2021, respectively, of the Parent’s common stock upon redemption of an equal number of common limited partnership units in the OP.
We completed the Duke Transaction on October 3, 2022 for $23.2 billion through the issuance of equity and the assumption of debt. See Note 3 for more information on this transaction.
We issued 1.0 million common limited partnership units for $130.4 million to our partner and assumed debt of $215.3 million in our acquisition of additional ownership interest in and subsequent consolidation of two unconsolidated other ventures in 2021.
We received a distribution of proceeds from Prologis U.K. Logistics Venture for the sale of real estate properties that we subsequently reinvested in PELF and PELP of $153.0 million in 2021.
NOTE 19. SELECTED QUARTER****LY FINANCIAL DATA (UNAUDITED)
The following table details our selected quarterly financial data (in thousands, except per share and unit data):
| Three Months Ended | ||||||||||||||||
| Prologis, Inc. | March 31, | June 30, | September 30, | December 31, | ||||||||||||
| 2023: | ||||||||||||||||
| Rental revenues | $ | 1,633,770 | $ | 1,651,454 | $ | 1,777,359 | $ | 1,755,959 | ||||||||
| Total revenues | $ | 1,768,587 | $ | 2,450,971 | $ | 1,914,664 | $ | 1,889,247 | ||||||||
| Rental expenses | $ | (412,554 | ) | $ | (387,938 | ) | $ | (416,076 | ) | $ | (408,225 | ) | ||||
| Gains on dispositions of development properties and land, net | $ | - | $ | 184,877 | $ | 89,030 | $ | 188,363 | ||||||||
| Gains on other dispositions of investments in real estate, net | $ | 4,047 | $ | 24,761 | $ | 129,584 | $ | 2,647 | ||||||||
| Operating income | $ | 579,043 | $ | 1,411,790 | $ | 882,108 | $ | 834,851 | ||||||||
| Consolidated net earnings | $ | 498,629 | $ | 1,279,491 | $ | 799,141 | $ | 675,884 | ||||||||
| Net earnings attributable to common stockholders | $ | 463,170 | $ | 1,214,553 | $ | 746,174 | $ | 629,476 | ||||||||
| Net earnings per share attributable to common stockholders – Basic (1) | $ | 0.50 | $ | 1.31 | $ | 0.81 | $ | 0.68 | ||||||||
| Net earnings per share attributable to common stockholders – Diluted (1)(2) | $ | 0.50 | $ | 1.31 | $ | 0.80 | $ | 0.68 | ||||||||
| 2022: | ||||||||||||||||
| Rental revenues | $ | 1,076,861 | $ | 1,093,452 | $ | 1,151,846 | $ | 1,591,012 | ||||||||
| Total revenues | $ | 1,219,128 | $ | 1,252,080 | $ | 1,750,892 | $ | 1,751,592 | ||||||||
| Rental expenses | $ | (275,674 | ) | $ | (270,465 | ) | $ | (284,707 | ) | $ | (374,892 | ) | ||||
| Gains on dispositions of development properties and land, net | $ | 210,206 | $ | 105,802 | $ | 74,678 | $ | 207,059 | ||||||||
| Gains on other dispositions of investments in real estate, net | $ | 584,835 | $ | - | $ | 1,019 | $ | 3,537 | ||||||||
| Operating income | $ | 1,205,802 | $ | 533,317 | $ | 914,970 | $ | 813,449 | ||||||||
| Consolidated net earnings | $ | 1,219,722 | $ | 646,436 | $ | 1,069,174 | $ | 620,066 | ||||||||
| Net earnings attributable to common stockholders | $ | 1,149,254 | $ | 609,855 | $ | 1,013,933 | $ | 585,754 | ||||||||
| Net earnings per share attributable to common stockholders – Basic (1) | $ | 1.55 | $ | 0.82 | $ | 1.37 | $ | 0.64 | ||||||||
| Net earnings per share attributable to common stockholders – Diluted (1)(2) | $ | 1.54 | $ | 0.82 | $ | 1.36 | $ | 0.63 | ||||||||
| Prologis, L.P. | ||||||||||||||||
| 2023: | ||||||||||||||||
| Rental revenues | $ | 1,633,770 | $ | 1,651,454 | $ | 1,777,359 | $ | 1,755,959 | ||||||||
| Total revenues | $ | 1,768,587 | $ | 2,450,971 | $ | 1,914,664 | $ | 1,889,247 | ||||||||
| Rental expenses | $ | (412,554 | ) | $ | (387,938 | ) | $ | (416,076 | ) | $ | (408,225 | ) | ||||
| Gains on dispositions of development properties and land, net | $ | - | $ | 184,877 | $ | 89,030 | $ | 188,363 | ||||||||
| Gains on other dispositions of investments in real estate, net | $ | 4,047 | $ | 24,761 | $ | 129,584 | $ | 2,647 | ||||||||
| Operating income | $ | 579,043 | $ | 1,411,790 | $ | 882,108 | $ | 834,851 | ||||||||
| Consolidated net earnings | $ | 498,629 | $ | 1,279,491 | $ | 799,141 | $ | 675,884 | ||||||||
| Net earnings attributable to common unitholders | $ | 474,819 | $ | 1,245,153 | $ | 765,075 | $ | 645,600 | ||||||||
| Net earnings per unit attributable to common unitholders – Basic (1) | $ | 0.50 | $ | 1.31 | $ | 0.81 | $ | 0.68 | ||||||||
| Net earnings per unit attributable to common unitholders – Diluted (1) | $ | 0.50 | $ | 1.31 | $ | 0.80 | $ | 0.68 | ||||||||
| 2022: | ||||||||||||||||
| Rental revenues | $ | 1,076,861 | $ | 1,093,452 | $ | 1,151,846 | $ | 1,591,012 | ||||||||
| Total revenues | $ | 1,219,128 | $ | 1,252,080 | $ | 1,750,892 | $ | 1,751,592 | ||||||||
| Rental expenses | $ | (275,674 | ) | $ | (270,465 | ) | $ | (284,707 | ) | $ | (374,892 | ) | ||||
| Gains on dispositions of development properties and land, net | $ | 210,206 | $ | 105,802 | $ | 74,678 | $ | 207,059 | ||||||||
| Gains on other dispositions of investments in real estate, net | $ | 584,835 | $ | - | $ | 1,019 | $ | 3,537 | ||||||||
| Operating income | $ | 1,205,802 | $ | 533,317 | $ | 914,970 | $ | 813,449 | ||||||||
| Consolidated net earnings | $ | 1,219,722 | $ | 646,436 | $ | 1,069,174 | $ | 620,066 | ||||||||
| Net earnings attributable to common unitholders | $ | 1,181,525 | $ | 627,286 | $ | 1,042,664 | $ | 599,252 | ||||||||
| Net earnings per unit attributable to common unitholders – Basic (1) | $ | 1.55 | $ | 0.82 | $ | 1.37 | $ | 0.64 | ||||||||
| Net earnings per unit attributable to common unitholders – Diluted (1) | $ | 1.54 | $ | 0.82 | $ | 1.36 | $ | 0.63 |
(1)
Quarterly earnings per common share or unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted average common shares or units outstanding included in the calculation of basic and diluted shares or units.
(2)
Income allocated to the exchangeable OP units not held by the Parent has been included in the numerator and exchangeable OP units have been included in the denominator for the purpose of computing diluted earnings per share for all periods since the per share and unit is the same.
PROLOGIS, INC. AND PROLOGIS, L.P.
SCHEDULE III – REAL ESTATE A****ND ACCUMULATED DEPRECIATION
DECEMBER 31, 2023
(In thousands of U.S. dollars, as applicable)
| Initial Cost to Prologis | Costs Capitalized | Gross Amounts at Which Carried at December 31, 2023 | ||||||||||||||||||||||||
| Description | No. of Bldgs. | Encum- brances | Land | Building & Improvements | Subsequent to Acquisition | Land | Building & Improvements | Total (a,b) | Accumulated Depreciation (c) | Date of Construction/ Acquisition | ||||||||||||||||
| Operating Properties | ||||||||||||||||||||||||||
| U.S. Markets | ||||||||||||||||||||||||||
| Atlanta | 182 | 850,745 | 2,426,596 | 598,417 | 876,090 | 2,999,668 | 3,875,758 | (471,928 | ) | 1994-2023 | ||||||||||||||||
| Austin | 10 | 12,783 | 52,335 | 10,452 | 12,837 | 62,733 | 75,570 | (31,432 | ) | 1994-2015 | ||||||||||||||||
| Baltimore/Washington | 105 | 628,758 | 1,160,132 | 354,221 | 643,418 | 1,499,693 | 2,143,111 | (247,868 | ) | 1995-2023 | ||||||||||||||||
| Central PA | 35 | 297,201 | 1,043,676 | 204,550 | 314,948 | 1,230,479 | 1,545,427 | (284,679 | ) | 2002-2023 | ||||||||||||||||
| Central Valley | 41 | 262,046 | 555,484 | 1,006,298 | 283,094 | 1,540,734 | 1,823,828 | (316,805 | ) | 1999-2023 | ||||||||||||||||
| Charlotte | 46 | 121,073 | 346,000 | 127,508 | 134,927 | 459,654 | 594,581 | (101,927 | ) | 1994-2023 | ||||||||||||||||
| Chicago | 244 | 1,184,242 | 3,195,498 | 813,725 | 1,213,147 | 3,980,318 | 5,193,465 | (934,824 | ) | 1995-2023 | ||||||||||||||||
| Cincinnati | 61 | 157,634 | 849,859 | 156,602 | 166,697 | 997,398 | 1,164,095 | (133,429 | ) | 1996-2022 | ||||||||||||||||
| Columbus | 33 | 65,940 | 369,748 | 84,684 | 69,190 | 451,182 | 520,372 | (121,534 | ) | 1996-2022 | ||||||||||||||||
| Dallas/Ft. Worth | 195 | 750,113 | 2,423,634 | 642,756 | 773,387 | 3,043,116 | 3,816,503 | (648,818 | ) | 1994-2023 | ||||||||||||||||
| Denver | 38 | 115,979 | 295,412 | 186,770 | 116,519 | 481,642 | 598,161 | (171,941 | ) | 1993-2022 | ||||||||||||||||
| Houston | 197 | 529,247 | 2,222,141 | 525,642 | 574,826 | 2,702,204 | 3,277,030 | (448,806 | ) | 1993-2023 | ||||||||||||||||
| Indianapolis | 37 | 91,337 | 600,850 | 91,311 | 93,209 | 690,289 | 783,498 | (100,522 | ) | 1995-2022 | ||||||||||||||||
| Jacksonville | 1 | - | 2,892 | 273 | - | 3,165 | 3,165 | (3,121 | ) | 2011 | ||||||||||||||||
| Las Vegas | 62 | 249,046 | 422,687 | 380,768 | 233,797 | 818,704 | 1,052,501 | (155,619 | ) | 1996-2023 | ||||||||||||||||
| Lehigh Valley | 67 | 1,260,436 | 2,371,123 | 433,921 | 1,339,839 | 2,725,641 | 4,065,480 | (372,761 | ) | 2004-2023 | ||||||||||||||||
| Louisville | 12 | 48,140 | 188,696 | 96,719 | 50,392 | 283,163 | 333,555 | (91,452 | ) | 2005-2022 | ||||||||||||||||
| Nashville | 48 | 237,160 | 595,896 | 283,868 | 241,928 | 874,996 | 1,116,924 | (107,919 | ) | 1995-2023 | ||||||||||||||||
| New Jersey/New York City | 163 | (d) | 3,025,911 | 4,127,158 | 863,541 | 3,080,038 | 4,936,572 | 8,016,610 | (949,899 | ) | 1996-2023 | |||||||||||||||
| Orlando | 103 | (d) | 316,275 | 880,549 | 279,489 | 320,513 | 1,155,800 | 1,476,313 | (198,544 | ) | 1994-2023 | |||||||||||||||
| Phoenix | 63 | 266,247 | 723,625 | 394,059 | 296,453 | 1,087,478 | 1,383,931 | (158,332 | ) | 1992-2023 | ||||||||||||||||
| Portland | 43 | (e) | 142,421 | 318,783 | 226,785 | 196,774 | 491,215 | 687,989 | (94,675 | ) | 2006-2023 | |||||||||||||||
| Raleigh Durham | 37 | 107,899 | 407,505 | 30,696 | 112,638 | 433,462 | 546,100 | (32,146 | ) | 2020-2022 | ||||||||||||||||
| Reno | 18 | 29,960 | 142,279 | 173,748 | 34,171 | 311,816 | 345,987 | (106,166 | ) | 1994-2022 | ||||||||||||||||
| San Antonio | 20 | (d) | 25,735 | 95,828 | 51,234 | 25,957 | 146,840 | 172,797 | (75,563 | ) | 1994-2016 | |||||||||||||||
| San Francisco Bay Area | 238 | (d) | 1,192,748 | 1,737,610 | 662,201 | 1,204,501 | 2,388,058 | 3,592,559 | (963,576 | ) | 1993-2023 | |||||||||||||||
| Savannah | 27 | 225,576 | 522,311 | 40,112 | 227,477 | 560,522 | 787,999 | (28,093 | ) | 2022-2023 | ||||||||||||||||
| Seattle | 110 | 882,017 | 1,434,654 | 431,654 | 911,689 | 1,836,636 | 2,748,325 | (371,501 | ) | 2008-2023 | ||||||||||||||||
| South Florida | 178 | (d) | 1,394,537 | 2,166,816 | 421,403 | 1,415,287 | 2,567,469 | 3,982,756 | (422,333 | ) | 1994-2023 | |||||||||||||||
| Southern California | 434 | (e) | 6,864,553 | 8,381,266 | 2,155,067 | 7,124,304 | 10,276,582 | 17,400,886 | (2,168,514 | ) | 2005-2023 | |||||||||||||||
| Tampa | 26 | 92,357 | 244,738 | 28,744 | 99,091 | 266,748 | 365,839 | (22,666 | ) | 2020-2022 | ||||||||||||||||
| Subtotal U.S. Markets: | 2,874 | 21,428,116 | 40,305,781 | 11,757,218 | 22,187,138 | 51,303,977 | 73,491,115 | (10,337,393 | ) | |||||||||||||||||
| Other Americas Markets | ||||||||||||||||||||||||||
| Brazil | 5 | - | 57,419 | 142 | - | 57,561 | 57,561 | (2,753 | ) | 2022 | ||||||||||||||||
| Canada | 35 | (d) | 261,666 | 381,323 | 263,622 | 273,648 | 632,963 | 906,611 | (185,312 | ) | 2008-2023 | |||||||||||||||
| Mexico | 1 | 730 | 2,287 | 3,226 | 735 | 5,508 | 6,243 | (1,908 | ) | 2011 | ||||||||||||||||
| Subtotal Other Americas Markets: | 41 | 262,396 | 441,029 | 266,990 | 274,383 | 696,032 | 970,415 | (189,973 | ) | |||||||||||||||||
| Europe Markets | ||||||||||||||||||||||||||
| Belgium | 3 | 16,587 | 4,948 | (52 | ) | 16,587 | 4,896 | 21,483 | (573 | ) | 2022 | |||||||||||||||
| Czech Republic | 2 | 20,740 | - | 4,091 | 9,305 | 15,526 | 24,831 | (548 | ) | 2022 | ||||||||||||||||
| France | 1 | 2,916 | - | 19,590 | 2,340 | 20,166 | 22,506 | (65 | ) | 2023 | ||||||||||||||||
| Germany | 5 | 57,443 | 7,323 | 54,778 | 62,598 | 56,946 | 119,544 | (9,274 | ) | 2011-2022 | ||||||||||||||||
| Hungary | 2 | 4,487 | - | 14,420 | 4,487 | 14,420 | 18,907 | (325 | ) | 2022 | ||||||||||||||||
| Italy | 4 | 22,112 | 5,728 | 64,454 | 24,629 | 67,665 | 92,294 | (1,777 | ) | 2022-2023 | ||||||||||||||||
| Netherlands | 3 | 24,081 | 3,655 | - | 24,081 | 3,655 | 27,736 | (75 | ) | 2023 | ||||||||||||||||
| Poland | 1 | 8,905 | - | 3,022 | 2,013 | 9,914 | 11,927 | (309 | ) | 2022 | ||||||||||||||||
| Slovakia | 2 | 3,032 | - | 11,998 | 2,229 | 12,801 | 15,030 | (724 | ) | 2021 | ||||||||||||||||
| Spain | 6 | 23,967 | 35,746 | 36,715 | 22,880 | 73,548 | 96,428 | (20,919 | ) | 2011-2023 | ||||||||||||||||
| United Kingdom | 6 | 143,309 | 11,543 | 49,382 | 163,306 | 40,928 | 204,234 | (5,261 | ) | 2019-2023 | ||||||||||||||||
| Subtotal Europe Markets: | 35 | 327,579 | 68,943 | 258,398 | 334,455 | 320,465 | 654,920 | (39,850 | ) | |||||||||||||||||
| Asia Markets | ||||||||||||||||||||||||||
| Japan | 5 | 13,330 | 142,030 | 18,462 | 13,330 | 160,492 | 173,822 | (4,387 | ) | 2019-2022 | ||||||||||||||||
| Singapore | 5 | - | 139,702 | 5,523 | - | 145,225 | 145,225 | (82,687 | ) | 2011 | ||||||||||||||||
| Subtotal Asia Markets: | 10 | 13,330 | 281,732 | 23,985 | 13,330 | 305,717 | 319,047 | (87,074 | ) | |||||||||||||||||
| Total Operating Properties | 2,960 | 22,031,421 | 41,097,485 | 12,306,591 | 22,809,306 | 52,626,191 | 75,435,497 | (10,654,290 | ) |
PROLOGIS, INC. AND PROLOGIS, L.P.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2023
(In thousands of U.S. dollars, as applicable)
| Initial Cost to Prologis | Costs Capitalized | Gross Amounts at Which Carried at December 31, 2023 | Date of | |||||||||||||||||||||||
| Description | No. of Bldgs. | Encum- brances | Land | Building & Improvements | Subsequent to Acquisition | Land | Building & Improvements | Total (a,b) | Accumulated Depreciation (c) | Construction/ Acquisition (f) | ||||||||||||||||
| Development Portfolio | ||||||||||||||||||||||||||
| U.S. Markets | ||||||||||||||||||||||||||
| Atlanta | 2 | 8,606 | - | 22,099 | 8,606 | 22,099 | 30,705 | 2023 | ||||||||||||||||||
| Austin | 5 | 43,899 | - | 152,216 | 43,899 | 152,216 | 196,115 | |||||||||||||||||||
| Baltimore/Washington D.C. | 1 | 12,328 | - | 1,622 | 12,328 | 1,622 | 13,950 | |||||||||||||||||||
| Central Valley | 1 | 5,420 | - | 12,339 | 5,420 | 12,339 | 17,759 | |||||||||||||||||||
| Chicago | 5 | 46,751 | 967 | 107,133 | 46,751 | 108,100 | 154,851 | 2023 | ||||||||||||||||||
| Cincinnati | 1 | 2,541 | - | 14,020 | 2,541 | 14,020 | 16,561 | 2023 | ||||||||||||||||||
| Dallas/Ft. Worth | 10 | 81,066 | - | 125,283 | 81,066 | 125,283 | 206,349 | 2023 | ||||||||||||||||||
| Indianapolis | 2 | 11,474 | 17,058 | 56,862 | 11,474 | 73,920 | 85,394 | 2023 | ||||||||||||||||||
| Las Vegas | 3 | 16,773 | - | 97,244 | 16,773 | 97,244 | 114,017 | |||||||||||||||||||
| Lehigh Valley | 2 | 48,910 | - | 98,383 | 48,910 | 98,383 | 147,293 | 2023 | ||||||||||||||||||
| Nashville | 4 | 36,835 | - | 23,340 | 36,835 | 23,340 | 60,175 | 2023 | ||||||||||||||||||
| New Jersey/New York City | 4 | 76,712 | - | 86,553 | 76,712 | 86,553 | 163,265 | |||||||||||||||||||
| Portland | 1 | 1,040 | - | 1,368 | 1,040 | 1,368 | 2,408 | |||||||||||||||||||
| Phoenix | 6 | 45,602 | - | 132,298 | 45,602 | 132,298 | 177,900 | |||||||||||||||||||
| Reno | 2 | 15,364 | - | 63,903 | 15,364 | 63,903 | 79,267 | |||||||||||||||||||
| San Francisco Bay Area | 6 | 109,015 | 2,527 | 191,569 | 109,015 | 194,096 | 303,111 | 2023 | ||||||||||||||||||
| Seattle | 3 | 61,784 | - | 64,340 | 61,784 | 64,340 | 126,124 | 2023 | ||||||||||||||||||
| South Florida | 6 | 66,132 | - | 86,568 | 66,132 | 86,568 | 152,700 | 2023 | ||||||||||||||||||
| Southern California | 9 | 434,433 | 56,638 | 372,670 | 434,433 | 429,308 | 863,741 | 2023 | ||||||||||||||||||
| Subtotal U.S. Markets: | 73 | 1,124,685 | 77,190 | 1,709,810 | 1,124,685 | 1,787,000 | 2,911,685 | |||||||||||||||||||
| Other Americas Markets | ||||||||||||||||||||||||||
| Canada | 6 | 102,325 | - | 110,156 | 102,325 | 110,156 | 212,481 | |||||||||||||||||||
| Mexico | 9 | 55,798 | - | 63,033 | 55,798 | 63,033 | 118,831 | 2023 | ||||||||||||||||||
| Subtotal Other Americas Markets: | 15 | 158,123 | - | 173,189 | 158,123 | 173,189 | 331,312 | |||||||||||||||||||
| Europe Markets | ||||||||||||||||||||||||||
| Belgium | 1 | 9,522 | - | 34,059 | 9,522 | 34,059 | 43,581 | |||||||||||||||||||
| Czech Republic | 3 | 5,524 | - | 32,524 | 5,524 | 32,524 | 38,048 | 2023 | ||||||||||||||||||
| Germany | 3 | 34,062 | - | 3,130 | 34,062 | 3,130 | 37,192 | |||||||||||||||||||
| Hungary | 1 | 3,338 | - | 13,738 | 3,338 | 13,738 | 17,076 | 2023 | ||||||||||||||||||
| Italy | 2 | 18,656 | - | 5,599 | 18,656 | 5,599 | 24,255 | |||||||||||||||||||
| Netherlands | 1 | 16,514 | - | 20,185 | 16,514 | 20,185 | 36,699 | |||||||||||||||||||
| Poland | 2 | 8,571 | - | 31,432 | 8,571 | 31,432 | 40,003 | 2023 | ||||||||||||||||||
| Slovakia | 1 | 2,758 | - | 5,918 | 2,758 | 5,918 | 8,676 | |||||||||||||||||||
| Spain | 2 | 14,458 | - | 31,014 | 14,458 | 31,014 | 45,472 | 2023 | ||||||||||||||||||
| Sweden | 3 | 47,555 | - | 43,465 | 47,555 | 43,465 | 91,020 | 2023 | ||||||||||||||||||
| U.K. | 14 | 73,309 | - | 283,017 | 73,309 | 283,017 | 356,326 | 2023 | ||||||||||||||||||
| Subtotal Europe Markets: | 33 | 234,267 | - | 504,081 | 234,267 | 504,081 | 738,348 | |||||||||||||||||||
| Asia Markets | ||||||||||||||||||||||||||
| Japan | 9 | 106,137 | - | 279,973 | 106,137 | 279,973 | 386,110 | 2023 | ||||||||||||||||||
| Subtotal Asia Markets: | 9 | 106,137 | - | 279,973 | 106,137 | 279,973 | 386,110 | |||||||||||||||||||
| Total Development Portfolio | 130 | 1,623,212 | 77,190 | 2,667,053 | 1,623,212 | 2,744,243 | 4,367,455 | |||||||||||||||||||
| GRAND TOTAL | 3,090 | 23,654,633 | 41,174,675 | 14,973,644 | 24,432,518 | 55,370,434 | 79,802,952 | **(**10,654,290 | ) |
Schedule III – Footnotes
(a)
The following table reconciles real estate assets per Schedule III to the Consolidated Balance Sheets in Item 8. Financial Statements and Supplementary Data at December 31, 2023 (in thousands):
| Total operating properties and development portfolio per Schedule III | $ | 79,802,952 | (g) | |||
| Land | 3,775,553 | |||||
| Other real estate investments (i) | 5,088,070 | |||||
| Total per Consolidated Balance Sheets | $ | 88,666,575 |
(i)
Included in other real estate investments were: (i) land parcels we own and lease to third parties; (ii) non-strategic real estate assets, primarily acquired from the Duke Transaction, that we do not intend to operate long-term; (iii) non-industrial real estate assets that we intend to redevelop as industrial properties or other higher use assets; and (iv) energy assets.
(b)
The aggregate cost for federal tax purposes at December 31, 2023, of our real estate assets was approximately $65 billion (unaudited).
(c)
Real estate assets (excluding land balances) are depreciated over their estimated useful lives. These useful lives are generally 5 to 7 years for capital improvements, 10 years for standard tenant improvements, 15 to 25 years for depreciable land
improvements, 25 to 40 years for operating properties acquired based on the age of the building and 40 years for operating properties we develop.
The following table reconciles accumulated depreciation per Schedule III to the Consolidated Balance Sheets in Item 8. Financial Statements and Supplementary Data at December 31, 2023 (in thousands):
| Total accumulated depreciation per Schedule III | $ | 10,654,290 | (g) | |||
| Accumulated depreciation on other real estate investments (i) | 277,195 | |||||
| Total per Consolidated Balance Sheets | $ | 10,931,485 |
(i)
Accumulated depreciation in other real estate investments includes energy assets.
(d)
Properties with an aggregate undepreciated cost of $634.4 million secure $243.6 million of mortgage notes. See Note 8 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for more information related to our secured mortgage debt.
(e)
Assessment bonds of $8.2 million are secured by assessments (similar to property taxes) on various underlying real estate properties with an aggregate undepreciated cost of $586.8 million. The assessment bonds are included in term loans and unsecured other debt in Note 8 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
(f)
Date of construction is provided for properties in the development portfolio that were completed but not yet stabilized.
(g)
The following table summarizes our real estate assets and accumulated depreciation per Schedule III for the years ended December 31 (in thousands):
| 2023 | 2022 | 2021 | |||||||||||
| Real estate assets: | |||||||||||||
| Balance at beginning of year | $ | 73,250,949 | $ | 47,183,100 | $ | 45,390,230 | |||||||
| Acquisitions of and improvements to operating properties, development activity and net effect of changes in foreign exchange rates and other | 7,138,283 | 25,281,173 | 3,351,730 | ||||||||||
| Basis of operating properties disposed of | (404,914 | ) | (445,558 | ) | (1,589,527 | ) | |||||||
| Change in the development portfolio balance, including the acquisition of properties | 155,301 | 1,482,814 | 846,729 | ||||||||||
| Assets transferred to held for sale and contribution | (336,667 | ) | (250,580 | ) | (816,062 | ) | |||||||
| Balance at end year | $ | 79,802,952 | $ | 73,250,949 | $ | 47,183,100 | |||||||
| Accumulated depreciation: | |||||||||||||
| Balance at beginning of year | $ | 8,815,724 | $ | 7,451,382 | $ | 6,370,341 | |||||||
| Depreciation expense | 1,837,145 | 1,357,180 | 1,143,758 | ||||||||||
| Balances retired upon disposition of operating properties and net effect of changes in foreign exchange rates and other | 7,697 | 9,090 | (42,483 | ) | |||||||||
| Assets transferred to held for sale and contribution | (6,276 | ) | (1,928 | ) | (20,234 | ) | |||||||
| Balance at end of year | $ | 10,654,290 | $ | 8,815,724 | $ | 7,451,382 |
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 and, pursuant to Rule 12b-32, are incorporated herein by reference.
Other debt instruments are omitted in accordance with Item 601(b)(4)(iii)(A) of Registration S-K. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request.
- Management Contract or Compensatory Plan or Arrangement
† Filed herewith
‡ Prologis has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K and shall furnish supplementally to the SEC copies of any of the omitted schedules and exhibits upon request by the SEC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PROLOGIS, INC. | ||
| By: | /s/ Hamid R. Moghadam | |
| Hamid R. Moghadam | ||
| Chief Executive Officer |
Date: February 13, 2024
POW****ER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that we, the undersigned officers and directors of Prologis, Inc., hereby severally constitute Hamid R. Moghadam, Timothy D. Arndt and Edward S. Nekritz, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Prologis, Inc. to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the U.S. Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Hamid R. Moghadam | Chairman of the Board and Chief Executive Officer | February 13, 2024 | ||
| Hamid R. Moghadam | ||||
| /s/ Timothy D. Arndt | Chief Financial Officer | February 13, 2024 | ||
| Timothy D. Arndt | ||||
| /s/ Lori A. Palazzolo | Managing Director and Chief Accounting Officer | February 13, 2024 | ||
| Lori A. Palazzolo | ||||
| /s/ Cristina G. Bita | Director | February 13, 2024 | ||
| Cristina G. Bita | ||||
| /s/ James B. Connor | Director | February 13, 2024 | ||
| James B. Connor | ||||
| /s/ George L. Fotiades | Director | February 13, 2024 | ||
| George L. Fotiades | ||||
| /s/ Lydia H. Kennard | Director | February 13, 2024 | ||
| Lydia H. Kennard | ||||
| /s/ Irving F. Lyons III | Director | February 13, 2024 | ||
| Irving F. Lyons III | ||||
| /s/ Avid Modjtabai | Director | February 13, 2024 | ||
| Avid Modjtabai | ||||
| /s/ David P. O’Connor | Director | February 13, 2024 | ||
| David P. O’Connor | ||||
| /s/ Olivier Piani | Director | February 13, 2024 | ||
| Olivier Piani | ||||
| /s/ Jeffrey L. Skelton | Director | February 13, 2024 | ||
| Jeffrey L. Skelton | ||||
| /s/ Carl B. Webb | Director | February 13, 2024 | ||
| Carl B. Webb | ||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PROLOGIS, L.P. | ||
| By: | Prologis, Inc., its general partner | |
| By: | /s/ Hamid R. Moghadam | |
| Hamid R. Moghadam | ||
| Chief Executive Officer |
Date: February 13, 2024
POWE****R OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that we, the undersigned officers and directors of Prologis, L.P., hereby severally constitute Hamid R. Moghadam, Timothy D. Arndt and Edward S. Nekritz, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Prologis, L.P. to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the U.S. Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Hamid R. Moghadam | Chairman of the Board and Chief Executive Officer | February 13, 2024 | ||
| Hamid R. Moghadam | ||||
| /s/ Timothy D. Arndt | Chief Financial Officer | February 13, 2024 | ||
| Timothy D. Arndt | ||||
| /s/ Lori A. Palazzolo | Managing Director and Chief Accounting Officer | February 13, 2024 | ||
| Lori A. Palazzolo | ||||
| /s/ Cristina G. Bita | Director | February 13, 2024 | ||
| Cristina G. Bita | ||||
| /s/ James B. Connor | Director | February 13, 2024 | ||
| James B. Connor | ||||
| /s/ George L. Fotiades | Director | February 13, 2024 | ||
| George L. Fotiades | ||||
| /s/ Lydia H. Kennard | Director | February 13, 2024 | ||
| Lydia H. Kennard | ||||
| /s/ Irving F. Lyons III | Director | February 13, 2024 | ||
| Irving F. Lyons III | ||||
| /s/ Avid Modjtabai | Director | February 13, 2024 | ||
| Avid Modjtabai | ||||
| /s/ David P. O’Connor | Director | February 13, 2024 | ||
| David P. O’Connor | ||||
| /s/ Olivier Piani | Director | February 13, 2024 | ||
| Olivier Piani | ||||
| /s/ Jeffrey L. Skelton | Director | February 13, 2024 | ||
| Jeffrey L. Skelton | ||||
| /s/ Carl B. Webb | Director | February 13, 2024 | ||
| Carl B. Webb |
Previous: Item 15. Exhibits, Financial Statements and Schedules