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 Prologis Reports Fourth Quarter and Full-Year 2016 Earnings Results
   Tuesday, January 24, 2017 8:00:00 AM ET

Prologis, Inc. (PLD ), the global leader in logistics real estate, today reported results for the fourth quarter and full year 2016.

Net earnings per diluted share was $0.82 for the quarter and $2.27 for the year compared with $0.23 and $1.64 for the same period in 2015. The year-over-year increase is due primarily to improved operating conditions and higher net promote income. Core funds from operations per diluted share* was $0.63 for the quarter and $2.57 for the year compared with $0.64 and $2.23 for the same period in 2015. The 15 percent annual year-over-year increase reflects improved operating conditions and higher net promote income.

"The fourth quarter represented the culmination of Vision 2016 and our results are a testament to the strength of our global portfolio, setting a new high-water mark for performance," said Hamid R. Moghadam, chairman and CEO, Prologis. "The team delivered record occupancy with double-digit rent growth, above-average value creation and outsized promotes from our strategic capital ventures."

Moghadam added, "I believe we are now at the cusp of yet another important market transition to a phase for which Prologis is ideally positioned. We entered 2017 with significant embedded earnings potential from the combination of rolling in-place leases to market and building out our land bank in the world’s premier consumption markets."

FOCUS ON QUALITY LOCATIONS DRIVES POWERFUL OPERATING PERFORMANCE

Owned & Managed               4Q16  4Q15  Notes
Period End Occupancy          97.1% 96.9% Ended 2016 with record global occupancy
Leases Signed                 39MSF 40MSF More than 180MSF leased in 2016
Customer Retention            79.8% 85.9%
Prologis Share                4Q16  4Q15  Notes
Net Effective Rent Change     16.0% 12.4% Led by the U.S. at 23.2%
Cash Rent Change              7.0%  2.9%
Net Effective Same Store NOI* 3.2%  6.6%  5.6% for full-year 2016, led by the U.S. at 6.9%
Cash Same Store NOI*          4.4%  4.5%

DEVELOPMENT BUSINESS CONTINUES TO ACHIEVE STRONG MARGINS

Prologis Share (Millions of $)                                          4Q16  2016
Building Acquisitions                                                   $127  $247
Weighted avg stabilized cap rate                                        5.2%  5.7%
Development Stabilizations                                              $674  $2,155
Estimated weighted avg yield                                            6.5%  6.8%
Estimated weighted avg margin                                           23.9% 26.5%
Estimated value creation                                                $161  $571
Development Starts                                                      $717  $1,809
Estimated weighted avg margin                                           23.3% 20.2%
Estimated value creation                                                $167  $365
% Build-to-suit                                                         34.3% 41.7%
Total Dispositions (Buildings and Land) and Contributions               $934  $2,626
Weighted avg stabilized cap rate (excluding land and other real estate) 5.4%  5.8%

"We continue to allocate capital to profitable development projects on our strategic land bank," said Michael Curless, chief investment officer, Prologis. "Record low vacancies in most of our markets combined with the need for faster delivery times are resulting in strong demand for development product from our customers, who require well-located logistics space to fulfill their needs."

UPGRADE TO A-/A3 RATING UNDERSCORES FORTRESS BALANCE SHEET During the fourth quarter, Moody’s and S&P upgraded Prologis’ credit rating to A3 and A-, respectively.

"These upgrades are an important achievement for our company," said Thomas S. Olinger, chief financial officer, Prologis. "They are an acknowledgement of the strength of our balance sheet and our prudent financial management. The upgrades also reflect the quality of our global portfolio, our industry-leading operating performance and our growth potential."

Olinger added, "We ended the year with the strongest balance sheet in the company’s history and we have liquidity of more than $4 billion."

2017 GUIDANCE

Earnings (per diluted share)
Net Earnings   $1.55 to $1.70
Core FFO*      $2.60 to $2.70
Operations
Year-end occupancy                             95.5% to 96.5%
Net Effective Same Store NOI - Prologis share* 4.0% to 5.0%
Other Assumptions (in millions)
Strategic capital revenues        $205 to $215
Net promote income                $35 to $45
General & administrative expenses $210 to $220
Realized development gains        $250 to $300
Capital Deployment (in millions) Prologis Share   Owned and Managed
Development stabilizations       $1,600 to $2,000 $1,900 to $2,300
Development starts               $1,600 to $1,900 $2,000 to $2,400
Building acquisitions            $100 to $300     $200 to $500
Building and land dispositions   $850 to $1,100   $1,300 to $1,700
Building contributions           $850 to $1,100   $1,000 to $1,300

The earnings guidance described above includes potential future gains (losses) recognized from real estate transactions but excludes any future foreign currency or derivative gains or losses. In reconciling from net earnings to Core FFO*, Prologis makes certain adjustments, including but not limited to real estate depreciation and amortization expense, gains (losses) recognized from real estate transactions and early extinguishment of debt, acquisition costs, impairment charges, deferred taxes and unrealized gains or losses on foreign currency or derivative activity. The difference between the company’s Core FFO* and net earnings guidance for 2017 relates predominantly to these items. Please refer to our fourth quarter Supplemental Information, which is available on our Investor Relations website at www.ir.prologis.com and on the SEC’s website at www.sec.gov for a definition of Core FFO* and other non-GAAP measures used by Prologis, along with reconciliations of these items to the closest GAAP measure for our results and guidance.

WEBCAST & CONFERENCE CALL INFORMATION Prologis will host a live webcast and conference call to discuss quarterly results, current market conditions and future outlook. Here are the event details:

-- Tuesday, January 24, 2017, at 12 p.m. U.S. Eastern Time.

-- Live webcast at http://ir.prologis.com by clicking Investors>Investor Events and Presentations.

-- Dial in: +1 877-447-8218 or +1 973-409-9692 and enter Passcode 33699077.

A telephonic replay will be available January 24-January 31 at +1 (855) 859-2056 (from the United States and Canada) or +1 (404) 537-3406 (from all other countries) using conference code 33699077. The webcast replay will be posted when available in the Investor Relations "Events & Presentations" section.

ABOUT PROLOGIS Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of December 31, 2016, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 676 million square feet (63 million square meters) in 20 countries. Prologis leases modern distribution facilities to a diverse base of approximately 5,200 customers across two major categories: business-to-business and retail/online fulfillment.

FORWARD-LOOKING STATEMENTS The statements in this document that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management’s beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future -- including statements relating to rent and occupancy growth, development activity and changes in sales or contribution volume of properties, disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to form new co-investment ventures and the availability of capital in existing or new co-investment ventures -- are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, dispositions and development of properties, (v) maintenance of real estate investment trust status, tax structuring and income tax rates (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings, (vii) risks related to our investments in our co-investment ventures, including our ability to establish new co-investment ventures and funds, (viii) risks of doing business internationally, including currency risks, (ix) environmental uncertainties, including risks of natural disasters, and (x) those additional factors discussed in reports filed with the Securities and Exchange Commission by us under the heading "Risk Factors." We undertake no duty to update any forward-looking statements appearing in this document.

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

dollars in millions, except per share/unit data                                                        Three Months ended       Twelve Months ended
                                                                                                       December 31,             December 31,
                                                                                                       2016        2015         2016        2015
            Revenues                                                                                   $ 620       $ 643        $ 2,533     $ 2,197
            Net earnings attributable to common stockholders                                           441         118          1,203       863
            Core FFO*                                                                                  345         346          1,400       1,181
            AFFO*                                                                                      431         301          1,405       1,160
            Adjusted EBITDA*                                                                           641         515          2,223       1,936
            Estimated value creation from development starts - Prologis share                          167         115          365         380
            Common stock dividends and common limited partnership unit distributions                   231         219          923         807
            Per common share - diluted:
                                     Net earnings attributable to common stockholders                  $0.82       $0.23        $   2.27    $   1.64
                                     Core FFO*                                                         0.63        0.64         2.57        2.23
                                     Business line reporting:
                                                              Real estate operations*                  0.57        0.55         2.22        2.02
                                                              Strategic capital*                       0.06        0.09         0.35        0.21
                                                              Core FFO*                                0.63        0.64         2.57        2.23
                                                              Realized development gains, net of taxes 0.30        0.10         0.57        0.49
            Dividends and distributions per common share/unit                                          0.42        0.40         1.68        1.52
                                     * This is a non-GAAP financial measure, please see below for further explanation.
in thousands                                                                       December 31, 2016  September 30, 2016  December 31, 2015
Assets:
     Investments in real estate properties:
                   Operating properties                                            $ 23,943,457       $  23,876,290       $ 23,735,745
                   Development portfolio                                           1,432,082          1,809,002           1,872,903
                   Land                                                            1,218,904          1,352,600           1,359,794
                   Other real estate investments                                   524,887            532,812             552,926
                                                                                   27,119,330         27,570,704          27,521,368
                   Less accumulated depreciation                                   3,758,372          3,638,688           3,274,284
                                        Net investments in real estate properties  23,360,958         23,932,016          24,247,084
     Investments in and advances to unconsolidated entities                        4,230,429          4,580,584           4,755,620
     Assets held for sale                                                          322,139            450,349             378,423
     Notes receivable backed by real estate                                        32,100             33,800              235,050
                                        Net investments in real estate             27,945,626         28,996,749          29,616,177
     Cash and cash equivalents                                                     807,316            375,120             264,080
     Other assets                                                                  1,496,990          1,516,340           1,514,510
                                        Total assets                               $ 30,249,932       $  30,888,209       $ 31,394,767
Liabilities and Equity:
     Liabilities:
                   Debt                                                            $ 10,608,294       $  11,256,997       $ 11,626,831
                   Accounts payable, accrued expenses and other liabilities        1,183,498          1,347,942           1,347,100
                                        Total liabilities                          11,791,792         12,604,939          12,973,931
     Equity:
                   Stockholders’ equity                                            14,991,081         14,799,167          14,667,935
                   Noncontrolling interests                                        3,072,469          3,092,988           3,320,227
                   Noncontrolling interests - limited partnership unitholders      394,590            391,115             432,674
                                        Total equity                               18,458,140         18,283,270          18,420,836
                                        Total liabilities and equity               $ 30,249,932       $  30,888,209       $ 31,394,767
in thousands, except per share amounts                                                                     Three Months Ended         Twelve Months Ended
                                                                                                           December 31,               December 31,
                                                                                                           2016         2015          2016            2015
Revenues:
                     Rental                                                                                $ 559,885    $ 560,186     $ 2,220,409     $ 1,973,187
                     Strategic capital                                                                     52,987       77,115        294,552         210,362
                     Development management and other                                                      7,243        5,900         18,174          13,525
                                                  Total revenues                                           620,115      643,201       2,533,135       2,197,074
Expenses:
                     Rental                                                                                141,050      150,983       568,870         544,182
                     Strategic capital                                                                     30,723       31,761        128,506         108,422
                     General and administrative                                                            56,433       59,769        222,067         217,227
                     Depreciation and amortization                                                         225,736      272,906       930,985         880,373
                     Other                                                                                 1,965        22,231        14,329          66,698
                                                  Total expenses                                           455,907      537,650       1,864,757       1,816,902
Operating income                                                                                           164,208      105,551       668,378         380,172
Other income (expense):
                     Earnings from unconsolidated co-investment ventures, net                              59,204       51,669        191,877         155,373
                     Earnings from other unconsolidated ventures, net                                      1,481        1,210         14,430          3,889
                     Interest expense                                                                      (70,569)     (82,665)      (303,146)       (301,363)
                     Gains on dispositions of development properties and land, net                         174,368      47,978        334,369         258,088
                     Gains on dispositions of real estate, net (excluding development properties and land) 121,067      55,621        423,029         500,799
                     Foreign currency and derivative gains and interest and other income, net              34,909       19,191        15,683          37,950
                     Gains (losses) on early extinguishment of debt, net                                   -            (69,778)      2,484           (86,303)
                                                  Total other income                                       320,460      23,226        678,726         568,433
Earnings before income taxes                                                                               484,668      128,777       1,347,104       948,605
                     Current income tax expense                                                            (21,754)     (5,319)       (60,089)        (28,147)
                     Deferred income tax benefit                                                           3,788        3,299         5,525           5,057
Consolidated net earnings                                                                                  466,702      126,757       1,292,540       925,515
Net earnings attributable to noncontrolling interests                                                      (12,442)     (1,392)       (48,307)        (44,950)
Net earnings attributable to noncontrolling interests - limited partnership units                          (12,063)     (5,370)       (34,301)        (11,126)
Net earnings attributable to controlling interests                                                         442,197      119,995       1,209,932       869,439
Preferred stock dividends                                                                                  (1,658)      (1,632)       (6,714)         (6,651)
Net earnings attributable to common stockholders                                                           $ 440,539    $ 118,363     $ 1,203,218     $    862,788
Weighted average common shares outstanding - Diluted                                                       550,885      542,435       546,666         533,944
Net earnings per share attributable to common stockholders - Diluted                                       $       0.82 $       0.23  $          2.27 $          1.64
in thousands                                                                                                                                Three Months Ended   Twelve Months Ended
                                                                                                                                            December 31,         December 31,
                                                                                                                                            2016      2015       2016        2015
Net earnings attributable to common stockholders                                                                                            $ 440,539 $ 118,363  $ 1,203,218 $    862,788
Add (deduct) NAREIT defined adjustments:
                                   Real estate related depreciation and amortization                                                        217,955   267,087    899,821     854,471
                                   Gains on dispositions of real estate, net (excluding development properties and land)                    (121,067) (55,621)   (423,029)   (500,799)
                                   Reconciling items related to noncontrolling interests                                                    (17,514)  (44,733)   (104,832)   (78,106)
                                   Our share of reconciling items related to unconsolidated co-investment ventures                          43,135    34,732     159,956     179,031
                                   Our share of reconciling items related to other unconsolidated ventures                                  1,718     1,637      2,154       6,585
Subtotal-NAREIT defined FFO*                                                                                                                $ 564,766 $ 321,465  $ 1,737,288 $ 1,323,970
Add (deduct) our defined adjustments:
                                   Unrealized foreign currency and derivative losses (gains), net                                           (29,369)  (7,830)    (7,505)     1,026
                                   Deferred income tax benefit                                                                              (3,788)   (3,299)    (5,525)     (5,057)
                                   Current income tax expense related to acquired tax liabilities                                           -         -          -           3,497
                                   Reconciling items related to noncontrolling interests                                                    643       (163)      682         (1,330)
                                   Our share of reconciling items related to unconsolidated co-investment ventures                          (24,010)  (1,793)    (22,840)    (13,564)
FFO, as modified by Prologis*                                                                                                               $ 508,242 $ 308,380  $ 1,702,100 $ 1,308,542
                                   Gains on dispositions of development properties and land, net                                            (174,368) (47,978)   (334,369)   (258,088)
                                   Current income tax expense (benefit) on dispositions                                                     9,332     (5,130)    24,152      (200)
                                   Acquisition expenses                                                                                     2,075     17,485     4,607       47,034
                                   Losses (gains) on early extinguishment of debt, net                                                      -         69,778     (2,484)     86,303
                                   Reconciling items related to noncontrolling interests                                                    1         1,286      4,299       (11,121)
                                   Our share of reconciling items related to unconsolidated co-investment ventures                          929       1,937      5,612       8,820
                                   Our share of reconciling items related to other unconsolidated ventures                                  (1,424)   -          (3,419)     -
Core FFO*                                                                                                                                   $ 344,787 $ 345,758  $ 1,400,498 $ 1,181,290
Adjustments to arrive at Adjusted FFO ("AFFO"), including our share of unconsolidated co-investment ventures less noncontrolling interests:
                                   Gains on dispositions of development properties and land, net                                            174,368   47,978     334,369     258,088
                                   Current income tax (expense) benefit on dispositions                                                     (9,332)   5,130      (24,152)    200
                                   Straight-lined rents and amortization of lease intangibles                                               (18,944)  (22,082)   (104,886)   (59,619)
                                   Property improvements                                                                                    (28,451)  (29,743)   (78,745)    (75,283)
                                   Turnover costs                                                                                           (40,891)  (45,902)   (165,992)   (154,524)
                                   Amortization of debt premiums, financing costs and management contracts, net                             (1,172)   (7,666)    (11,420)    (25,830)
                                   Stock compensation expense                                                                               16,683    13,541     60,341      53,665
                                   Reconciling items related to noncontrolling interests                                                    13,108    13,862     56,917      44,971
                                   Our share of reconciling items related to unconsolidated co-investment ventures                          (19,591)  (19,913)   (61,923)    (63,257)
AFFO*                                                                                                                                       $ 430,565 $ 300,963  $ 1,405,007 $ 1,159,701
* This is a non-GAAP financial measure, please see below for further explanation.
in thousands                                                                                         Three Months Ended    Twelve Months Ended
                                                                                                     December 31,          December 31,
                                                                                                     2016       2015       2016         2015
Net earnings attributable to common stockholders                                                     $  440,539 $ 118,363  $  1,203,218 $    862,788
             Gains on dispositions of real estate, net (excluding development properties and land)   (121,067)  (55,621)   (423,029)    (500,799)
             Depreciation and amortization                                                           225,736    272,906    930,985      880,373
             Interest expense                                                                        70,569     82,665     303,146      301,363
             Losses (gains) on early extinguishment of debt, net                                     -          69,778     (2,484)      86,303
             Current and deferred income tax expense, net                                            17,966     2,020      54,564       23,090
             Net earnings attributable to noncontrolling interests - limited partnership unitholders 12,063     5,370      34,301       11,126
             Pro forma adjustments                                                                   (1,382)    (9,354)    (10,248)     19,397
             Preferred stock dividends                                                               1,658      1,632      6,714        6,651
             Unrealized foreign currency and derivative losses (gains), net                          (29,369)   (7,830)    (7,505)      1,026
             Stock compensation expense                                                              16,683     13,541     60,341       53,665
             Acquisition expenses                                                                    2,075      17,485     4,607        47,034
Adjusted EBITDA, consolidated*                                                                       $ 635,471  $ 510,955  $ 2,154,610  $ 1,792,017
             Reconciling items related to noncontrolling interests                                   (34,140)   (53,600)   (152,082)    (117,817)
             Our share of reconciling items related to unconsolidated co-investment ventures         39,590     57,350     219,975      262,151
Adjusted EBITDA*                                                                                     $ 640,921  $ 514,705  $ 2,222,503  $ 1,936,351
* This is a non-GAAP financial measure, please see below for further explanation.

Adjusted EBITDA. We use Adjusted EBITDA, a non-Generally Accepted Accounting Principles ("GAAP") financial measure, as a measure of our operating performance. We calculate Adjusted EBITDA beginning with consolidated net earnings attributable to common stockholders and removing the effect of interest, income taxes, depreciation and amortization, impairment charges, third party acquisition expenses related to the acquisition of real estate, gains or losses from the acquisition or disposition of investments in real estate (other than from land and development properties), gains from the revaluation of equity investments upon acquisition of a controlling interest, gains or losses on early extinguishment of debt and derivative contracts (including cash charges), similar adjustments we make to our FFO measures (see definition below), and other items, such as stock based compensation and unrealized gains or losses on foreign currency. We make adjustments to reflect our economic ownership in each entity in which we invest, whether consolidated or unconsolidated.

We consider Adjusted EBITDA to provide investors relevant and useful information because it permits investors to view our operating performance on an unleveraged basis before the effects of income tax, non-cash depreciation and amortization expense, gains and losses on the disposition of non-development properties and other items (outlined above), that affect comparability. We also include a pro forma adjustment in Adjusted EBITDA to reflect a full period of NOI on the operating properties we acquire and stabilize and to remove NOI on properties we dispose of during the quarters, assuming the transaction occurred at the beginning of the quarter. By excluding interest expense, Adjusted EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allows for a more meaningful comparison of our operating performance to that of other companies, both in the real estate industry and in other industries. Gains and losses on the early extinguishment of debt generally include the costs of repurchasing debt securities. While not infrequent or unusual in nature, these items result from market fluctuations that can have inconsistent effects on our results of operations. The economics underlying these items reflect market and financing conditions in the short-term but can obscure our performance and the value of our long-term investment decisions and strategies.

We believe that Adjusted EBITDA helps investors to analyze our ability to meet interest payment obligations and to make quarterly preferred share dividends. We believe that investors should consider Adjusted EBITDA in conjunction with net earnings and the other GAAP measures of our performance to improve their understanding of our operating results, and to make more meaningful comparisons of our performance against other companies. By using Adjusted EBITDA, an investor is assessing the earnings generated by our operations but not taking into account the eliminated expenses or gains incurred in connection with such operations. As a result, Adjusted EBITDA has limitations as an analytical tool and should be used in conjunction with our GAAP presentations. Adjusted EBITDA does not reflect our historical cash expenditures or future cash requirements for working capital, capital expenditures, distribution requirements, contractual commitments or interest and principal payments on our outstanding debt.

While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income as defined by GAAP and it should not be considered as an alternative to those indicators in evaluating operating performance or liquidity. Further, our computation of Adjusted EBITDA may not be comparable to EBITDA reported by other companies. We compensate for the limitations of Adjusted EBITDA by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of Adjusted EBITDA and a reconciliation to Adjusted EBITDA from consolidated net earnings, a GAAP measurement.

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

Calculation of Per Share Amounts
in thousands, except per share amount                                          Three Months Ended           Twelve Months Ended
                                                                               Dec. 31,                     Dec. 31,
                                                                                   2016         2015            2016           2015
Net earnings
Net earnings                                                                   $   440,539  $   118,363     $   1,203,218  $   862,788
Noncontrolling interest attributable to exchangeable limited partnership units     12,600       5,745           37,079         13,120
Gains, net of expenses, associated with exchangeable debt assumed exchanged        -            -               -              (1,614)
Adjusted net earnings - Diluted                                                $   453,139  $   124,108     $   1,240,297  $   874,294
Weighted average common shares outstanding - Basic                                 528,012      523,770         526,103        521,241
Incremental weighted average effect on exchange of limited partnership units       15,869       16,393          16,833         8,569
Incremental weighted average effect of equity awards                               7,004        2,272           3,730          1,961
Incremental weighted average effect on exchangeable debt assumed exchanged (a)     -            -               -              2,173
Weighted average common shares outstanding - Diluted                               550,885      542,435         546,666        533,944
Net earnings per share - Basic                                                 $   0.83     $   0.23        $   2.29       $   1.66
Net earnings per share - Diluted                                               $   0.82     $   0.23        $   2.27       $   1.64
Core FFO
Core FFO                                                                       $   344,787  $   345,758     $   1,400,498  $   1,181,290
Noncontrolling interest attributable to exchangeable limited partnership units     991          53              4,273          213
Interest expense on exchangeable debt assumed exchanged                            -            -               -              3,506
Core FFO - Diluted                                                             $   345,778  $   345,811     $   1,404,771  $   1,185,009
Weighted average common shares outstanding - Basic                                 528,012      523,770         526,103        521,241
Incremental weighted average effect on exchange of limited partnership units       15,869       14,897          16,833         6,897
Incremental weighted average effect of equity awards                               7,004        2,272           3,730          1,961
Incremental weighted average effect on exchangeable debt assumed exchanged (a)     -            -               -              2,173
Weighted average common shares outstanding - Diluted                               550,885      540,939         546,666        532,272
Core FFO per share - Diluted                                                   $   0.63     $   0.64        $   2.57       $   2.23
(a) In March 2015, the exchangeable debt was settled primarily through the issuance of common stock. The adjustment in 2015 assumes the exchange occurred on January 1, 2015.

FFO, as modified by Prologis attributable to common stockholders/unitholders ("FFO, as modified by Prologis"); Core FFO attributable to common stockholders/unitholders ("Core FFO"); AFFO; (collectively referred to as "FFO"). FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.

The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a partial sale of our investment. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated ventures.

Our FFO Measures

Our FFO measures begin with NAREIT’s definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy. While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis, Core FFO and AFFO, as defined below, are subject to significant fluctuations from period to period. Although these items may have a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long term. These items have both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.

We calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our FFO measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

We analyze our operating performance primarily by the rental revenues of our real estate and the revenues from our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities.

FFO, as modified by Prologis

To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:

(i)   deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;
(ii)  current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in earnings that is excluded from our defined FFO measure;
(iii) unhedged foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated entities;
(iv)  foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated and unconsolidated entities; and
(v)   mark-to-market adjustments associated with derivative financial instruments.

We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.

Core FFO

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

(i)   gains or losses from contribution or sale of land or development properties that were developed with the intent to contribute or sell;
(ii)  income tax expense related to the sale of investments in real estate and third-party acquisition costs related to the acquisition of real estate;
(iii) impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties;
(iv)  gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and
(v)   expenses related to natural disasters.

We use Core FFO, including by segment and region, to: (i) assess our operating performance as compared to similar real estate companies and the industry in general, (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods, relative to resource allocation decisions; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and (v) evaluate how a specific potential investment will impact our future results.

AFFO

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

(i)   straight-line rents;
(ii)  amortization of above- and below-market lease intangibles;
(iii) amortization of management contracts;
(iv)  amortization of debt premiums and discounts and financing costs, net of amounts capitalized, and;
(v)   stock compensation expense.

We use AFFO to (i) assess our operating performance as compared to similar real estate companies and the industry in general, (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods, relative to resource allocation decisions, (iii) evaluate the performance of our management, (iv) budget and forecast future results to assist in the allocation of resources, and (v) evaluate how a specific potential investment will impact our future results.

Limitations on the use of our FFO measures

While we believe our modified FFO measures are important supplemental measures, neither NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly, these are only a few of the many measures we use when analyzing our business. Some of these limitations are:

-- The current income tax expenses and acquisition costs that are excluded from our modified FFO measures represent the taxes and transaction costs that are payable.

-- Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of industrial properties are not reflected in FFO.

-- Gains or losses from non-development property acquisitions and dispositions or impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of acquired or disposed properties arising from changes in market conditions.

-- The deferred income tax benefits and expenses that are excluded from our modified FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our modified FFO measures do not currently reflect any income or expense that may result from such settlement.

-- The foreign currency exchange gains and losses that are excluded from our modified FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.

-- The gains and losses on extinguishment of debt that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our debt at less or more than our future obligation.

-- The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

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

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

                                                    Low       High
Net Earnings                                        $ 1.55    $ 1.70
Our share of:
Depreciation and amortization                         1.65      1.70
Net gains of real estate transactions, net of taxes   (0.60)    (0.70)
Core FFO                                            $ 2.60    $ 2.70

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

Rent Change (Cash) represents the change in starting rental rates per the lease agreement on new and renewed leases signed during the periods as compared with the previous ending rental rates in that same space. This measure excludes any free rent periods and teaser rates defined as 50% or less of the stabilized rate.

Rent Change (Net Effective) represents the change in net effective rental rates (average rate over the lease term) on new and renewed leases signed during the period as compared with the previous effective rental rates in that same space.

Same Store. We evaluate the operating performance of the operating properties we own and manage using a "same store" analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We include properties from our owned and managed portfolio in our same store analysis. We have defined the same store portfolio, for the three months ended December 31, 2016, as those properties that were in operation at January 1, 2015, and have been in operation throughout the same three-month periods in both 2016 and 2015 (including development properties that have been completed and available for lease). We have removed all properties that were disposed of to a third party or were classified as held for sale to a third party from the population for both periods. We believe the factors that affect rental revenues, rental expenses and NOI in the same store portfolio are generally the same as for the total operating portfolio. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the recent period end exchange rate to translate from local currency into the U.S. dollar, for both periods.

Same store is a commonly used measure in the real estate industry. Our same store measures are non-GAAP financial measures that are calculated beginning with rental revenues, rental recoveries and rental expenses from the financial statements prepared in accordance with GAAP. It is also common in the real estate industry and expected from the analyst and investor community that these numbers be further adjusted to remove certain non-cash items included in the financial statements prepared in accordance with GAAP to reflect a cash same store number. In order to clearly label these metrics, we call one Same Store NOI and one Same Store NOI - Cash. As our same store measures are non-GAAP financial measures they have certain limitations as an analytical tool and may vary among real estate companies. As a result, we provide a reconciliation from our financial statements prepared in accordance with GAAP to Same Store NOI with explanations of how these metrics are calculated.

The following is a reconciliation of our consolidated rental income, rental expenses and NOI, as included in the Consolidated Statements of Operations, to the respective amounts in our Same Store portfolio analysis:

dollars in thousands                              Three Months Ended
                                                  December 31,
                                                  2016          2015          Change  (%)
Rental Revenue:
Rental Revenue                                    $  435,722    $  435,626
Rental Recoveries                                    124,163       124,560
Per the Consolidated Statements of Operations        559,885       560,186
Properties not included and other adjustments (a)    (168,972)     (177,920)
Unconsolidated Co-Investment Ventures                436,500       423,065
Same Store - Rental Revenue                       $  827,413    $  805,331          2.7   %
Rental Expense:
Per the Consolidated Statements of Operations     $  141,050    $  150,983
Properties not included and other adjustments (b)    (32,106)      (44,394)
Unconsolidated Co-Investment Ventures                99,212        96,511
Same Store - Rental Expense                       $  208,156    $  203,100          2.5   %
NOI:
Consolidated NOI                                  $  418,835    $  409,203
Properties not included and other adjustments        (136,866)     (133,526)
Unconsolidated Co-Investment Ventures                337,288       326,554
Same Store - NOI                                  $  619,257    $  602,231          2.8   %
Same Store - NOI  - Prologis Share (c)            $  355,837    $  344,739          3.2   %
NOI- Cash:
Same store- NOI                                   $  619,257    $  602,231
Straight-line rent adjustments (d)                $  (8,783)    $  (14,539)
Fair value lease adjustments (d)                     (1,203)       (477)
Same Store - NOI- Cash                            $  609,271    $  587,215          3.8   %
Same Store - NOI- Prologis Share (c)              $  349,502    $  334,697          4.4   %
(a) To calculate Same Store rental income, we exclude the net termination and renegotiation fees to allow us to evaluate the growth or decline in each property’s rental income without regard to items that are not indicative of the property’s recurring operating performance.
(b) To calculate Same Store rental expense, we include an allocation of the property management expenses for our consolidated properties based on the property management fee that is provided for in the individual management agreements under which our wholly owned management companies provide property management services (generally the fee is based on a percentage of revenue). On consolidation, the management fee income and expenses are eliminated and the actual cost of providing property management services is recognized.
(c) Prologis share of Same Store is calculated using the underlying building information from the Same Store NOI and NOI - Cash calculations and applying our ownership percentage as of December 31, 2016 to the NOI of each building for both periods.
(d) In order to derive Same Store- NOI - Cash, we adjust Same Store- NOI to exclude non-cash items included in our rental income in our financial statements, including straight line rent adjustments and adjustments related to purchase accounting to reflect leases at fair value at the time of acquisition.

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

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To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/prologis-reports-fourth-quarter-and-full-year-2016-earnings-results-300395369.html

SOURCE Prologis, Inc.

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