Our Global Presence and Financial Performance

Prologis is a leading global logistics real estate company with properties and development projects across the world. As of September 30, 2024, the company owned or had investments in properties and projects totaling approximately 1.2 billion square feet, primarily located in the United States, Europe, Asia and other regions.

Prologis operates two main business segments: Real Estate (Rental Operations and Development) and Strategic Capital. The Real Estate segment generates the majority of the company’s revenue, earnings and funds from operations (FFO), around 90-95%. This segment includes rental income from operating properties as well as earnings from development projects. The Strategic Capital segment produces more stable, long-term cash flows, contributing 5-10% of overall revenue, earnings and FFO, excluding promote revenues.

Strong Financial Results Despite Market Softness

Prologis reported strong operating results for the nine months ended September 30, 2024, despite some softening in rents and occupancy in the broader market. The company’s existing lease mark-to-market, or the difference between in-place rents and current market rents, drove rent growth on lease renewals and same-store net operating income (NOI) growth in its operating portfolio. Occupancy in the operating portfolio remained high at 96.2% at the end of the period.

While the company is seeing some caution from customers in their leasing decisions due to economic uncertainty, Prologis believes it is well-positioned for long-term organic revenue growth. This is due to the significant cumulative growth in market rents over the past several years and the high existing lease mark-to-market in its portfolio.

During the first nine months of 2024, Prologis completed several notable transactions, including:

• Generating $2.4 billion in net proceeds and $811 million in net gains from contributing properties to unconsolidated co-investment ventures and selling non-strategic assets.
• Acquiring 225 acres of land in India through consolidated joint ventures to support future development opportunities in this new market.
• Establishing a $4.2 billion commercial paper program to provide additional short-term borrowing capacity.
• Issuing $4.2 billion in new senior notes with a weighted average interest rate of 4.8% and maturity of 14 years.

Segment Performance

The Real Estate segment, which includes rental operations and development, generated $4.2 billion in NOI for the nine-month period, up from $3.8 billion in the same period of 2023. The increase was driven by:

• Positive rental rate growth from higher market rents and contractual rent increases
• Additional NOI from acquisitions, including a $3.1 billion portfolio acquired in June 2023
• Increased NOI from newly completed development projects

Prologis’ development activity remained strong, with 21 new projects started during the first nine months of 2024, totaling 6 million square feet and $885 million in total expected investment (TEI). 55 development projects were stabilized during this period, totaling 19 million square feet and $3.3 billion in TEI, with a weighted average stabilized yield of 6.0%.

The Strategic Capital segment generated $208 million in NOI, down from $764 million in the prior-year period. This decrease was primarily due to lower promote revenue, which can fluctuate significantly based on the performance of the company’s unconsolidated co-investment ventures. Recurring strategic capital revenues, such as asset management and property management fees, remained relatively stable.

Driving Future Growth

Prologis believes it is well-positioned for future growth due to several key factors:

1. Rent Growth: The company estimates its share of the lease mark-to-market is approximately 34%, representing significant potential for higher rents as leases are renewed.

2. Value Creation from Development: Prologis’ global development program provides opportunities to create value by sourcing well-located land and redevelopment sites. The company estimates its consolidated land and other real estate investments have the potential to support $36.0 billion ($40.7 billion on an owned and managed basis) in newly developed buildings.

3. Strategic Capital Advantages: The company’s co-investment ventures allow it to grow its owned and managed portfolio, contribute newly developed assets to the ventures, and generate substantial management fees.

4. Balance Sheet Strength: Prologis maintains a strong, flexible balance sheet with conservative leverage, long-dated debt maturities, and ample liquidity, providing the capacity to capitalize on investment opportunities.

5. Operational Efficiency: The company’s scalable systems and infrastructure allow it to grow its portfolio with limited incremental general and administrative (G&A) expense.

6. Innovation and Customer Focus: Prologis is investing in emerging technologies and service offerings to enhance its customers’ experience and support their operational and sustainability goals.

Liquidity and Capital Resources

Prologis expects to fund its near-term cash needs, which include completing development projects, acquiring land and operating properties, and repaying debt, through a variety of sources:

• Net cash flow from property operations
• Fees and distributions from its co-investment ventures
• Proceeds from contributing properties to co-investment ventures or selling assets to third parties
• Available cash balances and borrowing capacity under credit facilities, including its new commercial paper program

The company has a strong balance sheet, with a weighted average debt maturity of 10 years and a weighted average interest rate of 3.1% as of September 30, 2024. Prologis maintains investment-grade credit ratings, which allow it to borrow at favorable rates.

Funds from Operations (FFO)

Prologis uses several non-GAAP measures, including “FFO, as modified by Prologis” and “Core FFO,” to evaluate its operating performance. These measures exclude certain items from net earnings, such as depreciation, gains/losses on real estate transactions, and foreign currency-related adjustments, to provide a better understanding of the company’s long-term operating performance.

For the nine months ended September 30, 2024, Prologis reported FFO, as modified by Prologis, of $4.0 billion, down from $4.4 billion in the prior-year period. Core FFO, which further excludes certain non-recurring items, was $3.9 billion, compared to $4.1 billion in the same period of 2023. The decreases were primarily due to lower promote revenue in the Strategic Capital segment.

Market Risk Exposure

Prologis is exposed to market risks, including foreign currency exchange rate fluctuations and interest rate changes. The company mitigates its foreign currency risk by borrowing in the currencies of its international investments and using derivative instruments. As of September 30, 2024, the company had minimal net equity denominated in currencies other than the U.S. dollar after considering its hedging activities.

Regarding interest rate risk, approximately $31.2 billion of Prologis’ debt bore interest at fixed rates, while $1.7 billion was variable-rate debt. A 10% increase in interest rates on the company’s variable-rate debt would result in an additional $4 million in annual interest expense.

Conclusion

Prologis delivered strong financial results in the first nine months of 2024, demonstrating the strength of its global logistics real estate platform and strategic initiatives. Despite some near-term market softness, the company believes it is well-positioned for long-term growth due to its rent growth potential, development capabilities, strategic capital partnerships, balance sheet strength, operational efficiency, and focus on innovation and customer service. Prologis continues to actively manage its exposure to market risks, maintaining a conservative financial profile to support its growth objectives.