Prologis Inc

Overview

We consider our ability to generate cash from operating activities, distributions from our co-investment ventures, contributions and dispositions of properties and available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service, dividend and distribution requirements.

Near-Term Principal Cash Sources and Uses

In addition to dividends and distributions, we expect our primary cash needs will consist of the following:

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completion of the development and leasing of the properties in our consolidated development portfolio (at December 31, 2023, 130 properties in our development portfolio were 37.9% leased with a current investment of $4.4 billion and a TEI of $7.8 billion when completed and leased, leaving $3.4 billion of estimated additional required investment);

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development of new properties that we may hold for long-term investment or subsequently contribute to unconsolidated co-investment ventures, including the acquisition of land;

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the acquisition of other real estate investments that we acquire with the intention of redeveloping into industrial properties;

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capital expenditures and leasing costs on properties in our operating portfolio;

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investments in energy assets such as solar panels, battery storage and mobility solutions to serve our customers;

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repayment of debt and scheduled principal payments of $531 million in 2024;

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additional investments in current and future unconsolidated co-investment ventures and other ventures; and

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the acquisition of operating properties or portfolios of operating properties (depending on market and other conditions) for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our unconsolidated entities).

We expect to fund our cash needs principally from the following sources (subject to market conditions):

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net cash flow from property operations;

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fees earned for services performed on behalf of co-investment ventures;

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distributions received from co-investment ventures;

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proceeds from the contribution of properties to current or future co-investment ventures;

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proceeds from the disposition of properties or other investments to third parties;

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available unrestricted cash balances ($530 million at December 31, 2023);

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borrowing capacity under our current credit facility arrangements that allow us to borrow on a short-term basis, with original maturities ranging from overnight to three months ($5.5 billion available at December 31, 2023); and

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proceeds from the issuance of debt.

In the long term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise. We may also fund our cash needs from the issuance of equity securities, subject to market conditions, and through the sale of a portion of our investments in co-investment ventures.

Debt

The following table summarizes information about our consolidated debt by currency at December 31 (dollars in millions):

(1)

The weighted average remaining maturity for total debt outstanding at both December 31, 2023 and 2022 was 9 years.

Our credit ratings at December 31, 2023 were A and A3 from Standard & Poor's and Moody’s, respectively, each with a stable outlook. These ratings allow us to borrow at an advantageous interest rate. Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.

At December 31, 2023, we were in compliance with all of our financial debt covenants. These covenants include a number of customary financial covenants, such as maintaining debt service coverage ratios, leverage ratios and fixed charge coverage ratios.

See Note 8 to the Consolidated Financial Statements for further discussion on our debt.

Equity Commitments Related to Certain Co-Investment Ventures

Certain co-investment ventures have equity commitments from us and our venture partners. Our venture partners fulfill their equity commitment with cash. We may fulfill our equity commitment through contributions of properties or cash.

The following table summarizes the remaining equity commitments at December 31, 2023 (in millions):

(1)

The equity commitments for the co-investment ventures that operate in a different functional currency than the U.S. dollar were calculated using the foreign currency exchange rate at December 31, 2023.

(2)

Venture partners have the option to cancel their equity commitment starting 18 months after the initial commitment date.

See the Cash Flow Summary below for more information about our investment activity in our co-investment ventures.

Cash Flow Summary

The following table summarizes our cash flow activity (in millions):

Operating Activities

Cash provided by and used in operating activities, exclusive of changes in receivables and payables, was impacted by the following significant activities:

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Real Estate Segment. We receive the majority of our operating cash through the net revenues of our Real Estate Segment, including the recovery of our operating costs. Cash flows generated by the Real Estate Segment are impacted by our acquisition, development and disposition activities, which are drivers of NOI recognized during each period. See the Results of Operations section above for further explanation of our Real Estate Segment. The revenues from this segment include noncash adjustments for straight-lined rents and amortization of above and below market leases of $613 million and $268 million for 2023 and 2022, respectively. The increase in straight-lined rents and amortization of above and below market leases in 2023 was driven primarily from the Duke acquisition.

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Strategic Capital Segment. We also generate operating cash through our Strategic Capital Segment by providing asset management and property management and other services to our unconsolidated co-investment ventures. See the Results of Operations section above for the key drivers of the net revenues from our Strategic Capital Segment. Included in Strategic Capital Revenues in the Consolidated Statements of Income are the promotes we earn from the third-party investors in our co-investment ventures, which are recognized in operating activities in the period the cash is received, generally the quarter after the revenue is recognized.

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G&A expenses and equity-based compensation awards. We incurred $390 million and $331 million of G&A expenses in 2023 and 2022, respectively. We recognized equity-based, noncash compensation expenses of $268 million and $175 million in 2023 and 2022, respectively, which were recorded to Rental Expensesin the Real Estate Segment, Strategic Capital Expensesin the Strategic Capital Segment and G&A Expensesin the Consolidated Statements of Income.

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Operating distributions from unconsolidated entities. We received $680 million and $410 million of distributions as a return on our investment from the cash flows generated from the operations of our unconsolidated entities in 2023 and 2022, respectively.

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Cash paid for interest, net of amounts capitalized. We paid interest, net of amounts capitalized, of $457 million and $234 million in 2023 and 2022, respectively. See Note 8 to the Consolidated Financial Statements for further information on this activity.

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Cash paid for income taxes, net of refunds. We paid income taxes, net of refunds, of $149 million and $130 million in 2023 and 2022, respectively. See Note 13 to the Consolidated Financial Statements for further information on this activity.

Investing Activities

Cash provided by investing activities is driven by proceeds from the sale of real estate assets that include the contribution of properties we developed to our unconsolidated co-investment ventures as well as the sale of non-strategic operating properties. Cash used in investing activities is principally driven by our capital deployment activities of investing in real estate development, acquisitions and capital expenditures as discussed above. This activity includes real estate portfolios, land for future development, operating properties and other real estate assets. See Note 4 to the Consolidated Financial Statements for further information on these activities, including the $3.1 billion real estate portfolio we acquired in the U.S. in the second quarter of 2023. In addition, the following significant transactions also impacted our cash used in and provided by investing activities:

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Duke Transaction, net of cash acquired. We paid net cash of$92 million to complete the Duke Transaction in 2022 and an additional $33 million of transaction costs in 2023 that were accrued at the time of the acquisition in 2022. The acquisition was financed through the issuance of equity and the assumption of debt in 2022. A portion of this debt was paid down subsequent to acquisition, see the Financing Activities section below. See Note 3 to the Consolidated Financial Statements for more information on this transaction.

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Investments in and advances to our unconsolidated entities. We invested cash in our unconsolidated entities that represented our proportionate share, of $284 million and $442 million in 2023 and 2022, respectively. The ventures used the funds for the acquisition of properties, development and repayment of debt. See Note 5 to the Consolidated Financial Statements for more detail on our unconsolidated co-investment ventures.

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Return of investment from unconsolidated entities. We received distributions from unconsolidated entities as a return of investment of $348 million and $77 million in 2023 and 2022, respectively. Included in these amounts were distributions from venture activities including proceeds from property sales, debt refinancing and the redemption of our investment in certain unconsolidated entities. Included in 2023 was also the redemption of our interest in an unconsolidated office joint venture. See Note 4 in the Consolidated Financial Statements for further information on this transaction.

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Net proceeds from (payments on) the settlement of net investment hedges. We received net proceeds of $35 million and $56 million for the settlement of net investment hedges in 2023 and 2022, respectively. See Note 15 to the Consolidated Financial Statements for further information on our derivative transactions.

Financing Activities

Cash provided by and used in financing activities is principally driven by proceeds from and payments on credit facilities and other debt, along with dividends paid on common and preferred stock and noncontrolling interest contributions and distributions. Our credit facilities 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.

Our repurchase of and payments on debt and proceeds from the issuance of debt consisted of the following activity (in millions):

(1)

We completed the Duke Transaction in 2022 and assumed $4.2 billion of debt. We paid down the balance of $745 million on Duke’s line of credit subsequent to closing the acquisition which is reflected in Net Proceeds From (Payments On) Credit Facilitiesin the Consolidated Statements of Cash Flow. The assumption of debt was excluded from this table.

Unconsolidated Co-Investment Venture Debt

We had investments in and advances to our unconsolidated co-investment ventures of $8.4 billion at December 31, 2023. The ventures listed below had total third-party debt of $14.9 billion at December 31, 2023 with a weighted average remaining maturity of 7 years and weighted average interest rate of 3.1%. Certain of our ventures do not have third-party debt and are therefore excluded. This debt is non-recourse to Prologis and other investors in the co-investment ventures and bears interest as follows at December 31, 2023 (dollars in millions):

(1)

The weighted average loan-to-value ratio for all unconsolidated co-investment ventures was 27.3% at December 31, 2023. Loan-to-value, a non-GAAP measure, was calculated as the percentage of total third-party debt to the gross book value of real estate for each venture and weighted based on the cumulative gross book value of all unconsolidated co-investment ventures.

At December 31, 2023, we did not guarantee any third-party debt of the unconsolidated co-investment ventures. In our role as the manager or sponsor, we work with the co-investment ventures to maintain sufficient liquidity and refinance their maturing debt. There can be no assurance that the co-investment ventures will be able to refinance any maturing indebtedness on terms as favorable as the maturing debt, or at all. If the ventures are unable to refinance the maturing indebtedness with newly issued debt, they may be able to obtain funds by voluntary capital contributions from us and our partners or by selling assets. Certain of our ventures also have credit facilities, or unencumbered properties, both of which may be used to obtain funds.

Dividend and Distribution Requirements

Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we will meet the dividend requirements of the IRC, relative to maintaining our REIT status, while still allowing us to retain cash to fund our capital deployment and other investment activities.

Under the IRC, REITs may be subject to certain federal income and excise taxes on undistributed taxable income.

We paid quarterly cash dividends of $0.87 and $0.79 per common share in 2023 and 2022, respectively. Our future common stock dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.

We make distributions on the common limited partnership units outstanding at the same per unit amount as our common stock dividend. The Class A common limited partnership units (“Class A Units”) in the OP are entitled to a quarterly distribution equal to $0.64665 per unit so long as the common units receive a quarterly distribution of at least $0.40 per unit. We paid a quarterly cash distribution of $0.64665 per Class A Unit in 2023 and 2022.

At December 31, 2023, our Series Q preferred stock had an annual dividend rate of 8.54% per share and the dividends are payable quarterly in arrears.

Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

Other Commitments

On an ongoing basis, we are engaged in various stages of negotiations for the acquisition or disposition of individual properties or portfolios of properties.