Item 8.01. Other Events.
As previously disclosed, on June 11, 2022, Prologis, Inc.
(“Prologis”) and Prologis, L.P. (“Prologis OP”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) by and among Prologis, Prologis OP, Compton Merger Sub LLC, a Delaware limited liability company and a wholly owned
subsidiary of Prologis (“Prologis Merger Sub”), Compton Merger Sub OP LLC, a Delaware limited liability company and a wholly
owned subsidiary of Prologis OP (“Prologis OP Merger Sub” and, together with Prologis, Prologis OP and Prologis Merger Sub,
the “Prologis Parties”), Duke Realty Corporation, an Indiana corporation (“DRE”) and Duke Realty Limited Partnership,
an Indiana limited partnership (“DRE OP” and, together with DRE, the “DRE Parties”).
The Merger Agreement provides that, upon the terms and subject to
the conditions set forth in the Merger Agreement, (a) DRE will merge with and into Prologis Merger Sub (the “DRE Merger”),
with Prologis Merger Sub surviving the merger and remaining a wholly owned subsidiary of Prologis (the “Surviving Entity”),
(b) thereafter, Prologis and the Surviving Entity will cause all of the outstanding equity interests of the Surviving Entity to
be contributed to Prologis OP in exchange for the issuance by Prologis OP of partnership interests in Prologis OP to Prologis and/or
its subsidiaries as directed by Prologis, and (c) thereafter, Prologis OP Merger Sub will be merged with and into DRE OP, with DRE
OP surviving the merger and becoming a wholly owned subsidiary of Prologis OP (the “Partnership Merger” and, together with
the DRE Merger, the “Mergers”).
Letter Agreement
On September 16, 2022, the Prologis Parties and the DRE
Parties entered into a letter agreement (the “Letter Agreement”), which modifies the treatment of certain Partnership
Performance-Based LTIP Unit Awards (as defined in the Merger Agreement) (generally, (i) the above target payout portion for
such awards granted in calendar year 2020 and (ii) any additional Partnership LTIP Units (as defined in the Merger Agreement)
earned in respect of such awards based on dividends paid by DRE while such awards were outstanding) that are outstanding immediately
prior to the effective time of the Partnership Merger (the “Partnership Merger Effective Time”) to provide that such
awards will, as of the Partnership Merger Effective Time, be canceled in exchange for the right of the holder to receive an amount
in cash calculated in accordance with the Letter Agreement, less applicable taxes and withholdings.
The foregoing summary of the Letter Agreement does not purport to
be a complete description and is qualified in its entirety by the full text of the Letter Agreement, which is attached hereto as Exhibit 2.1
and is incorporated herein by reference.
Litigation-Related Supplemental Disclosures
Beginning on July 26, 2022, two purported holders of
Prologis common stock filed substantially similar complaints against Prologis and the members of the Prologis board of directors in
federal district court. One complaint was filed in the United States District Court for the Northern District of California and one
complaint was filed in the United States District Court for the Southern District of New York. The complaints are captioned as
follows: Bushansky v. Prologis, Inc. et al., No. 3:22-cv-04320 (N.D. Ca. filed July 26, 2022);
and Curtis v. Prologis, Inc. et al., No. 1:22-cv-07833 (S.D.N.Y. filed September 13, 2022)
(collectively, the “Prologis Federal Actions”). The complaints in the Prologis Federal Actions allege that Prologis
and the Prologis board violated federal securities laws by omitting or misstating material information in the Form S-4 in
connection with the Mergers, rendering the Form S-4 materially deficient. Beginning on July 27, 2022, six purported
holders of DRE common stock filed substantially similar complaints against DRE and the members of the DRE board of directors in the
United States District Court for the Southern District of New York. The complaints are captioned as follows: Stein v. Duke
Realty Corporation et al., No. 1:22-cv-06387 (filed July 27, 2022); O’Dell v. Duke Realty Corporation
et al., No. 1:22-cv-06425 (filed July 28, 2022); Whitfield v. Duke Realty Corporation et al.,
No. 1:22-cv-0658 (filed August 2, 2022); McCollum v. Duke Realty Corporation et al., No. 1:22-cv-06585
(filed August 3, 2022); Moore v. Duke Realty Corporation et al., No. 1:22-cv-07837 (filed September 13,
2022); and Riley v. Duke Realty Corporation et al., No. 1:22-cv-07883 (filed September 14, 2022)
(collectively, the “DRE Actions” and together with the Prologis Federal Actions, the “Federal Actions”). The
complaints in the DRE Actions allege that DRE and the DRE board violated federal securities laws by omitting or misstating
material information in the Form S-4 in connection with the Mergers, rendering the Form S-4 materially deficient. The
plaintiffs in the Federal Actions seek, among other things, (i) to enjoin the transaction until the alleged deficiencies
in the Form S-4 are corrected, and (ii) attorneys’ and experts’ fees and costs in connection with the
lawsuit.
In addition, on August 3, 2022, an action captioned Garfield
v. Moghadam et. al., No. C22-01579, was filed in the Superior Court of the State of California for the County of Contra Costa
against Prologis and the Prologis board of directors (the “Garfield Action” and, together with the Federal Actions, the “Actions”).
The complaint in the Garfield Action asserts, among other things, claims for breach of fiduciary duty under Maryland law as well as securities
fraud under California law against Prologis and the Prologis board of directors. The complaint alleges that Prologis and the Prologis
board of directors caused a materially incomplete and misleading proxy statement to be filed with the Securities and Exchange Commission
(“SEC”) and made available to the Prologis stockholders.
The defendants believe that the Actions are without merit. The
defendants deny that any further disclosure beyond that already contained in the Registration Statement on Form S-4, which was
declared effective by the SEC on August 2, 2022 (the “Registration Statement”) is required under applicable law to
supplement the Registration Statement and the joint proxy statement included therein which has been disseminated to Prologis
stockholders and DRE shareholders. Nonetheless, to avoid the risk that the Actions may delay or otherwise adversely affect the
consummation of the Mergers and to minimize the expense of defending such Actions, the defendants are making the following
supplemental disclosures (the “litigation-related supplemental disclosures”) to the Registration Statement. Nothing in
this Report shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the supplemental
disclosures set forth herein.
The litigation-related supplemental disclosures contained below
should be read in conjunction with the Registration Statement, which is available on the Internet site maintained by the SEC at
http://www.sec.gov, along with periodic reports and other information Prologis and DRE file with the SEC. To the extent that the
information set forth herein differs from or updates information contained in the Registration Statement, the information set forth
herein shall supersede or supplement the information in the Registration Statement. All page references are to pages in
the joint proxy statement/prospectus that was filed by Prologis and DRE on August 2, 2022 and forms a part of the Registration
Statement, and terms used below, unless otherwise defined, have the meanings set forth in the Registration Statement.
Supplemental Disclosures
The disclosure under the heading “The Mergers—Background
of the Mergers” is hereby amended and supplemented by replacing the second full paragraph on page 60 of the Registration Statement
in its entirety with the following:
On April 19, 2022 and on several occasions thereafter,
at the request of Duke Realty, a representative from Morgan Stanley discussed with a representative of a large private equity firm with
a significant real estate business, which we refer to as “Party A,” which had previously expressed interest in a potential
strategic transaction involving Duke Realty, whether Party A still had interest in Duke Realty. Party A conveyed knowledge of and liking
for Duke Realty and its assets and expressed conceptual interest in a transaction. Party A stated that they planned to undertake a further
internal evaluation of Duke Realty and would follow up with Morgan Stanley. Party A and Duke Realty did not enter into a non-disclosure
agreement, nor did Duke Realty share non-public information with Party A. From this date through May 11, 2022, Party
A declined to provide a proposal despite further inquiry from Morgan Stanley.
The disclosure under the heading “The Mergers—Background
of the Mergers” is hereby amended and supplemented by adding the following immediately following the first sentence of the fourth
full paragraph on page 61 of the Registration Statement:
The discussions with Citi concerned market and
investor perspectives, potential investor communications relating to the proposed transaction, negotiation strategy and other customary
financial services.
The disclosure under the heading “The Mergers—Background
of the Mergers” is hereby amended and supplemented by replacing the first sentence of the fourth full paragraph on page 64
of the Registration Statement in its entirety with the following:
From June 5, 2022 until the execution of the definitive
merger agreement on June 11, 2022, the management teams of Prologis and Duke Realty, together with their respective financial, legal
and accounting advisors, performed a diligence review with respect to the other company through a review of publicly available and non-public
information, including opening up virtual data rooms with due diligence information for each of Prologis and Duke Realty on June 6,
2022, and held a series of discussions regarding diligence matters, including general corporate and legal matters, accounting
and financial matters, tax, employees and other topics.
The disclosure under the heading “The Mergers—Recommendation
of the Prologis Board of Directors and Its Reasons for the Mergers” is hereby amended and supplemented by replacing the fourth
paragraph of such section on page 67 of the Registration Statement in its entirety with the following:
• its
expectation that the strategic fit between the Prologis and Duke Realty portfolios will allow Prologis to capture significant cost and
revenue synergies, including approximately $310 to $370 million in annual run-rate synergies starting in the first year following
the transaction from immediate corporate general and administrative cost savings, operating leverage, lower interest expense
and lease adjustments while offering its customers more choice, flexibility and product offerings as a result of the combined portfolios;
The disclosure under the heading “The Mergers—Opinion
of Prologis’ Financial Advisor—Illustrative Discounted Cash Flow Analysis for Duke Realty on a Standalone Basis” is
hereby amended and supplemented by replacing the second paragraph of such section on page 76 of the Registration Statement in its
entirety with the following:
Using discount rates ranging from 7.0% to 8.0%, reflecting
estimates of Duke Realty’s weighted average cost of capital, Goldman Sachs derived a range of illustrative present values per share
of Duke Realty common stock, by discounting to present value as of March 31, 2022, (i) estimates of the unlevered free cash
flows to be generated by Duke Realty on a standalone basis, both without taking into account the Synergies and taking into account the
Synergies, for the period from April 1, 2022 to December 31, 2026, as reflected in the Forecasts, and (ii) a range of
illustrative terminal values for Duke Realty, as of December 31, 2026, calculated by applying exit terminal year multiples ranging
from 25.0x to 28.0x to estimated 1-year forward adjusted earnings before interest, taxes, depreciation, and amortization, which we refer
to in this section as “EBITDA,” to be generated by Duke Realty, both without taking into account the Synergies and taking
into account the Synergies, which in both cases was calculated by adjusting Duke Realty’s adjusted EBITDA for 2026, both
without taking into account the Synergies and taking into account the Synergies, as reflected in the Forecasts,
for the final two years of additional development income, at a 6.5% development yield, and then applying a 1-year forward EBITDA growth
rate of 12.0%, as provided by Prologis management (which analysis implied (i) as set forth in the June 11 Presentation,
perpetuity growth rates ranging from 3.0% to 4.3% both without taking into account the Synergies and taking into account the Synergies
and (ii) using the Adjusted Calculations, perpetuity growth rates ranging from 3.4% to 4.7% without taking into account the Synergies,
and 3.4% to 4.6% taking into account the Synergies). Goldman Sachs derived such discount rates by application of the capital asset pricing
model (“CAPM”), which requires certain company-specific inputs, including Duke Realty’s target capital structure weightings,
the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for
Duke Realty, as well as certain financial metrics for the United States financial markets generally. The range of exit terminal year
multiples was estimated by Goldman Sachs utilizing its professional judgment and experience taking into account historical trading multiples
of Prologis and Duke Realty and the multiples calculated by Goldman Sachs as set forth below under “- Selected Publicly Traded
Companies Analysis”.
The disclosure under the heading “The Mergers—Opinion
of Prologis’ Financial Advisor—Illustrative Discounted Cash Flow Analysis for Prologis on a Standalone Basis and Pro Forma”
is hereby amended and supplemented by replacing the second paragraph of such section on page 80 of the Registration Statement in
its entirety with the following:
Using discount rates ranging from 6.5% to 7.5%, reflecting
estimates of Prologis’s weighted average cost of capital, Goldman Sachs derived a range of illustrative present values per share
of Prologis common stock, by discounting to present value as of March 31, 2022, (i) estimates of the unlevered free cash flows
to be generated by Prologis, both on a standalone basis and pro forma giving effect to the transaction, for the period from April 1,
2022 to December 31, 2026, as reflected in the Forecasts, and (ii) a range of illustrative terminal values for Prologis as
of December 31, 2026, calculated by applying exit terminal year multiples ranging from 25.0x to 28.0x to 1-year forward adjusted
EBITDA to be generated by Prologis, both on a standalone basis and pro forma giving effect to the transaction, which was calculated
by adjusting Prologis’ adjusted EBITDA for 2026, as reflected in the Forecasts, for the final two years of
additional development income, at a 5.65% development yield (for Prologis on a standalone basis) and at a 5.9% development yield (for
Prologis pro forma giving effect to the transaction), and then applying a 1-year forward EBITDA growth rate of 9% (for Prologis on a
standalone basis) and of 10.5% (for Prologis pro forma giving effect to the transaction), as provided by Prologis management
(which analysis implied perpetuity growth rates ranging from 3.2% to 4.5%). Goldman Sachs derived such discount rates by application
of the CAPM, which requires certain company-specific inputs, including Prologis’s target capital structure weightings, the cost
of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for Prologis,
as well as certain financial metrics for the United States financial markets generally. The range of exit terminal year multiples was
estimated by Goldman Sachs utilizing its professional judgment and experience taking into account historical trading multiples of Prologis
and Duke Realty and the multiples calculated by Goldman Sachs as set forth above under “- Selected Publicly Traded Companies Analysis.”
The disclosure under the heading “The Mergers—Opinion
of Duke Realty’s Financial Advisor—Summary of Financial Analyses of Morgan Stanley—Comparable Public Company Analysis”
is hereby amended and supplemented by replacing the second full paragraph on page 85 of the Registration Statement in its entirety
with the following:
Morgan Stanley reviewed and compared certain publicly available
ratios, market multiples and Wall Street research analyst consensus, which we refer to in this section as “Street Consensus,”
estimates for each of Duke Realty and Prologis with equivalent publicly available financial information and consensus estimates for companies
that share business characteristics with Duke Realty and Prologis to derive an implied exchange ratio reference range with respect to
Duke Realty and Prologis. Morgan Stanley reviewed the following publicly traded industrial REITs, which we refer to in this section as
“Comparable Companies”: First Industrial Realty Trust, Inc. (which we refer to in this section as “First
Industrial”) and EastGroup Properties, Inc. (which we refer to in this section as “EastGroup”).
The disclosure under the heading “The Mergers—Opinion
of Duke Realty’s Financial Advisor—Summary of Financial Analyses of Morgan Stanley—Comparable Public Company Analysis”
is hereby amended and supplemented by adding the following table before the last paragraph on page 85 of the Registration Statement:
| |
Comparable
Companies | |
| |
Duke Realty | | |
Prologis | | |
First
Industrial | | |
EastGroup | |
P/FFO Per Share Multiples | |
| 22.5 | x | |
| 23.4 | x | |
| 21.5 | x | |
| 22.3 | x |
P/AFFO Per Share Multiples | |
| 24.8 | x | |
| 26.7 | x | |
| 25.7 | x | |
| 28.4 | x |
Implied Cap Rate | |
| 4.1 | % | |
| 3.5 | % | |
| 4.8 | % | |
| 4.1 | % |
P/(D) to NAV Per Share (Cons.) | |
| (17 | )% | |
| (9 | )% | |
| (24 | )% | |
| (15 | )% |
P/(D) to NAV Per Share (GSA) | |
| (18 | )% | |
| (5 | )% | |
| (26 | )% | |
| (16 | )% |
The disclosure under the heading “The Mergers—Opinion
of Duke Realty’s Financial Advisor—Summary of Financial Analyses of Morgan Stanley—Dividend Discount Analysis”
is hereby amended and supplemented by replacing the third full paragraph on page 86 of the Registration Statement in its entirety
with the following:
Morgan Stanley performed a dividend discount analysis of
shares of Duke Realty common stock to calculate a range of implied present values per share of Duke Realty common stock. To perform this
analysis, Morgan Stanley calculated the aggregate implied present value of dividends per share that Duke Realty was forecasted to generate
for the period from April 1, 2022 through December 31, 2025 utilizing, based upon the authorization of Duke Realty management,
the Financial Projections of Duke Realty prepared and provided by Duke Realty management and authorized for Morgan Stanley’s use
by Duke Realty management, discounted based on a derived cost of equity (from 7.3% to 9.3%) using the capital asset
pricing model.
The disclosure under the heading “The Mergers—Opinion
of Duke Realty’s Financial Advisor—Summary of Financial Analyses of Morgan Stanley—Dividend Discount Analysis”
is hereby amended and supplemented by replacing the first paragraph on page 87 of the Registration Statement in its entirety with
the following:
Similarly, Morgan Stanley performed a dividend discount
analysis of shares of Prologis common stock to calculate a range of implied present values per share of Prologis common stock. To perform
this analysis, Morgan Stanley calculated the aggregate implied present value of dividends per share that Prologis was forecasted to generate
for the period from April 1, 2022 through December 31, 2025 utilizing, based upon the authorization of Duke Realty management,
the Financial Projections of Prologis prepared and provided by Prologis management and authorized for Morgan Stanley’s use by Duke
Realty management, discounted based on a derived cost of equity (from 7.1% to 9.1%) using the capital asset pricing
model.
The disclosure under the heading “The Mergers—Opinion
of Duke Realty’s Financial Advisor—Summary of Financial Analyses of Morgan Stanley—Premiums Paid Analysis” is
hereby amended and supplemented by replacing the table following the fourth full paragraph on page 87 of the Registration Statement
in its entirety with the following:
Selected Precedent
Transactions | |
| |
Announcement | |
Acquirer | |
Target | |
Premium to
Unaffected Price | |
November 5, 2021 | |
Industrial Logistics Properties Trust | |
Monmouth Real Estate Investment Corporation | |
| 24 | % |
October 27, 2019 | |
Prologis, Inc. | |
Liberty Property Trust | |
| 21 | % |
May 7, 2018 | |
The Blackstone Group L.P. | |
Gramercy Property Trust | |
| 15 | % |
April 29, 2018 | |
Prologis, Inc. | |
DCT Industrial Trust Inc. | |
| 16 | % |
February 10, 2006 | |
LBA Realty LLC | |
Bedford Property Investors, Inc. | |
| 18 | % |
June 6, 2005 | |
Prologis, Inc. | |
Catellus Development Corporation | |
| 16 | % |
May 4, 2004 | |
Prologis, Inc. & Eaton Vance Management | |
Keystone Property Trust | |
| 12 | % |
October 29, 2001 | |
CalWest Industrial Properties, LLC (CalPERS & RREEF) | |
Cabot Industrial Trust | |
| 18 | % |
The disclosure under the heading “The Mergers—Certain
Prologis Unaudited Prospective Financial Information—Prologis on a Standalone Basis” is hereby amended and supplemented by
replacing the table in such section on page 94 of the Registration Statement in its entirety with the following:
| |
Year
Ending December 31, | |
(in
millions, except per share data) | |
| 2022E | | |
| 2023E | | |
| 2024E | | |
| 2025E | | |
| 2026E | |
Total Net Operating Income | |
$ | 4,835 | | |
$ | 5,534 | | |
$ | 5,512 | | |
$ | 6,142 | | |
$ | 6,915 | |
Adjusted
EBITDA (1) | |
$ | 4,562 | | |
$ | 5,244 | | |
$ | 5,205 | | |
$ | 5,809 | | |
$ | 6,564 | |
AFFO,
Excluding Gains and Promotes (2) | |
$ | 2,899 | | |
$ | 3,259 | | |
$ | 3,704 | | |
$ | 4,118 | | |
$ | 4,630 | |
AFFO,
Excluding Gains and Promotes/Share (2)(3) | |
$ | 3.78 | | |
$ | 4.24 | | |
$ | 4.81 | | |
$ | 5.34 | | |
$ | 5.99 | |
Unlevered
Free Cash Flow (4) | |
$ | 477 | | |
$ | 2,018 | | |
$ | 1,490 | | |
$ | 1,790 | | |
$ | 2,419 | |
Dividend/Share | |
$ | 3.16 | | |
$ | 3.54 | | |
$ | 3.96 | | |
$ | 4.44 | | |
$ | 4.97 | |
(1) Adjusted EBITDA as used by Prologis
is a non-GAAP measure and is calculated beginning with consolidated net earnings attributable to common stockholders and modified to
exclude interest expense, current and deferred income tax expense, depreciation and amortization expense, net gains or losses on real
estate transactions (e.g., development properties, land, and other investments in real estate), net unrealized foreign currency and derivative
gains or losses, net gains or losses on early extinguishment of debt, preferred stock dividends, and preferred stock repurchases.
(2) AFFO, Excluding
Gains and Promotes as used by Prologis is a non-GAAP measure and is calculated beginning with consolidated net earnings attributable
to common stockholders and modified to: (i) exclude net promote income, real estate related depreciation and amortization expense,
net gains or losses on real estate transactions (e.g., development properties, land, and other investments in real estate), current income
tax expense on dispositions, net unrealized foreign currency and derivative gains or losses, deferred income tax expense, current income
tax expense on dispositions related to acquired tax liabilities, net gains or losses on early extinguishment of debt, straight-lined
rents and amortization of lease intangibles, amortization of debt premium, financing costs, and management contracts (net), stock compensation
amortization expense, preferred stock repurchases, (ii) include property improvements and turnover costs, and (iii) incorporate
reconciling items related to noncontrolling interests and Prologis’ share of unconsolidated ventures.
(3) Based on projected
weighted average diluted outstanding shares of stock.
(4) Unlevered Free Cash
Flow as used by Prologis is a non-GAAP measure and is calculated beginning with consolidated net earnings attributable to common stockholders
and modified to: (i) exclude interest expense, preferred stock dividends, distributions with respect to Prologis OP preferred units,
depreciation and amortization expense, net gains or losses on real estate transactions (e.g., development properties, land, and other
investments in real estate), net unrealized foreign currency and derivative gains or losses, deferred income tax expense, net gains or
losses on early extinguishment of debt, straight-lined rents and amortization of lease intangibles, amortization of debt premium, financing
costs, and management contracts (net), other various non-cash items (ii) include property improvements and turnover costs, net deployment
cash flows related to acquisitions, dispositions and development activity, promote cash receipts that are not included in consolidated
net earnings, and (iii) incorporate reconciling items related to noncontrolling interests and Prologis’ share of unconsolidated
ventures.
The disclosure under the heading “The Mergers—Certain
Prologis Unaudited Prospective Financial Information—Duke Realty on a Standalone Basis” is hereby amended and supplemented
by replacing the table in such section starting on page 94 of the Registration Statement in its entirety with the following:
| |
Year
Ending December 31, | |
(in
millions, except per share data) | |
| 2022E | | |
| 2023E | | |
| 2024E | | |
| 2025E | | |
| 2026E | |
Total Net Operating Income | |
$ | 881 | | |
$ | 995 | | |
$ | 1,155 | | |
$ | 1,344 | | |
$ | 1,538 | |
Adjusted
EBITDA (1) | |
$ | 821 | | |
$ | 936 | | |
$ | 1,096 | | |
$ | 1,283 | | |
$ | 1,478 | |
AFFO
(2) | |
$ | 663 | | |
$ | 766 | | |
$ | 888 | | |
$ | 1,017 | | |
$ | 1,137 | |
AFFO/Share
(2)(3) | |
$ | 1.70 | | |
$ | 1.92 | | |
$ | 2.16 | | |
$ | 2.43 | | |
$ | 2.70 | |
Unlevered
Free Cash Flow (4) | |
$ | (677 | ) | |
$ | (1,482 | ) | |
$ | (1,384 | ) | |
$ | (1,268 | ) | |
$ | (1,097 | ) |
Dividend/Share | |
$ | 1.15 | | |
$ | 1.27 | | |
$ | 1.39 | | |
$ | 1.51 | | |
$ | 1.63 | |
(1) Adjusted EBITDA as used by Prologis
relating to Duke Realty is a non-GAAP measure and is calculated beginning with net income attributable to common shareholders and modified
to: (i) exclude interest expense, depreciation and amortization related to real estate, gains and losses on sales of real estate
assets (including real estate assets incidental to Duke Realty’s business), gains and losses from change in control, impairment
charges related to real estate assets (including real estate assets incidental to Duke Realty’s business), all net of related taxes,
gains or losses on debt transactions, gains or losses from involuntary conversion from weather events or natural disasters, severance
and other charges related to major overhead restructuring activities, the expense impact of non-incremental costs attributable to successful
leasing activities, mark-to-market adjustments associated with derivative financial instruments, and (ii) incorporate similar adjustments
for unconsolidated joint ventures and partially owned consolidated entities.
(2) AFFO as used by
Prologis relating to Duke Realty is a non-GAAP measure and is calculated beginning with net income attributable to common shareholders
and modified to: (i) exclude depreciation and amortization related to real estate, gains and losses on sales of real estate assets
(including real estate assets incidental to Duke Realty’s business), gains and losses from change in control,
impairment charges related to real estate assets (including real estate assets incidental to Duke Realty’s
business), all net of related taxes, gains or losses on debt transactions, gains or losses from involuntary conversion from weather events
or natural disasters, promote income, severance and other charges related to major overhead restructuring activities, the expense impact
of non-incremental costs attributable to successful leasing activities, mark-to-market adjustments associated with derivative financial
instruments, straight line rental income and expense, amortization of above and below market lease intangibles and lease concession,
non-cash components of interest expense including interest rate hedge amortization, stock compensation expense, (ii) include recurring
building improvements and total second generation capital expenditures (the leasing of vacant space that had previously been under lease
by Duke Realty is referred to as second generation lease activity) related to leases commencing during the reporting period, and (iii) incorporate
similar adjustments for unconsolidated joint ventures and partially owned consolidated entities.
(3) Based on projected
weighted average diluted outstanding shares of stock.
(4) Unlevered Free Cash
Flow as used by Prologis relating to Duke Realty is a non-GAAP measure and is calculated beginning with consolidated net earnings income
attributable to common stockholders and modified to: (i) exclude interest expense, exclude depreciation and amortization related
to real estate, gains and losses from change in control, impairment charges related to real estate assets (including real estate assets
incidental to Duke Realty’s business), all net of related taxes, gains or losses on debt transactions, gains
or losses from involuntary conversion from weather events or natural disasters, promote income, severance and other charges related to
major overhead restructuring activities, the expense impact of non-incremental costs attributable to successful leasing activities, mark-to-market
adjustments associated with derivative financial instruments, straight line rental income and expense, amortization of above and below
market lease intangibles and lease concession, non-cash components of interest expense including interest rate hedge amortization, stock
compensation expense, (ii) include recurring building improvements and total second generation capital expenditures (the leasing
of vacant space that had previously been under lease by Duke Realty is referred to as second generation lease activity) related to leases
commencing during the reporting period, net deployment cash flows related to acquisitions, dispositions and development activity, and
(iii) incorporate similar adjustments for unconsolidated joint ventures and partially owned consolidated entities.
The disclosure under the heading “The Mergers—Certain
Prologis Unaudited Prospective Financial Information—Combined Company on a Pro Forma Basis Giving Effect to the Mergers”
is hereby amended and supplemented by replacing the table in such section on page 95 of the Registration Statement in its entirety
with the following:
| |
Year
Ending December 31, | |
(in
millions, except per share data) | |
| 2022E | | |
| 2023E | | |
| 2024E | | |
| 2025E | | |
| 2026E | |
Total Net Operating Income | |
$ | 6,029 | | |
$ | 6,793 | | |
$ | 6,845 | | |
$ | 7,582 | | |
$ | 8,457 | |
Adjusted
EBITDA (1) | |
$ | 5,761 | | |
$ | 6,525 | | |
$ | 6,571 | | |
$ | 7,293 | | |
$ | 8,170 | |
AFFO, Excluding Gains and Promotes (1) | |
$ | 3,628 | | |
$ | 4,166 | | |
$ | 4,742 | | |
$ | 5,301 | | |
$ | 5,959 | |
AFFO, Excluding Gains and Promotes/Share (1) | |
$ | 3.81 | | |
$ | 4.37 | | |
$ | 4.96 | | |
$ | 5.54 | | |
$ | 6.21 | |
Unlevered Free Cash Flow (1) | |
$ | (317 | ) | |
$ | 1,406 | | |
$ | 1,035 | | |
$ | 1,521 | | |
$ | 2,344 | |
Dividend/Share | |
$ | 3.16 | | |
$ | 3.54 | | |
$ | 3.96 | | |
$ | 4.44 | | |
$ | 4.97 | |
(1) See definitions of terms in the footnotes
to the above table regarding the Prologis management forecasts relating to Prologis (on a standalone basis) for the calendar years 2022
through 2026.
The disclosure under the heading “The Mergers—Directors
of Prologis After the Mergers” is hereby amended and supplemented by adding the following sentence at the end of such section on
page 104 of the Registration Statement:
Following the Mergers, the compensation of the
Prologis board remains subject to the compensation programs described in Prologis’ Proxy Statement for its 2022 Annual Meeting
of Stockholders, which is incorporated by reference herein.