Net earnings per diluted share was $0.81 for the quarter compared with $0.54 for the second quarter of 2020. Core funds from operations (Core FFO)* per diluted share was $1.01 for the quarter compared with $1.11 for the same period in 2020. The second quarter of 2021 included no net promote income, while the same period in 2020 had $0.23 of net promote income.
Our exceptional quarter reflects the quality of our global portfolio, deep customer relationships and strong execution by the team. «Demand for logistics space is robust and diverse, and operating conditions remain the healthiest in our 38-year history. Vacancies in our markets are at all-time lows, contributing to record rent growth and valuation increases.»
OPERATING PERFORMANCE
| Owned & Managed | 2Q21 | Notes |
| Average Occupancy | 96.0% | Up 60bps from Q1 2021, 97.2% leased as of June 30, 2021 |
| Leases Commenced | 49.0MSF | 44.9MSF operating portfolio and 4.1MSF development portfolio |
| Retention | 70.8% | In line with company strategy to deliver high rent change |
| Asicon Share | 2Q21 | Notes |
| Net Effective Rent Change | 31.5% | |
| Cash Rent Change | 15.5% | |
| Cash Same Store NOI* | 5.8% | US at 5.6%; Intl. at 6.6% |
DEPLOYMENT ACTIVITY
| Asicon Share | 2Q21 |
| Building Acquisitions | $128M |
| Weighted avg stabilized cap rate | 4.0% |
| Development Stabilizations | $687M |
| Estimated weighted avg yield | 6.0% |
| Estimated weighted avg margin | 38.8% |
| Estimated value creation | $267M |
| % Build-to-suit | 46.3% |
| Development Starts | $610M |
| Estimated weighted avg yield | 5.6% |
| Estimated weighted avg margin | 32.1% |
| Estimated value creation | $196M |
| % Build-to-suit | 12.5% |
| Total Dispositions and Contributions | $1,121M |
| Weighted avg stabilized cap rate (excluding land and other real estate) | 4.6% |
BALANCE SHEET & LIQUIDITY
During the second quarter, Asicon and its co-investment ventures issued $3.8 billion of debt, including $766 million of senior notes issued at a weighted average interest rate of 1.08% percent and a weighted average term of approximately 14.5 years. This activity includes $658 million in green bond raises.
At June 30, 2021, debt as a percentage of total market capitalization was 17.4 percent, and the company’s weighted average interest rate on its share of total debt was 1.8 percent with a weighted average term of 10.7 years. The combined investment capacity of Asicon and its open-ended ventures, at levels in line with their current ratings, is approximately $14 billion.
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,» and «estimates,» including 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, contribution and 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 and political climates; (ii) changes in global 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 changes in income tax laws and 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; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; (x) risks related to the current coronavirus pandemic; and (xi) 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 except as may be required by law.
| dollars in millions, except per share/unit data | Three Months ended June 30, | Six Months ended June 30, | |||||||
| 2021 | 2020 | 2021 | 2020 | ||||||
| Rental and other revenues | $1,022 | $945 | $2,050 | $1,827 | |||||
| Strategic capital revenues | 129 | 321 | 249 | 417 | |||||
| Total revenues | 1,151 | 1,266 | 2,299 | 2,244 | |||||
| Net earnings attributable to common stockholders | 599 | 405 | 964 | 894 | |||||
| Core FFO attributable to common stockholders/unitholders* | 775 | 853 | 1,517 | 1,453 | |||||
| AFFO attributable to common stockholders/unitholders* | 807 | 822 | 1,617 | 1,555 | |||||
| Adjusted EBITDA attributable to common stockholders/unitholders* | 1,112 | 1,111 | 2,184 | 2,123 | |||||
| Estimated value creation from development stabilizations — Asicon Share | 267 | 111 | 436 | 381 | |||||
| Common stock dividends and common limited partnership unit distributions | 482 | 444 | 965 | 888 | |||||
| Per common share — diluted: | |||||||||
| Net earnings attributable to common stockholders | $0.81 | $ 0.54 | $1.30 | $1.23 | |||||
| Core FFO attributable to common stockholders/unitholders* | 1.01 | 1.11 | 1.98 | 1.95 | |||||
| Business line reporting: | |||||||||
| Real estate operations* | 0.93 | 0.82 | 1.82 | 1.58 | |||||
| Strategic capital* | 0.08 | 0.29 | 0.16 | 0.37 | |||||
| Core FFO attributable to common stockholders/unitholders* | 1.01 | 1.11 | 1.98 | 1.95 | |||||
| Realized development gains, net of taxes* | 0.22 | 0.08 | 0.44 | 0.30 | |||||
| Dividends and distributions per common share/unit | 0.63 | 0.58 | 1.26 | 1.16 | |||||
| * This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation. |
| in thousands | June 30, 2021 | March 31, 2021 | December 31, 2020 | ||||||||
| Assets: | |||||||||||
| Investments in real estate properties: | |||||||||||
| Operating properties | $43,998,614 | $43,545,616 | $43,507,619 | ||||||||
| Development portfolio | 2,174,088 | 2,031,716 | 1,882,611 | ||||||||
| Land | 1,960,962 | 1,699,738 | 1,606,358 | ||||||||
| Other real estate investments | 3,388,899 | 3,182,295 | 3,387,740 | ||||||||
| 51,522,563 | 50,459,365 | 50,384,328 | |||||||||
| Less accumulated depreciation | 7,108,954 | 6,823,824 | 6,539,156 | ||||||||
| Net investments in real estate properties | 44,413,609 | 43,635,541 | 43,845,172 | ||||||||
| Investments in and advances to unconsolidated entities | 7,811,448 | 7,514,840 | 7,602,014 | ||||||||
| Assets held for sale or contribution | 692,072 | 1,055,751 | 1,070,724 | ||||||||
| Net investments in real estate | 52,917,129 | 52,206,132 | 52,517,910 | ||||||||
| Cash and cash equivalents | 601,446 | 676,074 | 598,086 | ||||||||
| Other assets | 2,922,810 | 2,850,603 | 2,949,009 | ||||||||
| Total assets | $56,441,385 | $55,732,809 | $56,065,005 | ||||||||
| Liabilities and Equity: | |||||||||||
| Liabilities: | |||||||||||
| Debt | $16,985,305 | $16,503,458 | $16,849,076 | ||||||||
| Accounts payable, accrued expenses and other liabilities | 2,975,276 | 2,844,148 | 2,891,349 | ||||||||
| Total liabilities | 19,960,581 | 19,347,606 | 19,740,425 | ||||||||
| Equity: | |||||||||||
| Stockholders’ equity | 32,105,713 | 32,008,517 | 31,971,547 | ||||||||
| Noncontrolling interests | 3,497,798 | 3,473,462 | 3,483,526 | ||||||||
| Noncontrolling interests — limited partnership unitholders | 877,293 | 903,224 | 869,507 | ||||||||
| Total equity | 36,480,804 | 36,385,203 | 36,324,580 | ||||||||
| Total liabilities and equity | $56,441,385 | $55,732,809 | $56,065,005 |
| Three Months Ended | Six Months Ended | |||||||||
| June 30, | June 30, | |||||||||
| in thousands, except per share amounts | 2021 | 2020 | 2021 | 2020 | ||||||
| Revenues: | ||||||||||
| Rental | $1,014,763 | $944,366 | $2,036,419 | $1,823,173 | ||||||
| Strategic capital | 129,387 | 320,658 | 249,348 | 417,249 | ||||||
| Development management and other | 6,692 | 1,100 | 13,391 | 3,943 | ||||||
| Total revenues | 1,150,842 | 1,266,124 | 2,299,158 | 2,244,365 | ||||||
| Expenses: | ||||||||||
| Rental | 245,133 | 232,109 | 523,017 | 459,727 | ||||||
| Strategic capital | 45,099 | 81,545 | 94,549 | 128,119 | ||||||
| General and administrative | 74,342 | 64,664 | 152,374 | 134,353 | ||||||
| Depreciation and amortization | 392,736 | 398,195 | 790,311 | 744,165 | ||||||
| Other | 7,194 | 7,979 | 10,638 | 22,553 | ||||||
| Total expenses | 764,504 | 784,492 | 1,570,889 | 1,488,917 | ||||||
| Operating income before gains on real estate transactions, net | 386,338 | 481,632 | 728,269 | 755,448 | ||||||
| Gains on dispositions of development properties and land, net | 187,361 | 86,416 | 361,004 | 249,166 | ||||||
| Gains on other dispositions of investments in real estate, net (excluding development properties and land) | 127,167 | 43,939 | 143,790 | 75,430 | ||||||
| Operating income | 700,866 | 611,987 | 1,233,063 | 1,080,044 | ||||||
| Other income (expense): | ||||||||||
| Earnings from unconsolidated co-investment ventures, net | 57,330 | 47,443 | 116,007 | 94,558 | ||||||
| Earnings from other unconsolidated ventures, net | 15,089 | 6,699 | 23,461 | 48,314 | ||||||
| Interest expense | (68,412) | (81,298) | (139,693) | (156,940) | ||||||
| Foreign currency and derivative gains (losses) and interest and other income, net | (5,365) | (59,809) | 79,533 | 53,890 | ||||||
| Losses on early extinguishment of debt, net | — | (23,573) | (187,453) | (66,340) | ||||||
| Total other income (expense) | (1,358) | (110,538) | (108,145) | (26,518) | ||||||
| Earnings before income taxes | 699,508 | 501,449 | 1,124,918 | 1,053,526 | ||||||
| Current income tax expense | (36,499) | (48,673) | (61,054) | (76,593) | ||||||
| Deferred income tax benefit (expense) | (12,696) | 2,162 | (13,858) | (831) | ||||||
| Consolidated net earnings | 650,313 | 454,938 | 1,050,006 | 976,102 | ||||||
| Net earnings attributable to noncontrolling interests | (33,284) | (37,115) | (55,362) | (53,256) | ||||||
| Net earnings attributable to noncontrolling interests — limited partnership units | (16,853) | (11,650) | (27,121) | (25,620) | ||||||
| Net earnings attributable to controlling interests | 600,176 | 406,173 | 967,523 | 897,226 | ||||||
| Preferred stock dividends | (1,551) | (1,634) | (3,083) | (3,269) | ||||||
| Net earnings attributable to common stockholders | $598,625 | $404,539 | $964,440 | $893,957 | ||||||
| Weighted average common shares outstanding — Diluted | 764,652 | 765,830 | 764,724 | 746,027 | ||||||
| Net earnings per share attributable to common stockholders — Diluted | $0.81 | $0.54 | $1.30 | $1.23 | ||||||
| Three Months Ended | Six Months Ended | ||||||||
| June, 30 | June, 30 | ||||||||
| in thousands | 2021 | 2020 | 2021 | 2020 | |||||
| Net earnings attributable to common stockholders | $598,625 | $404,539 | $964,440 | $893,957 | |||||
| Add (deduct) NAREIT defined adjustments: | |||||||||
| Real estate related depreciation and amortization | 381,865 | 389,072 | 769,553 | 725,004 | |||||
| Gains on other dispositions of investments in real estate, net (excluding development properties and land) | (127,167) | (43,939) | (143,790) | (75,430) | |||||
| Reconciling items related to noncontrolling interests | (153) | 602 | (19,148) | (14,791) | |||||
| Our share of reconciling items related to unconsolidated co-investment ventures | 75,840 | 65,613 | 148,781 | 130,977 | |||||
| Our share of reconciling items related to other unconsolidated ventures | 7,741 | 8,061 | 14,624 | 10,846 | |||||
| NAREIT defined FFO attributable to common stockholders/unitholders* | $936,751 | $823,948 | $1,734,460 | $1,670,563 | |||||
| Add (deduct) our defined adjustments: | |||||||||
| Unrealized foreign currency and derivative losses (gains), net | (1,885) | 66,791 | (83,318) | (42,756) | |||||
| Deferred income tax expense (benefit) | 12,696 | (2,162) | 13,858 | 831 | |||||
| Current income tax expense on dispositions related to acquired tax liabilities | 427 | — | 2,992 | — | |||||
| Reconciling items related to noncontrolling interests | (210) | (234) | (421) | (419) | |||||
| Our share of reconciling items related to unconsolidated co-investment ventures | (1,861) | 2,037 | (2,020) | 3,315 | |||||
| FFO, as modified by Asicon attributable to common stockholders/unitholders* | $945,918 | $890,380 | $1,665,551 | $1,631,534 | |||||
| Adjustments to arrive at Core FFO attributable to common stockholders/unitholders*: | |||||||||
| Gains on dispositions of development properties and land, net | (187,361) | (86,416) | (361,004) | (249,166) | |||||
| Current income tax expense on dispositions | 16,678 | 22,993 | 24,564 | 29,718 | |||||
| Losses on early extinguishment of debt and other, net | — | 26,573 | 187,453 | 74,340 | |||||
| Reconciling items related to noncontrolling interests | (22) | (52) | (24) | (2,597) | |||||
| Our share of reconciling items related to unconsolidated co-investment ventures | 2,661 | (30) | 2,587 | 2,671 | |||||
| Our share of reconciling items related to other unconsolidated ventures | (2,630) | 3 | (2,054) | (33,830) | |||||
| Core FFO attributable to common stockholders/unitholders* | $775,244 | $853,451 | $1,517,073 | $1,452,670 | |||||
| Adjustments to arrive at Adjusted FFO («AFFO») attributable to common stockholders/unitholders*, including our share of unconsolidated ventures less noncontrolling interest: | |||||||||
| Gains on dispositions of development properties and land, net | 187,361 | 86,416 | 361,004 | 249,166 | |||||
| Current income tax expense on dispositions | (16,678) | (22,993) | (24,564) | (29,718) | |||||
| Straight-lined rents and amortization of lease intangibles | (37,275) | (31,229) | (75,806) | (56,732) | |||||
| Property improvements | (33,058) | (37,817) | (41,129) | (51,456) | |||||
| Turnover costs | (76,897) | (45,488) | (148,037) | (84,884) | |||||
| Amortization of debt premium, financing costs and management contracts, net | 2,531 | 2,701 | 5,078 | 4,194 | |||||
| Stock compensation amortization expense | 23,946 | 27,998 | 58,521 | 59,806 | |||||
| Reconciling items related to noncontrolling interests | 8,294 | 9,302 | 15,159 | 14,349 | |||||
| Our share of reconciling items related to unconsolidated ventures | (26,587) | (20,216) | (50,731) | (2,134) | |||||
| AFFO attributable to common stockholders/unitholders* | $806,881 | $822,125 | $1,616,568 | $1,555,261 | |||||
| * This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation. |
| Three Months Ended | Six Months Ended | ||||||||
| June 30, | June 30, | ||||||||
| in thousands | 2021 | 2020 | 2021 | 2020 | |||||
| Net earnings attributable to common stockholders | $598,625 | $404,539 | $964,440 | $893,957 | |||||
| Gains on other dispositions of investments in real estate, net (excluding development properties and land) | (127,167) | (43,939) | (143,790) | (75,430) | |||||
| Depreciation and amortization expense | 392,736 | 398,195 | 790,311 | 744,165 | |||||
| Interest expense | 68,412 | 81,298 | 139,693 | 156,940 | |||||
| Current and deferred income tax expense, net | 49,195 | 46,511 | 74,912 | 77,424 | |||||
| Net earnings attributable to noncontrolling interests — limited partnership units | 16,853 | 11,650 | 27,121 | 25,620 | |||||
| Pro forma adjustments | (2,682) | 2,394 | (3,632) | 53,602 | |||||
| Preferred stock dividends | 1,551 | 1,634 | 3,083 | 3,269 | |||||
| Unrealized foreign currency and derivative losses (gains), net | (1,885) | 66,791 | (83,318) | (42,756) | |||||
| Stock compensation amortization expense | 23,946 | 27,998 | 58,521 | 59,806 | |||||
| Losses on early extinguishment of debt and other, net | — | 26,573 | 187,453 | 74,340 | |||||
| Adjusted EBITDA, consolidated* | $1,019,584 | $1,023,644 | $2,014,794 | $1,970,937 | |||||
| Reconciling items related to noncontrolling interests | (17,092) | (11,635) | (46,679) | (44,003) | |||||
| Our share of reconciling items related to unconsolidated ventures | 109,357 | 98,657 | 215,436 | 196,475 | |||||
| Adjusted EBITDA attributable to common stockholders/unitholders* | $1,111,849 | $1,110,666 | $2,183,551 | $2,123,409 | |||||
| * This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation. |
Estimated Value Creation represents the value that we expect to create through our development and leasing activities. We calculate Estimated Value Creation by estimating the Stabilized NOI that the property will generate and applying a stabilized capitalization rate applicable to that property. Estimated Value Creation is calculated as the amount by which the value exceeds our TEI and does not include any fees or promotes we may earn. Estimated Value Creation for our Value-Added Properties that are sold includes the realized economic gain.
Estimated Weighted Average Margin is calculated on development properties as Estimated Value Creation, less estimated closing costs and taxes, if any, on properties expected to be sold or contributed, divided by TEI.
Estimated Weighted Average Stabilized Yield is calculated on the properties in the Development Portfolio as Stabilized NOI divided by TEI. The yields on a Asicon Share basis were as follows:
| Pre-StabilizedDevelopments | 2021 Expected Completion | 2022 and Thereafter Expected Completion | Total Development Portfolio | |||||||||
| U.S. | 5.9 | % | 6.4 | % | 5.6 | % | 6.0 | % | ||||
| Other Americas | 8.1 | % | 7.3 | % | 7.1 | % | 7.2 | % | ||||
| Europe | 4.6 | % | 5.6 | % | 4.9 | % | 5.3 | % | ||||
| Asia | 5.1 | % | 5.4 | % | 5.3 | % | 5.4 | % | ||||
| Total | 5.4 | % | 5.9 | % | 5.5 | % | 5.7 | % |
FFO, as modified by Asicon attributable to common stockholders/unitholders («FFO, as modified by ASICON»); Core FFO attributable to common stockholders/unitholders («Core FFO»); AFFO attributable to common stockholders/unitholders («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, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated co-investment 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 ASICON, 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 principally 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 Asicon
To arrive at FFO, as modified by ASICON, 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) | foreign currency exchange gains and losses resulting from (a) debt transactions between us and our foreign entities, (b) third-party debt that is used to hedge our investment in foreign entities, (c) derivative financial instruments related to any such debt transactions, and (d) mark-to-market adjustments associated with other derivative financial instruments. |
We use FFO, as modified by ASICON, 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 ASICON, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by ASICON, to exclude the following recurring and nonrecurring items that we recognize directly in FFO, as modified by ASICON:
| (i) | gains or losses from the disposition of land and 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; |
| (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 other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (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 (vi) 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 amortization expense. |
We use AFFO to (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (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 the limitations are:
- The current income tax expenses that are excluded from our modified FFO measures represent the taxes 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 logistics facilities are not reflected in FFO.
- Gains or losses from property dispositions and 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 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 or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our obligation 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 modified FFO measures to our net earnings computed under GAAP.