Prologis (PLD) Q2 FFO Beats On Higher Rents, Outlook Raised

Backed by growth in rents and high occupancy, Prologis, Inc. (NYSE:PLD) reported second-quarter 2017 core funds from operations (“FFO”) per share of 84 cents, beating the Zacks Consensus Estimate of 78 cents. It also improved from the year-ago quarter figure of 60 cents.

Further, this industrial real estate investment trust (REIT) raised its core FFO per share outlook for full-year 2017 amid solid operating fundamentals and higher net promote income.

The company posted revenues of $766.2 million, which beat the Zacks Consensus Estimate of $658.7 million. The figure compared favorably with the prior-year number of $602.2 million.

Quarter in Detail

At the end of the second quarter, occupancy level in the company’s owned and managed portfolio was 96.2%, expanding 10 basis points (bps) year over year. The increase in occupancy in the U.S. portfolio was 70 bps from the prior-year quarter.

During the quarter under review, Prologis signed 47 million square feet of leases in its owned and managed portfolio compared with 49 million square feet in the year-ago period.

Prologis' share of net effective rent change was 24.0% in the reported quarter compared with 17.8% recorded a year ago. The figure was led by the U.S., which recorded an impressive 29.0% growth. Cash rent change was 11.2%, as against 7.9% in the year-ago quarter.

Net effective same-store net operating income (NOI) registered 4.6% growth compared with 6.1% increase reported in the prior-year period. This was driven by 5.2% growth reported in the U.S. Cash same-store NOI climbed 7.2% compared with 5.3% reported in the year-ago period, reflecting 8.0% growth in the U.S. portfolio.

In second-quarter 2017, Prologis' share of building acquisitions amounted to $37 million, development stabilization aggregated $560 million, while development starts totaled $897 million. Further, the company’s total dispositions and contributions were $410 million.

Liquidity

Prologis ended the quarter with $3.7 billion of liquidity. In addition, during the reported quarter, the company and its co-investment ventures accomplished $2.9 billion of financings, mainly denominated in sterling and yen. Finally, the company exited second-quarter 2017 with cash and cash equivalents of $271.4 million, down from $395.8 million at the end of the prior quarter.

Outlook Raised

Prologis raised core FFO per share outlook for full-year 2017. The company now projects core FFO per share in the range of $2.78–$2.82, up from $2.72–$2.78 guided earlier, reflecting an increase of 5 cents at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $2.75.

The company anticipates net effective same store net operating income (NOI) (Prologis share) to grow at 4.75–5.25% compared to the previous outlook of 4.50–5.25%.

Our Take

We are encouraged with a better-than-expected performance of Prologis in Q2. Amid a consistent shift toward e-commerce and supply chain strategy transformations, the company is well poised to benefit from its capacity to offer modern distribution facilities in strategic in-fill locations. Despite anticipations of supply increase, it is likely to stand out in the lot given the high demand for its high quality locations.

Prologis currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like SL Green Realty Corp. (NYSE:SLG) , Equity Residential (NYSE:EQR) and Liberty Property Trust (NYSE:LPT) . SL Green is slated to report second-quarter earnings on Jul 19, while Equity Residential and Liberty Property Trust have their earnings releases scheduled for Jul 25.


Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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