Prologis (PLD) Reports Better-than-Expected Q2, Stock Gains

Backed by growth in same store net operating income (“NOI”) and occupancy gains, Prologis, Inc. (NYSE:PLD) came up with second-quarter 2016 core funds from operations (“FFO”) per share of 60 cents, beating the Zacks Consensus Estimate of 59 cents. It also improved from the year-ago quarter figure of 52 cents. Reflecting positive sentiments, shares of Prologis were up nearly 0.2% during yesterday’s trading on the NYSE.

The company posted revenues of $602 million, which beat the Zacks Consensus Estimate of $581 million. It compared favorably with the year-ago number of $510 million.

Amid continued shift toward e-commerce and supply chain strategy transformations, Prologis’ occupancy and customer retention remained elevated. The company experienced decent increase in leasing volumes, rent change on rollover and same store NOI. Also, Prologis focused consistently on bolstering its liquidity, which reached the highest level in its history.

Higher Occupancy, Same Store NOI, Customer Retention

At the end of the second quarter, occupancy level in the company’s operating portfolio was 96.1%, up 70 basis points year over year.

During second-quarter 2016, Prologis signed 49 million square feet of leases in its owned and managed portfolio compared with 45 million square feet in the year-ago period. Customer retention was 82.6% against 79.0% in the comparable prior-year period.

Prologis' share of net effective rent change on rollover was +17.8% in the reported quarter compared with +16.6% a year ago, reflecting 23.5% growth in the U.S. portfolio. Also, its share of net effective same-store NOI registered 6.1% growth, up from the 5.9% increase reported in the prior-year period, driven by 7.5% growth in the U.S.

Dispositions and Development Starts Speed up

In second-quarter 2016, Prologis' share of building acquisitions amounted to $58 million, development stabilization aggregated $621 million while development starts totaled $465 million. Further, its total dispositions and contributions were $558 million.

Liquidity Profile Strengthened

Prologis increased its total liquidity to $3.7 billion in the quarter. The company’s capital market activities included the recast and upsize of its Global Line of Credit to $3.0 billion. Finally, the company exited second-quarter 2016 with cash and cash equivalents of $332.2 million, up from $264.1 million at the end of the prior-year quarter.

Core FFO Outlook – Mid Point Kept Constant

Prologis kept the midpoint of the 2016 core FFO per share guidance constant. Specifically, the company expects core FFO in the range of $2.52– $2.58 per share as against $2.50–$2.60 guided earlier. The Zacks Consensus Estimate is currently pegged at $2.58.

Moreover, the company projects same store NOI (Prologis share) of 4.75%–5.25% (earlier 4.0%–4.5%) while building and land dispositions (75% Prologis share) of $2.0–$2.3 billion (previously $1.7–$2.2 billion).

Our Take

Prologis’ second quarter FFO beat is encouraging. With companies opting for supply chain consolidation amid an e-commerce boom, heightened urbanization and a wider customer base, demand for logistics infrastructure and efficient distribution networks is increasing, providing ample scope to the company to leverage growth opportunities.

Yet, supply increase and interest rate issues are concerns for the company. Also asset dispositions are anticipated to lead to earnings dilution in the near term.

PROLOGIS INC Price, Consensus and EPS Surprise

PROLOGIS INC Price, Consensus and EPS Surprise | PROLOGIS INC Quote

Prologis currently carries a Zacks Rank #3 (Hold).

We now look forward to the earnings releases of the other REITs like Avalonbay Communities Inc. (NYSE:AVB) , Equity Residential (NYSE:EQR) and Boston Properties Inc. (NYSE:BXP) . Each of these companies is scheduled to release its results in the upcoming days.

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.