Prologis (PLD) Q1 FFO Beats On Higher Rent, Raises Guidance

Prologis, Inc. (NYSE:PLD) reported first-quarter 2018 core funds from operations (FFO) per share of 80 cents, beating the Zacks Consensus Estimate of 74 cents. Results also compared favorably with the year-ago figure of 63 cents. The company experienced solid operating results and higher net promote income.

Net effective rent change improved in the quarter, while period-end occupancy remained high. This industrial real estate investment trust (REIT) also raised its guidance for 2018 core FFO per share and same-store net operating income (NOI).

The company generated rental and other revenues of $560.7 million, which outpaced the Zacks Consensus Estimate of $547.4 million. The company had reported $572.1 million in the prior-year quarter.

Quarter in Detail

At the end of the reported quarter, occupancy level in the company’s owned and managed portfolio was 96.8%, expanding 20 basis points (bps) year over year.

During the quarter under review, Prologis signed 33 million square feet of leases in its owned and managed portfolio compared with 46 million square feet recorded in the year-ago period.

Prologis’ share of net effective rent change was 21.9% in the reported quarter compared with 18.5% recorded a year ago. The figure was led by the U.S. portfolio, which recorded impressive growth of 32.2%. Cash rent change was 9.2%, as against 7.7% recorded in the year-earlier quarter.

Cash same-store NOI registered 7.9% growth compared with 6.3% increase reported in the comparable period last year. This was led by 9.1% growth reported in the U.S. portfolio.

In first-quarter 2018, Prologis’ share of building acquisitions amounted to $3 million with a weighted average stabilized cap rate of 6.1%. Development stabilization aggregated $440 million, while development starts totaled $409 million, with 63.4% being build-to-suit. Furthermore, the company’s total dispositions and contributions came in at $642 million, with weighted average stabilized cap rate of 5.2%.

Liquidity

Finally, the company exited the first quarter with cash and cash equivalents of $458.1 million, up from $447.0 million recorded at the end of the prior quarter. It had more than $3.6 billion of liquidity. Additionally, the company remains focused on lowering its weighted average cost of debt that came in at 2.8%.

Outlook

Prologis raised its guidance for 2018 core FFO per share and cash same-store NOI. The company now projects core FFO per share in the range of $2.95-$3.01, compared with the prior guidance of $2.85-$2.95. This denotes an increase of 8 cents per share at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $2.91.

Moreover, cash same-store NOI (Prologis share) is projected in the range of 5.5-6.5%, marginally up from the 5.0-6.0% projected earlier.

Our Take

The industrial real estate market is enjoying elevated demand for logistics infrastructure amid an e-commerce boom, recovering economy and job market, as well as healthy manufacturing environment. Amid this, Prologis is well poised to benefit from its capacity to offer modern distribution facilities at strategic in-fill locations.

However, a whole lot of new buildings are slated to be completed and made available in the market in the near term. Also, intensifying competition from other market participants and rate hike remain concerns.

Prologis currently carries a Zacks Rank #3 (Hold). 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) , Crown Castle International Corp. (NYSE:CCI) and Boston Properties, Inc. (NYSE:BXP) . SL Green and Crown Castle are slated to report first-quarter earnings on Apr 18, while Boston Properties has earnings release scheduled for Apr 24.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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