Prologis (PLD) Q3 Revenues Beat On Higher Rents, FFO In Line

Prologis, Inc. (NYSE:PLD) reported third-quarter 2017 core funds from operations (“FFO”) per share of 67 cents, in line with the Zacks Consensus Estimate. The company experienced improved operating environment in the reported quarter, but it did not recognize any promote income.

In the prior-year period, Prologis had reported core FFO per share of 73 cents. Excluding promote income, the figure came in at 59 cents. Net effective rent change improved in the third quarter, but period-end occupancy was slightly down from the year-ago period.

Further, this industrial real estate investment trust (REIT) narrowed its core FFO per share outlook for full-year 2017.

The company generated revenues of $602.9 million, comfortably beating the Zacks Consensus Estimate of $570.4 million. However, the figure compared unfavorably with the year-ago tally of $704.6 million.

Quarter in Detail

At the end of the third quarter, occupancy level in the company’s owned and managed portfolio was 96.3%, contracting 30 basis points (bps) year over year. Nevertheless, the occupancy in the U.S. portfolio expanded 40 bps from the prior-year quarter.

During the quarter under review, Prologis signed 41 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 22.7% in the reported quarter compared with 15.0% recorded a year ago. The figure was led by the U.S. portfolio, which recorded impressive growth of 31.9%. Cash rent change was 10.6%, as against 5.7% in the year-earlier quarter.

Net effective same-store net operating income (NOI) registered 4.1% growth compared with 5.6% increase reported in the comparable period last year. This was driven solely by releasing spreads and led by 6.0% growth reported in the U.S. portfolio. Cash same-store NOI climbed 6.1% compared with 6.6% reported in the year-ago period, reflecting 8.0% growth in the U.S. portfolio.

In third-quarter 2017, Prologis' share of building acquisitions amounted to $20 million, development stabilization aggregated $548 million, while development starts totaled $432 million. Further, the company’s total dispositions and contributions came in at $779 million.

Liquidity

Prologis ended the third quarter with more than $4.0 billion of liquidity. In addition, the company reported a decrease in leverage to 23.9% on a market capitalization basis, while debt-to-adjusted EBITDA improved to 4.3x.

Finally, the company exited third-quarter 2017 with cash and cash equivalents of $568.7 million, up from $271.4 million recorded at the end of the prior quarter.

Outlook Narrowed

Prologis narrowed its core FFO per share outlook for full-year 2017. The company now projects core FFO per share in the range of $2.79-$2.81, against $2.78–$2.82 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $2.81.

Our Take

Prologis is well poised to benefit from its capacity to offer modern distribution facilities at strategic in-fill locations amid a continued shift toward e-commerce and supply-chain strategy transformations. Nonetheless, increase in supply of new facilities and mounting competition from other market participants remain concerns.

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 third-quarter earnings on Oct 18, while Equity Residential and Liberty Property Trust have earnings releases scheduled for Oct 24.

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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