Prologis (PLD) Q4 FFO Tops Estimates, Occupancy Remains High

Prologis, Inc. (NYSE:PLD) reported fourth-quarter 2018 core funds from operations (FFO) per share of 80 cents, beating the Zacks Consensus Estimate by a penny. Results also compare favorably with the year-ago figure of 67 cents. Notably, core FFO per share included 5 cents per share of net promote income.

The company witnessed solid top-line growth in the quarter, while period-end occupancy remained high. Moreover, this industrial real estate investment trust (REIT) issued its guidance for 2019 core FFO per share.

The company generated rental revenues of $679.2 million, which surpassed the Zacks Consensus Estimate of $663.5 million. The revenue figure also compares favorably with the year-ago tally of $550.6 million.

For full-year 2018, core FFO per share came in at $3.03, ahead of the Zacks Consensus Estimate of $3.01 per share and the prior-year tally of $2.81. This was backed by 7.4% year-over-year growth in rental revenues to $2.4 billion.

Quarter in Detail

At the end of the reported quarter, occupancy level in the company’s owned and managed portfolio was 97.5%, expanding 30 basis points (bps) year over year. Specifically, occupancy of its portfolio in Europe was at 98%.

During the fourth quarter, 35 million square feet of leases commenced in its owned and managed portfolio, which is flat compared with the year-ago period. However, average lease term in the quarter was a record 83 months, noted the company.

Prologis’ share of net effective rent change was 25.6% in the Oct-Dec quarter compared with 23.5% recorded a year ago. The figure reflects a record globally and for the United States, it came in at 33.1%. Cash rent change was 10.8%, as against 12.7% recorded in the year-earlier quarter.

Cash same-store net operating income (NOI) registered 4.5% growth compared with the 5.1% increase reported in the comparable period last year. This was led by 5.9% growth reported in the U.S. portfolio.

In fourth-quarter 2018, Prologis’ share of building acquisitions amounted to $320 million, with a weighted average stabilized cap rate of 5.1%. Development stabilization aggregated $551 million, while development starts totaled $930 million, with 42.3% being build-to-suit. Furthermore, the company’s total dispositions and contributions came in at $1.1 billion, with weighted average stabilized cap rate (excluding land and other real estate) of 5.3%.

Liquidity

Finally, the company exited 2018 with cash and cash equivalents of $343.9 million, down from $447.0 million recorded at the end of the previous year. Prologis ended the year with leverage of 25% on a market capitalization basis and debt-to-adjusted EBITDA of 4.2x. Notably, during the Dec-end quarter, the company and its co-investment ventures accomplished $1.4 billion of refinancings, with a weighted average rate of 2.3% and term of 7.7 years.

Following the quarter end, the company recast and upsized its global line of credit, bringing the total liquidity to $4.0 billion.

Outlook

Prologis offered its core FFO per share outlook for full-year 2019. The company projects core FFO per share in the range of $3.12-$3.20.The Zacks Consensus Estimate for the same is currently pegged at $3.15.

The company projects 2019 year-end occupancy of 96.0-97.5% and cash Same-Store NOI (Prologis share) of 3.75-4.75%.

Our Take

The solid performance of Prologis in the recently-reported quarter is encouraging. Given its balance-sheet strength and prudent financial management, the company remains well poised to grow as high consumer spending, e-commerce boom and a healthy manufacturing environment amid recovering economy and job market are spurring demand for the industrial real estate category.

Nonetheless, a whole lot of new buildings are slated to be completed and made available in the market in the near term, which remains a headwind. Also, intensifying trade tensions and rate hike remain other 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) , Equity Residential (NYSE:EQR) and Boston Properties, Inc. (NYSE:BXP) . SL Green is slated to report fourth-quarter earnings on Jan 23, while Equity Residential and Boston Properties both have their earnings releases scheduled for Jan 29.

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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