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Prologis (PLD) Beats on Q1 FFO Estimates, Raises Outlook

Zacks

Backed by growth in revenues and occupancy gains, Prologis, Inc. PLD reported first-quarter 2017 core funds from operations (“FFO”) per share of 63 cents, beating the Zacks Consensus Estimate of 62 cents. It also improved from the year-ago quarter figure of 61 cents.

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

The company posted revenues of $629.2 million, which beat the Zacks Consensus Estimate of $589.1 million. It compared favorably with the year-ago number of $606.3 million.

Amid a consistent shift toward e-commerce and supply chain strategy transformations, Prologis’ occupancy remained high. In fact, demand for the company’s facilities was driven by growth in the housing, construction and e-commerce businesses. Moreover, market conditions in Europe continue to improve. However, the company noted that there was an increase in speculative construction activity in a number of markets in the reported quarter.

Quarter in Detail

At the end of the first quarter, occupancy level in the company’s owned and managed portfolio was 96.6%, expanding 50 basis points year over year.

During the quarter under review, Prologis signed 39 million square feet of leases in its owned and managed portfolio compared with 46 million square feet in the year-ago period. Per the company, the decrease in volume is due to high occupancy.

Prologis' share of net effective rent change was 19.6% in the reported quarter compared with 20.1% recorded a year ago. The figure was led by the U.S., which recorded an impressive 29.2% growth. Cash rent change was 8.2% against 8.6% in the year-ago quarter.

Net effective same-store net operating income (NOI) registered 5.8% growth compared with 7.4% increase reported in the prior-year period. This was driven by 7.1% growth reported in the U.S. Cash same store NOI climbed 7.1% compared with 6.0% reported in the year-ago period.

In first-quarter 2017, Prologis' share of building acquisitions amounted to $48 million, development stabilization aggregated $405 million; while development starts totaled $312 million. Further, the company’s total dispositions and contributions were $485 million.

Liquidity

Prologis ended the quarter with $3.8 billion of liquidity. In addition, during the reported quarter, the company and its co-investment ventures accomplished $900 million of financings. Finally, the company exited first-quarter 2017 with cash and cash equivalents of $395.8 million, significantly down from $807.3 million at the end of the prior year.

Outlook Raised

Prologis raised the core FFO per share outlook for full-year 2017. The company now projects core FFO per share in the range of $2.72–$2.78, up from $2.60–$2.70 guided earlier, reflecting an increase of 10 cents at the midpoint. The Zacks Consensus Estimate for the same is currently pegged at $2.66.

The company anticipates net effective same store NOI (Prologis share) to grow at 4.50–5.25% compared to the previous outlook of 4.00–5.00%.

Our Take

We are encouraged with Prologis’ Q1 FFO beat. Amid a consistent shift toward e-commerce and supply chain strategy transformations, Prologis is well poised to benefit from its capacity to offer modern distribution facilities in strategic in-fill locations. However, anticipated rise in the number of new facilities in 2017, competitive landscape and hike in interest rates remain concerns for the company.

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

Prologis, Inc. Price, Consensus and EPS Surprise

ProLogis, Inc. Price, Consensus and EPS Surprise | ProLogis, Inc. Quote


We now look forward to the earnings releases of other REITs like SL Green Realty Corp. SLG, Boston Properties, Inc. BXP and Equity Residential EQR. SL Green is slated to report first-quarter earnings on Apr 19, while Boston Properties and Equity Residential have their earnings releases scheduled for Apr 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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