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Prologis' (PLD) Q1 FFO & Revenues Top Estimates, View Up

Zacks Equity Research

Prologis, Inc. PLD reported first-quarter 2019 core funds from operations (FFO) per share of 73 cents, beating the Zacks Consensus Estimate by a penny. However, results compare unfavorably with the year-ago figure of 80 cents. Notably, the company had net promote income of 9 cents in the year-ago period, while no promotes were earned in the just-reported quarter.

The company witnessed top-line growth in the first quarter, while period-end occupancy remained high. Moreover, this industrial real estate investment trust (REIT) raised its guidance for 2019 core FFO per share by more than 2% at the mid-point.

The company generated rental revenues of $696.8 million, which surpassed the Zacks Consensus Estimate of $658.5 million. The revenue figure also compares favorably with the year-ago tally of $555.9 million.

Quarter in Detail

At the end of the reported quarter, occupancy level in the company’s owned and managed portfolio was 96.8%, flat year over year. During the quarter, 43 million square feet of leases commenced in the company’s owned and managed portfolio, up from 33 million square feet in the year-ago period.

Prologis’ share of net effective rent change was 25.1% in the Jan-Mar quarter compared with 21.9% recorded a year ago. Cash rent change was 10.8%, as against 9.2% recorded in the year-earlier quarter. Cash same-store net operating income (NOI) registered 5.5% growth compared with the 7.9% increase reported in the comparable period last year.

In first-quarter 2019, Prologis’ share of building acquisitions amounted to $179 million, with a weighted average stabilized cap rate of 4.3%. Development stabilization aggregated $691 million, while development starts totaled $239 million, with 41.2% being build-to-suit. Furthermore, the company’s total dispositions and contributions came in at $157 million, with weighted average stabilized cap rate (excluding land and other real estate) of 5.9%.

Liquidity

Finally, the company exited the Mar-end quarter with cash and cash equivalents of $251.0 million, significantly down from $343.9 million recorded at the end of the previous year. Prologis ended the first quarter with leverage of 20.8% on a market capitalization basis and debt-to-adjusted EBITDA of 4.3x and $4.1 billion of liquidity.

Notably, during the quarter under review, the company and its co-investment ventures accomplished $5.4 billion in capital markets activity. This included the upsizing of its global line of credit to $3.5 billion. Further, the company lowered its ownership in its Prologis European Logistics Fund (PELF), which led to generation of $313 million in proceeds during the quarter. Per management, this move was in line with the company’s long-term targets for investment.

Outlook

Prologis raised its core FFO per share outlook for full-year 2019. The company projects core FFO per share of $3.20-3.26, up from $3.12-$3.20 estimated earlier. The Zacks Consensus Estimate for the same is currently pegged at $3.17.

The company forecasts 2019 year-end occupancy of 96.5-97.5%, up from 96.0-97.5% guided earlier and cash Same-Store NOI (Prologis share) of 4.25-5.00% compared with the prior projection of 3.75-4.75%.

Our Take

Backed its balance-sheet strength and prudent financial management, Prologis remains well poised to grow, as high consumer spending, e-commerce boom and a healthy manufacturing environment are spurring demand for the industrial real estate category.

However, a whole lot of new buildings are slated to be completed and made available in the market in the near term. Also, any protectionist trade policies will have an adverse impact on economic growth.

Prologis currently carries a Zacks Rank #3 (Hold). 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, Crown Castle International Corp. CCI and Duke Realty Corp. DRE. While SL Green and Crown Castle are slated to report first-quarter earnings on Apr 17, Duke Realty is having its earnings releases 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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