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

Zacks Equity Research

Prologis, Inc. 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.

Prologis, Inc. Price, Consensus and EPS Surprise
 

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

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. SLG, Equity Residential EQR and Boston Properties, Inc. 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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