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Prologis' (PLD) Q4 FFO Tops Estimates, Issues Strong '21 View

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Zacks Equity Research
·4 min read
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Prologis, Inc. PLD reported fourth-quarter 2020 core funds from operations (FFO) per share of 95 cents, beating the Zacks Consensus Estimate of 92 cents. Results also compare favorably with the year-ago quarter figure of 84 cents.

This better-than-expected performance was driven by decent growth in rental income.

Prologis generated rental revenues of $987.8 million, up from $723.9 million in the prior-year quarter. The Zacks Consensus Estimate for the same was pegged at $995.3 million. Total revenues were $1.1 billion, up from $826 million in the year-ago quarter.

According to Hamid R. Moghadam, chairman and CEO of the company, "The pandemic has pushed global supply chains to their limits. Increased e-commerce adoption and the rebuilding of inventories to meet consumer demand are structural forces in the logistics environment that will take years to play out."

With respect to management’s guidance, the chief financial officer noted that "Year-over-year growth at the midpoint, excluding promotes, is forecasted to be more than 10 percent.” He also added, "We expect to generate over $1.0 billion in free cash flow after dividends and maintain a low dividend AFFO payout ratio in the mid-60 percent range."

For 2020, the company reported core FFO per share of $3.80, up 14.8% from $3.31 in the prior year and also beat the Zacks Consensus Estimate of $3.77. Total revenues of $4.4 billion surged 33.3% year on year.

Quarter in Detail

Average occupancy level in Prologis’ owned-and-managed portfolio was 95.8% in the fourth quarter, up 50 basis points (bps) from third-quarter 2020. During the quarter under review, 45.0 million square feet of leases commenced in the company’s owned-and-managed portfolio, with 36.6 million square feet in the operating portfolio and 8.4 million square feet in the development portfolio. Retention level was 78.4% in the quarter, marking an expansion of 560 bps from the prior quarter.

Prologis’ share of net effective rent change was 28.0% during the October-December quarter, driven by the United States at 32.1%. Cash rent change was 13.4%. Cash same-store net operating income (NOI) registered 3.0% growth and was driven by the United States at 3.5%.

The company’s share of building acquisitions amounted to $397 million, with a weighted average stabilized cap rate of 4.1% during the reported quarter. Development stabilization aggregated $919 million, while development starts totaled $1.35 billion, with 28.3% being build-to-suit. Furthermore, the company’s total dispositions and contributions came in at $815 million, with weighted average stabilized cap rate (excluding land and other real estate) of 5.0%.

Liquidity

Prologis exited 2020 quarter with cash and cash equivalents of $598.1 million, down from 940.2 million at the end of third-quarter 2020. Debt, as a percentage of total market capitalization, was 20.0%, while the company's weighted average rate on its share of total debt was 2.0%, with a weighted average remaining term of 9.7 years.

Notably, Prologis and its co-investment ventures issued $10.4 billion of debt in 2020, at a weighted average rate of 1.8% and a weighted average term of roughly 12 years. The combined investment capacity of Prologis and its open-ended vehicles, at levels in line with their current credit ratings, is more than $13 billion.

Outlook

Prologis projects 2021 core FFO per share at $3.88-$3.98. The guided range is well above the Zacks Consensus Estimate of $3.83.

It forecasts average occupancy of 95.50-96.50%. Cash same-store NOI (Prologis share) is projected at 3.50-4.50%.

Moreover, the company anticipates $400-$800 million of building acquisitions at Prologis share, while development starts are expected to be $2,300-$2,700 million.

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 including Crown Castle International Corp. CCI, Duke Realty Corporation DRE and SL Green Realty Corp. SLG. All of these REITs are slated to release their fourth-quarter and full year 2020 results on Jan 27.

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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