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Prologis (PLD) Tops Q1 FFO and Revenue Estimates, Trims View

Zacks Equity Research

Prologis, Inc. PLD reported first-quarter 2020 core funds from operations (FFO) per share of 83 cents, beating the Zacks Consensus Estimate of 81 cents. Results also compare favorably with the year-ago figure of 73 cents.

The better-than-expected performance was driven by decent growth in rental income. Occupancy level has been healthy. However, the company has revised its full-year outlook in light of the coronavirus pandemic. The company assumed reduced demand into the third quarter and expects operating environment to start recovering toward the end of the year. Also, the company noted that new deployment will be assessed on a per-transaction basis.

Prologis generated rental revenues of $878.8 million, which registered 26.1% growth from the prior-year quarter. The figure also surpassed the Zacks Consensus Estimate of $850.2 million.

Quarter in Detail

At the end of the reported quarter, occupancy level in the company’s owned-and-managed portfolio was 95.5%. During the first quarter, 35 million square feet of leases commenced in the company’s owned-and-managed portfolio, while retention level was 75.5%.

Prologis’ share of net effective rent change was 25.1% during the January-March quarter, driven by the United States at 31%. Cash rent change was 13.4%, while cash same-store net operating income (NOI) registered 4.6% growth.

In first-quarter 2020, Prologis’ share of building acquisitions amounted to $312 million, with a weighted average stabilized cap rate of 4.2%. Development stabilization aggregated $687 million, while development starts totaled $301 million, with 17.3% being build-to-suit.

Furthermore, the company’s total dispositions and contributions came in at $708 million, with weighted average stabilized cap rate (excluding land and other real estate) of 4.8%. Portfolio acquisitions, inclusive of the acquisitions of Industrial Property Trust Inc. on Jan 8, 2020, and Liberty Property Trust on Feb 4, 2020, amounted to $14.6 billion.

Liquidity

The company exited the March-end quarter with cash and cash equivalents of $807.9 million, down from the $1.09 billion recorded at the end of 2019. Coupled with $3.8 billion in total line availability, Prologis ended the quarter with $4.6 billion in liquidity.

Per management, consolidated maturities until 2022 have been effectively addressed, while earnings have been insulated from FX movements through the next three years. Further, it was pointed out that more than 95% of Prologis equity is in USD. Moreover, at quarter end, the company's weighted average rate on its total debt was 2.3%, with a weighted average remaining term of 9.1 years.

Outlook

Prologis’ revised guidance assumes no further activity other than the transactions currently under contract.

The company projects core FFO per share at $3.55-$3.65 compared with the prior guidance of $3.67-$3.75. The Zacks Consensus Estimate for the same is currently pegged at $3.62.

The company forecasts year-end occupancy of 94.5-96.0% compared with the 96-97% guided earlier. Cash same-store NOI (Prologis share) is projected in the range of 1.75-3.25% compared with the 4.25-5.25% expected earlier.

Moreover, the company projects $450 million of building acquisitions compared with $500-$700 million, while development starts are expected to be $500-$800 million as against the prior estimate of $2.0-$2.4 billion.

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. price-consensus-eps-surprise-chart | Prologis, Inc. Quote

We now look forward to the earnings releases of other REITs like SL Green Realty Corp. SLG, Alexandria Real Estate Equities, Inc. ARE and Highwoods Properties, Inc. HIW. While SL Green is slated to report first-quarter earnings on Apr 22, Alexandria Real Estate Equities and Highwoods Properties have earnings release scheduled for Apr 27 and 28, respectively.

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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