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Why Logistics Giant Prologis Inc's Q2 Results Matter

In a nutshell, this massive industrial REIT has its fingers on the pulse of global trade and can give investors unique insights into economic growth by both region and by country.

Prologis Inc (NYSE: PLD) is an S&P 500 company with an industrial portfolio totaling 670 million square feet spread across 21 countries around the globe.

pld_-_2q15_top_25_customers.jpg
pld_-_2q15_top_25_customers.jpg


Source: Prologis 2Q15 Earnings Supplemental

Notably, e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN) is the largest customer, with global supply chain and third-party logistics experts: DHL, CEVA Logistics, FedEx Corporation (NYSE: FDX), NIPPON EXPRESS (OTC: NPEXY) and United Parcel Service, Inc. (NYSE: UPS) all among PLD's top 15 customers.

Related Link: Credit Suisse's 5 Top Performance-Based REIT Picks

pld_-_2q15_website_screenshot.jpg
pld_-_2q15_website_screenshot.jpg

Large buildings over 500,000 square feet in the Prologis portfolio have remained at approximately 98 percent occupancy during the past four years, driven by e-commerce, retail distribution and supply chain optimization.

Prologis' Portfolio Overview

Prologis has an equity market cap of $19.8 billion, with $56 billion of global AUM broken out: Americas 62.7 percent, Europe 25.3 percent and Asia 12 percent, including assets managed for multiple JV investors.

pld_-_2q15_assets_under_mgt_graphic.jpg
pld_-_2q15_assets_under_mgt_graphic.jpg


Source: Prologis 2Q15 Earnings Supplemental

This includes a global land bank that can support another $10 billion of development, which according to Chairman and CEO Hamid Moghadam on the earnings call is "about four years of activity at our current pace."

Prologis' Market Insights

Americas: "New supply in the U.S. continues to be absorbed at a rapid pace driving vacancy down to 15-year lows. Our forecast calls for declining vacancy rates in the US through the end of 2016 with supply and demand reaching equilibrium in 2017."

Related Link: 5 Slides Explain Phenomenal Prologis JV Bet

On May 29, Prologis closed its previously announced $5.9 billion stock and cash acquisition of KTR Capital, which boosted its U.S. industrial portfolio by approximately 60 million SF. These assets were acquired on behalf of PLD's U.S. logistics venture with Norges; the Prologis share was $3.2 billion.

Europe: "In Europe improved customer sentiment is leading to growth in occupancies and rents especially in the UK and Northern Europe. Markets in Central and Eastern Europe are also on the mend, albeit at a slower rate. Even Southern Europe which has lagged the other regions is showing modest improvement."

According to Moghadam, the big European real estate story is cap rate compression, "Rates on the continent have tightened by about 150 basis points since 2013 and we expect them to drop another 50 to 75 basis points over the next 12 months."

Asia: "Rents in Japan are growing at a healthy pace and vacancies are low. Competition, however, is heating up, putting pressure on land prices and development margins. In China, procuring land in the top-tier markets remains a challenge but high quality product continues to lease in line with pro forma.

"Our investment strategy with its focus on global markets has enabled us to achieve rent increases of 22 percent with our share of same-store NOI exceeding 7 percent in the second quarter," according to Moghadam.

Prologis Q2 2015 Highlights

On Tuesday, Prologis announced strong results for the quarter ended June 30, and it increased earnings guidance for FY2015.

  • FFO Growth: Core FFO (funds from operations) per diluted share was $0.52 for Q2 versus $0.48 for the same period in 2014, an increase of 8 percent.

  • Guidance: "Prologis increased the midpoint of its full-year 2015 Core FFO guidance and narrowed the range to $2.18 to $2.22 per diluted share from $2.16 to $2.22 per diluted share, representing expected year-over-year growth of 17 percent."

  • Occupancy: During Q2, occupancy increased by 80 bps Y/Y to 95.4 percent. Notably, the leasing of buildings 100,000 SF and less accelerated, resulting in occupancy increasing from 89 to 95 percent.

  • Pricing Power: "GAAP rent change on rollover was 16.6 percent and the highest quarterly level we recorded to date," according to the release.

  • Dividend: Prologis announced an 11 percent annual dividend increase to $1.60 per share. Notably, Prologis has now raised its dividend three times over the past 18 months for a cumulative increase totaling 43 percent.

Image Credit: Public Domain

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