Why Is Prologis (PLD) Up 7.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Prologis (PLD). Shares have added about 7.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Prologis due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Prologis Beats Q3 FFO Estimates, Narrows Guidance

Prologis reported third-quarter 2018 core FFO per share of 72 cents, beating the Zacks Consensus Estimate by a penny. Results also compare favorably with the year-ago figure of 67 cents.

The company witnessed solid top-line growth in the quarter, while period-end occupancy remained high. Moreover, this industrial REIT narrowed its guidance for 2018 core FFO per share.

The company generated rental revenues of $609 million, which surpassed the Zacks Consensus Estimate of $587.2 million. It also compares favorably with the year-ago tally of $531.2 million.

Further, management noted that integration of the DCT Industrial acquisition on Aug 22 is complete and expected run rate of $80 million per year of immediate savings has already been attained.

Quarter in Detail

At the end of the reported quarter, occupancy level in the company’s owned and managed portfolio was 97.5%, expanding 120 basis points (bps) year over year. Specifically, occupancy of its portfolio in Europe was at 98%.

During the quarter under review, Prologis signed 37 million square feet of leases in its owned and managed portfolio compared with the 36 million square feet of area recorded in the year-ago period.

Prologis’ share of net effective rent change was 22.6% in the Jul-Sep quarter compared with 20.5% recorded a year ago. The figure was led by the U.S. portfolio, which recorded impressive growth of 30.4%. Cash rent change was 11.6%, as against 8.1% recorded in the year-earlier quarter.

Cash same-store net operating income (NOI) registered 5.9% growth compared with the 5.4% increase reported in the comparable period last year. This was led by 7.1% growth reported in the U.S. portfolio.

In third-quarter 2018, Prologis’ share of building acquisitions amounted to $86 million, with a weighted average stabilized cap rate of 5.0%. Development stabilization aggregated $290 million, while development starts totaled $388 million, with 34.8% being build-to-suit.

Furthermore, the company’s total dispositions and contributions came in at $462 million, with weighted average stabilized cap rate (excluding land and other real estate) of 4.9%.

Liquidity

Finally, the company exited the September quarter with cash and cash equivalents of $275.6 million, down from $527.8 million recorded at the end of the previous quarter. It had $3.5 billion of liquidity.

During the quarter under review, the company issued approximately $1.3 billion of yen- and euro-denominated bonds. The company’s concerted efforts helped it reduce its weighted average interest rate to 2.7% and extend the weighted average remaining term to 6.3 years.

Outlook

Prologis narrowed its guidance for 2018 core FFO per share to $3.01-$3.03 from the prior outlook of $3.00-$3.04.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Prologis has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Prologis has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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