Prologis' (PLD) Q4 FFO Meets Estimates, Revenues Up Y/Y

Prologis, Inc. (NYSE:PLD) reported fourth-quarter 2019 core funds from operations (FFO) per share of 84 cents, in line with the Zacks Consensus Estimate. Results compare favorably with the year-ago figure of 80 cents. Notably, the company had net promote income of 2 cents in the reported quarter, while 5 cents of promotes were earned in the year-ago period.

The company witnessed net effective rent growth in the fourth quarter, but period-end occupancy moderated slightly as it prioritized rent over occupancy. The industrial real estate investment trust (REIT) has also provided its guidance for 2020 core FFO per share.

Prologis generated rental revenues of $723.8 million, which registered 6.6% growth from the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $726.7 million.

For full-year 2019, core FFO per share came in at $3.31, ahead of the Zacks Consensus Estimate of $3.30 per share and the prior-year tally of $3.03. This was backed by 18.5% year-over-year growth in rental revenues to $2.8 billion.

Quarter in Detail

At the end of the reported quarter, occupancy level in the company’s owned-and-managed portfolio was 96.5%, down 100 basis points year over year, indicating its strategy of prioritizing rent over occupancy. Nonetheless, during this period, 38 million square feet of leases commenced in the company’s owned-and-managed portfolio, up from 35 million square feet in the year-ago period.

Prologis’ share of net effective rent change was 29.5% in the December-end quarter compared with the 25.6% recorded a year ago. This was driven by the United States at 34.1%. Cash rent change was 15% compared with the 25.6% recorded in the year-earlier quarter. Nonetheless, cash same-store net operating income (NOI) registered 4.6% growth compared with the 4.5% increase reported in the comparable period last year.

In fourth-quarter 2019, Prologis’ share of building acquisitions amounted to $175 million, with a weighted average stabilized cap rate of 4.9%. Development stabilization aggregated $627 million, while development starts totaled $1,714 million, with 39.2% being build-to-suit. Furthermore, the company’s total dispositions and contributions came in at $734 million, with weighted average stabilized cap rate (excluding land and other real estate) of 4.4%.

Liquidity

The company exited 2019 with cash and cash equivalents of $1.08 billion, up from the $1.02 million recorded at the end of the previous quarter. Prologis ended the October-December quarter with leverage of 18.3% on a market capitalization basis and debt-to-adjusted EBITDA of 4x and $4.8 billion of liquidity.

Notably, during the quarter, the company and its co-investment ventures issued $10.5 billion of debt. This was done at a weighted average fixed interest rate of 1.7% and a weighted average term of 8 years.

2020 Outlook

Prologis has issued its guidance for full-year 2020. The company projects core FFO per share at $3.67-$3.75. The guidance is above the Zacks Consensus Estimate of $3.66.

The company forecasts year-end occupancy of 96-97% and cash same-store NOI (Prologis share) of 4.25-5.25%.

Our Take

Prologis’ posted decent results for the October-December period. Notably, with growing e-commerce penetration and companies’ immense efforts to improve supply-chain efficiencies, the demand for logistics infrastructure and efficient distribution networks has been on the rise.

Amid this, Prologis has made strategic acquisition efforts to boost its presence in key markets. Further, the company’s high number of build-to-suit development projects highlight the demand from its multi-site customers, many of whom are focused on e-commerce.

Prologis, Inc. Price, Consensus and EPS Surprise

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Written By: Zacks Investment Research