Prologis a Penny Ahead, Outlook In Line - Analyst Blog

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Industrial real estate investment trust (REIT) Prologis Inc. 's ( PLD ) core FFO (funds from operations) per share of 43 cents in the fourth quarter 2013 was a penny ahead of both the Zacks Consensus Estimate and the year-ago quarter figure. Though total revenue declined from the year-ago quarter, it managed to beat the Zacks Consensus Estimate.

Total revenue during the reported quarter was $436.8 million, down 13.7% from the prior-year quarter. However, the revenue figure was well above the Zacks Consensus Estimate of $390 million. Results reflect a decline in rental income (19.4%) and a development management and other income (11.0%), though partly dwarfed by the northward movement of investment management fees (70.0%).

For full year 2013, Prologis reported core FFO of $1.65 per share on revenues of $1.75 billion. The results were down from the prior year when the company reported core FFO of 1.74 per share on revenues of $1.96 billion.

Behind the Headline Numbers

During fourth quarter 2013, Prologis leased a record 43.7 million square feet of space in its combined operating and development portfolios, which was ahead of the prior quarter lease of 36.1 million square feet of space. In 2013, the company leased a total of 152 million square feet of space.

Total occupancy in the operating portfolio was 95.1% at the quarter end, up 120 basis points (bps) sequentially. In the quarter, tenant retention was 86.8%, with tenant renewals aggregating 27.4 million square feet.

GAAP rental rates on leases signed during the quarter climbed 5.9% from prior rents, compared to a decline of 2.1% in the comparable prior year period while same-store net operating income (NOI) on a GAAP basis increased 2.7% (up 3.0% on an adjusted cash basis).

Notable Activities in Q4

Prologis raised $1.8 billion of third-party equity during the fourth quarter. This led to a total raise of a record $4.1 billion of third-party equity in 2013. The company boasts of $26.4 billion in assets under management in 15 ventures following the closing of Prologis U.S. Logistics Venture (USLV) - the recently created joint venture with Norges Bank Investment Management.

During the fourth quarter, the company made investments of $539 million ($351 million Prologis' share) in building acquisitions and equity in Prologis SGP Mexico. Moreover, the company accomplished $1.8 billion ($1.4 billion Prologis' share) in contributions and dispositions of buildings and land in the quarter. Following the quarter-end, Prologis also contributed $1.0 billion of assets from its operating portfolio to USLV.

The company commenced $578 million ($491 million Prologis' share) of new development projects during the quarter under review. Of this, 29% were build-to-suits. Furthermore, it stabilized $514 million ($429 million Prologis' share) in development projects with an estimated margin of 27.9% and $143 million ($125 million Prologis' share) in projected value creation.

Notably, Prologis' global development pipeline comprised 30.4 million square feet at year end, with total expected investment of $2.4 billion. Of this, Prologis' share was $2.0 billion.

Liquidity

At year-end 2013, Prologis had cash and cash equivalents of $491.1 million, up from 121.7 million at the end of the prior quarter and $100.8 million at the prior year end. Moreover, total debt slightly moved down to $9.0 billion from $9.1 billion at the prior quarter end and $11.8 billion at the end of 2012.

Prologis accomplished around $3.9 billion of capital markets activity in the reported quarter and $17.5 billion in 2013. This included debt financings, re-financings and pay-downs.

Outlook in Line

For full-year 2014, Prologis expects core FFO in the range of $1.74 to $1.82 per share. The mid-point of this range is in line with the Zacks Consensus Estimate of $1.78 per share for full-year 2014.

Prologis' full year outlook is backed by expectations of same-store NOI growth of 3%-4% and year-end occupancy in its operating portfolio of 95%-96% (expected to decrease in Q1 and move up in the rest of the quarters).  

Our Take

Going forward, we believe that amid a larger customer base, rise in e-Commerce application and supply chain consolidation, there will continue to be an increasing demand for Class-A facilities. But new supply is low and in this environment Prologis stands to benefit since it has the capacity to offer modern distribution facilities in strategic infill locations. The company is currently capitalizing on such growth opportunities across the globe.

Prologis currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Extra Space Storage Inc. ( EXR ), Public Storage ( PSA ) and PS Business Parks Inc. ( PSB ). All these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.



EXTRA SPACE STG (EXR): Free Stock Analysis Report

PROLOGIS INC (PLD): Free Stock Analysis Report

PUBLIC STORAGE (PSA): Free Stock Analysis Report

PS BUSINESS PKS (PSB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: EXR , PLD , PSA , PSB , USLV

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