Industrial real estate investment trust (REIT)
) 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
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
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
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.
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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
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).
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
Prologis currently carries a Zacks Rank #3 (Hold). Investors
interested in the REIT industry may also consider stocks like
Extra Space Storage Inc.
PS Business Parks Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
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.