) delivered a positive earnings surprise of about 7.9% for the
second quarter of 2013. The industrial real estate investment
trust (REIT) reported core FFO (funds from operations) per share
of 41 cents, beating the Zacks Consensus Estimate of 38 cents.
However, it fell short of the prior-year quarter figure by 2
Results primarily reflect a decent reduction in expenses, though
the benefit was partly offset by a fall in revenues. Yet, the
company's strategic measures and capital market moves have helped
enhance flexibility, extend maturities and lower interest
Quarter in Detail
Total revenue during the reported quarter was $419.5 million,
down 16.3% from the prior-year quarter and well below the Zacks
Consensus Estimate of $440 million. Prologis leased 36.3 million
square feet of space in its combined operating and development
Total occupancy in the operating portfolio was 93.7% at
quarter-end, unchanged sequentially. Tenant retention was 84.6%
while GAAP rental rates on leases signed climbed 4.0% from prior
rents, versus a decline of 3.8% in the comparable prior-year
Same-store net operating income (NOI) moved up 0.7% (down 0.4% on
an adjusted cash basis). Notably, the company's rents on rollover
increased 4.0% in the quarter.
Notable Activities During 2Q
Development starts amounted to $385.3 million. Of this, Prologis'
share was $301.4 million and projected share of value creation
upon stabilization was $42.7 million. Total acquisitions of
buildings and land worth $127.2 million were made. Of these,
Prologis' share was $85.6 million. Moreover, investments worth
$409.7 million in its co-investment ventures were made during the
Prologis' global development pipeline comprised 26.6 million
square feet at quarter end, with total expected investment of
$2.3 billion. Of this, Prologis' share was $1.8 billion.
Moreover, the company accomplished $567.2 million in
contributions and dispositions in the reported quarter, of which
$347.7 million was Prologis' share.
The company continued to streamline its co-investment ventures
through rationalization of two funds in the reported quarter. At
the end of the quarter, Prologis had $22.8 billion in combined
assets under management in 15 funds.
At quarter-end, Prologis had cash and cash equivalents of $385.4
million, substantially down from $785.4 million as of the
prior-quarter end. On the other hand, total debt decreased to
$8.4 billion from $9.1 billion recorded at the prior-quarter end.
It has been quite an active quarter for Prologis in terms of
capital market activity. The company closed approximately $4.3
billion in capital markets deals and established an at-the-market
equity offering program for vending up to $750 million of its
Following the quarter end, Prologis recast and increased its
global line of credit. The credit line was upsized by $350
million to $2.0 billion and the move helped extend the initial
term to 2017 as well as lower its interest rate by 40 basis
points. The move gave the company the much required financial
flexibility to pursue its growth initiatives.
For full-year 2013, Prologis narrowed its core FFO guidance to
$1.63 to $1.67 per share from the prior range of $1.60 to $1.70
per share. Alongside, the company raised its full-year deployment
outlook. It increased the range by $1.7 billion to $3.5 billion -
While better-than-expected results at Prologis is encouraging, we
believe that a revenue miss is not appreciable. However, we
believe that with a larger customer base, rise in e-Commerce
application and supply chain consolidation, there is an
increasing demand for Class-A facilities and Prologis stands to
benefit as it has the capacity to offer modern distribution
facilities in strategic infill locations. Also, the company's
effort to increase its dominance in the industrial real estate
market of Europe is impressive.
Yet, with sluggish economic growth, we are not overtly optimistic
on this Zacks Rank #3 (Hold) stock and believe that the
risk/reward profile is currently balanced. Market vacancy
increases may reduce its ability to push through rental-rate
increases. Also, rising interest rates could increase its cost of
We look forward to the results of other REITs that are scheduled
to release second quarter 2013 results this week. These include
CBRE Group Inc.
Taubman Centers Inc.
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.
CBRE GROUP INC (CBG): Free Stock Analysis
PROLOGIS INC (PLD): Free Stock Analysis
TAUBMAN CENTERS (TCO): Free Stock Analysis
VENTAS INC (VTR): Free Stock Analysis Report
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