) - the industrial real estate investment trust (REIT) - came up
with better-than-expected results in the first quarter of 2014.
The company reported core FFO (funds from operations) per share
of 43 cents, which was a penny above the Zacks Consensus Estimate
and 3 cents ahead of the year-ago quarter figure.
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While total revenue declined from the year-ago quarter, it
managed to beat the Zacks Consensus Estimate. The company has
also narrowed its 2014 guidance.
Total revenue during the reported quarter was $434.7 million,
down 11.4% from the prior-year quarter. However, the revenue
figure was well above the Zacks Consensus Estimate of $388
million. Results reflect a decline in rental income (down 14.6%)
and development management and other income (down 48.4%), though
partly dwarfed by the northward movement of investment management
fees (up 34.7%).
Quarter in Detail
During first-quarter 2014, Prologis leased 33.7 million square
feet of space in its combined operating and development
portfolios. Total occupancy in the operating portfolio was 94.5%
at the quarter end, up 80 basis points (bps) year over year.
In the quarter, tenant retention was 84.6% (with tenant renewals
aggregating 23.3 million square feet), reflecting a rise of 660
bps year over year. Rents on rollover increased 7.0% and it is
positive for the 5th consecutive quarter.
Therefore, as a result of increased occupancy levels and higher
rental rates, same-store net operating income increased 3.0% year
Notable Activities in Q1
Excluding contributions and dispositions, new investments in the
first quarter aggregated $542.7 million (Prologis' share was
$303.6 million). Specifically, the company acquired $370.5
million (Prologis' share was $163.1 million) of buildings,
predominately in Europe and commenced $172.2 million (Prologis'
share was $140.5 million) of new development projects. Moreover,
it stabilized $264.1 million worth of developments with estimated
margin of 22.2%.
On the other hand, contributions and dispositions worth $1.2
billion (Prologis' share was $568.3 million), with a stabilized
capitalization rate of 6.2%, was accomplished by the company in
the reported quarter. Notably, at quarter end Prologis' global
development pipeline's total expected investment stood at $2.3
billion, of which Prologis' share was $1.9 billion.
Prologis exited first-quarter 2014 with cash and cash equivalents
of $188.9 million, down from $491.1 million at year-end 2013.
However, the company lowered its total debt to $8.9 billion at
the end of the first quarter from $9.0 billion at the prior-year
To benefit from the current low interest rate environment, the
company accomplished around $1.2 billion of debt financings and
refinancings, together with the €700 million ($965.2 million) of
Prologis has narrowed its guidance for 2014. The company now
expects core FFO in the range of $1.76 to $1.82 from $1.74 to
$1.82 per diluted share. The mid-point of this range is a cent
ahead of the Zacks Consensus Estimate of $1.78 per share for
Going forward, we believe that amid a rise in global trade and
consumption levels, as well as a rise in e-Commerce application
and supply chain consolidation, there will continue to be an
increasing demand for Class-A facilities. However, new supply is
substantially below the required levels.
In such an environment, Prologis stands to benefit given its
capacity to offer modern distribution facilities in strategic
infill locations around the globe. Its move to lower foreign
currency exposure and the recent credit ratings upgrade from
Standard & Poor's are also encouraging. But competition
is intensifying and interest rate issues remain, thus not making
us overtly optimistic on the stock.
Prologis currently carries a Zacks Rank #3 (Hold). Investors
interested in the REIT industry may also consider stocks like
Duke Realty Corporation
Terreno Realty Corp.
). All these stocks currently 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.