Driven by higher rental income and strategic capital earnings,
) reported better-than-expected results in the second quarter of
2014. The company reported core FFO (funds from operations) per
share of 48 cents, which was 2 cents above the Zacks Consensus
Estimate and 7 cents ahead of the year-ago quarter figure.
Moreover, this industrial real estate investment trust (REIT)
raised its 2014 outlook. Reflecting the positive sentiments, the
shares were up 1.0% during yesterday's regular trading session on
Total revenue came in at $460.1 million, up 12.0% from the
prior-year quarter. The figure was also well above the Zacks
Consensus Estimate of $409 million.
Quarter in Detail
During second-quarter 2014, Prologis leased 29.0 million square
feet in its combined operating and development portfolios. Total
occupancy in the operating portfolio was 94.6% at the quarter end,
up 90 basis points (bps) year over year.
Tenant retention was 84.8% while rental rates (GAAP) on leases
signed climbed 6.6% from prior rents, as against an increase of
4.0% in the comparable prior-year period.
Therefore, as a result of increased occupancy levels and higher
rental rates, same-store net operating income increased 3.8% year
over year (GAAP basis) and 5.3% on an adjusted cash basis.
New investment was $850.4 million, of which $765.2 million
comprised Prologis' share. The company purchased $137.0 million of
buildings, mainly in Europe and the U.S., of which $80.7 million
was Prologis' share. Moreover, the company accomplished $603.7
million of contributions, third-party building, land and other
non-strategic real estate dispositions, of which $499.6 million was
Prologis' global development pipeline had a total projected
investment of $2.4 billion ($2.1 billion as Prologis' share) at the
end of the second quarter. The company also made concerted efforts
for streamlining its strategic capital business. It had $28.7
billion in combined assets under management in 11 major
co-investment ventures at the quarter end, of which $9.4 billion
consisted of Prologis' share.
Prologis exited second-quarter 2014 with cash and cash equivalents
of $267.4 million, up from $188.9 million at first quarter-end. The
company's capital market moves helped it to improve its liquidity.
Prologis also lowered its total debt to $8.5 billion at the end of
the second quarter from $8.9 billion at the prior-quarter end. Its
capital market activities totaled $3.6 billion during the quarter.
Encouragingly, Prologis raised the midpoint of its full-year 2014
core FFO guidance range to $1.82 to $1.86 per share from the
earlier $1.76 to $1.82 per share. This uptick is backed by
faster-than-expected rental growth and deployment, coupled with
lower interest expenses from its refinancing moves. This range is
also above the Zacks Consensus Estimate of $1.80 per share.
Prologis has been capitalizing on global growth opportunities, with
notable investments in the U.S., China, Europe, Japan and Mexico in
the recent quarters. Amid a larger customer base, rise in
e-Commerce application and supply chain consolidation, there is an
increasing demand for high-quality logistics facilities in these
But with new construction starts still slow at picking up pace,
rents are increasing significantly in many of its markets. And with
the capacity to offer modern distribution facilities in strategic
infill locations around the globe, Prologis is well leveraging on
this demand-supply imbalance.
Moreover, its strategic efforts have led to an encouraging
improvement in liquidity. Also, an outlook raise as well as
favorable credit conditions further boosts investor
sentiments. But with intensifying competition and prevailing
interest rate issues, we are not overtly optimistic on the stock.
Prologis currently carries a Zacks Rank #3 (Hold).
We presently await the earnings of other REITs like
SL Green Realty Corp.
Avalonbay Communities Inc.
The Macerich Company
) that are scheduled to release next.
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.
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