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Key Factors to Impact Prologis' (PLD) Earnings This Season

Prologis, Inc.PLD is slated to report fourth-quarter and full-year 2018 earnings on Jan 22, before the opening bell.

In the las t report ed quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 1.41% in terms of funds from operations (FFO) per share. The company witnessed solid top-line growth in the quarter, while period-end occupancy remained high.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates in three occasions and met in the other, the average positive surprise being 2.76%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. Price and EPS Surprise | Prologis, Inc. Quote

For full-year 2018, Prologis guided for core FFO per share in the range of $3.01-$3.03, year-end occupancy to be 97.0-97.5%, and same-store net operating income (NOI) - cash (Prologis share) of 6.25-6.75%.

The Zacks Consensus Estimate for the fourth-quarter FFO per share is 79 cents and for the full year is $3.01.

Let's see how things are shaping up for this announcement.

Factors at Play

The industrial real estate market is gaining strength amid solid U.S. economy, job-market gains, thriving e-commerce market, high consumption levels and robust consumer confidence. Demand for warehouses, distribution centers and other industrial property remains strong, and continues to surpass supply levels.

Per a study by the commercial real estate services firm - CBRE Group CBRE - availability fell for 34 straight quarters to 7.0% for the U.S. industrial market in fourth-quarter 2018, denoting the lowest point since 2000. Moreover, demand for warehouses surpassed the delivery of newly constructed supply by around 6 million square feet, according to the report.

Amid these, Prologis is well poised to capitalize on growth opportunities, aided by its capacity to offer modern distribution facilities at strategic in-fill locations. The company possesses decent balance-sheet strength and being a market leader, it has the ability to raise capital at favorable rates. Recently, the company fortified its balance-sheet strength by amending and restating its global credit facility, increasing the total capacity from $3 billion to $3.5 billion. Including the company's Japanese yen facility, its global line of credit now amounts to $4 billion.

The company is expected to have enjoyed high occupancy of its properties and healthy rent levels in the to-be-reported quarter. Also, the Zacks Consensus Estimate for the fourth-quarter rental revenues is currently pegged at $655 million, indicating 7.6% increase sequentially, which is encouraging.

Additionally, Prologis' build-to-suit activity remained solid in the second half of 2018, with the company completing 17 of such projects. These projects included more than 4.4 million square feet of area and involved total expected investment (TEI) of around $400 million on a Prologis-share basis. Further, this industrial real estate investment trust (REIT) commenced 15 build-to-suit projects during the same period, comprising 6.9 million square feet of space and involving a TEI of approximately $525 million on a Prologis-share basis.

This high number of build-to-suit development projects within the United States as well as across the globe highlights the advantageous location of the company's land bank, as well as demand from its multi-site customers, many of whom are focused on e-commerce. The sites are positioned near large population centers that are suited for serving as the last warehouse before goods are delivered to consumers.

However, recovery in the industrial market has continued for long and a whole lot of new buildings are becoming available in the market, leading to higher supply and lesser scope for rent and occupancy growth. Additionally, any protectionist trade policies will have an adverse impact on economic growth, as well as the company's business over the long term. Also, interest rate-hike issues create hiccups in the market.

Amid these, the Zacks Consensus Estimate of FFO per share for the quarter under review remained unchanged at 79 cents, over the past two months. However, the figure denotes a projected year-over-year increase of around 17.9%.

Shares of Prologis have gained 4.5% in the past month compared to the 2.3% increase recorded by its industry .

Here is what our quantitative model predicts:

Prologis does not have the right combination of two key ingredients - a positive Earnings ESP and Zacks Rank #3 (Hold) or higher - for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP: The Earnings ESP for Prologis is -1.27%.

Zacks Rank: Prologis carries a Zacks Rank #3 (Hold), currently.

Although a favorable Zacks Rank increases the predictive power of ESP, but we also need a positive ESP to be confident of a positive surprise in terms of FFO per share.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Equity ResidentialEQR , scheduled to release earnings on Jan 29, has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Omega Healthcare Investors, Inc.OHI , slated to release fourth-quarter results on Feb 11, has an Earnings ESP of +0.26% and a Zacks Rank of 2.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) - a widely used metric to gauge the performance of REITs.

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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 Nasdaq, Inc.


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

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