Prologis, Inc.PLD reported second-quarter 2018 core funds from operations (FFO) per share of 71 cents, in line with the Zacks Consensus Estimate. However, results compared unfavorably with the year-ago figure of 84 cents. The company witnessed a weak top line in the quarter. However, period-end occupancy remained high.
Moreover, this industrial real estate investment trust (REIT) increased and narrowed its guidance for 2018 core FFO per share and same store net operating income (NOI).
The company generated rental revenues of $544.7 million, which missed the Zacks Consensus Estimate of $560.6 million. It also compared unfavorably with the year-ago tally of $ 576.4 million.
Quarter in Detail
At the end of the reported quarter, occupancy level in the company's owned and managed portfolio was 97.4%, expanding 120 basis points (bps) year over year.
During the quarter under review, Prologis signed 39 million square feet of leases in its owned and managed portfolio compared with the 33 million square feet of area recorded in the year-ago period.
Prologis' share of net effective rent change was 20.6% in the April-June quarter compared with 20.7% recorded a year ago. The figure was led by the U.S. portfolio, which recorded impressive growth of 30.7%. Cash rent change was 9.7%, as against 9.1% recorded in the year-earlier quarter.
Cash same-store NOI registered 7.0% growth compared with the 6.4% increase reported in the comparable period last year. This was led by 8.2% growth reported in the U.S. portfolio.
In second-quarter 2018, Prologis' share of building acquisitions amounted to $101 million, with a weighted average stabilized cap rate of 4.9%. Development stabilization aggregated $592 million, while development starts totaled $744 million, with 25.4% being build-to-suit. Furthermore, the company's total dispositions and contributions came in at $416 million, with weighted average stabilized cap rate (excluding land and other real estate) of 5.1%.
Finally, the company exited the second quarter with cash and cash equivalents of $527.8 million, up from $458.1 million recorded at the end of the prior quarter. It had $4.0 billion of liquidity.
Backed by improved outlook for market rental growth as well as year-to-date performance, Prologis increased and narrowed its guidance for 2018 core FFO per share and same store NOI. The company now projects core FFO per share at $2.98-$3.02 compared with the prior guidance of $2.95-$3.01. This denotes an increase of 2 cents per share at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $2.99.
Moreover, cash same-store NOI (Prologis share) is projected at 6.25-6.75% compared with 5.5-6.5% estimated earlier.
The industrial real estate market is enjoying elevated demand for logistics infrastructure amid an e-commerce boom, recovering economy and job market, as well as healthy manufacturing environment. Amid this, Prologis is well poised to benefit from its capacity to offer modern distribution facilities at strategic in-fill locations.
Nonetheless, a whole lot of new buildings are slated to be completed and made available in the market in the near term. In addition, any protectionist trade policies will have an adverse impact on economic growth, as well as the company's business over the long term. Also, rate hike remains another concern.
Prologis currently carries a Zacks Rank #4 (Sell).
Prologis, Inc. Price, Consensus and EPS Surprise
We now look forward to the earnings releases of other REITs like SL Green Realty Corp. SLG , Crown Castle International Corp. CCI and Equity Residential EQR . SL Green and Crown Castle are slated to report second-quarter earnings on Jul 18, while Equity Residential has earnings release scheduled for Jul 24.
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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