Helped by lower expenses, Prologis Inc. (PLD) reported better-than-expected results in the third 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, backed by its year-to-date performance and projections for sustained growth, this industrial real estate investment trust (REIT) raised the midpoint for its full-year 2014 core FFO outlook.
However, total revenue came in at $415.2 million, down 1.9% from the prior-year quarter. The figure also fell short of the Zacks Consensus Estimate of $419 million. On the other hand, total expenses declined 2.5% from the prior-year quarter to $337.0 million.
Quarter in Detail
During third-quarter 2014, Prologis leased 40.8 million square feet in its combined operating and development portfolios. Total occupancy in the operating portfolio was 95.0% at the quarter end, up 110 basis points year over year.
Tenant retention was 83.9%, while rental rates (GAAP) on leases signed rose 9.7% from prior rents, driven by the U.S. and followed by Asia and Europe.
Therefore, as a result of increased occupancy levels and higher rental rates, same-store net operating income increased 3.7% year over year (GAAP basis) and 4% on an adjusted cash basis.
New investments amounted to $1.9 billion, of which $1.3 billion comprised Prologis' share. The company acquired $883.8 million of buildings, mainly in Europe through its co-investment ventures, of which $367.4 million constituted Prologis' share.
During the quarter, the company started $697.5 million ($615.6 million Prologis' share) of new developments and stabilized $222.7 million ($219.4 million Prologis' share) in development projects, mainly in the U.S. and Mexico. The company’s land bank had a book value of $1.8 billion with a projected build-out potential of $10.8 billion at quarter end.
Liquidity
Prologis exited third-quarter 2014 with cash and cash equivalents of $311.9 million, up from $267.4 million at prior quarter-end. Prologis’ capital market activities totaled $478 million during the quarter, while the company raised its U.S. dollar net equity exposure to 89%. Until 2017, the company has limited debt maturities.
Raised Outlook
Encouragingly, Prologis raised the midpoint of its full-year 2014 core FFO guidance range to $1.85 – $1.86 per share from the earlier projection of $1.82 – $1.86 per share. This range also comes above the Zacks Consensus Estimate of $1.84 per share.
Our Take
As a matter of fact, the U.S. industrial real estate market has been experiencing solid growth, thanks to the rising internet retailing and supply-chain consolidation. This, in turn, is generating greater demand for logistics infrastructure and efficient distribution networks. But vacancy rates are tightening with construction starts steadily lagging the demand growth, thereby pushing the rents significantly higher in many of the U.S. markets.
Prologis, with its solid capacity, is well leveraging this demand-supply imbalance. The company has been capitalizing on global growth opportunities, with notable investments in the U.S., China, Europe, Japan and Mexico in the recent quarters.
Prologis currently carries a Zacks Rank #2 (Buy).
We presently await the earnings results of other REITs like Avalonbay Communities Inc. (AVB), General Growth Properties, Inc. (GGP) and Kimco Realty Corp. (KIM) that are scheduled to release in the next few days.
Note: 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment