Prologis Inc. (PLD), one of the leading global providers of distribution facilities, reported third quarter 2011 fund from operations (FFO) of 45 cents per share compared with 48 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of real estate investment trusts (REITs), is obtained after adding depreciation and other non-cash expenses to net income.
The erstwhile ProLogis was acquired by its rival AMB Property Corp and was renamed as Prologis Inc. Under the terms of the merger, AMB was the legal acquirer and ProLogis was the accounting acquirer. The all-stock deal was completed on June 3, 2011, after erstwhile ProLogis shares were delisted from NYSE, and the combined company began trading on the NYSE under the ticker symbol PLD.
While the financial results for the third quarter 2011 represent the performance of the combined company, financial results for the third quarter of 2010 reflect stand-alone legacy ProLogis.
Recurring FFO for the reported quarter was 44 cents per share compared to 33 cents in the year-ago quarter. The third quarter 2011 recurring FFO beat the Zacks Consensus Estimate by 5 cents.
Total revenues during the reported quarter were $501.4 million compared to $228.6 million in the year-ago quarter. Total reported revenues were well ahead of the Zacks Consensus Estimate of $433 million.
Prologis’ operating portfolio leased at quarter-end increased to 91.0% from 90.7% in second quarter 2011. During the reported quarter, the company leased a total of 33.4 million square feet of space in its operating and development portfolio. Tenant retention rate achieved during the quarter was 76.3% as the company leased 20.1 million square feet of renewal space.
Rental rates on turnovers in the same-store portfolio declined 8.6% in the reported quarter. Same-store net operating income decreased approximately 0.7% during the quarter on a year-over-year basis.
During the reported quarter, new development starts totaled approximately 1.4 million square feet in 10 projects across Asia, Europe and the Americas. The estimated total investment in these projects was $134 million, out of which Prologis' share was $98 million. At quarter-end, Prologis' global development portfolio totaled approximately 12.7 million square feet, with an estimated total investment of $1.4 billion.
Prologis acquired 9 industrial properties and 10.5 acres of land from third parties across the globe during the quarter at a total cost of $152 million. During the quarter, the company also completed $391 million worth of asset sale transactions.
These included $334 million of building and land sale and $57 million in contributions from the company's balance sheet to ProLogis European Property Fund II and the Prologis China Logistics Venture. Subsequent to quarter-end, the company contributed an additional $453 million worth of its assets to its co-investment ventures in the U.S. and Europe.
Year-to-date through September 30, 2011, Prologis raised or received commitments for $1.8 billion of new third-party equity in its private capital business. This included the approval on a $500 million allocation from the Oregon Public Employees Retirement Fund.
Under this arrangement, Oregon would invest in several of the company's funds around the world. In addition, the company sold a 20% stake in ProLogis Korea Fund during the quarter. The fund consisted of 12 properties, totaling 1.7 million square feet.
At quarter-end, Prologis had $216.7 million of cash and cash equivalents. Total debt at the end of third quarter 2011 was $12.1 billion. With the merger, Prologis has realized cost savings through operational synergies, reduced facility fees on its global line of credit and lower amortization of non real estate assets. This has enabled the company to create a stronger platform for value creation and sustainable growth.
With strong quarterly results, Prologis has increased its recurring FFO guidance for the second half of fiscal 2011 from the range of 78 cents to 82 cents per share to 83 to 85 cents. Recurring FFO for fourth quarter 2011 is expected in the range of 39 to 41 cents per share.
We maintain our Underperform recommendation on Prologis, which presently has a Zacks #3 Rank that translates into a short-term Hold recommendation. However, we have an Outperform rating and a Zacks #2 Rank (short-term Buy) for First Industrial Realty Trust Inc. (FR), a competitor of Prologis.
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