Helped by higher occupancy, Prologis Inc. (PLD) reported better-than-expected results in the fourth quarter of 2014. The company reported core FFO (funds from operations) per share of 48 cents, a cent ahead of the Zacks Consensus Estimate and a nickel above the year-ago quarter figure of 43 cents.
Encouragingly, Prologis has guided for full year 2015 core FFO in the range of $2.04–$2.12 per share, which is above the Zacks Consensus Estimate of $2.00 per share. At the mid-point, this marks nearly 11% growth from the full year 2014 figure.
Total revenue came in at $450.9 million, up 3.2% from the prior-year quarter. The figure also exceeded the Zacks Consensus Estimate of $371 million. Occupancy level in its operating portfolio was 96.1% at the quarter-end, up 110 basis points (bps) over the prior quarter and 100 bps year over year.
For full year 2014, Prologis’ core FFO per share was $1.88, reflecting an increase of 13.9% from $1.65 per share in 2013. Full year 2014 revenues came in at around $1.8 billion, up 0.6% year over year.
Behind the Headlines
During fourth-quarter 2014, Prologis leased 41.7 million square feet in its combined operating and development portfolios. Tenant retention was 85.5%, while rent change on rollovers was positive for the 8th straight quarters. GAAP rental rates on signed leases climbed 6.2%; while in the Americas, GAAP rental rates on signed leases increased 11.5%.
Importantly, same store net operating income (“NOI”) for the owned and managed portfolio increased 4.1% (GAAP basis) during the reported quarter. This led to full-year 2014 same store NOI growth of 3.7%. Same store NOI (GAAP basis) moved up 4.9% during the fourth quarter on Prologis' share basis.
Prologis made investments worth $4.3 billion ($3.1 billion Prologis' share) in 2014 with the company deploying capital at yields of 6.8% (Prologis' share).
Liquidity
Prologis exited 2014 with cash and cash equivalents of $350.7 million, up from $311.9 million at prior quarter-end. Prologis’ capital market activities totaled over $1.7 billion during the quarter and $7.0 billion for the full year.
Sets 2015 Outlook
Prologis expects core FFO for full year 2015 in the range of $2.04–$2.12 per share. At the mid-point, this marks 11% growth from full year 2014 figure. This range also comes above the Zacks Consensus Estimate of $2.00 per share. The company projects year-end occupancy in the range of 95.5–96.5% and GAAP same store NOI growth between 3.5–4.5%.
Our Take
The 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 with its strategy of operating in infill markets is well capitalizing on global growth opportunities.
Prologis currently carries a Zacks Rank #3 (Hold).
We presently await the results of other REITs like Avalonbay Communities Inc. (AVB), General Growth Properties, Inc (GGP) and Simon Property Group Inc. (SPG), which 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.
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