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Key Factors to Impact Prologis (PLD) This Earnings Season

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Prologis, Inc. (PLD - Free Report) is slated to report first-quarter 2021 earnings on Apr 19, before the bell. The company’s quarterly results will likely reflect growth in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a surprise of 3.26% in terms of FFO per share. The better-than-anticipated performance was driven by decent growth in rental income.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates on each occasion, the average beat being 5.03%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

The U.S. industrial market had an impressive start to this year with robust demand and record-high rents. What is encouraging is that demand outpaced supply for the first time since second-quarter 2019, per a report from Cushman & Wakefield (CWK - Free Report) .

There was a net absorption of 82.3 million square feet (msf) of space during the March-end quarter. The tally is, in fact, up 78.2% over the 46.2 msf reported in first-quarter 2020. Particularly, warehouse/distribution space emerged as the strongest secondary property type. For the 21st consecutive quarter, new leasing activity exceeded 100 msf and came in at 193.8 msf. This reflects the surge in digital sales, driving e-commerce leasing together with third-party logistics providers, which helped warehouses/distribution spaces. New supply aggregated 66.4 msf at the end of first-quarter 2021, reflecting a 14.8% decline from the 77.9 msf reported in the year-earlier period.

The U.S. industrial vacancy rate came in at 4.9% at the end of first-quarter 2021, down 30 basis points (bps) quarter over quarter and flat year on year. Continued tight market conditions and solid demand supported rent growth during the March-end quarter, which increased 7.8% year on year. Particularly, asking rent of $6.90 per square foot during the quarter in discussion turned out to be another record high rental rate for the U.S. industrial market. In addition, the current industrial construction pipeline has reached a new record high for the market to 397.1 msf.

Amid these, Prologis is well poised to benefit from its capacity to offer modern logistics facilities at strategic in-fill locations. The REIT is anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting a support in the to-be-reported quarter. However, management projected a seasonal occupancy drop in the first quarter, then trend higher as the year progresses.

Apart from these, the company’s expansion efforts, through acquisitions and developments, in recent years are likely to have boosted the top line during the soon-to-be-reported quarter. With Prologis witnessing robust demand for high-quality logistics real estates in key locations across the globe, the company is also anticipated to have continued its investment activities in first-quarter 2021. Moreover, the company is likely to benefit from its industry-leading cost structure.

Furthermore, Prologis has decent balance-sheet strength to aid its growth endeavors. Being a market leader, the REIT has the ability to raise capital at favorable rates and is likely to have maintained financial strength with liquidity during the period in discussion.

Particularly, in February, Prologis announced the closing of around $2 billion of senior unsecured notes. The financing included the issuance of €850 million (approximately $1.0 billion USD) of senior unsecured notes due in 2032 with a fixed annual coupon of 0.5%, €500 million (approximately $600 million USD) of senior unsecured notes due in 2041, with a fixed annual coupon of 1.0%, and $400 million of senior unsecured notes due in 2031, with a fixed annual coupon of 1.625%.

As a result of the issuances and related redemptions, the company's weighted average interest rate will contract by approximately 20 basis points to 1.8%, while its weighted average remaining term will extend by 0.8 to 10.6 years.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $994.86 million, suggesting a 13.2% year-over-year jump.

Moreover, the Zacks Consensus Estimate for the quarterly FFO per share moved up marginally to 94 cents in the past two months. The figure also calls for a year-over-year increase of 13.25%.

However, with the asset category being an attractive one in the current challenging times, there is a development boom in some markets. This high supply is likely to have intensified competition and curbed pricing power during the March-end quarter.

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 -0.80%.

Zacks Rank: Prologis currently carries a Zacks Rank of 2 (Buy).

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:

Crown Castle International Corporation (CCI - Free Report) , slated to release first-quarter earnings on Apr 21, has an Earnings ESP of +0.52% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Storage Affiliates Trust (NSA - Free Report) , scheduled to report quarterly numbers on May 4, currently has an Earnings ESP of +2.22% and carries a Zacks Rank of 3 (Hold).

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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