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Key Factors to Impact Prologis (PLD) This Earnings Season
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Prologis (PLD - Free Report) , the leading industrial REIT, is slated to report third-quarter 2023 earnings on Oct 17 before the bell. In anticipation of the announcement, industry analysts and investors are eager to assess the company's performance and prospects in the current economic climate.
In the last reported quarter, this REIT delivered a surprise of 8.93% in terms of core funds from operations (FFO) per share. Results reflected robust leasing activity and solid rent growth.
Over the trailing four quarters, Prologis beat the Zacks Consensus Estimate in terms of FFO per share on all occasions, the average beat being 3.96%. This is depicted in the graph below:
Let’s see how things have shaped up before this announcement.
US Industrial Real Estate Market in Q3
Per a Cushman & Wakefield (CWK - Free Report) report, the U.S. industrial real estate market experienced a softening of fundamentals in the third quarter of 2023. There were record construction deliveries, with 171.8 million square feet (msf) of new industrial space completed, an 18.7% increase from the previous quarter.
However, the increasing supply, coupled with moderating demand and occupiers optimizing their space, has caused a rise in overall vacancy, standing at 4.7% in the third quarter. While this represents a 70-basis point increase from the previous quarter, it remains well below the 15-year average of 6.8%. 40 out of 83 markets boast vacancy rates at 4% or lower.
The industrial sector is experiencing a shift in demand, primarily due to the waning effects of the pandemic-induced goods boom and the anticipation of slower economic conditions. Absorption totals continued to moderate in each of the last four quarters, though net growth is still taking place. Net absorption declined 12.7% sequentially in the third quarter to 46.2 (msf).
Rent growth is also cooling off, with the average asking rental rate increasing only 0.9% sequentially to $9.73 per square foot. On a year-over-year basis, rent growth slowed for the fourth straight quarter to 12.3% in the third quarter of 2023.
At the same time, the fresh influx of speculative inventory, commanding prices significantly higher than the market average, has persistently pushed up average rental rates in markets that have experienced robust delivery volumes. Amid the substantial influx of new deliveries, the nationwide under-construction pipeline contracted by 96.7 msf (-15.3%), reducing it to 537.6 msf.
Factors to Note
Despite the softening in the overall industrial real estate market, there is substantial demand for Class A logistics facilities. Given Prologis’ capacity to offer high-quality facilities in key markets, it is well-poised to capitalize on this trend. With its differentiated customer offerings and strategic investments in the to-be-reported quarter, the REIT is likely to experience healthy rent and occupancy levels.
Prologis’ expansion efforts through acquisitions and developments in recent years are likely to have boosted the top line in the to-be-reported quarter. In June 2023, Prologis acquired nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for a cash consideration of $3.1 billion.
In October 2022, Prologis closed the acquisition of Duke Realty in an all-stock transaction valued at $23 billion, thereby boosting its presence in the key markets. In addition, PLD is likely to have gained from its industry-leading cost structure.
Furthermore, Prologis possesses a robust balance sheet that empowers its expansion initiatives. As a dominant player in the industrial REIT sector, it can secure capital at advantageous rates. It is likely to have maintained financial strength with liquidity during the period in discussion.
Projections for Q3 2023
The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $1.71 billion, suggesting a nearly 48.36% year-over-year jump.
We project a 45.5% increase in rental revenues in the third quarter to $1.67 million. Our estimate for development management and other revenues is presently pegged at $5 million for the quarter. Our estimate for third-quarter average occupancy is 97.3%, implying a 10-basis point decline from the prior quarter. Moreover, the same-store net operating income is expected to increase 7.5%.
Prologis’ activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been unrevised at $1.26 in the past month. However, it suggests a 27.17% decline year over year.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Prologis this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
Prologis currently has a Zacks Rank of 3 and an Earnings ESP of + 0.18%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two other stocks from the broader REIT sector — Crown Castle Inc. (CCI - Free Report) and American Tower Corporation (AMT - Free Report) — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
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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Key Factors to Impact Prologis (PLD) This Earnings Season
Prologis (PLD - Free Report) , the leading industrial REIT, is slated to report third-quarter 2023 earnings on Oct 17 before the bell. In anticipation of the announcement, industry analysts and investors are eager to assess the company's performance and prospects in the current economic climate.
In the last reported quarter, this REIT delivered a surprise of 8.93% in terms of core funds from operations (FFO) per share. Results reflected robust leasing activity and solid rent growth.
Over the trailing four quarters, Prologis beat the Zacks Consensus Estimate in terms of FFO per share on all occasions, the average beat being 3.96%. This is depicted in the graph below:
Prologis, Inc. Price and EPS Surprise
Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote
Let’s see how things have shaped up before this announcement.
US Industrial Real Estate Market in Q3
Per a Cushman & Wakefield (CWK - Free Report) report, the U.S. industrial real estate market experienced a softening of fundamentals in the third quarter of 2023. There were record construction deliveries, with 171.8 million square feet (msf) of new industrial space completed, an 18.7% increase from the previous quarter.
However, the increasing supply, coupled with moderating demand and occupiers optimizing their space, has caused a rise in overall vacancy, standing at 4.7% in the third quarter. While this represents a 70-basis point increase from the previous quarter, it remains well below the 15-year average of 6.8%. 40 out of 83 markets boast vacancy rates at 4% or lower.
The industrial sector is experiencing a shift in demand, primarily due to the waning effects of the pandemic-induced goods boom and the anticipation of slower economic conditions. Absorption totals continued to moderate in each of the last four quarters, though net growth is still taking place. Net absorption declined 12.7% sequentially in the third quarter to 46.2 (msf).
Rent growth is also cooling off, with the average asking rental rate increasing only 0.9% sequentially to $9.73 per square foot. On a year-over-year basis, rent growth slowed for the fourth straight quarter to 12.3% in the third quarter of 2023.
At the same time, the fresh influx of speculative inventory, commanding prices significantly higher than the market average, has persistently pushed up average rental rates in markets that have experienced robust delivery volumes. Amid the substantial influx of new deliveries, the nationwide under-construction pipeline contracted by 96.7 msf (-15.3%), reducing it to 537.6 msf.
Factors to Note
Despite the softening in the overall industrial real estate market, there is substantial demand for Class A logistics facilities. Given Prologis’ capacity to offer high-quality facilities in key markets, it is well-poised to capitalize on this trend. With its differentiated customer offerings and strategic investments in the to-be-reported quarter, the REIT is likely to experience healthy rent and occupancy levels.
Prologis’ expansion efforts through acquisitions and developments in recent years are likely to have boosted the top line in the to-be-reported quarter. In June 2023, Prologis acquired nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for a cash consideration of $3.1 billion.
In October 2022, Prologis closed the acquisition of Duke Realty in an all-stock transaction valued at $23 billion, thereby boosting its presence in the key markets. In addition, PLD is likely to have gained from its industry-leading cost structure.
Furthermore, Prologis possesses a robust balance sheet that empowers its expansion initiatives. As a dominant player in the industrial REIT sector, it can secure capital at advantageous rates. It is likely to have maintained financial strength with liquidity during the period in discussion.
Projections for Q3 2023
The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $1.71 billion, suggesting a nearly 48.36% year-over-year jump.
We project a 45.5% increase in rental revenues in the third quarter to $1.67 million. Our estimate for development management and other revenues is presently pegged at $5 million for the quarter. Our estimate for third-quarter average occupancy is 97.3%, implying a 10-basis point decline from the prior quarter. Moreover, the same-store net operating income is expected to increase 7.5%.
Prologis’ activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been unrevised at $1.26 in the past month. However, it suggests a 27.17% decline year over year.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for Prologis this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
Prologis currently has a Zacks Rank of 3 and an Earnings ESP of + 0.18%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are two other stocks from the broader REIT sector — Crown Castle Inc. (CCI - Free Report) and American Tower Corporation (AMT - Free Report) — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
Crown Castle is slated to report quarterly numbers on Oct 18. CCI has an Earnings ESP of +0.70% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Tower Corporation is slated to report quarterly numbers on Oct 26. AMT has an Earnings ESP of + 0.94% and a Zacks Rank of 3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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.