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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 fourth-quarter and full-year 2023 earnings on Jan 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 3.17% in terms of core funds from operations (FFO) per share. The results reflected healthy 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 3.85%. This is depicted in the graph below:
Let’s see how things have shaped up before this announcement.
US Industrial Real Estate Market in Q4
Per a Cushman & Wakefield (CWK - Free Report) report, the U.S. industrial real estate market ended 2023 with absorption totals and vacancy rates returning to levels reminiscent of the pre-pandemic era. Following two record years, a combination of high interest rates, a normalization of demand, and record-setting construction delivery totals played a role in rebalancing markets.
The pace of quarterly construction deliveries remained brisk, with the completion of an additional 156.3 million square feet (msf) of industrial facilities in the fourth quarter of 2023. It marked the second-highest quarterly total on record, trailing only behind the 173.2 msf delivered in the previous quarter.
Overall net absorption came in at 41.1 msf in the fourth quarter, down marginally from the previous quarter. However, it pushed the annual total to 224.3 msf, on par with the 10-year pre-pandemic average of 224.8 msf.
Vacancy rates climbed above 5% for the first time in three years, with new supply being the key driver. It reached 5.2% in the fourth quarter and represented a 70-basis point increase. However, occupancy still remains tight historically, with the vacancy rate remaining 180 bps lower than the 10-year pre-pandemic historical average of 7%.
Though asking rents moved up, its growth rate decelerated amid market conditions softening with rising vacancy rates and normalizing leasing totals. Asking rents inched higher to $9.79 per square foot, but the 0.5% quarterly rise is well lower than the growth rates achieved since the start of 2021 (3.8% per quarter). Moreover, on an annual basis, rental rate growth reached 10% at year-end 2023.
At the same time, amid the overall economic uncertainty, a tough lending environment and the continuing slowdown in demand, there is a pullback in construction starts. For the first time since mid-year 2021, the volume of space under construction plunged below the 500-msf mark, standing at 452.6 msf at the close of 2023, down 33.7% year over year.
Factors to Note
Given Prologis’ capacity to offer high-quality facilities in key markets, it is well-poised to navigate through the current softening of the industrial real estate market. With its differentiated customer offerings and strategic investments in the to-be-reported quarter, the REIT is still likely to have experienced healthy rent and occupancy levels compared to its peers.
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, it concluded the buyout of nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for cash consideration of $3.1 billion. The move significantly enhanced Prologis’ presence in the key U.S. markets, poising it well for long-term growth.
Moreover, the company’s share of building acquisitions amounted to $238 million in the nine months that ended Sep 30, 2023. Development stabilization aggregated $1.92 billion, while development starts totaled $1.35 billion.
In addition, PLD is likely to have gained from its industry-leading cost structure.
Prologis has a robust balance sheet that empowers its expansion moves. 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 Q4 2023
The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $1.78 billion, suggesting a nearly 12.19% year-over-year jump.
We project a 10.8% increase in rental revenues in the fourth quarter to $1.76 million. Our estimate for fourth-quarter average occupancy is 97.3%, implying a 20-basis point increase from the prior quarter. However, the same-store net operating income is expected to decrease 0.9%.
Prologis’ activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been unrevised at $1.26 in the past month. However, it suggests a 1.61% increase year over year.
For the full year 2023, Prologis expected core FFO per share in the range of $5.58-$5.60. The company estimated cash same-store NOI (Prologis share) between 9.75% and 10.00% and average occupancy in the range of 97.25-97.50%.
For the full year, the Zacks Consensus Estimate for FFO per share has been unrevised at $5.60 over the past month. The figure indicates an 8.53% increase year over year on revenues of $6.85 billion.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict 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 not the case here.
Prologis currently carries a Zacks Rank of 3 and has an Earnings ESP of -1.10%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Crown Castle Inc. (CCI - Free Report) and VICI Properties Inc. (VICI - Free Report) — you may want to consider as our model shows that these 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 fourth-quarter and full-year 2023 earnings on Jan 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 3.17% in terms of core funds from operations (FFO) per share. The results reflected healthy 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 3.85%. 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 Q4
Per a Cushman & Wakefield (CWK - Free Report) report, the U.S. industrial real estate market ended 2023 with absorption totals and vacancy rates returning to levels reminiscent of the pre-pandemic era. Following two record years, a combination of high interest rates, a normalization of demand, and record-setting construction delivery totals played a role in rebalancing markets.
The pace of quarterly construction deliveries remained brisk, with the completion of an additional 156.3 million square feet (msf) of industrial facilities in the fourth quarter of 2023. It marked the second-highest quarterly total on record, trailing only behind the 173.2 msf delivered in the previous quarter.
Overall net absorption came in at 41.1 msf in the fourth quarter, down marginally from the previous quarter. However, it pushed the annual total to 224.3 msf, on par with the 10-year pre-pandemic average of 224.8 msf.
Vacancy rates climbed above 5% for the first time in three years, with new supply being the key driver. It reached 5.2% in the fourth quarter and represented a 70-basis point increase. However, occupancy still remains tight historically, with the vacancy rate remaining 180 bps lower than the 10-year pre-pandemic historical average of 7%.
Though asking rents moved up, its growth rate decelerated amid market conditions softening with rising vacancy rates and normalizing leasing totals. Asking rents inched higher to $9.79 per square foot, but the 0.5% quarterly rise is well lower than the growth rates achieved since the start of 2021 (3.8% per quarter). Moreover, on an annual basis, rental rate growth reached 10% at year-end 2023.
At the same time, amid the overall economic uncertainty, a tough lending environment and the continuing slowdown in demand, there is a pullback in construction starts. For the first time since mid-year 2021, the volume of space under construction plunged below the 500-msf mark, standing at 452.6 msf at the close of 2023, down 33.7% year over year.
Factors to Note
Given Prologis’ capacity to offer high-quality facilities in key markets, it is well-poised to navigate through the current softening of the industrial real estate market. With its differentiated customer offerings and strategic investments in the to-be-reported quarter, the REIT is still likely to have experienced healthy rent and occupancy levels compared to its peers.
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, it concluded the buyout of nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for cash consideration of $3.1 billion. The move significantly enhanced Prologis’ presence in the key U.S. markets, poising it well for long-term growth.
Moreover, the company’s share of building acquisitions amounted to $238 million in the nine months that ended Sep 30, 2023. Development stabilization aggregated $1.92 billion, while development starts totaled $1.35 billion.
In addition, PLD is likely to have gained from its industry-leading cost structure.
Prologis has a robust balance sheet that empowers its expansion moves. 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 Q4 2023
The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $1.78 billion, suggesting a nearly 12.19% year-over-year jump.
We project a 10.8% increase in rental revenues in the fourth quarter to $1.76 million. Our estimate for fourth-quarter average occupancy is 97.3%, implying a 20-basis point increase from the prior quarter. However, the same-store net operating income is expected to decrease 0.9%.
Prologis’ activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been unrevised at $1.26 in the past month. However, it suggests a 1.61% increase year over year.
For the full year 2023, Prologis expected core FFO per share in the range of $5.58-$5.60. The company estimated cash same-store NOI (Prologis share) between 9.75% and 10.00% and average occupancy in the range of 97.25-97.50%.
For the full year, the Zacks Consensus Estimate for FFO per share has been unrevised at $5.60 over the past month. The figure indicates an 8.53% increase year over year on revenues of $6.85 billion.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict 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 not the case here.
Prologis currently carries a Zacks Rank of 3 and has an Earnings ESP of -1.10%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Crown Castle Inc. (CCI - Free Report) and VICI Properties Inc. (VICI - Free Report) — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Crown Castle is slated to report quarterly numbers on Jan 24. CCI has an Earnings ESP of +1.69% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
VICI Properties is slated to report quarterly numbers on Feb 22. VICI has an Earnings ESP of +2.16% and a Zacks Rank of 2 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.