It has been about a month since the last earnings report for Prologis (PLD - Free Report) . Shares have added about 0.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Prologis due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Prologis Beats Q2 FFO Estimates, to Buy IPT for $3.99 Billion
Prologis delivered a better-than-expected performance in the second quarter in terms of FFO per share. It reported core FFO per share of 77 cents, beating the Zacks Consensus Estimate by a penny. Results also compare favorably with the year-ago figure of 71 cents.
Moreover, the company raised its guidance at the mid-point backed by healthy market conditions, solid customer demand and rent growth. The company now projects year-over-year growth without promotes of 9.5%.
Further, the company has agreed to acquire warehouse owner Industrial Property Trust Inc. in an all-cash deal valued at about $3.99 billion, including debt, from Black Creek Group. The deal, including an operating portfolio of 236 properties, expands the company’s position in Southern California, the San Francisco Bay Area, Chicago, Atlanta, Dallas, Seattle and New Jersey.
The acquisition transaction, likely to close in fourth-quarter 2019 or early 2020, is expected to be accretive to annual core FFO per share by about 5 to 6 cents, on a stabilized basis.
Moreover, the transaction is unlikely to have any significant impact on Prologis’ leverage. In fact, the company anticipates adding no corporate overhead. Therefore, combining the entities is projected to lower general and administrative expenses as a percentage of assets under management by around 4%, per the company’s press release.
Quarter in Detail
Prologis witnessed top-line growth in the June-end quarter, while period-end occupancy remained high. The company generated rental revenues of $700.7 million, which compares favorably with the year-ago tally of $544.7 million. However, the revenue figure missed the Zacks Consensus Estimate of $705.5 million.
At the end of the reported quarter, occupancy level in the company’s owned-and-managed portfolio was 96.8%, flat sequentially, but down 60 basis points year over year. During the quarter, 37 million square feet of leases commenced in the company’s owned-and-managed portfolio, slightly down from 39 million square feet in the year-ago period.
Prologis’ share of net effective rent change was 25.6% in the April-June quarter compared with 20.6% recorded a year ago. This was driven by the United States at 30.1%. Cash rent change was 12.3%, as against 9.7% recorded in the year-earlier quarter. However, cash same-store net operating income (NOI) registered 4.6% growth compared with the 7% increase reported in the comparable period last year.
In second-quarter 2019, Prologis’ share of building acquisitions amounted to $214 million, with a weighted average stabilized cap rate of 4.5%. Development stabilization aggregated $493 million, while development starts totaled $324 million, with 27.1% being build-to-suit. Furthermore, the company’s total dispositions and contributions came in at $607 million, with weighted average stabilized cap rate (excluding land and other real estate) of 4.4%.
The company exited the June-end quarter with cash and cash equivalents of $401.2 million, up from $251 million recorded at the end of the previous quarter. Prologis ended the quarter with leverage of 19.4% on a market capitalization basis and debt-to-adjusted EBITDA of 4.1x and $4.2 billion of liquidity.
Prologis raised its core FFO per share outlook for full-year 2019. The company projects core FFO per share of $3.26-$3.30, up from the $3.20-$3.26 estimated earlier. However, the guidance does not include any impact from the proposed acquisition of Industrial Property Trust.
The company forecasts year-end occupancy of 96.5-97.5%, and cash same-store NOI (Prologis share) of 4.5-5% compared with the prior projection of 4.3-5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, Prologis has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Prologis has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.