Prologis Sees Logistics Real Estate Markets Tighten Further In Q2, Raises Guidance

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Prologis Inc. PLD reported Monday that logistics real estate markets tightened further during the second quarter. The San Francisco-based logistics real estate investment trust posted core funds from operations (FFO) of $1.01 per share in the quarter before the market open, 2 cents per share ahead of forecasts.

"Demand for logistics space is robust and diverse, and operating conditions remain the healthiest in our 38-year history," said Hamid R. Moghadam, chairman, and CEO. "Vacancies in our markets are at all-time lows, contributing to record rent growth and valuation increases."

The company reported a 30-basis-point year-over-year increase in occupancy at 96%, a 60-bp improvement from the first quarter. By the close of the second quarter, the portfolio was 97.2% leased.

Net effective rent change was 31.5% higher with retention of 70.8%, which was "in line with company strategy to deliver high rent change." Prologis reported that leases commenced increased 16.7% to 49 million square feet in the period.

Table: Prologis' Key Performance Indicators

Prologis raised its guidance for the rest of the year. The full-year outlook for net earnings was raised 9.1% at the midpoint to the new range of $3.08 to $3.14. Core FFO expectations increased 1.8% at the midpoint to between $4.04 to $4.08, ahead of the current consensus estimate of $4.01.

The company increased expectations for its capital deployment as well. The amounts to be spent on development stabilizations (+9.5%), development starts (+10.3%), and building acquisitions (+14.3%) were raised to total $6.3 billion at the midpoint of their respective ranges.

"We increased our guidance again across the board and now expect year-over-year Core FFO growth at the midpoint, excluding promotes, of 12.8% and free cash flow after dividends of approximately $1.3 billion," said CFO Thomas Olinger. "Our outlook is equally promising, supported by our in-place-to-market spread of nearly 17%; a land portfolio with a build-out potential of about $18 billion; and an industry-leading balance sheet."

The company will host a call at noon Monday to discuss these results with analysts. Stay tuned to FreightWaves for continuing coverage of Prologis' earnings report.

Prologis Ventures is an investor in FreightWaves.

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