SAN FRANCISCO—Locally based Prologis Inc. recently reported results for third quarter 2014, showing that core funds from operations per fully diluted share was $0.48 for the third quarter compared with $0.41 for the same period in 2013, a year-over-year increase of 18%.
“I am very pleased with our quarterly performance,” says Hamid R. Moghadam, chairman and CEO, Prologis. “Our results were led by operations, with global occupancy ending at 95% and rent change reaching the highest level in many years. We are raising the midpoint for our full-year 2014 Core FFO guidance due to our performance to date and expectations for continued growth.”
Prologis ended the quarter with 95% occupancy in its operating portfolio, an increase of 110 basis points over the same period in 2013 and 40 basis points over the prior quarter. The quarterly increase was driven by a 110 basis point increase in spaces under 100,000 square feet and a 90 basis point increase in the company's European portfolio.
Industry analyst RBC Capital markets says that the firm's results are reflective of favorable industrial fundamentals. “Growth was healthy with further spread expansion led by the US while development starts, acquisition and dispositions/contributions were all elevated,” the firm says. “This relative strength was also reflected in updated guidance which was raised to $1.85-$1.86/share forecasting slightly higher SS/occupancy growth and should bode well for the industrial REIT sector.”
In the third quarter, Prologis leased 40.8 million square feet (3.8 million square meters) in its combined operating and development portfolios. Tenant retention was 83.9%.
GAAP rental rates on signed leases during the quarter increased 9.7% from prior rents, led by the US at 15.5% and followed by Asia at 10.2% and Europe at 0.2%.
During the third quarter, same store NOI increased 3.7% on a GAAP basis and 4% on an adjusted cash basis.
New investments totaled $1.9 billion ($1.3 billion Prologis' share) in the third quarter, as the company continued to deploy capital at attractive yields.
During the quarter, Prologis started $697.5 million ($615.6 million Prologis' share) of new developments, with an estimated weighted average yield upon stabilization of 7.1% and an estimated development margin of 19.1%.
The company stabilized $222.7 million ($219.4 million Prologis' share) in development projects, principally in the US and Mexico, with an estimated development margin of 25.7%, generating $56.9 million (Prologis' share) of estimated value creation.
“Margins remain above average and we are poised to create value for years to come,” says Mike Curless, chief investment officer, Prologis. “Our land bank is well-positioned for the next generation of development activity. Approximately 90% is located in major metropolitan areas, where we see accelerating demand.”
At quarter end, the book value of the company's land bank totaled $1.8 billion with an estimated build-out potential of $10.8 billion.
“We continue to seek opportunities to secure long-term capital at today's cost to enhance the composition of our debt portfolio and liquidity,” says Tom Olinger, chief financial officer, Prologis. “We are very pleased with our progress toward significantly minimizing the impact of foreign currency movements on our earnings and net asset value.”
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
