Key Factors Likely to Impact Prologis This Earnings Season
Prologis PLD is slated to report its third-quarter 2024 results on Oct. 16 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.
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In the last reported quarter, this leading industrial REIT reported a surprise of 0.75% in terms of core funds from operations (FFO) per share. The quarterly results reflected a rise in rental revenues and healthy leasing activity, though high interest expenses are an undermining factor.
Over the trailing four quarters, Prologis beat the Zacks Consensus Estimate in terms of FFO per share on two occasions for as many in-line performances, with the average beat being 0.98%. This is depicted in the graph below:
Prologis, Inc. Price and EPS Surprise
Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote
US Industrial Real Estate Market in Q3
Per a Cushman & Wakefield CWK report, the U.S. industrial real estate market experienced a moderation in demand in the third quarter of 2024, with net absorption falling to 29.4 million square feet (msf), a more than 35% decline from the prior quarter. However, it is still on track to surpass 100 msf for the year.
Despite a "wait and see" approach from some occupiers, third-quarter leasing activity reached 139.6 msf, which is 8% above the 10-year pre-pandemic average and close to last year's total of 140.9 msf. Since the beginning of 2024, 433.6 msf of new deals were completed, a 6.7% decline from the same period in 2023.
Vacancy rates continued to normalize, increasing slightly (30 basis points [bps] sequentially) to 6.4%, largely due to speculative deliveries, though this remains below pre-pandemic averages. The construction pipeline has contracted to its lowest level since 2018, with only 309.3 msf under construction. Even with these trends, asking rents rose 4.3% year over year to $10.08 per square foot (psf), surpassing $10 per square foot for the first time.
Factors to Note
Prologis is well-positioned to manage the current softening in the industrial real estate market, thanks to its ability to provide high-quality facilities in strategic locations. The company's expansion through acquisitions and developments is expected to have positively impacted its revenues in the third quarter. This strategic growth places Prologis in a strong position to capitalize on market opportunities despite current challenges.
For the third quarter, we expect Prologis to witness a continued recovery with healthy rent growth driven by rent mark-to-market. Vacancy rates are anticipated to peak as new supply slows, positioning the market for more favorable conditions in 2025.
Prologis likely benefited from its industry-leading cost structure and robust balance sheet, which supports its expansion efforts. As a dominant player in the industrial REIT sector, PLD can secure capital at favorable rates, strengthening its financial resilience. During the period under review, the company is expected to have maintained strong liquidity and upheld its financial stability, further reinforcing its leadership position in the market.
Projections for Q3
The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $1.90 billion, which suggests a 7.03% year-over-year increase.
We project rental revenues at $1.9 million, indicating a rise of 7.2%. Our estimate for average occupancy is 96.4%, which implies a 20 bp decrease from the prior quarter. The same-store net operating income is expected to rise 8.3%.
Prologis’ activities during the to-be-reported quarter were not adequate for gaining analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been unrevised at $1.38 in the past month. However, it suggests a 6.15% increase year over year.
What Our Quantitative Model Predicts for PLD
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 -0.05%. 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 — SL Green Realty Corp. SLG and Cousins Properties Incorporated CUZ — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
SL Green Realty is slated to report quarterly numbers on Oct. 16. SLG has an Earnings ESP of +2.38% and a Zacks Rank of 2 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cousins Properties is slated to report quarterly numbers on Oct. 24. CUZ has an Earnings ESP of +1.12% and carries a Zacks Rank of 2 presently.
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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Prologis, Inc. (PLD) : Free Stock Analysis Report
Cousins Properties Incorporated (CUZ) : Free Stock Analysis Report
SL Green Realty Corporation (SLG) : Free Stock Analysis Report
Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report