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

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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