- Core FFO (excluding net promote expense): $1.45 per share.
- Core FFO (including net promote expense): $1.43 per share.
- Period Ending Occupancy: 96.2%.
- Net Effective Rent Change: 68%.
- Cash Rent Change: 44%.
- Net Effective Same-Store Growth: 6.2%.
- Cash Same-Store Growth: 7.2%.
- Lease Mark-to-Market: 34%, representing $1.6 billion of potential NOI.
- New Debt Raised: $4.6 billion at a weighted average rate of 4.6%.
- Development Projects Started: Over $0.5 billion.
- Third-Party Acquisitions: Over $1.4 billion.
- Energy Systems: 54 megawatts of new energy systems started.
- Guidance for Average Occupancy: 96% to 96.5%.
- Guidance for Cash Same-Store Growth: 6.5% to 7%.
- Guidance for Net Effective Same-Store Growth: 5.5% to 6%.
- Guidance for G&A: $415 million to $425 million.
- Guidance for Strategic Capital Revenue: $525 million to $535 million.
- Guidance for Development Starts: $1.75 billion to $2.25 billion.
- Guidance for Acquisitions: $1.75 billion to $2.25 billion.
- Guidance for Contribution and Disposition Activity: $3 billion to $4 billion.
- GAAP Earnings Guidance: $3.35 to $3.45 per share.
- Core FFO Guidance (including net promote expense): $5.42 to $5.46 per share.
- Core FFO Guidance (excluding net promote expense): $5.49 to $5.53 per share.
Release Date: October 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prologis Inc (PLD, Financial) reported core FFO of $1.45 per share, slightly ahead of forecasts, indicating strong financial performance.
- The company achieved a net effective rent change of 68% and cash rent change of 44%, showcasing robust leasing activity.
- Prologis Inc (PLD) expanded its land bank, driving potential development opportunities over $40 billion, including new projects in India.
- The company successfully raised $4.6 billion of new debt with a weighted average rate of 4.6% and a maturity of approximately nine years, strengthening its financial position.
- Prologis ventures had a successful exit from an investment in Timee, realizing a 65% IRR, demonstrating effective strategic investments.
Negative Points
- Market conditions remain soft, with global market rents decreasing approximately 3% this quarter, impacting revenue potential.
- The company noted elevated bad debt levels, impacting revenues by approximately 35 basis points.
- Prologis Inc (PLD) reduced its development starts guidance due to slow decision-making and disciplined deferral of new speculative developments.
- Occupancy rates are expected to hover at peak levels as utilization improves, indicating potential stagnation in demand.
- The company faces challenges in Southern California, where market rent declines are expected to take longer to stabilize.
Q & A Highlights
Q: How do you reconcile the mixed signals in industrial markets with strong leasing activity and increased acquisition guidance?
A: Timothy Arndt, CFO: The increased acquisition guidance reflects our long-term confidence. We are actively seeking opportunities in markets where we want to build scale. We are not buying at market IRRs but looking for deals with a premium. Utilization has kept demand low, but this will eventually lead to growth and occupancy as customers work through available capacity.
Q: Can you explain the bottoming process and its impact on market rent growth and development starts?
A: Daniel Letter, President: We are near an inflection point with high variability in forecasts. Rent growth is driven by replacement cost rents, which are 15% higher than current market rents. We expect vacancy recovery to emerge late next year. Development starts have been deferred due to market fundamentals, but we have a large development book and land bank ready for future opportunities.
Q: Why was the full-year guidance only raised by $0.01 despite a $0.06 beat on core FFO this quarter?
A: Timothy Arndt, CFO: The events leading to the perceived beat were already forecasted. FX gains and tax items were contemplated in our guidance. We hedge all FFO earnings, so FX is not a variance item.
Q: What are the trends in Southern California demand and occupancy by unit size?
A: Chris Caton, Managing Director: Southern California has a bright outlook due to its economic size, import growth, and high barriers to supply. Demand is soft in LA with a clear upgrade cycle, while Inland Empire and Orange County show better performance. Smaller spaces typically underperform in occupancy compared to larger units.
Q: How quickly can demand recover as uncertainty ebbs, and what are the current utilization trends?
A: Chris Caton, Managing Director: Demand recovery should be measured. Utilization is improving, indicating a catalyst for space demand. Economic growth, trade, and e-commerce acceleration are tailwinds. Utilization started below 84% this year and is now mid-80s, showing progress.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
