Robust 2Q17 results
Prologis (PLD) reported a higher-than-expected top line and bottom line in 2Q17 backed by robust rent growth and same-store net operating income growth during the quarter.
Net promote income drove profit during 2Q17
Earnings were driven by higher net promote income during the quarter, which contributed almost $0.18 per share to the core funds from operation (or FFO). Prologis reported core FFO of $0.84 per share, which was 40% higher than the year-ago results.
The company reported higher-than-expected net promote income mainly driven by higher real estate values in its USLF (Prologis Targeted U.S. Logistics Fund) portfolio. The company’s subsidiary in Latin America, FIBRA Prologis, also contributed $4 million to net promote income.
Prologis has no other promotes scheduled for 2017. It expects net promote to total $0.16 per share for this year.
Higher leases added to revenue growth
Prologis leased out 47 million square feet during the quarter, lower than the 49 million square feet signed a year ago. The lower square footage may be because as in the first quarter, Prologis was running out of space to lease, reflecting the fact that demand for the company’s properties outpaced supply. Further, Prologis had leased out 39 million square feet in 1Q17. The additional leased out space also contributes to higher revenue during 2Q17.
Location was a key driver for business growth
In its key markets, Prologis has successfully repositioned its properties close to busy business centers. A rising trend among REITs has been to shift their property locations towards Class A cities with the highest demand. These locations are accessible and have proximity to seaports, airports, railway stations, and highways.
Wall Street expects Prologis’s close competitors like Duke Realty (DRE), Kilroy Realty (KRC), and Boston Properties (BXP) to report revenue of $192.9 million, $157.7 million, and $639.5 million, respectively, in 2Q17.
Prologis and its competitors together constitute 14.1% of the iShares Cohen & Steers REIT ETF (ICF). ICF’s weighted market cap has wide product diversity that cushions against macro headwinds.