Prologis Beats Q1 Expectations By $120M On Rent, Occupancy Increases
Prologis grew its revenue again in the first quarter, beating analysts' expectations for the world's biggest industrial property company.
Company executives reported total revenue of $1.77B during an earnings call Tuesday, an increase of 45.1% and about $120M higher than analysts projected. But while the company's occupancy levels and overall financial health leave little room for worry, the coming months won't be all smooth sailing, Prologis Chief Financial Officer Tim Arndt said.
“While logistics real estate is very healthy, the macroeconomic picture continues to be a concern, and we anticipate it could weigh on customer sentiment over the balance of the year, translating into some demand that could be delayed into 2024,” Arndt said. “However, this will overlap with a slowdown of new deliveries, creating a sustained dynamic for high occupancy and continued rent growth into next year.”
Prologis' strategy to maintain its position in the market as the economy shakes around it was evident in its earnings figures for the quarter, with net diluted earnings per share down to 50 cents from $1.54 in Q1 2022. The company chalked this up to the fact that it hasn't sold much property this year, whereas the first part of 2022 was a busy time for dispositions.
Overall, Prologis expects the average 3.5% industrial vacancy rate in U.S. markets will build to a lower 4% range toward the end of the year before turning back to the mid-3% realm by late 2024 due to the lack of incoming supply, Arndt said.
“I would describe market conditions as very good to excellent,” Prologis CEO Hamid Moghadam said during the call. “They're not exceptional, like they were a year and a half or two years ago, but they're very good.”
The company's funds from operations per share, another important metric for REITs, reached $1.22 for the first quarter of 2023. That figure was $1.09 for Q1 2022.
The company is “not worried at all” about such markets as Los Angeles County and the Inland Empire in California, Moghadam said, citing their exceptionally low vacancy rates, on the order of 1% to 2%.
Prologis is watching other markets more carefully, such as South Dallas and Atlanta, he said.
“Those markets, through all the cycles, have been prone to overdevelopment and softening of demand when business slows down,” Moghadam said. “But I wouldn't characterize any of them as watchlist markets.”
For the company's portfolio, occupancy, rents and corporate liquidity are at all-time highs, according to Prologis. Average occupancy for its 1.2B SF portfolio is 98%. Its U.S. portfolio occupancy stood at 98.2% for the quarter, up from 97.6% a year ago.
Both new leases and renewals were up portfolio-wide from last year. In Q1 2023, the company inked about 14.2M SF in new leases, up from about 11.5M SF a year earlier. Renewals totaled about 34.7M SF in the first quarter of 2023, an increase from 30M SF a year earlier.
Net effective rents were up 68.8% for the year, and the company reported $6.7B in liquidity, including $1B in a new line of credit closed this month.
Prologis stock ticked up on Tuesday by about 0.32%. Compared with a year ago, however, Prologis stock is down 24.3%.
