News

Prologis PLD, the leading industrial REIT, is slated to report second-quarter 2024 earnings on Jul 17 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.

In the last reported quarter, this REIT reported an in-line performance in terms of core funds from operations (FFO) per share. The quarterly results reflected better-than-expected revenues, though higher interest expenses acted as a dampener.

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, the average beat being 3.03%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote

Let’s see how things have shaped up before this announcement.

US Industrial Real Estate Market in Q2

Per a Cushman & Wakefield CWK report, although the U.S. industrial market recently decelerated, it continued to perform well. In the second quarter, net demand increased, asking rental rates continued to rise, and the influx of vacant sublet space slowed for the second consecutive quarter.

There was a reacceleration of industrial demand in the second quarter. Following a dull first quarter, overall net absorption more than doubled to 46.3 million square feet (msf) in the second quarter of 2024, per the report.

While news leasing activity was 137.2 msf in the second quarter, down 2.8% since the first quarter, it came 11.2% ahead of the 10-year pre-pandemic average of 126.9 msf.

The vacancy has continued to normalize from historically low levels, with the vacancy rate edging higher to 6.1%, up 40 basis points (bps), as 121.1 msf of new construction deliveries were completed. While it marks the highest vacancy rate in almost nine years, it is still below the 10-year, pre-pandemic (2010-2019) average of 7%. Amid this, asking rents crept higher to $9.97 per square foot, reflecting an increase of only 3.7% year over year, the lowest growth rate since 2020.

However, the construction pipeline continues to diminish. The pipeline ended the second quarter at 343.3 msf, down 14% quarter over quarter.

Factors to Note

Given Prologis’ capacity to offer high-quality facilities in key markets, it is positioned to effectively navigate the current softening of the industrial real estate market. Prologis’ expansion efforts through acquisitions and developments in recent years are likely to have boosted the top line in the to-be-reported quarter.

PLD is also likely to have gained from its industry-leading cost structure. It has a robust balance sheet that empowers its expansion moves. As a dominant player in the industrial REIT sector, it can secure capital at advantageous rates. It is expected to have upheld financial resilience and liquidity during the period under review.

However, in a volatile and persistently high interest rate environment and geopolitical concerns, customers remain focused on cost controls and delay their decisions with respect to decision-making for leasing.

Also, with the asset category being attractive even during challenging times, there is a development boom in many markets. This high supply is likely to have fueled competition and curbed pricing power. New supply is likely to have created pressure on vacancy levels and rent growth to some extent in some of the company’s markets in the upcoming quarters.

Along with a slower leasing environment, elevated interest expenses are likely to have affected the company’s performance in the second quarter.

Projections for Q2 2024

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.86 billion, which suggests a 12.3% year-over-year increase.

We project a 12% rise in rental revenues in the second quarter to $1.85 million. Our estimate for second-quarter average occupancy is 96.7%, which implies a 30 bps decrease from the prior quarter. The same-store net operating income is expected to rise 9%. Interest expenses are projected to increase 25% year over year.

Prologis’ activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the second-quarter FFO per share has been revised a cent downward to $1.33 in the past month. Also, it suggests a 27.3% decrease year over year.

Here is What Our Quantitative Model Predicts:

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 4 (Sell) and has an Earnings ESP of -0.14%. 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 — Welltower Inc. WELL 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.

Welltower is slated to report quarterly numbers on Jul 29. WELL has an Earnings ESP of +0.67% and a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cousins Properties is slated to report quarterly numbers on Jul 25. CUZ has an Earnings ESP of +0.30% and carries a Zacks Rank of 2 presently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.