Key Factors to Impact Prologis’ (PLD) Earnings This Season
Prologis, Inc. PLD is slated to report fourth-quarter 2017 earnings on Jan 23, before the opening bell.
Last quarter, this industrial real estate investment trust (REIT) reported an in-line result in terms of funds from operations (FFO) per share. Though the company experienced improved operating environment in the quarter, it did not recognize any promote income.
However, Prologis has a mixed surprise history. The company surpassed the FFO per share estimates in two occasions and met in the other two, over the preceding four quarters, resulting in an average positive surprise of 2.33%. This is depicted in the graph below:
The Zacks Consensus Estimate for the fourth-quarter FFO per share is currently pegged at 66 cents.
Let’s see how things are shaping up for this announcement.
Factors at Play
The industrial real estate market has been experiencing solid growth, backed by the recovering economy and job-market improvements, strengthening e-commerce market and healthy manufacturing environment.
Amid this, Prologis has the capacity to offer modern distribution facilities at strategic in-fill locations. The company also has solid balance-sheet strength. Also, its build-to-suit activity remained impressive in the second half of 2017, with the company completing 13 development projects. With a total expected investment (TEI) of approximately $350 million (on a Prologis-share basis), these projects included more than 4.7 million square feet of space.
Further, this industrial real estate investment trust (REIT) was awarded 21 build-to-suit development projects during the same period, denoting over 6.7 million square feet of space. The TEI of these developments totaled roughly $550 million on a Prologis-share basis.
In fact, for full-year 2017, the company completed 33 build-to-suit projects, covering more than 12 million square feet of space. During the year, it also commenced 38 projects with a TEI of nearly $1.1 billion.
Notably, this high number of build-to-suit development projects highlights the advantageous location of the company’s rich land bank as well as the sturdy network of multi-site customers which are increasingly focusing on e-commerce. In fact, the company’s ratio of built-to-suit activity to overall development starts has achieved the highest level since 2013.
Nevertheless, recovery in the industrial market has continued for long and chances of any sound improvement in rent and occupancy growth in the to-be-reported quarter seem limited.
Rather, there is intense competition in the market. Also, a whole lot of new buildings are slated to be completed and made available in the market in the near term, leading to elevated supply, and lesser scope for rent and occupancy growth. Amid these, the Zacks Consensus Estimate for the fourth-quarter rental revenues is currently pegged at $532 million, denoting a drop of 5% from the year-ago quarter.
Therefore, prior to the fourth-quarter earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the to-be-reported quarter remained unchanged at 66 cents per share over the past 30 days.
Furthermore, Prologis has underperformed the industry it belongs to, in the past three months. The company’s shares have dipped 4.6%, while the industry incurred loss of 4.3% during this time frame.
Here is what our quantitative model predicts:
Prologis does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: The Earnings ESP for Prologis is +0.10%.
Zacks Rank: Prologis carries a Zacks Rank #4 (Sell).
A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. However, we also need to have a favorable Zacks rank to be confident of a positive surprise.
Stocks That Warrant a Look
Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:
American Tower Corporation AMT, slated to release fourth-quarter results on Feb 27, has an Earnings ESP of +1.34% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Jan 29, has an Earnings ESP of +0.65% and a Zacks Rank #3.
Rexford Industrial Realty, Inc. REXR, likely to release quarterly numbers on Feb 15, has an Earnings ESP of +1.01% and a Zacks Rank #3.
Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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