Prologis PLD is slated to report its fourth-quarter and full-year 2024 results on Jan. 21, before the opening 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.

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In the last reported quarter, this leading industrial REIT reported a surprise of 4.38% in terms of core funds from operations (FFO) per share. The quarterly results indicated a rise in rental revenues and healthy leasing activity, though high-interest expenses were an undermining factor.  

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, with the average beat being 1.28%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

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

U.S. Industrial Real Estate Market in Q4

Per a Cushman & Wakefield report, the U.S. industrial market demonstrated resilience, maintaining steady, albeit modest, growth, despite challenges throughout the year, such as elevated interest rates, inflation, labor disputes and election-related uncertainties.

The fourth quarter saw net absorption reach 36.8 million square feet (msf), a 10.5% increase from the previous quarter. For 2024, net absorption amounted to 135 msf, with a more robust performance during the year’s second half.

The overall vacancy rate ticked up by 20 basis points (bps) in the fourth quarter to 6.7%, largely due to speculative deliveries. Nevertheless, overall vacancy stayed 30 bps below pre-pandemic levels with half of the markets monitored by Cushman & Wakefield Research reporting year-end rates under 6%. 

The national average asking rent increased 0.9% quarter over quarter to $10.13 per square foot. Annual rent growth edged up slightly in the fourth quarter to 4.5%, driven by a 6% year-over-year increase in the South region. However, annual declines were observed in 30% of U.S. markets with significant decreases concentrated along the West Coast.

For the second straight quarter, construction deliveries decelerated, with 85.3 million square feet of new supply delivered in the fourth quarter. This represented the lowest level of completions since the second quarter of 2021. Throughout 2024, more than 425 million square feet of industrial facilities were completed, 78% of which were speculative, contributing to rising vacancy rates in several markets.

Factors to Note Ahead of PLD’s Q4 Earnings Release

Prologis is well-positioned to navigate the current positive but subdued demand in the industrial real estate market by leveraging its portfolio of high-quality facilities in prime locations. The company's focus on strategic acquisitions and developments is likely to have bolstered its fourth-quarter revenues. This approach positions Prologis to seize market opportunities and maintain resilience amid ongoing challenges.

Prologis is likely to have leveraged its industry-leading cost efficiency and strong balance sheet to support the company’s growth initiatives. As a key leader in the industrial REIT sector, the company’s ability to access capital at competitive rates enhances its financial strength. During the period under review, Prologis is expected to have demonstrated solid liquidity and financial stability, further solidifying its market leadership.

Projections for PLD

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $1.94 billion, which indicates a 10.4% year-over-year increase. 

We expect rental revenues to be $1.94 million, indicating a rise of 10.5%. Our estimate for average occupancy is 96.4%, which implies a 10 bp decrease from the prior quarter. The same-store net operating income is expected to rise 7.9%. We expect interest expenses to be up 25.1% year over year in the fourth quarter.

Prologis’ activities during the to-be-reported quarter were not adequate for gaining analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been unrevised at $1.38 in the past month. However, it implies a 9.52% increase year over year.

For full-year 2024, Prologis’ expected core FFO per share is in the range of $5.42-$5.46. The company expects average occupancy in the band of 96-96.5% and cash same-store NOI (Prologis share) at 6.5% to 7%.

For the full year, the Zacks Consensus Estimate for FFO per share has risen 2 cents to $5.45 in the past two months. However, the figure indicates a 2.85% decrease year over year on revenues of $7.52 billion.

What Our Quantitative Model Predicts for PLD

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 has an Earnings ESP of 0.00% and carries a Zacks Rank of 4 (Sell). 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, SL Green Realty Corp. SLG and Welltower Inc. WELL, you may want to consider as our model shows that these have the right combination of elements to report an FFO beat this quarter.

SL Green Realty is slated to report quarterly numbers on Jan. 22. SLG has an Earnings ESP of +6.31% and a Zacks Rank of 2 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Welltower is slated to report quarterly numbers on Feb. 11. WELL has an Earnings ESP of +0.13% and carries a Zacks Rank of 2 presently.

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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