Why did Prologis lower its 2024 guidance?

Management said customers remain focused on controlling costs, which is slowing decisions and leasing pace and reducing expected net absorption. Leasing is also becoming more competitive in some larger, higher-rent markets. Management described the revisions as more a matter of timing than a change in the long-term outlook, since new supply remains favorable.

How did Prologis perform in Q1 2024 relative to the prior year?

Net earnings per diluted share rose to $0.63 from $0.50, and Core FFO per diluted share rose to $1.28 from $1.22. Excluding Net Promote Income (Expense), Core FFO was $1.31 versus $1.23. Average occupancy was 96.8% on an owned-and-managed basis, and Prologis Share Cash Same Store NOI grew 5.7%, although that figure was affected by about 175 bps of one-time items.

What is the company's financial position and funding profile?

Prologis reported liquidity of almost $6 billion, debt at 21.0% of total market capitalization, and a 3.1% weighted average interest rate on its share of total debt with a 9.3-year weighted average term. During the quarter, Prologis and its co-investment ventures issued $4.1 billion of debt at a 4.7% weighted average rate, including an inaugural CNH bond, and established a $1 billion commercial paper program rated A-1/P-2.

How exposed is Prologis to currency movements?

Prologis reported that 96.5% of its equity is denominated in U.S. dollars. It borrows in the currencies where it invests and uses derivatives to hedge. Forecasted earnings for 2024, 2025 and 2026 are 98%, 98% and 97% respectively in USD or hedged through derivative contracts, which management says insulates earnings from FX movements.

Are there any near-term risks investors should watch?

Key risks include slower net absorption, competitive leasing pressure in higher-rent markets, and near-term headwinds in Southern California. The CEO also cited a volatile, persistently high interest rate environment and geopolitical concerns. Investors should also watch for the non-recurring nature of the one-time items affecting Cash Same Store NOI and the negative Net Promote Income expense, which relates to stock compensation tied to prior promote income.

PLD/PLDGP 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed April 17, 2024. Cited figures are marked; the original filing is the authoritative source.

Prologis reported first quarter 2024 results on April 17, 2024, with net earnings per diluted share of $0.63^a (vs. $0.50 a year earlier) and Core FFO per diluted share of $1.28 (vs. $1.22), or $1.31 excluding Net Promote Income (Expense), up from $1.23.

The results were paired with a notable tone shift from CEO Hamid Moghadam, who cited customers focused on controlling costs, a volatile high-rate environment and geopolitical concerns weighing on leasing decisions, and said the company is prepared for a slower environment over the next quarter or two. Average occupancy was 96.8%^b on an owned-and-managed basis, and Prologis Share Cash Same Store NOI growth was 5.7%, which management noted was impacted by roughly 175 bps of one-time items. The most important change for investors is the reduction in 2024 guidance.

Management lowered full-year Core FFO (excluding promotes) to $5.45^c-$5.55 from $5.50-$5.64, net earnings to $3.15-$3.35 from $3.20-$3.45, average occupancy to 95.75%-96.75% from 96.50%-97.50%, and Cash Same Store NOI growth to 6.25%-7.25% from 8.00%-9.00%. Management attributed the cuts to lower expected net absorption and more competitive leasing in larger, higher-rent markets, and characterized them as largely a matter of timing given favorable new supply dynamics. Development starts guidance was also reduced to $2.5-$3.0 billion from $3.0-$3.5 billion.

Balance sheet metrics were presented as strong, with liquidity of nearly $6 billion^d, debt at 21.0% of total market capitalization, a 3.1% weighted average interest rate on Prologis' share of debt, a 9.3-year weighted average term, and no significant maturities until 2026. Management also highlighted that 96.5% of equity is in USD and that 2024-2026 forecast earnings are largely USD or hedged.

The filing is furnished under Items 2.02 and 7.01 rather than filed, so the supplemental information and press release are not incorporated into Securities Act filings. Investors should weigh the strong capital position and reported earnings growth against the reduced operating outlook and management's cautionary commentary on near-term demand.

02—Key points

Key Highlights

Q1 2024 Net earnings per diluted share of $0.63, up from $0.50 in Q1 2023.
Q1 2024 Core FFO per diluted share of $1.28 vs. $1.22 a year earlier; $1.31 excluding Net Promote Income (Expense) vs. $1.23.
2024 guidance cut: Core FFO excluding promotes lowered to $5.45-$5.55 from $5.50-$5.64; net earnings lowered to $3.15-$3.35 from $3.20-$3.45.
Operating guidance reduced: average occupancy to 95.75%-96.75% (from 96.50%-97.50%) and Cash Same Store NOI growth to 6.25%-7.25% (from 8.00%-9.00%).
Development starts guidance reduced 15.4% to $2.5-$3.0 billion; G&A guidance trimmed to $415-$430 million.
Management flagged softer customer decision-making and expects a slower environment over the next quarter or two, with Southern California facing near-term headwinds.
Balance sheet remains strong: nearly $6 billion of liquidity, debt at 21.0% of total market capitalization, 3.1% weighted average interest rate on Prologis share of debt, and no significant maturities until 2026.

03—Questions

Frequently Asked Questions

Why did Prologis lower its 2024 guidance?
Management said customers remain focused on controlling costs, which is slowing decisions and leasing pace and reducing expected net absorption. Leasing is also becoming more competitive in some larger, higher-rent markets. Management described the revisions as more a matter of timing than a change in the long-term outlook, since new supply remains favorable.
How did Prologis perform in Q1 2024 relative to the prior year?
Net earnings per diluted share rose to $0.63 from $0.50, and Core FFO per diluted share rose to $1.28 from $1.22. Excluding Net Promote Income (Expense), Core FFO was $1.31 versus $1.23. Average occupancy was 96.8% on an owned-and-managed basis, and Prologis Share Cash Same Store NOI grew 5.7%, although that figure was affected by about 175 bps of one-time items.
What is the company's financial position and funding profile?
Prologis reported liquidity of almost $6 billion, debt at 21.0% of total market capitalization, and a 3.1% weighted average interest rate on its share of total debt with a 9.3-year weighted average term. During the quarter, Prologis and its co-investment ventures issued $4.1 billion of debt at a 4.7% weighted average rate, including an inaugural CNH bond, and established a $1 billion commercial paper program rated A-1/P-2.
How exposed is Prologis to currency movements?
Prologis reported that 96.5% of its equity is denominated in U.S. dollars. It borrows in the currencies where it invests and uses derivatives to hedge. Forecasted earnings for 2024, 2025 and 2026 are 98%, 98% and 97% respectively in USD or hedged through derivative contracts, which management says insulates earnings from FX movements.
Are there any near-term risks investors should watch?
Key risks include slower net absorption, competitive leasing pressure in higher-rent markets, and near-term headwinds in Southern California. The CEO also cited a volatile, persistently high interest rate environment and geopolitical concerns. Investors should also watch for the non-recurring nature of the one-time items affecting Cash Same Store NOI and the negative Net Promote Income expense, which relates to stock compensation tied to prior promote income.

04—Continue

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