Morningstar | Demand for Warehousing Space Continues to Benefit Prologis
Prologis reported strong first quarter of 2019 results as warehousing demand growth continues to outpace supply growth. Core funds from operations came in at 73 cents per share, versus 80 cents per share in the first quarter of 2018. The funds from operations shrinkage was largely due to the timing of incentive fees. Excluding incentive fees, Prologis reported healthy 2.8% FFO growth and 5.5% same-store cash NOI growth. After incorporating recent results that indicate higher than expected price increases and development activity, we are raising our fair value estimate to $76 per share from $72 per share for the no-moat company.Prologis is testing the extent to which it can maximize profit by increasing rent. Same-store cash rental revenues increased by 4.8% year over year and customer retention remains in the mid-70s. Price increases are driving revenue increases as the company’s releasing spreads exceeded 25% for the second quarter running. Although occupancy declined slightly from near all-time-highs in late 2018 to 96.8%, we think that demand is still strong enough for Prologis’ to continue increasing rent. We anticipate that over the next 10 years, asking prices will increase substantially but occupancy will only modestly decrease. We believe this strategy is appropriate for Prologis since we expect that consumer demand for rapid shipping is here to stay.
We raised our 2019 funds from operations estimate somewhat after Prologis increased their incentive fee guidance due to a valuation gain in Europe. While we appreciate the increased bottom line, we believe that this fee income is generally not material to the business and expect that this will be a one-time increase.
Prologis is a self-administered and self-managed real estate investment trust and is the sole general partner of Prologis, L.P. The company owns, manages and develops logistics facilities, with a focus on the consumption side of the global supply chain. Most of the company's properties in the United States are wholly owned, while its properties outside the United States are primarily held in co-investment ventures. The company has two segments: Real Estate Operations, which represents the ownership and development of operating properties, and includes land held for development and properties under development; and Strategic Capital, which represents the management of unconsolidated co-investment ventures.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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