Prologis Inc : Prologis Swings To 1Q Profit, Acquisition Boost Revenue
05/01/2012| 04:43pm US/Eastern
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--Rental income doubles
--Europe propeties see gain in occupancy
--Analysts question a sustainable recovery
(Adds details on earnings, analyst and CEO comments, and background beginning in first paragraph)
By A.D. Pruitt and Tess Stynes
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Prologis Inc. (>> Prologis Inc) swung to a first-quarter profit and surpassed expectations as the world's largest public owner of warehouses saw its rental income more than double from a boost by its merger last year.
The company's results underscore a recovery in industrial real estate as rising global consumption of discretionary and staple goods fuels demand for warehouse space. Nonetheless, some analysts are concerned that Prologis's rising fortunes may be temporary amid signs that U.S. growth may slow down later in the year and as many European countries grapple with another recession.
This is the third full quarter of results for the new Prologis. It was formed in June when the nation's two biggest publicly traded warehouse owners--Prologis and AMB Property Corp.--merged in one of the largest real-estate deals since the recession.
Prologis reported a profit of $202.4 million, or 44 cents a share, from a year-earlier loss of $46.6 million, or 18 cents a share. Core funds from operations--a closely watched measure of performance for REITs--were up at 40 cents from 29 cents. Core FFO excludes real-estate transaction gains.
Rental revenue more than doubled to $464.6 million, reflecting the contributions from the AMB Property acquisition. Analysts polled by Thomson Reuters most recently projected revenue of $442 million. But the market zeroed in on the sequential occupancy gains in Prologis's European properties, which rose to 92.1% in the first quarter from 91.6% in the fourth quarter. Investors punished Prologis's stock last year on concerns that it would be vulnerable to Europe's debt crisis. The company has about 25% of its portfolio on a square footage basis in the continent.
"This should improve the market's perception on...European asset quality and, more importantly, the probability of (Prologis) being able to find enough third party equity demand for a new Euro fund," wrote Ki Bon Kim, an analyst at Macquarie, in a research note.
The domestic market is also looking up for Prologis as the manufacturing sector emerges as a leader in the U.S. recovery. The manufacturing expansion picked up in April, according to data released Tuesday by the Institute for Supply Management. The ISM's manufacturing purchasing managers' index last month unexpectedly rose to 54.8 from 53.4 in March. A reading above 50 indicates expanding activity.
But some analysts are wary about Prologis's prospects later this year amid signs that U.S. growth could start to slow and as Europe grapples with recessionary pressures. Prologis acknowledged during the conference call the murky outlook, but was optimistic about its prospects.
"We've seen this movie before. In fact, we've seen the movie and the sequel and now we're looking at the third one," said Chief Executive Hamid Moghadam during an earnings call. "In 2010 and 2011, the market went soft on us in May (and) June and we do have the fiscal cliff at the end of the year.
"But...all signals today from our business and our customers are fabulous," he said, noting that Europe even improved beyond expectations.
David Harris, an analyst with Imperial Capital, said he was "less optimistic.
"I think Europe is going to get worse," he said, noting the possibility of a weaker euro against the dollar and a deceleration of growth in most global markets. That "would affect the demand for warehouse space because consumption is likely to fall," he said.
Prologis's stock closed up 0.5% at $35.94.
-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com;
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