Prologis, Inc. and Prologis, L.P. (collectively, “Prologis”) filed their quarterly report for the period ended September 30, 2024. The report highlights the company’s financial performance, including net income of $1.1 billion and diluted earnings per share of $1.23. Prologis also reported total revenue of $1.4 billion, a 10% increase from the same period last year. The company’s operating income was $1.2 billion, and its adjusted funds from operations (AFFO) per share was $0.93. Prologis’ balance sheet shows total assets of $93.4 billion and total debt of $44.4 billion. The company’s cash and cash equivalents stood at $2.3 billion. Prologis also provided guidance for the full year 2024, expecting AFFO per share to be in the range of $3.85 to $3.95.
Our Global Presence and Financial Performance
Prologis is a leading global logistics real estate company with properties and development projects across the world. As of September 30, 2024, the company owned or had investments in properties and projects totaling approximately 1.2 billion square feet, with a significant presence in the United States, Europe, Asia, and other regions.
Prologis operates two main business segments: Real Estate (Rental Operations and Development) and Strategic Capital. The Real Estate segment generates the majority of the company’s revenues, earnings, and funds from operations (FFO), primarily through rental income and development activities. The Strategic Capital segment produces more stable, long-term cash flows by providing asset management and other services to the company’s unconsolidated co-investment ventures.
Strong Rental Operations and Profitable Development
Prologis’ rental operations are the largest component of its business, contributing 90-95% of consolidated revenues, earnings, and FFO. The company collects rent from customers through long-term leases, with a weighted average lease term of 63 months as of September 30, 2024. Prologis expects to drive earnings growth by increasing rents, maintaining high occupancy rates, and controlling expenses as leases roll over to current market rates.
The company’s development business also plays a key role, as Prologis leverages its strategic land bank and development expertise to build modern logistics facilities that meet the evolving needs of its customers. Successful development and redevelopment efforts provide significant earnings growth as projects are leased and increase the value of the Real Estate segment.
Thriving Strategic Capital Segment
Through the Strategic Capital segment, Prologis partners with large institutional investors worldwide, aligning its interests by holding significant ownership stakes in its unconsolidated co-investment ventures. This segment generates durable, long-term cash flows, contributing 5-10% of consolidated revenues, earnings, and FFO, excluding promotes.
The company earns strategic capital revenue primarily through asset management and property management fees, as well as leasing, acquisition, and other services provided to the co-investment ventures. Prologis also has the ability to earn additional revenue through incentive fees (“promotes”) based on the total return of the investments.
Drivers of Future Growth
Prologis believes several key factors will drive its future growth:
Rent Growth: The company’s in-place leases have significant upside potential, with an estimated 34% mark-to-market opportunity from current in-place rents to market rents. This will drive organic NOI growth as leases are renewed.
Value Creation from Development: Prologis’ global development program provides opportunities to create value by sourcing well-located land and redevelopment sites, which can be converted into high-quality industrial properties and data centers.
Strategic Capital Advantages: The co-investment ventures allow Prologis to grow its operating portfolio, contribute newly developed assets, and generate substantial management fees, while maintaining significant ownership stakes.
Balance Sheet Strength: Prologis maintains a strong, flexible balance sheet with conservative leverage, ample liquidity, and long-dated debt maturities, positioning the company to capitalize on investment opportunities.
Operational Efficiency: The company’s scalable systems and infrastructure enable it to grow the portfolio with limited incremental G&A expense, driving further improvements in operational efficiency.
Innovation and Customer Focus: Prologis is investing in emerging technologies and service offerings to enhance its customers’ experience and support their operational and sustainability goals.
Recent Performance and Outlook
Prologis’ operating results were strong during the nine months ended September 30, 2024, despite some softening in rents and occupancy in the market. The company’s existing lease mark-to-market drove positive rent change on lease rollovers and same-store growth in its operating portfolio, which had an occupancy rate of 96.2% at the end of the period.
While Prologis expects customers to exercise caution in their leasing decisions in the near term due to economic and geopolitical uncertainty, the company believes it is well-positioned to organically grow revenues over the long term given the cumulative growth in market rents and its high existing lease mark-to-market.
During the first nine months of 2024, Prologis generated $2.4 billion in net proceeds and realized $811 million in net gains, primarily from the contribution of properties to its unconsolidated co-investment ventures and the sale of non-strategic properties. The company also expanded its presence in the Indian market through a joint venture acquisition of 225 acres of land to support future development.
Segment Performance and Capital Expenditures
The Real Estate segment’s NOI increased by $401 million, or 10.5%, in the first nine months of 2024 compared to the same period in 2023. This was driven by positive rental rate growth, additional NOI from acquisitions, and increased NOI from development completions.
Prologis’ consolidated development activity remained strong, with 21 new development projects started and 55 projects stabilized during the first nine months of 2024. The company’s consolidated development portfolio had a total expected investment (TEI) of $5.4 billion at September 30, 2024, with a weighted average stabilized yield of 6.0%.
The company’s capital expenditures for operating property improvements and leasing costs totaled $145 million in the first nine months of 2024, representing 24.8% of total G&A expenses.
Strategic Capital Segment Performance
The Strategic Capital segment’s NOI decreased from $764 million in the first nine months of 2023 to $208 million in the same period of 2024. This was primarily due to a decline in promote revenue, which can fluctuate significantly based on the performance of the co-investment ventures.
Recurring fees, such as asset management and property management fees, remained relatively stable, while transactional fees, including leasing commissions and acquisition/disposition fees, also declined compared to the prior-year period.
Liquidity and Capital Resources
Prologis maintains a strong financial position, with $6.6 billion in total available liquidity as of September 30, 2024, including $5.8 billion in borrowing capacity on its credit facilities and $781 million in unrestricted cash.
The company’s consolidated debt had a weighted average remaining maturity of 10 years and a weighted average interest rate of 3.1% at the end of the period. Prologis has substantially addressed its debt maturities until 2026 through its refinancing activities.
Prologis’ equity commitments to its co-investment ventures totaled $2.4 billion at September 30, 2024, with the majority expected to be funded by the company’s venture partners.
Funds from Operations (FFO) and Other Measures
Prologis uses several non-GAAP financial measures, including FFO, FFO as modified by Prologis, and Core FFO, to evaluate its performance and provide guidance to the financial markets. These measures exclude certain items, such as foreign currency gains/losses and deferred taxes, to better reflect the company’s operating performance.
For the nine months ended September 30, 2024, Prologis reported Core FFO of $3.87 billion, compared to $4.13 billion in the same period of 2023. The decrease was primarily due to lower promote revenue in the Strategic Capital segment.
Conclusion
Prologis has demonstrated strong financial and operational performance, leveraging its global platform, development expertise, strategic capital partnerships, and innovative approach to drive growth and create value for shareholders. The company’s focus on rent growth, value-added development, and operational efficiency, combined with its solid financial position, positions Prologis well to navigate the current market environment and capitalize on future opportunities.