Prologis Reports Record Profits on Surging Warehouse Demand
July 19 2016 - 1:20PM
Dow Jones News
Prologis Inc., the world's biggest warehouse owner, on Tuesday
reported record profits in the second quarter, as near-record
occupancy rates drove up rents.
The company reported funds from operations—the benchmark for
measuring profits of real-estate investment trusts—of $324 million,
or $0.60 a share, beating the average analyst estimate by a penny.
Revenue rose 18% year-over-year to $602 million.
Demand for warehouses has run out ahead of new construction for
years in the U.S., as retailers expand distribution networks to
position goods for faster delivery of online orders to customers.
Vacancy rates are below 5% in some major cities, and have been
falling nationwide since the end of the recession. Even as rents
rise, large warehouse owners like Prologis have been reluctant to
build new space without a customer lined up for fear of flooding
the market.
"The main reason for the markets being as positive as they are
is that development has been constrained….and demand continues [to
grow] at a decent pace," said Hamid Moghadam, the company's chief
executive. "It drives down vacancy rates and gives landlords
pricing power."
Prologis cut its anticipated 2016 construction budget in the
first quarter to below last year's amount. The company on Tuesday
raised its planned spending on new projects, with Mr. Moghadam
citing strong demand from customers looking for custom
"build-to-suit" warehouses. The new projection is for $2 billion to
$2.3 billion in development starts, up from $1.8 billion to $2.3
billion in previous guidance.
Rents on lease renewals jumped 17.8%, up from a year ago,
although that was down from an all-time high of 20.1% in the first
quarter. In the U.S., the renewal rents soared 23.5%.
The U.K.'s vote to exit the European Union isn't likely to
affect demand for warehouses, Mr. Moghadam said. Though the breakup
could reduce economic growth, any move away from a common market
will increase the need for international retailers and
manufacturers to store goods in both the U.K. and continental
Europe, he said.
"From an operational point of view it will have virtually no
impact one way or another," he said. He added that property
developers could find it easier to borrow in the U.K. post-Brexit
if interest rates fall in response to worsening economic
prospects.
Prologis shares were down 0.3% at $51.46 in early afternoon
trading in New York.
Write to Brian Baskin at brian.baskin@wsj.com
(END) Dow Jones Newswires
July 19, 2016 14:05 ET (18:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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