Prologis, one of the world’s largest developers of warehousing and distribution centres, had a strong start in 2016, its first-quarter financials revealed in mid-April. The San Francisco-based company is chasing organic growth and higher profitability after a year during which it recorded an 18.6% growth rate in funds from operations (FFO).
The overall trend is encouraging for shareholders, where “core funds from operations per diluted share was $0.61, up 24% year-on-year,” it said.
Key to this success has been access to cheap funding, given its aggressive corporate strategy, and the current financial environment is providing a helping hand.
Until the end of 2015, it looked like investors were concerned about the company’s capital structure in spite of record global occupancy rates, but the latest news about its funding round could be a game-changer.
In the first quarter Prologis wrapped up a $1.2bn refinancing deal, and fully retired a $400m bridge financing associated to the acquisition of KTR Capital’s real estate portfolio.
Following the end of the quarter, Prologis managed to “recast its global line of credit, which now matures in 2021; the new facility was increased by $640m to $3bn and pricing decreased by 10 basis points to 90 basis points over Libor”.
Its full-year 2015 results indicate that the company’s core FFO is rising on the back of surging revenues, which is supporting a rise in adjusted EBITDA.
A solid performance in Q1 is the result of a strategy that aims to control supply while pushing up rents for currently available properties – it paid off in Q1, when it registered record lease volumes and record rent charges, with core rental revenues surging 35% to $437m from $324m, which clearly boosted its cash flow profile.
That’s important, given that the four-year compound annual growth rate of its adjusted operating cash flow is just over 4%, and Prologis is looking to strike the right balance between rising cash flows and new capex requirements.
However, reported net earnings fell from $0.65 to $0.39 due to higher interest expenses as well as a few non-operating charges, including divestment and currency changes. In this context, Prologis has hedged the majority of its estimated “2016 Euro, Sterling and Yen Core FFO, effectively insulating 2016 results from any FX movements”, it said in its previous trading update.
At the end of 2015, Prologis owned or had investments in properties and development projects expected to total about 669m sq ft (62m sq m) across 20 countries. In April last year, it signed definitive agreements to acquire the real estate assets and operating platform of KTR Capital Partners and its affiliates for a total of $5.9bn.
(The definition of FFO, a non-GAAP metric, can be found here.)
Source: Transport Intelligence, 4th May 2016
Author: Alessandro Pasetti
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)