Prologis shines and has cash to spend


The shares of Prologis are on a roll, now trading at a 52-week high of $52.9 and up 25% since the turn of the year.

The current market value per share of the San Francisco-based developer of warehousing and distribution centres is roughly $1.7 above consensus estimates from analysts, and implies forward p/e and EV/EBITDA multiples of 44x and 22x, respectively – and both of these metrics represent a huge premium against the market’s.

Therefore, Prologis clearly needs plenty of growth to deliver rising shareholder returns, which so far have been made possible by strong execution as well as high net leverage and solid income streams from dividends.

Notably, the shares also trade at 13 times forward estimated revenues of $2.3bn for the year, and were recently boosted by all-time low vacancy rates, which were a key highlight in the second-quarter results, when the group also upped guidance for full-year earnings.

It said net earnings guidance “increased $0.89 at midpoint, primarily a result of an increase in expected gains from the disposition of real estate”. Occupancy rates stood at 96.1% in the second quarter against 95.9% one year earlier.

There are remaining risks associated to its growth forecasts, of course, yet there is little doubt Prologis is doing exceptionally well, with quarterly revenues rising 18% to $602m year-on-year. Top-line growth was even more pronounced in the first half of 2016, with sales surging 24% to $1.2bn.

Operating income stood at $142m against $87m one year earlier, rising 58% to $271m in the first half of the year on a comparable basis.

“Net earnings per share was $0.52 compared with $0.27”, one year earlier, it said, boosted by higher funds from operations (FFO), up 18.2% to $324m. By comparison, earnings per share were much weaker in the first quarter on a comparable basis.

Quarterly dividends per share (DPS), meanwhile, rose to $0.42 from $0.36 year-on-year, while in the first half of the year DPS stood at $0.84 from $0.72 one year earlier.

There was hard evidence to back up the upbeat remarks from chief financial officer Thomas Olinger, given that the group now boasts a liquidity position of more than $3.7bn, “the highest level in the company’s history”.

Gross cash and cash equivalents rose to $369m from $264m at the end of 2015, while its gross debt position was unchanged at $11.6bn during the period, which compares with a book value of equity standing at $18bn, and a market cap of $27bn.

As we pointed out in early May, Prologis wrapped up a refinancing deal that could turn out to be a game-changer, assuming favourable market conditions persist. One caveat for income investors, however, is that it is adopting a very aggressive dividend policy.

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Source: Transport Intelligence, July 27, 2016

Author: Alessandro Pasetti