Nothing seems able to slow down the activity of the dominant industrial lessor.
Prologis shares rose more than 4% on Tuesday after the company beat Wall Street consensus expectations for the first quarter and raised its 2022 earnings forecast by 10%.
Net operating income, a key indicator of REIT profitability, climbed 8.7% globally and 9.7% in the U.S. year-over-year despite the lingering global crisis. global supply chain, the ongoing war in Europe and rising interest rates and inflation in the country, which has pushed consumer sentiment to its lowest level since the start of the pandemic.
Anxious and cash-strapped consumers spend less, which theoretically translates into less goods passing through Prologis warehouses. But recent political and economic turmoil has been a boon for the world’s largest REIT and industrial landlord: it has forced its tenants to hoard more inventory, creating even more demand for space in a market where vacancy, thanks to the explosive growth of e-commerce during the pandemic, is hovering around a record 4%.
Prologis chief executive Hamid Moghadam, who in recent months has described the industrial property market as “effectively exhausted”, said on an earnings call on Tuesday that rising rents, volatility and l uncertainty were “really part of the same equation”. When business is going well, tenants “optimize” the space. In the event of a disruption, they accumulate a “safety stock” and double their square footage.
“I don’t see it going off the rails,” Moghadam said of the company’s business in Europe. “Unless this war goes to a whole other scale of things that I don’t even want to imagine. And then everything is fried.
Prologis net effective rents, which take into account discounts and other promotions, increased 42% year-over-year in the United States and 37% globally during the first quarter. Escalating land and construction costs, driven by widespread “anti-growth sentiments” have helped push them to new heights, Moghadam said.
Even if rents plateau, the company has “substantial” embedded earnings growth for the “years to come,” Chief Financial Officer Timothy Arndy said in the earnings release.
Shares of Prologis have gained nearly 50% over the past year and are up 3% so far this year, against the S&P 500’s 7% decline.
Prologis management deflected questions on the call about its mergers and acquisitions strategy. The REIT launched a non-binding $23 billion offer in late March for Mileway, the pan-European logistics company Blackstone launched in 2019 to house the 15 million square feet of warehousing space within its portfolio of European real estate funds. . It was later reported that Prologis withdrew its bid as a Blackstone-led consortium moved ahead with its earlier plan to recapitalize the company.
“We don’t comment on market rumours,” Moghadam said. “But we review every transaction of any size that occurs in any of our marketplaces. You would expect us to.
The Prologis portfolio was just over 98% let as of March 31.