- Prologis posted $1 billion in earnings, with core funds from operations (FFO) at $1.43 per share, surpassing analysts’ estimates.
- Revenue reached $2.04 billion, up from $1.92 billion last year, driven by steady demand despite challenges in the industrial real estate market.
- The company expects a slowdown in new warehouse construction, which will help maintain tight supply, and anticipates long-term demand growth in logistics properties.
- Prologis adjusted its 2024 earnings outlook, projecting EPS between $3.35 and $3.45, with FFO guidance slightly altered to $5.42-$5.46 per share.
Prologis, the world’s largest industrial real estate company, posted solid third-quarter earnings and revenue growth, but the company revised its 2024 outlook due to ongoing headwinds in the logistics market.
A slowdown in new warehouse construction is expected to keep supply tight, even as long-term demand remains robust.
Strong Q3 Performance Exceeds Expectations
For Q3, Prologis reported earnings of $1 billion, or $1.08 per share, marking a significant rise from $746 million (80 cents per share) in the same period last year. Core funds from operations (FFO) — a key performance metric for real estate investment trusts (REITs) — reached $1.43 per share, surpassing analysts’ predictions of $1.37. Revenues also rose to $2.04 billion, beating estimates of $1.91 billion, driven by higher rental income and increased leasing activity.
Market Challenges and Warehouse Supply Constraints
The industrial real estate sector, which experienced a surge during the e-commerce boom of the pandemic, has recently seen a cooling off. Cushman & Wakefield reported that vacancy rates in the industrial market climbed to 6.4% in Q3 2024, the highest since 2014, compared to 4.6% in the same period last year. Prologis has not been immune to these broader trends, with portfolio occupancy slipping to 95.9%, down 120 basis points year-over-year.
Despite these pressures, Prologis CEO Hamid Moghadam is optimistic about the market’s outlook, noting that the reduction in new warehouse developments should help maintain a tight supply. Moghadam indicated that the industrial market might be “bottoming out,” with the company well-positioned to capitalize on long-term demand drivers such as e-commerce and supply chain modernization.
Revised 2024 Guidance Reflects Market Realities
In light of these trends, Prologis has narrowed its guidance for 2024. The company now expects earnings per share attributable to common shareholders between $3.35 and $3.45, adjusting the lower end upward from its previous forecast of $3.25 to $3.45. Additionally, the company trimmed its FFO forecast slightly, predicting between $5.42 and $5.46 per share, compared to the earlier range of $5.39 to $5.47 per share.
While some metrics have softened, such as net effective rent change, which dropped 16 percentage points year-over-year to 67.8%, Prologis noted an uptick in leasing activity, with over 50 million square feet of space commenced in Q3 — a 10% increase from the prior year. Despite challenges in the industrial real estate market, Prologis continues to deliver strong financial results.
With a tightening supply of warehouses and long-term demand drivers in place, the company is positioned to navigate through market fluctuations and capitalize on future growth opportunities. However, the revised outlook signals caution as the sector works through a period of elevated vacancy and market recalibration.
