Prologis Q4 2024 Results: How is the World’s Biggest REIT Faring?

TradingKey - For income investors, it’s been a tough few years for those of us who have been invested in real estate investment trusts (REITs). Rising interest rates and an aversion to income stocks have seen passive income vehicles like REITs get hit hard.

However, with the US Federal Reserve (Fed) having started its easing cycle in September of last year – by beginning to cut interest rates – it could be an interesting time to see what REITs are offering investors. 

The world’s biggest REIT, by market capitalisation, is none other than Prologis Inc (NYSE: PLD). The REIT has a market cap of around US$98 billion and has a diversified property portfolio of over 1.2 billion square feet. 

With over 6,700 customers across 20 countries, and US$218 billion in assets under management (AUM) Prologis has incredible scale. The company’s stock currently provides a dividend yield of 3.5% to investors.

So, what are investors looking for when the REIT reports its Q4 2024 earnings on Tuesday (21 January) before the market opens in the US?

Industrial real estate demand to be in focus

Given Prologis is mainly focused on industrial-related properties – with big clients across the e-commerce and logistics segments – demand for properties in these spaces is likely to be a core focus. Fortunately, Prologis has a portfolio of extremely well-located properties in key commerce hubs across the US and the world.

Consensus estimates for revenue come in at an average of US$1.94 billion for Prologis in Q4 2024, implying a 10.4% year-on-year increase. More importantly for REITs, the company’s core funds from operations (FFO) per share is a key metric to follow. That’s because core FFO demonstrates a REIT’s ability to generate actual cash, similar to an operating cash flow metric for conventional companies.

In Q3 2024, Prologis posted core FFO per diluted share of US$1.45, which was up a healthy 9.0% year-on-year. In terms of average occupancy, Prologis reported an occupancy rate of 96.1% in Q3 2024.

Fundamentals and debt another focus

As with any REIT, the company’s debt profile is sure to be something closely monitored by investors. As of the end of Q3 2024, Prologis had total available liquidity of US$6.6 billion and its debt as a percentage of its market cap stood at a very comfortable 23.1%.

Its overall debt incurred a weighted average interest rate of 3.1% and the weighted average term of this debt was a lengthy 9.2 years. That suggests Prologis has breathing room in terms of capital management heading into its latest earnings. 

Prologis debt and liquidity profile as of Q3 2024

Source: Prologis investor presentation, as of November 2024

Growth opportunities and dividends

While REITs are primarily seen as dividend stocks, they also should provide growth within their portfolios. So, for Prologis, while the supply of logistics properties is tight in the US right now – suggesting potential for rental uplifts – the REIT is also expanding elsewhere.

Attempting to ride on the wave of Artificial Intelligence (AI) expansion, one of those growth areas for Prologis is data centres. Demand for data centres in the US is expected to continue rising in the years ahead and Prologis currently has a target of investing up to US$8 billion across 20 data centre opportunities by 2028.

Indeed, currently Prologis has US$1.3 billion in data centre projects under development and the margin profile for data centre investments is more attractive versus the typical warehouse project.

Data centres offer attractive opportunity for Prologis

Source: Prologis investor presentation, as of November 2024

Finally, Prologis investors will want to see the company continue its strong dividend growth over the past five years. Rather unusually for a REIT, it didn’t have to cut or maintain the same dividend level when interest rates rose.

The scale of Prologis has allowed it to actually grow dividends at a compound annual growth rate (CAGR) of around 14% over the past five years.

With the interest rate picture starting to look more favourable for REITs, investors will be hoping to hear more positive commentary from Prologis on Tuesday. Over the past year, Prologis shares are down 14.8% versus the S&P 500 Index’s 23.9% increase.