Prologis Inc. had another excellent quarter in Q2 2019. According to Tom Olinger, CFO, the company’s proprietary operating metrics continue to reflect strong demand. “Showings, average deal gestation and conversion rates remain either in line or better than last quarter as our customers further build out their supply chain capabilities in the face of strength. Market conditions in the U.S. continue to be very healthy. Demand is diverse and overall supply is disciplined,” he said on the firm’s Q2 earnings call.
Starts in the U.S. are concentrated in low barrier markets, while supply in the high barrier markets is not keeping pace with GDP growth, he added, let alone demand for logistics facilities closer to the endpoint of consumption. “Continental Europe remained strong and we expect rent growth this year to be the highest in more than a decade. In Japan, despite moderating economic growth, business is quite good. Demand continues to be boosted by ecommerce, while supply is being steadily absorbed.”
He explained that “With the improvement we are seeing in the Osaka market, we are removing it from our market watch list. We are raising our 2019 global rent growth estimates by approximately 100 basis points to over 5.5% as low vacancies and rising replacement costs continue to push market rents higher.”
Looking to the quarter, he said that the REIT leased 37 million square feet, including 5 million square feet in its development portfolio. “Period-end occupancy was flat sequentially. Rent change on a role continues to be outstanding, but are shared over 25% and led by U.S. at 30%. We expect rent change to trend higher in the back half of the year. Our share of cash same-store NOI growth was 4.6%. Notably, Europe was 5.3%, driven by rent growth which we have anticipated. Core FFO was $0.77 per share for the second quarter.”
For the full year, the company is increasing its 2019 core FFO guidance midpoint by $0.05, and narrowing the range between $3.26 and $3.30 per share. “And our revised midpoint growth and core FFO per share, excluding promotes, is 9.5% higher than last year. Over the past five years, our growth has clearly been exceptional with a CAGR of almost 12%, while de-levering by 800 basis points.”