Industrial strength: Prologis’ run unmarred by Ukraine conflict

Economic, geopolitical uncertainty have been boon to warehouse business, CEO says

Prologis CEO Hamid Moghadam (Prologis, iStock)
Prologis CEO Hamid Moghadam (Prologis, iStock)

Nothing seems to be able to dampen the dominant industrial landlord’s business.

Prologis’ stock rallied more than 4 percent Tuesday after the company beat Wall Street’s consensus expectations for the first quarter and raised its earnings guidance for 2022 by 10 percent.

Net operating income, a key REIT profitability metric, spiked 8.7 percent globally and 9.7 percent in the U.S. year over year despite the persistent global supply-chain crisis, the ongoing war in Europe and rising interest rates and inflation at home, which has pushed consumer sentiment to its lowest level since the onset of the pandemic.

Anxious, cash-strapped consumers spend less, which theoretically translates to fewer goods passing through Prologis’ warehouses. But the 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 still more demand for space in a market where vacancy, thanks to ecommerce’s explosive growth through the pandemic, hovers around a record-low 4 percent.

Prologis chairman and CEO Hamid Moghadam, who in recent months has described the industrial real estate market as “effectively sold out,” said on an earnings call Tuesday that rising rents, volatility and uncertainty are “really part of the same equation.” When business is running smoothly, tenants “optimize” space. When there is disruption, they hoard “safety stock” and double down on their square footage.

“I don’t see it getting derailed,” 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 toast.”

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Prologis’ net effective rents, which factor in discounts and other promotions, rose a staggering 42 percent year over year in the U.S., and 37 percent globally, during the first quarter. Escalating land and construction costs, driven by broad-based “antigrowth sentiments,” have helped push them to new highs, Moghadam said.

Even if rents plateau, the company has “substantial” embedded earnings growth for “years to come,” CFO Timothy Arndt said in the earnings release.

Prologis’ shares have gained nearly 50 percent over the last year and are up 3 percent so far this year, against the S&P 500’s 7 percent decline.

Prologis management deflected questions on the call related to its M&A strategy. The REIT in late March launched a non-binding $23 billion bid for Mileway, the pan-European logistics company Blackstone launched in 2019 to house the 15 million square feet of warehouse space within its European property funds’ portfolio. Prologis was reported later to have withdrawn its bid as a Blackstone-led consortium went forward with its earlier plan to recapitalize the company.

“We do not comment on market rumors,” Moghadam said. “But we look at every single deal of any significance that happens in any of our markets. You would expect us to.”

Prologis’ portfolio was a little more than 98 percent leased at March 31.

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