PLD kicked off REIT earnings season this morning with a split-the-fairway quarter relative to high expectations (Core FFO of $1.04/share vs. Hedgeye at $1.04 and Consensus at $1.03). In short the most important metric in the print is probably the forward-looking in-place mark-to-market expanding from ~17% last quarter to 22% as of the end of 3Q on accelerating rental rate growth, which is a significant upward move and both expands and lengthens the runway for above-average SSNOI growth. What investors need to consider is that we may be moving to a scenario where compounded SSNOI growth could begin to approach the high-single digit range over a 3-5 year timeframe. We have definitely been too conservative in our model over that duration.
- Operating expenses for the wholly-owned portfolio came in slightly higher than or model for a -$0.02/share drag, but was offset by a penny each of higher Strategic Capital results (no promotes booked this quarter, ~$0.04/share on the come in 4Q) and lower G&A. So taken together very in-line with our expectations. In-the quarter occupancy levels (96.6% average), leasing spreads (nearly +28% net effective) cash SSNOI growth (+6.7%) are all exceptional. The SSNOI growth RoC acceleration is obviously very important.
- In terms of guidance as expected PLD took up the Core FFO range +1.5% to a midpoint of $4.12 ($4.11 to $4.13) incl. promotes for FY21, which is where we had positioned ourselves coming into the quarter. This likely means that full year results will come in the $4.13 to $4.15 range if we had to handicap it today. Also as expected the RoC on the raise to net effective SSNOI improvement moderated a bit to +60bps at the midpoint versus last quarter's number (+80bp and +100bp in 2Q/1Q), which makes sense as the year narrows and the numbers become more certain. .
Figure 1: PLD 3Q21 Earnings Variances
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Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs