The company delivered positive quarterly results, highlighted by record lease activity of 39 million square feet (3.6 million square meters) and exceeding forecast by increased occupancy in the global operating portfolio to 93.1%. Prologis executives said demand for the company’s Class-A properties is being driven by historically low delivery of new facilities, customer supply chain reconfigurations and growth in domestic consumption.
“Customers are telling us that while the fundamentals for growth may not be strong in their business, they are simply out of space,” said Hamid Moghadam, chairman and co-CEO. “Furthermore, they need to reconfigure their supply chains with more efficient and better located facilities. Prologis provides the solution for taking costs out of the system.”
In the United States, demand for Prologis facilities continues to be strong for large spaces, which are almost fully occupied; 93 of 94 facilities over 500,000 square feet (46,400 square meters) are completely leased. Growth in occupancy this quarter was also driven increases by customers looking for smaller- to medium-sized spaces of less than 250,000 square feet (23,200 square meters). Leasing was particularly active for space under 100,000 square feet (9,300 square meters). Occupancy gains were noted in Americas markets, including the San Francisco Bay area, Dallas, Mexico City and Eastern Pennsylvania.
Globally, market rents continue to show improvement overall, executives reported, particularly for larger Class-A facilities in global markets where the lack of supply is most critical. Effective rents for Prologis facilities continue to rise and have neared an inflection point, with rent change on rollover expected to be positive for 2013.
Tight supply is also fueling development for large facilities, along with an increase in e-commerce retail and same-day shipping. More than 65 percent of our development starts this quarter were for large build-to-suits in Japan, the United Kingdom and Mexico. To date, about 75% of development is for build-to-suit facilities, but speculative development will increase as rent levels continue to rise.
In addition to third-quarter development starts of 4.4 million square feet (408,000 square meters), Prologis also completed acquisitions during the quarter totaling $234 million, including $112 million for 11 logistics facilities in the United States, Mexico and Europe and $122 million for land and infrastructure. In addition, the company completed approximately $174 million in dispositions and contributions. By recycling capital, Prologis continually improves the age and quality of its portfolio and focuses its platform on strategic global and regional markets.
Prologis' private capital business raised $330 million year to date in new third-party equity. During the third quarter, the company liquidated its publicly traded fund ProLogis European Properties and assumed 100 percent of its assets and liabilities, comprising 210 distribution facilities covering 48.4 million square feet (4.5 million square meters). Prologis is working toward recapitalizing its European platform.
Prologis increased its full-year 2012 Core FFO guidance range to $1.72 to $1.74 per diluted share, from $1.64 to $1.70 per diluted share.
For more detail regarding Prologis’ third quarter 2012 earnings, download the supplemental financial report and press release here.