Prologis Second-Quarter FFO Declines After Costs From AMB Property Merger

Prologis (PLD) Inc., the world’s largest warehouse owner, said funds from operations declined in the second quarter after impairment costs and expenses from its merger with AMB Property Corp.

Funds from operations were $8.2 million, or 3 cents a share, in the second quarter, which includes about one month of results from the combined company, San Francisco-based Prologis said today in a statement. The year-earlier FFO, which reflects the legacy company, was $67.8 million, or 32 cents a share. FFO is a gauge of a property owner’s ability to generate cash.

Prologis and AMB combined in June in the biggest merger of U.S. real estate investment trusts. The company expects to save $90 million annually in general and administrative and other expenses from the deal and plans to expand in Asia and South America as their economies grow faster than the U.S. and Europe.

“There is a lack of high-quality industrial” properties in emerging markets, Dave Rodgers, an analyst at RBC Capital Markets in Solon, Ohio, said in an interview before the results were announced. “In the U.S., they’re fairly well-penetrated.”

The second-quarter FFO included impairment expenses of about 34 cents a share and merger costs of 33 cents a share, as well as a net gain of 34 cents a share on real estate purchases and sales. Excluding those items, so-called core FFO was $109.7 million, or 35 cents a share, compared with $60.3 million, or 28 cents, a year earlier.

Occupancy, Leasing

Prologis’ occupancy rate was 90.7 percent at the end of the quarter, compared with 89.9 percent in the first quarter. Same- store net operating income rose 3.1 percent and the company leased 33.5 million square feet (3.1 million square meters) in its operating portfolio and 1.4 million square feet in properties it is developing.

The company reiterated its forecast of core FFO of 78 cents to 82 cents a share for the second half of the year. It expects the results to be at the higher end of that range, the REIT said in the statement.

Prologis released the report before the start of regular U.S. trading. Its shares fell 4.4 percent to $34.25 yesterday in New York Stock Exchange composite trading. They have advanced 8 percent this year, compared with an 8.8 percent increase in the Bloomberg REIT Index.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net