Prologis, Inc. (PLD Quick QuotePLD - Free Report) is slated to report second-quarter 2022 earnings on Jul 18 before the bell. The company’s quarterly results are likely to reflect growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this industrial real estate investment trust (“REIT”) delivered a surprise of 0.93% in terms of FFO per share. Results reflected solid demand for industrial real estate, leading to low vacancies and an increase in rents.

Prologis has a decent surprise history in terms of FFO per share, having beaten estimates in each of the trailing four quarters, the average beat being 1.44%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote

Let’s see how things have shaped up before this announcement.

Factors at Play

Despite economic headwinds in the second quarter, demand in the U.S. industrial market outpaced supply for the seventh straight quarter, per a report from Cushman & Wakefield. There was a net absorption of 120.4 million square feet (msf) of space in the June-end quarter and 236.3 msf through the first half of the year. Moreover, the new leasing activity touched 408.2 msf in the first half of the year.

The U.S. industrial vacancy rate reached a new low of 3.1% in the April-June period. This marks a decline of 10 basis points (bps) quarter over quarter and 120 bps year over year. Moreover, it represents the second straight quarter when every region in the United States reported vacancy less than 4%, with the lowest in the West region at only 2.4%.

Continued tight market conditions and solid demand supported the rent growth of 19% year over year during the June-end quarter. The asking rent of $8.36 per square foot (psf) during the quarter under discussion turned out to be the first quarter to surpass the $8.00 psf mark in the 20+ years of tracking rental data, per the CWK report.

Given Prologis’ capacity to offer modern logistics facilities at strategic in-fill locations, it is well-poised to benefit from this favorable trend. PLD is anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting support in the to-be-reported quarter.

Moreover, with global supply chains transforming for faster fulfillment and resilience, Prologis is likely to have captured favorable fundamentals with its differentiated customer offerings and robust investment activity in the to-be-reported quarter.

Prologis’ expansion efforts through acquisitions and developments in recent years are likely to have boosted the top line during the to-be-reported quarter. In addition, PLD is likely to have gained from its industry-leading cost structure.

The second quarter has been notable, with Prologis announcing a definitive merger agreement in June to acquire Duke Realty Corporation in an all-stock transaction valued at $26 billion, including the assumption of debt. The transaction for Duke Realty’s purchase is expected to be complete in the fourth quarter of 2022, subject to the approval of the shareholders of both the companies and other customary closing conditions.

Prologis has decent balance sheet strength to fuel its growth endeavors. A market leader, this REIT has the ability to raise capital at favorable rates and is likely to have maintained financial strength with liquidity during the period in discussion.

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.1 billion, suggesting an 8.5% year-over-year jump.

The Zacks Consensus Estimate for the quarterly FFO per share of $1.12 calls for a 10.9% increase year over year.

However, with the asset category being attractive, there is a development boom in many markets. Per the CWK report, the new supply aggregated 193.8 msf in the first half of the year compared with the 151.9 msf reported in the midyear of 2021, denoting a 27.5% increase.

Also, the industrial construction pipeline reached a record 699 msf in the second quarter of 2022. The high supply is likely to have intensified competition during the June-end quarter.

Here Is What Our Quantitative Model Predicts:

Prologis does not have the right combination of two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat.

Earnings ESP: The Earnings ESP for Prologis is -1.67%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PLD currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are two stocks from the REIT sector — SBA Communications Corporation (SBAC Quick QuoteSBAC - Free Report) and Host Hotels & Resorts, Inc. (HST Quick QuoteHST - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

SBA Communications Corporation, slated to release first-quarter earnings on Aug 1, has an Earnings ESP of +1.40 % and carries a Zacks Rank of 3 at present.

Host Hotels & Resorts, scheduled to report quarterly numbers on Aug 3, has an Earnings ESP of +9.35% and carries a Zacks Rank of 2.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.