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Here's Why You Should Hold Prologis Stock in Your Portfolio
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Prologis (PLD - Free Report) is well-poised to benefit from its portfolio of strategically located modern logistics facilities in some of the world’s busiest distribution markets and substantial scale. Strategic buyouts and development activities appear promising. A solid balance sheet aids its growth endeavors.
However, the choppiness in the industrial real estate market and subdued demand remain a concern for Prologis. High borrowing expenses amid elevated interest rates add to its woes.
What’s Aiding Prologis?
Prologis provides logistics real estate in some of the busiest distribution markets across the globe. The properties of the company are typically located in large, supply-constrained infill markets near airports, seaports and ground transportation facilities, which facilitates rapid distribution of customers’ products. The solid demand for Prologis’ strategically located facilities is a key driving force for its healthy operating performance.
Despite the slowdown in the industrial real estate market, the average occupancy level in Prologis’ owned and managed portfolio was 96.1% in the second quarter. For 2024, management has maintained its previous guidance range for average occupancy in the band of 95.75-96.75%. We estimate occupancy to be 96.3%.
Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. Its investments over the years comprise a wide array, including the largest M&A transactions in the real estate sector and individual off-market deals below $5 million. For 2024, the company anticipates acquisitions at Prologis share between $1.0 and $1.5 billion and development starts in the range of $2.5-$3.0 billion.
Prologis maintains a healthy balance sheet position with ample flexibility. As of June 30, 2024, this industrial REIT had a total available liquidity of $6.45 billion. The company's weighted average interest rate on its share of the total debt was 3.1%, with a weighted average term of 9.3 years. The company’s credit ratings as of June 30, 2024 were A3 (Outlook Positive) from Moody’s and A (Outlook Stable) from Standard & Poor’s, enabling PLD to borrow at an advantageous rate. Given its balance sheet strength and prudent financial management, the company is well-poised to capitalize on long-term growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Prologis is committed to that. In the last five years, Prologis has increased its dividend five times, and its five-year annualized dividend growth rate is 14.31%. Given the company’s solid operating platform, opportunities for growth, a decent financial position compared with the industry, this dividend rate is expected to be sustainable over the near term. Check Prologis’ dividend history here.
What’s Hurting Prologis?
In a volatile and persistently high interest rate environment and geopolitical concerns, customers remain focused on cost controls and delaying their decisions concerning decision-making for leasing. As such, demand remains subdued, and this trend is expected to continue in the near term.
Recovery in the industrial market has continued for long, and the growth of e-commerce sales is likely to stabilize to some extent in the upcoming quarters. Any robust performance is unlikely in the near term.
A high interest rate environment implies high borrowing costs for the company, affecting its ability to purchase or develop real estate. PLD’s consolidated debt as of June 30, 2024 was $29.9 billion. For 2024, our estimate indicates a 12.2% year-over-year increase in the company’s interest expenses.
Shares of Prologis have rallied 16% over the past three months, underperforming the industry’s growth of 18.8%. PLD currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved marginally north in the past two months to $8.09.
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.
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Prologis (PLD - Free Report) is well-poised to benefit from its portfolio of strategically located modern logistics facilities in some of the world’s busiest distribution markets and substantial scale. Strategic buyouts and development activities appear promising. A solid balance sheet aids its growth endeavors.
However, the choppiness in the industrial real estate market and subdued demand remain a concern for Prologis. High borrowing expenses amid elevated interest rates add to its woes.
What’s Aiding Prologis?
Prologis provides logistics real estate in some of the busiest distribution markets across the globe. The properties of the company are typically located in large, supply-constrained infill markets near airports, seaports and ground transportation facilities, which facilitates rapid distribution of customers’ products. The solid demand for Prologis’ strategically located facilities is a key driving force for its healthy operating performance.
Despite the slowdown in the industrial real estate market, the average occupancy level in Prologis’ owned and managed portfolio was 96.1% in the second quarter. For 2024, management has maintained its previous guidance range for average occupancy in the band of 95.75-96.75%. We estimate occupancy to be 96.3%.
Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. Its investments over the years comprise a wide array, including the largest M&A transactions in the real estate sector and individual off-market deals below $5 million. For 2024, the company anticipates acquisitions at Prologis share between $1.0 and $1.5 billion and development starts in the range of $2.5-$3.0 billion.
Prologis maintains a healthy balance sheet position with ample flexibility. As of June 30, 2024, this industrial REIT had a total available liquidity of $6.45 billion. The company's weighted average interest rate on its share of the total debt was 3.1%, with a weighted average term of 9.3 years. The company’s credit ratings as of June 30, 2024 were A3 (Outlook Positive) from Moody’s and A (Outlook Stable) from Standard & Poor’s, enabling PLD to borrow at an advantageous rate. Given its balance sheet strength and prudent financial management, the company is well-poised to capitalize on long-term growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Prologis is committed to that. In the last five years, Prologis has increased its dividend five times, and its five-year annualized dividend growth rate is 14.31%. Given the company’s solid operating platform, opportunities for growth, a decent financial position compared with the industry, this dividend rate is expected to be sustainable over the near term. Check Prologis’ dividend history here.
What’s Hurting Prologis?
In a volatile and persistently high interest rate environment and geopolitical concerns, customers remain focused on cost controls and delaying their decisions concerning decision-making for leasing. As such, demand remains subdued, and this trend is expected to continue in the near term.
Recovery in the industrial market has continued for long, and the growth of e-commerce sales is likely to stabilize to some extent in the upcoming quarters. Any robust performance is unlikely in the near term.
A high interest rate environment implies high borrowing costs for the company, affecting its ability to purchase or develop real estate. PLD’s consolidated debt as of June 30, 2024 was $29.9 billion. For 2024, our estimate indicates a 12.2% year-over-year increase in the company’s interest expenses.
Shares of Prologis have rallied 16% over the past three months, underperforming the industry’s growth of 18.8%. PLD currently carries a Zacks Rank #3 (Hold).
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Cousins Properties (CUZ - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved marginally north in the past two months to $8.09.
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.