On Dec 24, 2013, we reiterated our long-term Neutral recommendation on Prologis Inc. (PLD - Analyst Report). Our decision is based on the company’s recent efforts to increase its dominance in the industrial real estate market of U.S., Europe and Asia; and decent third-quarter results. Yet, with the sluggish economic growth, we are not overtly optimistic on the stock and believe that the risk/reward profile is currently balanced.
This industrial real estate investment trust (REIT) reported core FFO (funds from operations) per share of 41 cents, in line with the Zacks Consensus Estimate but fell short of the prior-year quarter figure by 8 cents. While the company experienced a notable decline in expenses, the benefit was partly shadowed by a fall in revenues. Yet, Prologis’ strategic measures and capital market moves helped enhance flexibility and extend maturities.
Also, of late, Prologis disclosed that it accomplished over $1.3 billion in contributions to date in the fourth quarter, which included contributions related to Nippon Prologis REIT in Japan and 4 of its co-investment vehicles in Europe. In addition, Prologis disclosed the penning of three new lease deals spanning 753,000 square feet in its development and acquisition portfolios in the UK, France and Slovakia. Also, the company launched a JV in China to expand its business and leverage on the growing needs of Class-A distribution space.
Going forward, we believe that amid the backdrop of a larger customer base, rise in e-Commerce application and supply chain consolidation, there will continue to be an increasing demand for Class-A facilities. But new supply is low and amid this environment Prologis stands to benefit since it has the capacity to offer modern distribution facilities in strategic infill locations.
Yet, the protracted economic growth in most parts of the world makes us skeptical on the growth momentum of the stock. Moreover, cut-throat competition and continued troubles in the residential sector remain concerns.
Notably, for full-year 2013, Prologis narrowed its core FFO guidance to $1.64 to $1.66 from the prior range of $1.63 to $1.67 per share. Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share increased by a penny to $1.65. For 2014, it remained stable at $1.79 per share. The stock currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Investors interested in the REIT Equity Trust – Other industry may consider stocks like CubeSmart (CUBE - Snapshot Report), First Industrial Realty Trust Inc. (FR - Snapshot Report) and Alexandria Real Estate Equities, Inc. (ARE - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.