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5 Reasons to Add Prologis (PLD) Stock to Your Portfolio
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Adding the industrial real estate investment trust (“REIT”), Prologis, Inc. (PLD - Free Report) , to your portfolio seems a wise idea, given the strength of its fundamentals and solid prospects.
The industrial real estate market is firing on all cylinders with robust demand, rents and pipelines that are scaling new records. Demand for logistics infrastructure and efficient distribution networks has been shooting up amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. In addition to the fast adoption of e-commerce, logistics real estate is anticipated to benefit from a likely increase in inventory levels, offering scope to industrial landlords.
Moreover, the recent estimate revisions trend indicates that analysts are bullish on this stock. Over the past month, the Zacks Consensus Estimate for 2022 funds from operations (FFO) per share has moved 9.7% upward to $5.07. Prologis currently carries a Zacks Rank #2 (Buy).
While shares of PLD have rallied 13.3% in the past six months against the industry's decline of 4%, there is still room left for further appreciation.
Image Source: Zacks Investment Research
Factors That Make Prologis a Solid Pick
Acquisitions & Development: Solid demand for industrial real estate resulted in the company making efforts to enhance its portfolio. Since the ProLogis–AMB merger in 2011 through year-end 2020, this industrial REIT has accomplished investment transactions aggregating more than $131.4 billion across 30 global markets. These investments comprise a wide array, including the largest M&A transactions in the real estate sector as well as individual off-market deals of less than $5 million.
In 2021, the company’s share of building acquisitions amounted to $901 million, with a weighted average stabilized cap rate of 4.6%. Development stabilization aggregated $2.5 billion, while development starts totaled $3.6 billion, with 46.5% being build-to-suit. For 2022, the company anticipates building acquisitions at Prologis share between $700 million and $1.2 billion, while development starts are expected in the range of $4.5-$5.0 billion.
Healthy Operating Performance: Prologis is witnessing a decent operating performance amid the pandemic. The average occupancy level in Prologis’ owned and managed portfolio was 97.4% in the fourth quarter, expanding 80 basis points (bps) from the third quarter of 2021. Moreover, the company’s owned and managed portfolio was 98.2% leased as of Dec 31, 2021. In the quarter under review, 55.1 million square feet of leases commenced in PLD’s owned and managed portfolio, with 44.3 million square feet in the operating portfolio and 10.8 million square feet in the development portfolio. The retention level was 75.8% in the quarter.
Prologis’ share of net effective rent change was 33.0% in the October-December quarter, up 510 bps sequentially. Cash rent change was 19.6%. Cash same-store net operating income grew 7.5%, driven by the U.S. business at 8.1% and the International business at 5.3%. Given the healthy demand for industrial properties and Prologis’ well-located portfolio, the favorable trend in its operating performance is likely to continue.
FFO Growth: Over the past three to five years, Prologis recorded FFO per share growth of 9.98% compared with the industry’s average of 1.18%. Also, FFO per share is expected to be up 22.05% in 2022 compared with the industry’s average of 9.60%.
Balance Sheet & Cash-Flow Strength: Prologis enjoys a strong balance sheet, ample liquidity and has easy access to capital. This industrial REIT exited the fourth quarter of 2021 with cash and cash equivalents of $556.1 million. Its liquidity amounted to $5.0 billion in cash and availability on its credit facilities. The combined investment capacity of Prologis and its open-ended ventures, in line with their current ratings, is roughly $15.5 billion. Debt, as a percentage of the total market capitalization, was 13.5%. The company's weighted average interest rate on its share of the total debt was 1.7%, with a weighted average term of 10.0 years. In addition, the company’s credit ratings as of Dec 31, 2021 were A3 (Outlook Stable) from Moody’s and A- (Outlook Positive) from Standard & Poor’s, enabling the company to borrow at an advantageous rate.
Prologis’ current cash-flow growth is projected at 49.66% compared with the 8.28% growth projected for the industry. Moreover, this REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. The company’s ROE of 7.99% compares favorably with the industry’s 3.35%, reflecting that PLD is more efficient in using shareholders’ funds than its peers.
Dividend: Finally, solid dividend payouts are arguably the biggest enticements for REIT shareholders and Prologis remains committed to that. In the first quarter of 2022, the company’s board hiked its quarterly dividend by 25.4% to 79 cents per share from 63 cents paid earlier. Given the company’s solid operating platform, opportunities for growth and a decent financial position compared with that of the industry, this dividend rate is expected to be sustainable.
Other Stocks to Consider
Some other key picks from the REIT sector include Public Storage (PSA - Free Report) , National Storage Affiliates Trust (NSA - Free Report) and Iron Mountain Incorporated (IRM - Free Report) .
The Zacks Consensus Estimate for Public Storage’s 2022 FFO per share has moved 0.8% north to $14.98 over the past week.
National Storage Affiliates holds a Zacks Rank of 2 at present. National Storage Affiliates’ 2022 revenues are expected to increase 28.6% year over year.
The Zacks Consensus Estimate for NSA’s 2022 FFO per share has been revised 1.5% upward in the past week to $ 2.75.
The Zacks Consensus Estimate for Iron Mountain’s 2022 FFO per share has moved 1.3% north to $3.13 in the past week.
Iron Mountain's 2022 revenues are expected to increase 15.5% year over year. Currently, IRM carries a Zacks Rank of 2.
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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5 Reasons to Add Prologis (PLD) Stock to Your Portfolio
Adding the industrial real estate investment trust (“REIT”), Prologis, Inc. (PLD - Free Report) , to your portfolio seems a wise idea, given the strength of its fundamentals and solid prospects.
The industrial real estate market is firing on all cylinders with robust demand, rents and pipelines that are scaling new records. Demand for logistics infrastructure and efficient distribution networks has been shooting up amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. In addition to the fast adoption of e-commerce, logistics real estate is anticipated to benefit from a likely increase in inventory levels, offering scope to industrial landlords.
Moreover, the recent estimate revisions trend indicates that analysts are bullish on this stock. Over the past month, the Zacks Consensus Estimate for 2022 funds from operations (FFO) per share has moved 9.7% upward to $5.07. Prologis currently carries a Zacks Rank #2 (Buy).
While shares of PLD have rallied 13.3% in the past six months against the industry's decline of 4%, there is still room left for further appreciation.
Image Source: Zacks Investment Research
Factors That Make Prologis a Solid Pick
Acquisitions & Development: Solid demand for industrial real estate resulted in the company making efforts to enhance its portfolio. Since the ProLogis–AMB merger in 2011 through year-end 2020, this industrial REIT has accomplished investment transactions aggregating more than $131.4 billion across 30 global markets. These investments comprise a wide array, including the largest M&A transactions in the real estate sector as well as individual off-market deals of less than $5 million.
In 2021, the company’s share of building acquisitions amounted to $901 million, with a weighted average stabilized cap rate of 4.6%. Development stabilization aggregated $2.5 billion, while development starts totaled $3.6 billion, with 46.5% being build-to-suit. For 2022, the company anticipates building acquisitions at Prologis share between $700 million and $1.2 billion, while development starts are expected in the range of $4.5-$5.0 billion.
Healthy Operating Performance: Prologis is witnessing a decent operating performance amid the pandemic. The average occupancy level in Prologis’ owned and managed portfolio was 97.4% in the fourth quarter, expanding 80 basis points (bps) from the third quarter of 2021. Moreover, the company’s owned and managed portfolio was 98.2% leased as of Dec 31, 2021. In the quarter under review, 55.1 million square feet of leases commenced in PLD’s owned and managed portfolio, with 44.3 million square feet in the operating portfolio and 10.8 million square feet in the development portfolio. The retention level was 75.8% in the quarter.
Prologis’ share of net effective rent change was 33.0% in the October-December quarter, up 510 bps sequentially. Cash rent change was 19.6%. Cash same-store net operating income grew 7.5%, driven by the U.S. business at 8.1% and the International business at 5.3%. Given the healthy demand for industrial properties and Prologis’ well-located portfolio, the favorable trend in its operating performance is likely to continue.
FFO Growth: Over the past three to five years, Prologis recorded FFO per share growth of 9.98% compared with the industry’s average of 1.18%. Also, FFO per share is expected to be up 22.05% in 2022 compared with the industry’s average of 9.60%.
Balance Sheet & Cash-Flow Strength: Prologis enjoys a strong balance sheet, ample liquidity and has easy access to capital. This industrial REIT exited the fourth quarter of 2021 with cash and cash equivalents of $556.1 million. Its liquidity amounted to $5.0 billion in cash and availability on its credit facilities. The combined investment capacity of Prologis and its open-ended ventures, in line with their current ratings, is roughly $15.5 billion. Debt, as a percentage of the total market capitalization, was 13.5%. The company's weighted average interest rate on its share of the total debt was 1.7%, with a weighted average term of 10.0 years. In addition, the company’s credit ratings as of Dec 31, 2021 were A3 (Outlook Stable) from Moody’s and A- (Outlook Positive) from Standard & Poor’s, enabling the company to borrow at an advantageous rate.
Prologis’ current cash-flow growth is projected at 49.66% compared with the 8.28% growth projected for the industry. Moreover, this REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. The company’s ROE of 7.99% compares favorably with the industry’s 3.35%, reflecting that PLD is more efficient in using shareholders’ funds than its peers.
Dividend: Finally, solid dividend payouts are arguably the biggest enticements for REIT shareholders and Prologis remains committed to that. In the first quarter of 2022, the company’s board hiked its quarterly dividend by 25.4% to 79 cents per share from 63 cents paid earlier. Given the company’s solid operating platform, opportunities for growth and a decent financial position compared with that of the industry, this dividend rate is expected to be sustainable.
Other Stocks to Consider
Some other key picks from the REIT sector include Public Storage (PSA - Free Report) , National Storage Affiliates Trust (NSA - Free Report) and Iron Mountain Incorporated (IRM - Free Report) .
The Zacks Consensus Estimate for Public Storage’s 2022 FFO per share has moved 0.8% north to $14.98 over the past week.
Currently, Public Storage carries a Zacks Rank of 2. PSA's long-term growth rate is projected at 6.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National Storage Affiliates holds a Zacks Rank of 2 at present. National Storage Affiliates’ 2022 revenues are expected to increase 28.6% year over year.
The Zacks Consensus Estimate for NSA’s 2022 FFO per share has been revised 1.5% upward in the past week to $ 2.75.
The Zacks Consensus Estimate for Iron Mountain’s 2022 FFO per share has moved 1.3% north to $3.13 in the past week.
Iron Mountain's 2022 revenues are expected to increase 15.5% year over year. Currently, IRM carries a Zacks Rank of 2.
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.