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Prologis' (PLD) Shares Gain 11.1% YTD: Will the Trend Last?
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The favorable industrial real estate market scenario, backed by its solid operating platform and robust scale, has enabled Prologis, Inc. (PLD - Free Report) to ride the growth curve so far.
The company, which has emerged as a market leader in this asset category, is witnessing solid demand for its facilities, as evident from the leasing, rent and occupancy levels of its properties.
Carrying a Zacks Rank #3 (Hold), this industrial real estate investment trust (REIT) behemoth has gained 11.1% in the year-to-date period compared with the industry’s growth of 1.9%.
Image Source: Zacks Investment Research
Let us discuss the factors that supported the uptick.
The demand for industrial real estate space is escalating, given the growth in industries and an e-commerce boom. Also, companies’ endeavors to improve supply-chain efficiencies amid the rising demand for logistics infrastructure and efficient distribution networks have aided the need for industrial real estate space.
Given this backdrop, Prologis’ portfolio of modern and high-quality logistics facilities continues to benefit from these favorable industrial real estate market fundamentals, driving healthy operating performance.
In the first quarter of 2023, the company witnessed robust leasing activity, with 49.7 million square feet (msf) of leases having commenced in its owned and managed portfolio. Of this, 41.6 msf was for the operating portfolio and 8.1 msf was for the development portfolio.
Moreover, Prologis' average occupancy level in the owned and managed portfolio was 98% in the quarter and the retention level was 77.2%. The cash rent change represented an all-time high of 41.9%.
Prologis has been focusing on acquisitions and developments in strategic markets to enhance its overall portfolio quality and foster external growth. In the first quarter of 2023, the company’s share of building acquisitions amounted to $6 million. Development stabilization aggregated $770 million, while development starts totaled $57 million, with 100% being built to suit. For 2023, it anticipates acquisitions at Prologis share between $300 million and $600 million, whereas development starts are expected to be $2.5-$3 billion.
This June, the company entered into a definitive agreement with Blackstone (BX - Free Report) to acquire close to 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone in a cash-funded transaction valued at $3.1 billion.
The deal with Blackstone, expected to close by the end of the second quarter of 2023, offers a promising 4% cap rate in the initial year and a 5.75% cap rate when adjusted to current market rents. The same is likely to provide Prologis significant opportunity to enhance its growth.
This industrial REIT maintains a robust balance-sheet position, which has enabled it to capitalize on long-term growth opportunities. Its liquidity amounted to $5.7 billion as of Mar 31, 2023. Also, Prologis enjoys credit ratings of A3 (Outlook Stable) from Moody’s and A (Outlook Stable) from Standard & Poor’s, rendering it favorable access to the debt market.
Solid dividends are a huge attraction for REIT investors, and PLD has remained committed to that. In February 2023, the company’s board hiked its quarterly dividend by 10% to 87 cents per share from 79 cents paid earlier, resulting in an annualized dividend of $3.48 per share. Moreover, PLD has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 13.43%. Such efforts boost investors’ confidence in the stock. Check Prologis’ dividend history here.
Scheduled to release second-quarter 2023 results on Jul 18 before the opening bell, Prologis is expected to have witnessed year-over-year growth in revenues and funds from operations (FFO) per share. The Zacks Consensus Estimate for PLD’s quarterly FFO per share is currently pegged at $1.67, suggesting year-over-year growth of 50.5%.
Nonetheless, the rising supply in several markets is likely to intensify competition and curb pricing power. The stabilization of e-commerce sales growth and a high interest rate environment raise concerns for Prologis.
The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has moved marginally northward over the past month to $7.64.
The consensus mark for Ventas’ 2023 FFO per share has moved slightly upward in the past two months to $2.98.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Prologis' (PLD) Shares Gain 11.1% YTD: Will the Trend Last?
The favorable industrial real estate market scenario, backed by its solid operating platform and robust scale, has enabled Prologis, Inc. (PLD - Free Report) to ride the growth curve so far.
The company, which has emerged as a market leader in this asset category, is witnessing solid demand for its facilities, as evident from the leasing, rent and occupancy levels of its properties.
Carrying a Zacks Rank #3 (Hold), this industrial real estate investment trust (REIT) behemoth has gained 11.1% in the year-to-date period compared with the industry’s growth of 1.9%.
Image Source: Zacks Investment Research
Let us discuss the factors that supported the uptick.
The demand for industrial real estate space is escalating, given the growth in industries and an e-commerce boom. Also, companies’ endeavors to improve supply-chain efficiencies amid the rising demand for logistics infrastructure and efficient distribution networks have aided the need for industrial real estate space.
Given this backdrop, Prologis’ portfolio of modern and high-quality logistics facilities continues to benefit from these favorable industrial real estate market fundamentals, driving healthy operating performance.
In the first quarter of 2023, the company witnessed robust leasing activity, with 49.7 million square feet (msf) of leases having commenced in its owned and managed portfolio. Of this, 41.6 msf was for the operating portfolio and 8.1 msf was for the development portfolio.
Moreover, Prologis' average occupancy level in the owned and managed portfolio was 98% in the quarter and the retention level was 77.2%. The cash rent change represented an all-time high of 41.9%.
Prologis has been focusing on acquisitions and developments in strategic markets to enhance its overall portfolio quality and foster external growth. In the first quarter of 2023, the company’s share of building acquisitions amounted to $6 million. Development stabilization aggregated $770 million, while development starts totaled $57 million, with 100% being built to suit. For 2023, it anticipates acquisitions at Prologis share between $300 million and $600 million, whereas development starts are expected to be $2.5-$3 billion.
This June, the company entered into a definitive agreement with Blackstone (BX - Free Report) to acquire close to 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone in a cash-funded transaction valued at $3.1 billion.
The deal with Blackstone, expected to close by the end of the second quarter of 2023, offers a promising 4% cap rate in the initial year and a 5.75% cap rate when adjusted to current market rents. The same is likely to provide Prologis significant opportunity to enhance its growth.
This industrial REIT maintains a robust balance-sheet position, which has enabled it to capitalize on long-term growth opportunities. Its liquidity amounted to $5.7 billion as of Mar 31, 2023. Also, Prologis enjoys credit ratings of A3 (Outlook Stable) from Moody’s and A (Outlook Stable) from Standard & Poor’s, rendering it favorable access to the debt market.
Solid dividends are a huge attraction for REIT investors, and PLD has remained committed to that. In February 2023, the company’s board hiked its quarterly dividend by 10% to 87 cents per share from 79 cents paid earlier, resulting in an annualized dividend of $3.48 per share. Moreover, PLD has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 13.43%. Such efforts boost investors’ confidence in the stock. Check Prologis’ dividend history here.
Scheduled to release second-quarter 2023 results on Jul 18 before the opening bell, Prologis is expected to have witnessed year-over-year growth in revenues and funds from operations (FFO) per share. The Zacks Consensus Estimate for PLD’s quarterly FFO per share is currently pegged at $1.67, suggesting year-over-year growth of 50.5%.
Nonetheless, the rising supply in several markets is likely to intensify competition and curb pricing power. The stabilization of e-commerce sales growth and a high interest rate environment raise concerns for Prologis.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Crown Castle Inc. (CCI - Free Report) and Ventas (VTR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has moved marginally northward over the past month to $7.64.
The consensus mark for Ventas’ 2023 FFO per share has moved slightly upward in the past two months to $2.98.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.