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Here's Why You Should Hold Prologis (PLD) Stock in Your Kitty
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Prologis (PLD - Free Report) is well-positioned to bank on the favorable industrial real estate market environment, backed by its solid operating platform and robust scale. The company, which has emerged as a market leader in this asset category, is witnessing solid demand for its industrial real estate, as reflected by the leasing, rent and occupancy levels of the properties.
Undoubtedly, with the e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies, the demand for logistics infrastructure and efficient distribution networks has risen. This is aiding the industrial real estate market to prosper and benefit Prologis, STAG Industrial (STAG - Free Report) and First Industrial Realty Trust (FR - Free Report) .
Resilience is essential to the future of supply chains. Therefore, over the long term, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from an increase in inventory levels, offering possibilities to industrial landlords, including Prologis, STAG Industrial and First Industrial Realty, to enjoy a favorable market environment.
Prologis, in particular, has been witnessing a decent operating performance. The average occupancy level in Prologis’ owned and managed portfolio remained high at 97.5% in the second quarter of 2023. Further, 43.3 million square feet (msf) of leases commenced in the company’s owned and managed portfolio, with 38.4 msf in the operating portfolio and 4.9 msf in the development portfolio. The retention level was 70.5% in the quarter.
Prologis’ share of net effective rent change was 78.5% in the April-June quarter, which marked an all-time high and was led by the United States at 91.7%. Also, the cash rent change of 48.1% represented an all-time high. Cash same-store net operating income (NOI) grew 10.7% in the second quarter.
With healthy operating fundamentals in industrial real estate markets, Prologis has capitalized on growth opportunities through acquisitions and developments. 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. Last year, PLD closed the acquisition of Duke Realty, thereby boosting its presence in the key markets of the United States.
In June 2023, the company concluded the buyout of nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for a cash consideration of $3.1 billion. The move significantly enhanced Prologis’ presence in key U.S. markets, poising it well for long-term growth. For 2023, PLD anticipates acquisitions at Prologis share between $300 million and $600 million, while development starts are expected in the range of $2.5-$3 billion.
Prologis is focused on bolstering its liquidity. This industrial REIT’s liquidity amounted to $6.36 billion in cash and availability on its credit facilities as of Jun 30, 2023. In addition, the company’s credit ratings as of Jun 30, 2023 were A3 (Outlook Stable) from Moody’s and A (Outlook Stable) from Standard & Poor’s, enabling the company to borrow at an advantageous rate. Given its balance sheet strength and prudent financial management, PLD is well-poised to capitalize on growth opportunities.
Moreover, 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 13.43%. Check Prologis’ dividend history here.
However, with the asset category being attractive even during challenging times, there is a development boom in many markets. The high supply is likely to fuel competition and curb pricing power. New supply is likely to create pressure on vacancy levels and rent growth to some extent in the upcoming quarters. Furthermore, 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.
Moreover, a high interest rate is a concern for Prologis. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. Further, the dividend payout might become less attractive than the yields on fixed income and money-market accounts.
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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Here's Why You Should Hold Prologis (PLD) Stock in Your Kitty
Prologis (PLD - Free Report) is well-positioned to bank on the favorable industrial real estate market environment, backed by its solid operating platform and robust scale. The company, which has emerged as a market leader in this asset category, is witnessing solid demand for its industrial real estate, as reflected by the leasing, rent and occupancy levels of the properties.
Undoubtedly, with the e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies, the demand for logistics infrastructure and efficient distribution networks has risen. This is aiding the industrial real estate market to prosper and benefit Prologis, STAG Industrial (STAG - Free Report) and First Industrial Realty Trust (FR - Free Report) .
Resilience is essential to the future of supply chains. Therefore, over the long term, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from an increase in inventory levels, offering possibilities to industrial landlords, including Prologis, STAG Industrial and First Industrial Realty, to enjoy a favorable market environment.
Prologis, in particular, has been witnessing a decent operating performance. The average occupancy level in Prologis’ owned and managed portfolio remained high at 97.5% in the second quarter of 2023. Further, 43.3 million square feet (msf) of leases commenced in the company’s owned and managed portfolio, with 38.4 msf in the operating portfolio and 4.9 msf in the development portfolio. The retention level was 70.5% in the quarter.
Prologis’ share of net effective rent change was 78.5% in the April-June quarter, which marked an all-time high and was led by the United States at 91.7%. Also, the cash rent change of 48.1% represented an all-time high. Cash same-store net operating income (NOI) grew 10.7% in the second quarter.
With healthy operating fundamentals in industrial real estate markets, Prologis has capitalized on growth opportunities through acquisitions and developments. 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. Last year, PLD closed the acquisition of Duke Realty, thereby boosting its presence in the key markets of the United States.
In June 2023, the company concluded the buyout of nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for a cash consideration of $3.1 billion. The move significantly enhanced Prologis’ presence in key U.S. markets, poising it well for long-term growth. For 2023, PLD anticipates acquisitions at Prologis share between $300 million and $600 million, while development starts are expected in the range of $2.5-$3 billion.
Prologis is focused on bolstering its liquidity. This industrial REIT’s liquidity amounted to $6.36 billion in cash and availability on its credit facilities as of Jun 30, 2023. In addition, the company’s credit ratings as of Jun 30, 2023 were A3 (Outlook Stable) from Moody’s and A (Outlook Stable) from Standard & Poor’s, enabling the company to borrow at an advantageous rate. Given its balance sheet strength and prudent financial management, PLD is well-poised to capitalize on growth opportunities.
Moreover, 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 13.43%. Check Prologis’ dividend history here.
However, with the asset category being attractive even during challenging times, there is a development boom in many markets. The high supply is likely to fuel competition and curb pricing power. New supply is likely to create pressure on vacancy levels and rent growth to some extent in the upcoming quarters. Furthermore, 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.
Moreover, a high interest rate is a concern for Prologis. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. Further, the dividend payout might become less attractive than the yields on fixed income and money-market accounts.
Shares of this Zacks Rank #3 (Hold) company have rallied 6.6% year to date against the industry’s decline of 5.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
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.