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Prologis (PLD) Stock Up More Than 10% 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 (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 evidenced by the leasing, rent and occupancy levels of its properties.
Carrying a Zacks Rank #3 (Hold), this industrial real estate investment trust (REIT) behemoth has rallied 10.5% in the year-to-date period against the industry’s decline of 2.5%.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
The demand for industrial real estate space is escalating, given the growth in industries and an e-commerce boom. Moreover, companies are making efforts to improve supply-chain efficiencies, and 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.
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 second quarter of 2023, the average occupancy level in Prologis’ owned and managed portfolio remained high at 97.5%. 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. Cash same-store net operating income (NOI) grew 10.7% in the second quarter.
As a result, Prologis’ second-quarter 2023 core funds from operations (FFO) per share of $1.83 surpassed the Zacks Consensus Estimate of $1.68. The company also raised its core FFO per share guidance for 2023 to the range of $5.56-$5.60 from the $5.42-$5.50 guided earlier, suggesting a 2.2% increase at the midpoint. PLD estimated cash same-store NOI (Prologis share) between 9.50% and 10%, up 37.5 basis points at the midpoint than what was guided earlier.
With healthy operating fundamentals in industrial real estate markets, Prologis has been capitalizing on growth opportunities through acquisitions and developments. 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.
Prologis’ share of building acquisitions amounted to $172 million in the six months that ended Jun 30, 2023. Development stabilization aggregated $1.47 billion, while development starts totaled $411 million. 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.
This industrial REIT maintains a robust balance sheet position, which has enabled it to capitalize on long-term growth opportunities. Its liquidity amounted to $6.4 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 ride the growth curve over the long term.
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.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past month to $3.53.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past week to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 1.6% upward over the past week to $1.26.
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) Stock Up More Than 10% YTD: Will the Trend Last?
The favorable industrial real estate market scenario, backed by its solid operating platform and robust scale, has enabled Prologis (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 evidenced by the leasing, rent and occupancy levels of its properties.
Carrying a Zacks Rank #3 (Hold), this industrial real estate investment trust (REIT) behemoth has rallied 10.5% in the year-to-date period against the industry’s decline of 2.5%.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
The demand for industrial real estate space is escalating, given the growth in industries and an e-commerce boom. Moreover, companies are making efforts to improve supply-chain efficiencies, and 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.
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 second quarter of 2023, the average occupancy level in Prologis’ owned and managed portfolio remained high at 97.5%. 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. Cash same-store net operating income (NOI) grew 10.7% in the second quarter.
As a result, Prologis’ second-quarter 2023 core funds from operations (FFO) per share of $1.83 surpassed the Zacks Consensus Estimate of $1.68. The company also raised its core FFO per share guidance for 2023 to the range of $5.56-$5.60 from the $5.42-$5.50 guided earlier, suggesting a 2.2% increase at the midpoint. PLD estimated cash same-store NOI (Prologis share) between 9.50% and 10%, up 37.5 basis points at the midpoint than what was guided earlier.
With healthy operating fundamentals in industrial real estate markets, Prologis has been capitalizing on growth opportunities through acquisitions and developments. 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.
Prologis’ share of building acquisitions amounted to $172 million in the six months that ended Jun 30, 2023. Development stabilization aggregated $1.47 billion, while development starts totaled $411 million. 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.
This industrial REIT maintains a robust balance sheet position, which has enabled it to capitalize on long-term growth opportunities. Its liquidity amounted to $6.4 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 ride the growth curve over the long term.
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.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , SBA Communications (SBAC - Free Report) and Americold Realty Trust (COLD - 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 Welltower’s 2023 FFO per share has been raised marginally over the past month to $3.53.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past week to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 1.6% upward over the past week to $1.26.
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.