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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-poised to capitalize on favorable conditions in the industrial real estate market due to its strong operational foundation and substantial scale. As a prominent player in this asset class, the company experiences healthy demand for its industrial real estate offerings, as evidenced by the strong performance of leasing and rental rates.
Over the past years, due to the surge in e-commerce, the expansion of various industries and continuous endeavors to enhance supply-chain effectiveness, there has been a notable increase in the need for logistics infrastructure and streamlined distribution networks. This upswing has contributed to the thriving state of the industrial real estate market, which has been proving advantageous for companies like Prologis, STAG Industrial (STAG - Free Report) and EastGroup Properties (EGP - Free Report) .
The future of supply chains hinges on the ability to remain resilient. Consequently, in the long run, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from an increase in inventory levels. This opens up opportunities for industrial property owners, including Prologis, STAG Industrial and EastGroup Properties, to thrive in a favorable market environment.
In particular, PLD provides industrial distribution warehouse space in some of the busiest distribution markets worldwide. The company’s properties are typically located in large, supply-constrained infill markets in proximity to airports, seaports and ground transportation facilities, which facilitates the rapid distribution of customers’ products. The solid demand for Prologis’ strategically located facilities has driven healthy operating performance over the past few quarters.
In the fourth quarter of 2023, 43.7 million square feet (msf) of leases commenced in the company’s owned and managed portfolio, with 36.8 msf in the operating portfolio and 6.9 msf in the development portfolio. The average occupancy level in Prologis’ owned and managed portfolio remained high at 97.1%. For 2024, management expects occupancy in the band of 96.50-97.50%. We estimate occupancy to be 97%. Also, our estimate points to a year-over-year increase of 9.6% in rental revenues in 2024.
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.
In June 2023, it concluded the buyout of nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for cash consideration of $3.1 billion. The move significantly enhanced Prologis’ presence in the key U.S. markets, poising it well for long-term growth.
Moreover, the company’s share of building acquisitions amounted to $733 million in 2023. Development stabilization aggregated $3.15 billion, while development starts totaled $3.4 billion. Prologis’ 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. For 2024, the company anticipates acquisitions at Prologis share between $500 million and $1 billion, while development starts are expected in the range of $3-$3.5 billion.
PLD maintains a healthy balance sheet position with ample flexibility. This industrial REIT’s liquidity amounted to $6 billion as of Dec 31, 2023. The company's weighted average interest rate on its share of the total debt was 3%, with a weighted average term of 9.1 years. It has no significant debt maturities until 2026. Given its balance sheet strength and prudent financial management, the company is well-poised to capitalize on long-term growth opportunities.
Moreover, solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Prologis is committed to that. In February 2024, the company’s board hiked its quarterly dividend by 10.3% to 96 cents per share from 87 cents paid earlier, taking the annualized dividend to $3.84 per share. In the last five years, Prologis has increased its dividend six times, and its five-year annualized dividend growth rate is 13.33%. Check Prologis’ dividend history here.
Given the company’s solid operating platform, opportunities for growth, a decent financial position compared with the industry and our year-over-year growth projection of 6.8% in the first-quarter 2024 core FFO, this dividend rate is expected to be sustainable over the near term.
However, with the asset category being attractive even during challenging times, there is a development boom in many markets. This 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 some of the company’s markets in the upcoming quarters. Management expects vacancy rates to increase throughout the first half of 2024, peaking at 6-6.1%.
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. The company’s consolidated debt as of Dec 31, 2023 was $29 billion. For 2024, our estimate indicates a 1.4% year-over-year increase in the company’s interest expenses. Further, with high interest rates in place, the dividend payout might seem 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-poised to capitalize on favorable conditions in the industrial real estate market due to its strong operational foundation and substantial scale. As a prominent player in this asset class, the company experiences healthy demand for its industrial real estate offerings, as evidenced by the strong performance of leasing and rental rates.
Over the past years, due to the surge in e-commerce, the expansion of various industries and continuous endeavors to enhance supply-chain effectiveness, there has been a notable increase in the need for logistics infrastructure and streamlined distribution networks. This upswing has contributed to the thriving state of the industrial real estate market, which has been proving advantageous for companies like Prologis, STAG Industrial (STAG - Free Report) and EastGroup Properties (EGP - Free Report) .
The future of supply chains hinges on the ability to remain resilient. Consequently, in the long run, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from an increase in inventory levels. This opens up opportunities for industrial property owners, including Prologis, STAG Industrial and EastGroup Properties, to thrive in a favorable market environment.
In particular, PLD provides industrial distribution warehouse space in some of the busiest distribution markets worldwide. The company’s properties are typically located in large, supply-constrained infill markets in proximity to airports, seaports and ground transportation facilities, which facilitates the rapid distribution of customers’ products. The solid demand for Prologis’ strategically located facilities has driven healthy operating performance over the past few quarters.
In the fourth quarter of 2023, 43.7 million square feet (msf) of leases commenced in the company’s owned and managed portfolio, with 36.8 msf in the operating portfolio and 6.9 msf in the development portfolio. The average occupancy level in Prologis’ owned and managed portfolio remained high at 97.1%. For 2024, management expects occupancy in the band of 96.50-97.50%. We estimate occupancy to be 97%. Also, our estimate points to a year-over-year increase of 9.6% in rental revenues in 2024.
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.
In June 2023, it concluded the buyout of nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for cash consideration of $3.1 billion. The move significantly enhanced Prologis’ presence in the key U.S. markets, poising it well for long-term growth.
Moreover, the company’s share of building acquisitions amounted to $733 million in 2023. Development stabilization aggregated $3.15 billion, while development starts totaled $3.4 billion. Prologis’ 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. For 2024, the company anticipates acquisitions at Prologis share between $500 million and $1 billion, while development starts are expected in the range of $3-$3.5 billion.
PLD maintains a healthy balance sheet position with ample flexibility. This industrial REIT’s liquidity amounted to $6 billion as of Dec 31, 2023. The company's weighted average interest rate on its share of the total debt was 3%, with a weighted average term of 9.1 years. It has no significant debt maturities until 2026. Given its balance sheet strength and prudent financial management, the company is well-poised to capitalize on long-term growth opportunities.
Moreover, solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Prologis is committed to that. In February 2024, the company’s board hiked its quarterly dividend by 10.3% to 96 cents per share from 87 cents paid earlier, taking the annualized dividend to $3.84 per share. In the last five years, Prologis has increased its dividend six times, and its five-year annualized dividend growth rate is 13.33%. Check Prologis’ dividend history here.
Given the company’s solid operating platform, opportunities for growth, a decent financial position compared with the industry and our year-over-year growth projection of 6.8% in the first-quarter 2024 core FFO, this dividend rate is expected to be sustainable over the near term.
Shares of Prologis have rallied 11% over the past three months, outperforming the industry’s increase of 6.1%. PLD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
However, with the asset category being attractive even during challenging times, there is a development boom in many markets. This 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 some of the company’s markets in the upcoming quarters. Management expects vacancy rates to increase throughout the first half of 2024, peaking at 6-6.1%.
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. The company’s consolidated debt as of Dec 31, 2023 was $29 billion. For 2024, our estimate indicates a 1.4% year-over-year increase in the company’s interest expenses. Further, with high interest rates in place, the dividend payout might seem 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.