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Here's Why You Should Hold Prologis Stock in Your Portfolio

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Prologis (PLD - Free Report) is well-poised to benefit from its portfolio of strategically located modern logistics facilities in some of the world’s busiest distribution markets and substantial scale. Strategic buyouts and development activities appear promising. A solid balance sheet aids its growth endeavors.

Moreover, amid the favorable fundamentals, the company's data center strategy incorporates warehouse conversions and ground-up developments. Recently, Prologis sold a data center development in its Chicago market to HMC Capital. In partnership with Skybox Datacenters, the company is converting its Illinois warehouse into a high-capacity, turnkey data center with a capacity of 32 megawatts.

However, the choppiness in the industrial real estate market and subdued demand remain a concern for Prologis. High borrowing expenses amid elevated interest rates add to its woes.

What’s Aiding Prologis Stock?

Prologis provides logistics real estate in some of the busiest distribution markets across the globe. The solid demand for Prologis’ strategically located facilities is a key driving force for its healthy operating performance. Despite the slowdown in the industrial real estate market, the average occupancy level in Prologis’ owned and managed portfolio was 95.9% in the third quarter. For 2024, management has revised its guidance range for average occupancy in the band of 96-96.5%. We estimate the 2024 fourth-quarter occupancy to be 96.4%.

Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. 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. For 2024, the company anticipates acquisitions at Prologis share between $1.75 and $2.25 billion, and development starts in the range of $1.75-$2.25 billion.

Moreover, to capitalize on the growing opportunity in the data center market, Prologis is focusing on both warehouse conversions and ground-up developments. Within the next four years, it expects to develop approximately 20 data center opportunities, with an investment of $7 to $8 billion.

Prologis maintains a healthy balance sheet position with ample flexibility. As of Sept. 30, 2024, this industrial REIT had a total available liquidity of $6.6 billion. As of the same date, the company's weighted average interest rate on its share of the total debt was 3.1%, with a weighted average term of 9.2 years. The company’s credit ratings as of Sept. 30, 2024, were A3 (Outlook Positive) 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, the company is well-poised to capitalize on long-term growth opportunities.

Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Prologis remains committed to that. In the last five years, Prologis has increased its dividend five times, and its five-year annualized dividend growth rate is 14.19%. Given the company’s solid operating platform, opportunities for growth and decent financial position compared with the industry, this dividend rate is expected to be sustainable over the near term. Check Prologis’ dividend history here.

What’s Hurting Prologis Stock?

In a volatile and persistently high interest rate environment and geopolitical concerns, customers remain focused on cost controls and delaying their decisions concerning decision-making for leasing. As such, demand is likely to remain subdued in the near term.

Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Prologis. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company’s consolidated debt as of Sept. 30, 2024, was $32.3 billion. For 2024, our estimate indicates a 32.5% year-over-year increase in the company’s interest expenses.

Shares of Prologis have lost 1% over the past six months, underperforming the industry’s growth of 7.4%. PLD currently carries a Zacks Rank #3 (Hold).

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Welltower Inc. (WELL - Free Report) and Cousins Properties (CUZ - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s 2024 FFO per share has been raised 1.7% over the past two months to $4.26.

The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has moved marginally north in the past month to $2.68.

Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.


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