Here's Why Prologis is a Promising Investment Bet Right Now
The industrial asset category is showing resilience amid the coronavirus pandemic with low vacancy rates, high-asking rents and robust rent collections. There has been a notable increase in e-commerce’s share of total retail sales, spurring demand for warehouse and distribution spaces. Also, apart from the fast adoption of e-commerce, the industrial real estate space is anticipated to benefit over the long run from a likely increase in inventory levels by companies as a precaution for any supply-chain disruption.
Amid these, adding industrial real estate investment trust (REIT) Prologis, Inc. PLD to your portfolio seems a wise idea, given the strength in its fundamentals and solid prospects.
Further, the recent trend in estimate revisions indicates that analysts are bullish on this stock. Over the past 60 days, the Zacks Consensus Estimate for funds from operations (FFO) per share for 2020 and 2021 moved 1.9% and 1.1% upward to $3.73 and $3.79, respectively. The company currently carries a Zacks Rank #2 (Buy).
While shares of Prologis have gained 22.1% in the past six months, outperforming its industry's rally of 13.7%, there is still room left for further appreciation.
Factors That Make Prologis a Solid Pick
Superior Location of Industrial Properties: Prologis provides industrial distribution warehouse space in some of the busiest distribution markets across the globe. The properties of the company are typically located in large, supply-constrained in-fill markets closer to airports, seaports and ground transportation facilities, which facilitates the distribution of customers’ products.
Acquisitions and Development: The solid demand for industrial real estate has resulted in the company making efforts to enhance its portfolio. This February, the company accomplished the $13-billion acquisition of Liberty Property Trust. The acquisition has strengthened Prologis’ presence in target regions, such as Chicago, Lehigh Valley, New Jersey, Houston, Central PA, and Southern California. Moreover, in January, the company completed its acquisition of warehouse owner IPT in an all-cash deal valued at about $4 billion, including debt, from Black Creek Group. The portfolio comprised 37.5 million square feet of space spanning across 24 U.S. markets.
Healthy Operating Performance: Prologis is witnessing a decent operating performance amid the pandemic. At the end of the second quarter, occupancy level in the company’s owned-and-managed portfolio was 95.7%. In addition, the company’s cash same-store net operating income (NOI) registered 2.9% growth. During the same quarter, 42 million square feet of leases commenced in the company’s owned-and-managed portfolio, with 39 million square feet being in the operating portfolio and roughly 3 million square feet in the development portfolio.
Given the healthy demand for industrial properties and Prologis’ well-located portfolio, the favorable trend in its operating performance is likely to continue.
FFO Growth: Over the past three to five years, Prologis recorded FFO per share growth of 10.1% compared with the industry’s average of 0.73%. Also, the FFO per share is expected to be up 12.7% in 2020 and 1.6% in 2021.
Balance Sheet and Cash-Flow Strength: Prologis enjoys a strong balance sheet, ample liquidity and has easy access to capital. The company ended the second quarter with $4.6 billion in liquidity. Additionally, at quarter end, the company's weighted average rate on its share of total debt was 2.3%, with a weighted average remaining term of 9.1 years. Also, it enjoys investment-grade credit rating of A- and A3 from Standard & Poor’s and Moody’s, respectively.
Prologis’ current cash-flow growth is projected at 3.5%, while the industry’s growth is expected to be 3.4%.
Further, the REIT hiked its dividend by 9.4% to $2.32 in February.
Superior ROE: Prologis’ trailing 12-month return on equity (ROE) highlights its growth potential. The company’s ROE of 5.55% compares favorably with the industry’s 3.32%, reflecting that it is more efficient in using shareholder funds than its peers.
Other Stocks to Consider
Alpine Income Property Trust, Inc.’s PINE Zacks Consensus Estimate for the ongoing-year FFO per share moved 2.6% north to $1.18 in the past month. The stock currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sabra Healthcare REIT, Inc.’s SBRA FFO per share estimate for 2020 has been revised 1.8% upward to $1.74 over the past month. The company currently carries a Zacks holds of 2.
Physicians Realty Trust’s DOC FFO per share estimate for the current year has been marginally revised upward to $1.06 over the past month. It currently carries a Zacks Rank of 2.
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, Inc. (PLD) : Free Stock Analysis Report
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