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Should You Hold Prologis (PLD) Stock in Your Portfolio Now?
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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 space. 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 disruptions.
This, in turn, is expected to keep supporting the industrial landlords like Prologis, Inc. (PLD - Free Report) , Duke Realty Corp. , Industrial Logistics Properties Trust (ILPT - Free Report) and Terreno Realty Corporation (TRNO - Free Report) , among others, to enjoy a favorable market environment.
Prologis is well positioned to capitalize on the favorable environment backed by its solid operating platform and robust scale. The company is witnessing solid demand for its industrial real estates as reflected by the leasing, rent and occupancy levels of the properties.
At the end of second-quarter 2020, occupancy level in the company’s owned-and-managed portfolio was 95.7%. During the recently-reported 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. Prologis’ share of net effective rent change was 22% during this period, aided by the United States at 27.7%. Cash rent change was 9.6%, while cash same-store net operating income (NOI) registered 2.9% growth.
Prologis is also capitalizing on growth opportunities through acquisitions and developments. In February, the company accomplished the $13-billion acquisition of Liberty Property Trust. The acquisition strengthened Prologis’ presence in target regions. Moreover, its high number of build-to-suit development projects highlights the advantageous location of the company’s land bank.
Further, Prologis is focused on bolstering its liquidity and is well poised to capitalize on growth opportunities. The company ended second-quarter 2020 with $4.6 billion in liquidity. Its credit ratings at Jun 30, 2020, were A3 from Moody’s and A- from Standard & Poor’s, both with stable outlook, allowing the company to borrow at an advantageous rate. Further, management noted that it continues to maintain significant dividend coverage at 1.6 times and its 2020 guidance implies a payout ratio in the mid-60% range and free cash flow after dividends of $1 billion.
In addition, the trend in estimate revisions of 2020 funds from operations (FFO) per share indicates a favorable outlook for the company. The Zacks Consensus Estimate for 2020 FFO per share has been revised upward 3.6% in a month’s time. Therefore, given the improvement on fundamentals and upward estimate revisions, there is decent upside potential to the stock.
However, recovery in the industrial market has continued for long and market rents are expected to remain nearly flat for the remaining of the year. Also, industrial real estate fundamentals though seems more resilient than other asset categories, are not immune. There are concerns associated with the timing and nature of economies reopening for the second half of the year. As such, the pandemic’s adverse impact on the economy will likely affect demand for space in the near term.
Furthermore, with the asset category being attractive amid these challenging times, there is a development boom in some markets. This high supply is likely to fuel competition and curb pricing power.
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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It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
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Should You Hold Prologis (PLD) Stock in Your Portfolio 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 space. 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 disruptions.
This, in turn, is expected to keep supporting the industrial landlords like Prologis, Inc. (PLD - Free Report) , Duke Realty Corp. , Industrial Logistics Properties Trust (ILPT - Free Report) and Terreno Realty Corporation (TRNO - Free Report) , among others, to enjoy a favorable market environment.
Prologis is well positioned to capitalize on the favorable environment backed by its solid operating platform and robust scale. The company is witnessing solid demand for its industrial real estates as reflected by the leasing, rent and occupancy levels of the properties.
At the end of second-quarter 2020, occupancy level in the company’s owned-and-managed portfolio was 95.7%. During the recently-reported 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. Prologis’ share of net effective rent change was 22% during this period, aided by the United States at 27.7%. Cash rent change was 9.6%, while cash same-store net operating income (NOI) registered 2.9% growth.
Prologis is also capitalizing on growth opportunities through acquisitions and developments. In February, the company accomplished the $13-billion acquisition of Liberty Property Trust. The acquisition strengthened Prologis’ presence in target regions. Moreover, its high number of build-to-suit development projects highlights the advantageous location of the company’s land bank.
Further, Prologis is focused on bolstering its liquidity and is well poised to capitalize on growth opportunities. The company ended second-quarter 2020 with $4.6 billion in liquidity. Its credit ratings at Jun 30, 2020, were A3 from Moody’s and A- from Standard & Poor’s, both with stable outlook, allowing the company to borrow at an advantageous rate. Further, management noted that it continues to maintain significant dividend coverage at 1.6 times and its 2020 guidance implies a payout ratio in the mid-60% range and free cash flow after dividends of $1 billion.
In addition, the trend in estimate revisions of 2020 funds from operations (FFO) per share indicates a favorable outlook for the company. The Zacks Consensus Estimate for 2020 FFO per share has been revised upward 3.6% in a month’s time. Therefore, given the improvement on fundamentals and upward estimate revisions, there is decent upside potential to the stock.
However, recovery in the industrial market has continued for long and market rents are expected to remain nearly flat for the remaining of the year. Also, industrial real estate fundamentals though seems more resilient than other asset categories, are not immune. There are concerns associated with the timing and nature of economies reopening for the second half of the year. As such, the pandemic’s adverse impact on the economy will likely affect demand for space in the near term.
Furthermore, with the asset category being attractive amid these challenging times, there is a development boom in some markets. This high supply is likely to fuel competition and curb pricing power.
Shares of Prologis have outperformed the industry it belongs to in the past three months. This Zacks Rank #3 (Hold) company’s shares have gained 18.9%, while the industry has rallied 10.4% during the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>