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5 Reasons to Add Prologis (PLD) Stock to Your Portfolio
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Adding this industrial real estate investment trust (“REIT”), Prologis, Inc. (PLD - Free Report) , to your portfolio seems a wise idea, given the strength of its fundamentals and solid prospects.
The industrial real estate market is still firing on all cylinders with robust demand, rents and occupancy growth. The demand for logistics infrastructure and efficient distribution networks has been shooting up amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. In addition to the fast adoption of e-commerce, a rise in the inventory levels of companies as a precautionary measure for any supply-chain disruption is expected to lead to long-term growth momentum for this sector, offering scope to industrial landlords.
Moreover, the recent estimate revisions trend indicates that analysts are bullish on this stock. Over the past month, the Zacks Consensus Estimate for 2022 funds from operations (FFO) per share has moved marginally upward to $5.15. Prologis currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While shares of PLD have rallied 4.9% in the past year against the industry's decline of 5.8%, there is still room left for further appreciation.
Image Source: Zacks Investment Research
Factors That Make Prologis a Solid Pick
Acquisitions & Development: The solid demand for industrial real estate resulted in the company making efforts to enhance its portfolio. Since the Prologis–AMB merger in 2011 through year-end 2020, this industrial REIT has accomplished investment transactions aggregating more than $131.4 billion across 30 global markets. These investments comprise a wide array, including the largest M&A transactions in the real estate sector and individual off-market deals less than $5 million. In 2021, the company’s share of building acquisitions amounted to $901 million, with a weighted average stabilized cap rate of 4.6%.
In the first quarter of 2022, Prologis’ share of building acquisitions amounted to $98 million, with a weighted average stabilized cap rate of 3.7%. Development stabilization aggregated $212 million, while development starts totaled $1.02 billion, with 36.6% being build to suit. For 2022, the company anticipates building acquisitions at Prologis’ share between $700 million and $1.2 billion, while development starts are expected in the range of $4.5-$5.0 billion.
In May, Prologis proposed to acquire Duke Realty Corp. in an all-stock transaction valued at $61.68 per share. However, Duke Realty termed the offer “insufficient” but remained open to exploring opportunities to maximize shareholder value.
Healthy Operating Performance: PLD is witnessing a decent operating performance. The average occupancy level in Prologis’ owned and managed portfolio was 97.4% in the first quarter. Moreover, the company’s owned and managed portfolio was 98.1% leased as of Mar 31, 2022. In the quarter under review, 52.2 million square feet of leases were commenced in the company’s owned and managed portfolio, with 49.0 million square feet in the operating portfolio and 3.2 million square feet in the development portfolio. The retention level was 75.4% in the quarter.
Prologis’ share of the net effective rent change was 37.0% in the January-March quarter, which was led by the United States at 41.5%. The cash rent change was 19.2%. The cash same-store net operating income grew 8.7%, which was led by the United States at 9.7%. 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 10.07% compared with the industry’s average of 0.84%. Also, the FFO per share is expected to be up 24.12% in 2022 compared with the industry’s average of 9.96%.
Balance Sheet & Cash Flow Strength: Prologis enjoys a strong balance sheet, ample liquidity and has easy access to capital. This industrial REIT exited the first quarter of 2022 with cash and cash equivalents of $1.9 billion, up from $556.1 million at the end of the prior year. Its liquidity amounted to $6.8 billion in cash and availability on its credit facilities. PLD's weighted average interest rate on its share of the total debt was 1.7%, with a weighted average term of 10.0 years. The combined investment capacity of Prologis and its open-ended ventures, in line with their current ratings, is roughly $18 billion.
Prologis’ current cash flow growth is projected at 49.66% compared with the 9.58% growth projected for the industry. Moreover, this REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. The company’s ROE of 9.98% compares favorably with the industry’s 4.00%, reflecting that PLD is more efficient in using shareholders’ funds than its peers.
Dividend: Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Prologis remains committed to that. In the first quarter of 2022, the company’s board hiked its quarterly dividend by 25.4% to 79 cents per share from the 63 cents paid earlier. Given the company’s solid operating platform, opportunities for growth and a decent financial position compared with the industry, this dividend rate is expected to be sustainable.
Other Stocks to Consider
Some other key picks from the REIT sector include Rexford Industrial Realty, Inc. (REXR - Free Report) and Terreno Realty Corporation (TRNO - Free Report) .
Rexford Industrial Realty holds a Zacks Rank of 2 at present. Rexford Industrial Realty’s 2022 revenues are expected to increase 34% year over year. The Zacks Consensus Estimate for REXR’s 2022 FFO per share has been revised 1.6% upward in the past two months.
The Zacks Consensus Estimate for Terreno Realty’s 2022 FFO per share has moved marginally north to $1.96 over the past two months. Terreno Realty’s 2022 revenues are expected to increase 17.5% year over year. Currently, TRNO carries a Zacks Rank of 2.
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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5 Reasons to Add Prologis (PLD) Stock to Your Portfolio
Adding this industrial real estate investment trust (“REIT”), Prologis, Inc. (PLD - Free Report) , to your portfolio seems a wise idea, given the strength of its fundamentals and solid prospects.
The industrial real estate market is still firing on all cylinders with robust demand, rents and occupancy growth. The demand for logistics infrastructure and efficient distribution networks has been shooting up amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. In addition to the fast adoption of e-commerce, a rise in the inventory levels of companies as a precautionary measure for any supply-chain disruption is expected to lead to long-term growth momentum for this sector, offering scope to industrial landlords.
Moreover, the recent estimate revisions trend indicates that analysts are bullish on this stock. Over the past month, the Zacks Consensus Estimate for 2022 funds from operations (FFO) per share has moved marginally upward to $5.15. Prologis currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While shares of PLD have rallied 4.9% in the past year against the industry's decline of 5.8%, there is still room left for further appreciation.
Image Source: Zacks Investment Research
Factors That Make Prologis a Solid Pick
Acquisitions & Development: The solid demand for industrial real estate resulted in the company making efforts to enhance its portfolio. Since the Prologis–AMB merger in 2011 through year-end 2020, this industrial REIT has accomplished investment transactions aggregating more than $131.4 billion across 30 global markets. These investments comprise a wide array, including the largest M&A transactions in the real estate sector and individual off-market deals less than $5 million. In 2021, the company’s share of building acquisitions amounted to $901 million, with a weighted average stabilized cap rate of 4.6%.
In the first quarter of 2022, Prologis’ share of building acquisitions amounted to $98 million, with a weighted average stabilized cap rate of 3.7%. Development stabilization aggregated $212 million, while development starts totaled $1.02 billion, with 36.6% being build to suit. For 2022, the company anticipates building acquisitions at Prologis’ share between $700 million and $1.2 billion, while development starts are expected in the range of $4.5-$5.0 billion.
In May, Prologis proposed to acquire Duke Realty Corp. in an all-stock transaction valued at $61.68 per share. However, Duke Realty termed the offer “insufficient” but remained open to exploring opportunities to maximize shareholder value.
Healthy Operating Performance: PLD is witnessing a decent operating performance. The average occupancy level in Prologis’ owned and managed portfolio was 97.4% in the first quarter. Moreover, the company’s owned and managed portfolio was 98.1% leased as of Mar 31, 2022. In the quarter under review, 52.2 million square feet of leases were commenced in the company’s owned and managed portfolio, with 49.0 million square feet in the operating portfolio and 3.2 million square feet in the development portfolio. The retention level was 75.4% in the quarter.
Prologis’ share of the net effective rent change was 37.0% in the January-March quarter, which was led by the United States at 41.5%. The cash rent change was 19.2%. The cash same-store net operating income grew 8.7%, which was led by the United States at 9.7%. 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 10.07% compared with the industry’s average of 0.84%. Also, the FFO per share is expected to be up 24.12% in 2022 compared with the industry’s average of 9.96%.
Balance Sheet & Cash Flow Strength: Prologis enjoys a strong balance sheet, ample liquidity and has easy access to capital. This industrial REIT exited the first quarter of 2022 with cash and cash equivalents of $1.9 billion, up from $556.1 million at the end of the prior year. Its liquidity amounted to $6.8 billion in cash and availability on its credit facilities. PLD's weighted average interest rate on its share of the total debt was 1.7%, with a weighted average term of 10.0 years. The combined investment capacity of Prologis and its open-ended ventures, in line with their current ratings, is roughly $18 billion.
Prologis’ current cash flow growth is projected at 49.66% compared with the 9.58% growth projected for the industry. Moreover, this REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. The company’s ROE of 9.98% compares favorably with the industry’s 4.00%, reflecting that PLD is more efficient in using shareholders’ funds than its peers.
Dividend: Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Prologis remains committed to that. In the first quarter of 2022, the company’s board hiked its quarterly dividend by 25.4% to 79 cents per share from the 63 cents paid earlier. Given the company’s solid operating platform, opportunities for growth and a decent financial position compared with the industry, this dividend rate is expected to be sustainable.
Other Stocks to Consider
Some other key picks from the REIT sector include Rexford Industrial Realty, Inc. (REXR - Free Report) and Terreno Realty Corporation (TRNO - Free Report) .
Rexford Industrial Realty holds a Zacks Rank of 2 at present. Rexford Industrial Realty’s 2022 revenues are expected to increase 34% year over year. The Zacks Consensus Estimate for REXR’s 2022 FFO per share has been revised 1.6% upward in the past two months.
The Zacks Consensus Estimate for Terreno Realty’s 2022 FFO per share has moved marginally north to $1.96 over the past two months. Terreno Realty’s 2022 revenues are expected to increase 17.5% year over year. Currently, TRNO carries a Zacks Rank of 2.
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.