5 Reasons to Add Prologis (PLD) Stock to Your Portfolio
Prologis (PLD) stock is an attractive investment option at the moment given its solid prospects and healthy operating performance.
The industrial real estate market is still firing on all cylinders with robust demand, rents and pipeline that are scaling new records. Demand for the 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, the logistics real estate is anticipated to benefit from a likely increase in inventory levels post the global health crisis, offering scope to industrial landlords.
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.
The recent trend in estimate revisions indicates that analysts are bullish on this stock. Over the past month, the Zacks Consensus Estimate for funds from operations (FFO) per share for 2021 and 2022 moved marginally upward to $4.07 and $4.51, respectively. The company currently carries a Zacks Rank #2 (Buy).
While shares of Prologis have gained 13.2% in the past three months, outperforming its industry's growth of 6.6%, there is still room left for further appreciation.
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Factors That Make Prologis a Solid Pick
Acquisitions and Development: Solid demand for industrial real estate has 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 ranged from the largest M&A transactions in the real estate sector to individual off-market deals below $5 million.
For 2021, the company anticipates $700-$900 million of building acquisitions at Prologis share compared with the $600-$800 million stated earlier. Development starts are expected to be $3,050-$3,350 million compared with $2,750-$3,050 million mentioned earlier.
Healthy Operating Performance: Prologis is witnessing decent operating performance. Average occupancy level in Prologis’ owned-and-managed portfolio was 96% in the second quarter, expanding 60 basis points (bps) from first-quarter 2021. In the quarter under review, 49-million square feet of leases commenced in the company’s owned and managed portfolio, with 44.9-million square feet in the operating portfolio and 4.1-million square feet in the development portfolio.
Cash rent change was 15.5% during the April-June quarter. Cash same-store net operating income grew 5.8% and was driven by the United States at 5.6% and International at 6.6%. Also, rent collections have been strong. 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 9.59% compared with the industry’s average of 0.99%. Also, the FFO per share is expected to be up 7.1% in 2021 and 10.7% in 2022.
Balance Sheet and Cash-Flow Strength: Prologis enjoys a strong balance sheet, ample liquidity and has easy access to capital. The combined investment capacity of Prologis and its open-ended ventures, in line with their current credit ratings, is roughly $14 billion. Debt, as a percentage of total market capitalization, was 17.4%. The company's weighted average rate on its share of total debt was 1.8%, with a weighted average term of 10.7 years. Moreover, the company’s credit ratings at Jun 30, 2021, were A3 from Moody’s and A- from Standard & Poor’s, both with stable outlook, enabling the company to borrow at an advantageous rate.
Prologis’ current cash-flow growth is projected at 11.17%, against the negative 2.76% growth projected for the industry. Moreover, the REIT’s trailing 12-month return on equity (“ROE”) highlights its growth potential. The company’s ROE of 4.27% compares favorably with the industry’s 2.87%, reflecting that it is more efficient in using shareholder funds than its peers.
Dividend: Solid dividend payouts are arguably the biggest enticement for REIT shareholders, and Prologis remains committed to that. In first-quarter 2021, the company’s board hiked its quarterly dividend by 8.6% to 63 cents per share from the 58 cents paid earlier. Given the company’s solid operating platform, scope for growth and decent financial position compared with that of the industry, this dividend rate is expected to be sustainable.
Other Stocks to Consider
The Zacks Consensus Estimate for Public Storage’s PSA current-year FFO per share has moved up 4% to $12.35 in the past month. The company currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for OUTFRONT Media Inc.’s OUT 2021 FFO per share has moved 3.4% north to 90 cents over the past month. The company carries a Zacks Rank of 2, currently.
Extra Space Storage Inc. EXR carries a Zacks Rank of 2, at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share of the company has been revised 3.6% upward to $6.57 over the past month.
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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