Industrial real estate investment trust (:REIT) – Prologis Inc. (PLD) – is capitalizing on the growth opportunities worldwide. Following a series of Mexican ventures, the company is now strengthening its business in Europe by constructing 2 logistics properties in Central & Eastern Europe.
Besides Europe and Mexico, in recent months, the company came up with news on the development of facilities in China and Japan. In fact, this leading industrial REIT stands to benefit as it has the capacity to offer modern distribution facilities in strategic infill locations globally.
In fact, improving operating fundamentals in the industrial real estate markets are expected to drive growth at Prologis, going forward. According to the International Monetary Fund, global trade is expected to grow 4.3% in 2014 and speed up into 2015 with growth of 5.3%.
The market conditions are improving in the U.S. and the company is focusing on leveraging on the ongoing supply and demand imbalance in the market. With customer demand remaining strong and supply pipelines below historical norms, vacancy rates are expected to continue to decline while rental rates are anticipated to continue to rise in 2014.
Moreover, operating conditions in its Latin American markets are positive while the company continues to benefit from market expansion in its Asian markets. Further in Europe, improving macroeconomic prospects are resulting in decent demand for logistics facilities.
In April, Prologis came up with better-than-expected results for the first quarter of 2014. The company reported core FFO per share of 43 cents, which was a penny above the Zacks Consensus Estimate and 3 cents ahead of the year-ago quarter figure. While total revenue declined from the year-ago quarter, it managed to beat the Zacks Consensus Estimate. The company has also narrowed its 2014 guidance.
Going forward, we believe that amid a rise in global trade and consumption levels, as well as growth in e-Commerce application and supply chain consolidation, there will continue to be an increasing demand for Class-A facilities. However, new supply is substantially below the required levels.
In such an environment, Prologis stands to benefit given its capacity to offer modern distribution facilities in strategic infill locations around the globe. Its move to lower foreign currency exposure is also encouraging. Yet, competition is intensifying and interest rate issues remain in the long run, thus not making us overtly optimistic on the stock.
To gain deeper insight into Prologis, you can refer to our updated research report, which was issued on Jun 24, 2014.
Echoing similar sentiments, over the last 30 days, the Zacks Consensus Estimate for 2014 moved up a cent to $1.80 per share while that for 2015 dipped by a cent to $1.94 per share. The stock now has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Investors interested in the REIT industry may consider stocks like Chatham Lodging Trust (CLDT), The GEO Group, Inc. (GEO) and Terreno Realty Corp. (TRNO). All these stocks carry a Zacks Rank #1 (Strong Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.