Prologis Inks Prelease Deal for Brazilian Development

Zacks Equity Research

Ushering in good news for its Brazil business, industrial real estate investment trust (:REIT) – Prologis Inc. (PLD) – disclosed a deal for pre-leasing a space of 197,000 square feet to a logistics and supply chain solutions company at Prologis CCP Cajamar II, Building 300 in Sao Paulo, Brazil.

The pre-lease deal, inked with a repeat customer, reflects the solid demand for Prologis’ properties in Brazil. In fact, the Sao Paulo metro area offers a good prospect for providers of Class-A logistics facilities due to rising demand from manufacturing and retail customers who require space to serve the expanding consumer market.

Prologis seems to be effectively capitalizing on this growing demand. When fully build out, Prologis CCP Cajamar II, a joint venture with Cyrela Commercial Properties, is estimated to span around 2.9 million square feet. Its location in the Cajamar submarket of Sao Paulo, adjoining to the Anhanguera Highway, makes it a preferred choice for companies requiring logistics facilities.

Moreover, in this underserved Brazilian logistics market, Prologis, with around 11.7 million square feet of developed or to-be-developed industrial real estate (as of Jun 30, 2014) in the country, stands big.

Last month, driven by higher rental income and strategic capital earnings, Prologis reported better-than-expected second-quarter 2014 results. Core FFO (funds from operations) per share came in at 48 cents, 2 cents above the Zacks Consensus Estimate and 7 cents ahead of the year-ago quarter figure.

Therefore, going forward, with solid fundamentals and capacity to offer modern logistic facilities in strategic locations, we believe Prologis will be able to benefit from this supply-demand imbalance.

Furthermore, with growing application of e-commerce, we expect demand for logistic facilities to rise. This is because in order to better serve customers and reduce delivery times, firms continue to seek a consolidated distribution network and settlements in the vicinity of population centers. Yet, growing competition and prevailing interest rate issues continue to remain a concern for the company.

Prologis currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider better-ranked stocks like DCT Industrial Trust Inc. (DCT), HCP, Inc. (HCP) and Extra Space Storage Inc. (EXR). All these stocks have a Zacks Rank #2 (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.

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