Industrial real estate investment trust (:REIT) – Prologis Inc. (PLD) – announced a $588 million hike in the equity commitment to its China partnership – Prologis China Logistics Venture. The move comes as Prologis gears up to capitalize on the growing fundamentals of the logistics market in China.
Specifically, this $588 million increase involves $500 million of contributions from HIP China Logistics Investments Limited and $88 million by Prologis.
We expect this increased equity commitment to serve the growing business of this China partnership. As a matter of fact, rising domestic consumption as well as an increase in e-commerce application is propelling the fundamentals of the logistic market in China. Alongside, with low vacancy rates amid barriers to supply, rents are expected to exhibit a rising trend, going forward.
Formed in 2011, Prologis China Logistics Venture offers a good investment vehicle for Prologis to capitalize on this improving market fundamental on the Chinese soil. This venture enjoys committed equity of over $1.75 billion as well as potential investment capacity together with leverage of $3.5 billion.
In May, Prologis inked a build-to-suit deal for 447,000 square foot of space in that country with an existing customer, Deppon Logistics Co, a leading Chinese logistics provider. The new facility would come up at Prologis Tianjin Ninghe Logistics Center and will serve as Deppon’s regional distribution center for the greater Beijing area. (Read: Prologis Expands on Chinese Soil). We expect such strategic investments to drive the company’s fundamentals in the period ahead.
Prologis is slated to release its second-quarter 2014 earnings on Jul 22, prior to the market opening. The Zacks Consensus Estimate for funds from operations (:FFO) for the quarter is currently pegged at 46 cents per share, reflecting an 11.2% rise from the year-ago period.
Prologis currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Chatham Lodging Trust (CLDT), Parkway Properties Inc. (PKY) 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.