The industrial real estate category continues to witness soaring demand for space. To support e-commerce business, address large customer base and focus on urbanization, companies are being compelled to enhance and renovate their distribution and production platforms. Services like same-day delivery are gaining traction and propelling demand for modern distribution facilities. Also, last-mile properties are witnessing a solid increase in asset values. This is driving prospects for industrial REITs like Prologis Inc. PLD, Duke Realty DRE, Terreno Realty Corporation TRNO and Liberty Property Trust LPT.
Specifically, Prologis is well poised to benefit amid a favorable environment, courtesy of its capacity to offer modern distribution facilities at strategic in-fill locations. Particularly, the company provides industrial distribution warehouse space in some of the busiest distribution markets across the globe. Its properties are located in large, supply-constrained in-fill markets, which enjoy proximity to airports, seaports and ground transportation facilities. The locations facilitate rapid distribution of customers’ products.
In April, Prologis delivered first-quarter 2019 core funds from operation (FFO) per share of 73 cents, which beat the Zacks Consensus Estimate by a penny. The company witnessed top-line growth in the first quarter, while period-end occupancy remained high. Moreover, the industrial REIT raised guidance for 2019 core FFO per share by more than 2% at the mid-point.
The company is actively banking on growth opportunities through strategic acquisitions and opportunistic developments. In first-quarter 2019, Prologis’ share of building acquisitions amounted to $179 million with a weighted average stabilized cap rate of 4.3%. Development stabilization aggregated $691 million, while development starts totaled $239 million, with 41.2% being build-to-suit.
Further, the company’s large number of build-to-suit development projects highlights the advantageous location of its land bank as well as demand from multi-site customers, many of whom are focused on e-commerce. These sites are positioned in urban markets that are suited to serve as the last warehouse before goods are delivered to consumers.
Prologis is also focused on bolstering its liquidity. The company ended the first quarter with $4.1 billion of liquidity. Notably, during the quarter, the company and its co-investment ventures accomplished $5.4 billion in capital markets activity. This included the upsizing of its global line of credit to $3.5 billion.
Being a market leader, Prologis has the ability to raise capital at favorable rates. Considering its balance-sheet strength and prudent financial management, the company is well poised to capitalize on growth opportunities. Moreover, solid dividend payouts are arguably the biggest attraction for REIT shareholders. In February, Prologis hiked annualized dividend by 10% to $2.12.
Nevertheless, recovery in the industrial market has continued for long and new buildings are slated to be completed as well as made available in the near term. This will lead to higher supply as well as lesser scope for rent and occupancy growth.
Also, there are concerns regarding the fate of the U.S. economy amid prevalent trade-war tensions and the declining stimulus from the lower tax rates. In fact, any protectionist trade policy will have an adverse impact on economic growth. This is likely to affect the company’s business and limit growth tempo.
Prologis currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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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Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
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