In a rising e-commerce market, the industrial real estate asset category has grabbed headlines and continues to play a pivotal role, transforming the way how consumers shop and receive their goods. Services like same-day delivery are gaining traction and last-mile properties in high-income urban areas are witnessing solid pricing, occupancy and growth in rentals.
Companies are making efforts to improve supply-chain efficiencies, spurring demand for logistics infrastructure and enabling industrial landlords like Prologis Inc. PLD, Duke Realty Corp. DRE, PS Business Parks, Inc. PSB and Terreno Realty Corporation TRNO, to enjoy a favorable market environment.
Further, in light of the coronavirus pandemic, warehouse operations have become more essential with more e-commerce customers. Over the long term, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from a likely increase in inventory levels post crisis.
Prologis is well poised to benefit amid a favorable environment, owing to its capacity to offer modern distribution facilities at strategic in-fill locations. 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.
With healthy operating fundamentals in the industrial real estate markets, Prologis has capitalized on growth opportunities through acquisitions and developments. In February, the company accomplished the $13-billion acquisition of Liberty Property Trust. The acquisition strengthens Prologis’ presence in target regions such as Chicago, Lehigh Valley, New Jersey, Houston, Central PA, and Southern California.
Additionally, in January, the company completed its acquisition of warehouse owner IPT in an all-cash deal valued at about $4 billion, including debt, from Black Creek Group. The portfolio consists of 37.5 million square feet and 24 U.S. markets. The acquisition expands the company’s position in Southern California, the San Francisco Bay Area, Chicago, Atlanta, Dallas, Seattle and New Jersey. Also, in 2018, Prologis gained significant scale by acquiring DCT Industrial Trust Inc. for $8.5 billion in a stock-for-stock deal.
Further, the company’s high number of build-to-suit development projects highlights the advantageous location of the company’s land bank, as well as demand from its multi-site customers, many of whom are focused on e-commerce. The sites are positioned near large population centers that are suited for serving as the last warehouse before goods are delivered to consumers.
Prologis is focused on bolstering its liquidity. The company exited first-quarter 2020 with $4.6 billion in liquidity, comprising $3.8 billion in total line availability and $0.8 billion in cash. Per management, consolidated maturities until 2022 have been effectively addressed, while earnings have been insulated from FX movements through the next three years. In addition, it was pointed out that more than 95% of Prologis equity is in USD.
The company’s credit ratings at Mar 31, 2020, were A3 from Moody’s and A- from Standard & Poor’s, both with stable outlook, enabling the company to borrow at an advantageous rate. Given its balance-sheet strength and prudent financial management, the company remains well poised to capitalize on growth opportunities. Moreover, solid dividend payouts are arguably the biggest attraction for REIT shareholders. In February, Prologis hiked its annualized dividend by 9.4% to $2.32.
Nevertheless, recovery in the industrial market has continued for long and market rents are expected to remain flat for the rest of 2020. Also, though industrial real estate fundamentals seem more resilient than other asset categories, are not immune. As such, the pandemic’s adverse impact on the economy will likely hinder demand for space in the near term.
Moreover, though the coronavirus outbreak had a minimal impact on the first-quarter rent collections, the company is expected to see an increase in bad debt during the rest of the year. Rent relief and deferrals will likely be concerns, specifically, for the company’s smaller tenants affected by the pandemic.
Prologis currently carries a Zacks Rank #3 (Hold). Also, shares of this industrial REIT have gained 13.8%, as against the 14% decline of its industry over the past year.
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Prologis, Inc. (PLD) : Free Stock Analysis Report
Duke Realty Corporation (DRE) : Free Stock Analysis Report
PS Business Parks, Inc. (PSB) : Free Stock Analysis Report
Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
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