Yahoo Finance Key Reasons Why Prologis' (PLD) Shares Have Gained 10.2% YTD
Shares of Prologis PLD, carrying a Zacks Rank #3 (Hold), have gained 10.2% in the year-to-date period against its industry’s fall of 4.8%.
This April, this industrial real estate investment trust (REIT) behemoth reported first-quarter 2023 core funds from operations (FFO) per share of $1.22, beating the Zacks Consensus Estimate of $1.21. The figure compared favorably with the year-ago quarter’s tally of $1.09.
PLD’s quarterly results reflected solid demand for industrial real estate, leading to low vacancies and an increase in rents. The industrial REIT also raised the midpoint of its 2023 guidance.
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Let us now decipher the factors behind the surge in the stock price.
Healthy Operating Performance: The industrial real estate market is still firing on all cylinders with robust demand, rents and occupancy growth. In addition, the demand for space is escalating, given the growth in industries, an e-commerce boom and companies’ endeavors to improve their supply-chain efficiencies. Prologis’ portfolio of modern and high-quality logistics facilities has benefited from these favorable industrial real estate market fundamentals.
The company has witnessed a healthy operating performance, as evident from its solid leasing activity. In the first quarter of 2023, 49.7 million square feet (msf) of leases commenced in the company’s owned and managed portfolio, with 41.6 msf in the operating portfolio and 8.1 msf in the development portfolio.
Moreover, Prologis' average occupancy level in the owned and managed portfolio was 98% in the quarter and the retention level was 77.2%. The cash rent change was 41.9%, representing an all-time high.
Acquisitions & Developments: Prologis has been making concerted efforts to enhance its overall portfolio quality with acquisitions and developments in strategic markets. In the first quarter of 2023, the company’s share of building acquisitions amounted to $6 million. Development stabilization aggregated $770 million, while development starts totaled $57 million, with 100% being built to suit.
Notably, in October 2022, the company closed the acquisition of Duke Realty in an all-stock transaction valued at $23 billion, including the assumption of debt, thereby boosting its presence in the key markets of the United States.
Balance Sheet & Cash Flow Strength: The company’s robust balance sheet position has enabled it to capitalize on long-term growth opportunities. This industrial REIT’s liquidity amounted to $5.7 billion in cash and availability on its credit facilities as of Mar 31, 2023. It also enjoys credit ratings of A3 (Outlook Stable) from Moody’s and A (Outlook Stable) from Standard & Poor’s, enabling the company to borrow at an advantageous rate.
Moreover, PLD’s current cash flow growth is projected at 12.69% compared with the 9.37% expected for the industry. Further, its trailing 12-month return on equity (ROE) is 5.54% compared with the industry’s average of 3.77%. This reflects that the company has been more efficient in using shareholders’ funds than its peers.
FFO Growth: Over the past three to five years, Prologis recorded FFO per share growth of 13.55% compared with the industry’s average of 0.16%. Moreover, for 2023, the company revised its core FFO per share guidance to $5.42-$5.50 from $5.40-$5.50 estimated earlier, suggesting a 0.2% increase at the midpoint. The Zacks Consensus Estimate for the same is currently pegged at $5.49, suggesting growth of 5.81% for 2023 compared with the industry’s average of 0.53%.
Dividends: Solid dividends are a huge attraction for REIT investors, and PLD has remained committed to that. In February 2023, the company’s board hiked its quarterly dividend by 10% to 87 cents per share from 79 cents paid earlier, taking the annualized dividend to $3.48 per share. Also, it has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 12.87%. Such efforts boost investors’ confidence in the stock.
Nonetheless, the rising supply in several markets is likely to intensify competition and create pressure on vacancy levels and rent growth to some extent in the upcoming quarters. The stabilization of e-commerce sales growth and a high interest rate environment raise concerns for Prologis.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Iron Mountain IRM, Rexford Industrial Realty REXR and Stag Industrial STAG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Iron Mountain’s 2023 funds from operations (FFO) per share is currently pegged at $3.96, suggesting a year-over year-growth of 4.2%.
The Zacks Consensus Estimate for Rexford Industrial’s current-year FFO per share stands at $2.19 and implies an increase of 11.7% year over year.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share is pegged at $2.25 presently and indicates a year-over-year rise of 1.8%.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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