Prologis PLD is well-poised to benefit from its portfolio of strategically located industrial facilities in some of the world’s busiest distribution markets. Strategic buyouts and development activities appear promising. Its scale drives efficiency, and solid balance sheet strength aids its growth endeavors. The company is also converting some of its warehouses into data centers to capitalize on the growing opportunity in this asset category.
However, amid macroeconomic uncertainty and geopolitical issues, customers remain focused on cost controls and delay their decision-making for leasing. High interest expenses add to its woes.
Earlier this week, Prologis reported a fourth-quarter 2024 core FFO per share of $1.50, outpacing the Zacks Consensus Estimate of $1.38. This compared favorably with the year-ago quarter’s figure of $1.26. Quarterly results reflected a rise in rental revenues and healthy leasing activity. However, high interest expenses are an undermining factor.
This industrial REIT also provided its 2025 outlook. It guided its 2025 core FFO per share guidance in the range of $5.65-$5.81. The Zacks Consensus Estimate for the same is currently pegged at $5.79. The company expects average occupancy to lie between 94.5% and 95.5%. Cash same-store NOI (Prologis share) is projected in the range of 4-5%.
Shares of Prologis have rallied 10% over the past month, outperforming the industry’s rise of 0.9%.
Image Source: Zacks Investment Research
What’s Aiding Prologis Stock?
Prologis provides industrial distribution warehouse space in some of the busiest distribution markets across the globe. The solid demand for Prologis’ strategically located facilities has driven healthy operating performance over the past several quarters. In the fourth quarter of 2024, 46.5 million square feet of leases commenced in the company’s owned and managed portfolio. The retention level was 78.4% in the quarter. Despite the slowdown in the industrial real estate market, the average occupancy level in Prologis’ owned and managed portfolio was 95.6% in the fourth quarter. For 2025, management has issued its guidance range for average occupancy in the band of 94.5-95.5%.
Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. Prologis’ investments over the years comprise a wide array, including the largest M&A transactions in the real estate sector and individual off-market deals below $5 million. For 2025, the company anticipates acquisitions at Prologis share between $750 million and $1.25 billion. Development starts are expected in the range of $2.25-$2.75 billion.
The data center industry is currently experiencing significant growth, driven by the demands of the evolving needs of today’s digital economy. The demand for high-performing data centers is likely to increase in the coming years amid high growth in cloud computing, the Internet of Things (IoT), big data and elevated requirements for third-party IT infrastructure. To capitalize on this growing opportunity, Prologis is focusing on warehouse conversions and ground-up developments. Within the next four years, it expects to develop approximately 20 data center opportunities, with an additional investment of $7 to $8 billion.
Prologis maintains a healthy balance sheet position with ample flexibility. As of Dec. 31, 2024, this industrial REIT had a total available liquidity of $7.4 billion. As of the same date, the company's weighted average interest rate on its share of the total debt was 3.2%, with a weighted average term of nine years. In addition, the company’s credit ratings as of Dec. 31, 2024 were A3 (Outlook Positive) from Moody’s and A (Outlook Stable) from Standard & Poor’s, enabling the company to borrow at an advantageous rate.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Prologis remains committed to that. In the last five years, Prologis has increased its dividend five times, and its five-year annualized dividend growth rate is 13.66%. Given the company’s solid operating platform, opportunities for growth and decent financial position compared with the industry, this dividend rate is expected to be sustainable over the near term. Check Prologis’ dividend history here.
What’s Hurting Prologis Stock?
In a volatile and still elevated interest rate environment and geopolitical concerns, customers remain focused on cost controls and delaying their decisions with respect to decision-making for leasing. As such, demand remains subdued, and this trend is expected to continue in the near term.
Furthermore, the rise of speculative deliveries in several markets has contributed to rising vacancy rates. This trend is likely to continue in the near term and limit occupancy and rental rate growth.
Despite the Federal Reserve announcing rate cuts in recent times, the interest rate is still high and is a concern for Prologis. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. The company’s consolidated debt as of Dec. 31, 2024 was $30.88 billion.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are SL Green Realty SLG and OUTFRONT Media OUT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for SL Green’s 2025 FFO per share has risen 1.3% over the past month to $5.51.
The Zacks Consensus Estimate for OUTFRONT Media’s 2025 FFO per share has been raised marginally over the past week to $1.91.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
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Prologis, Inc. (PLD) : Free Stock Analysis Report
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