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Prologis (PLD) Poised to Benefit from e-Commerce Boom


On Nov 25, 2016, we issued an updated research report on Prologis Inc. PLD, a real estate investment trust (REIT), focused on logistics real estate properties in the U.S. and abroad. The company serves around 5,200 customers across two major groups – business-to-business and retail/online fulfillment.

Shares of Prologis have outperformed the Zacks categorized REIT Equity Trust – Other industry year-to-date. In fact, over this time frame, Prologis logged in a return of 15.8% against just 0.33% booked by REIT Equity Trust – Other industry.

Notably, last month, Prologis reported third-quarter 2016 core funds from operations (FFO) per share of 73 cents, beating the Zacks Consensus Estimate of 70 cents. It also improved from the year-ago quarter figure of 58 cents. Better-than-expected growth in revenues, backed by improved operating performance and higher net promote income, was primarily responsible for this beat.

Amid a consistent shift toward e-commerce and supply chain strategy transformations, the company is well poised to benefit from its capacity to offer modern distribution facilities in strategic in-fill locations. In fact, Prologis’ occupancy and leasing volumes remained high in third-quarter 2016.

It recorded broad-based demand across customer segments, driven by e-commerce, automotive, consumer products and construction supplies. Also, Prologis remains focused on bolstering its liquidity, which is encouraging. It has long-term expected growth rate of 7.2% against the industry average of 5.8%.

Further, this industrial REIT raised the midpoint of its full-year guidance ranges for net effective same-store net operating income to 5.50%–5.80% from 4.75%–5.25% guided earlier. As a result, its core FFO per share outlook has been revised to $2.56–$2.57, against the prior range of $2.52–$2.58.

However, recovery in the industrial market has continued for long and chances of any striking decrease in availability rates are less. In fact, a whole lot of new buildings are slated to be completed and come up in the market over the next two years, which is likely to limit growth. Moreover, an anticipated hike in interest rates in the near term can add to its woes.

Over the past seven days, the Zacks Consensus Estimate for FFO per share remained unchanged at $2.57 per share for 2016 and $2.65 for 2017.



Zacks Rank & Key Picks

Prologis currently carries a Zacks Rank #3 (Hold).

Investors interested in the REIT industry can consider stocks like Duke Realty Corp. DRE, Mack-Cali Realty Corp. CLI and DCT Industrial Trust Inc. DCT. Each of these stocks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Realty has experienced 0.8% upward revision in full-year 2016 estimates to $1.20 in the past one month.

Mack-Cali has long-term expected growth rate of 6.4% against the industry average of 5.8%.

DCT Industrial delivered an average positive surprise of 5.18% over the trailing four quarters.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.

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