Prologis PLD is well-poised to benefit from its portfolio of strategically located modern logistics facilities in some of the world’s busiest distribution markets and substantial scale. Strategic buyouts and development activities appear promising. A solid balance sheet aids its growth endeavors. 

Amid favorable fundamentals, the company's data center strategy incorporates warehouse conversions and ground-up developments. In December, Prologis announced that it has sold a data center development in its Chicago market to HMC Capital. In partnership with Skybox Datacenters, the company is converting its Illinois warehouse into a high-capacity, turnkey data center with a capacity of 32 megawatts.

However, the choppiness in the industrial real estate market and subdued demand remain a concern for Prologis. High interest expenses add to its woes.

Prologis is slated to report its fourth-quarter and full-year 2024 results on Jan. 21 before the bell. The REIT earlier guided its 2024 core funds from operations (FFO) per share in the range of $5.42-$5.46. 

Analysts seem bullish on this Zacks Rank #3 (Hold) stock, with the Zacks Consensus Estimate for 2024 FFO per share being revised marginally upward over the past two months to $5.45. For the fourth quarter, the consensus mark for FFO per share currently stands at $1.38.

Shares of Prologis have declined 3.2% over the past month, narrower than the industry’s fall of 7.7%.

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What’s Aiding Prologis Stock?

Prologis provides logistics real estate in some of the busiest distribution markets worldwide. The solid demand for Prologis’ strategically located facilities is a key driving force for its healthy operating performance. Despite the slowdown in the industrial real estate market, the average occupancy level in Prologis’ owned and managed portfolio was 95.9% in the third quarter. For 2024, management expects average occupancy in the band of 96-96.5%. We estimate the fourth-quarter 2024 occupancy to be 96.4%.

Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. Its 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 2024, the company anticipates acquisitions at Prologis share between $1.75 and $2.25 billion, and development starts in the range of $1.75-$2.25 billion.

Moreover, to capitalize on the growing opportunity in the data center market, 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 investment of $7 to $8 billion.

Prologis maintains a healthy balance sheet position with ample flexibility. As of Sept. 30, 2024, this industrial REIT had a total available liquidity of $6.6 billion. As of the same date, the company's weighted average interest rate on its share of the total debt was 3.1%, with a weighted average term of 9.2 years. Given its balance sheet strength and prudent financial management, the company is well-poised to capitalize on long-term growth opportunities.

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 persistently high interest rate environment and geopolitical concerns, customers remain focused on cost controls and delaying their decisions concerning decision-making for leasing. As such, demand is likely to remain subdued in the near term.

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 Sept. 30, 2024 was $32.3 billion. For 2024, our estimate indicates a 32.5% year-over-year increase in the company’s interest expenses.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Cousins Properties CUZ and SL Green Realty SLG, 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 Cousins Properties’ 2024 FFO per share has been raised marginally over the past two months to $2.68.

The Zacks Consensus Estimate for SL Green’s 2024 FFO per share has risen marginally over the past month to $7.83.

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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