Prologis PLD, a leader in the industrial real estate sector, experienced a notable upturn in its stock price, gaining 16.1% year to date. It outperformed both the Zacks REIT and Equity Trust - Other industry and the S&P 500 composite over the same time frame.

Prologis enjoys ownership or investments in properties and development projects expected to total around 1.3 billion square feet in 20 countries. PLD provides industrial distribution warehouse space in some of the busiest distribution markets across the globe. The properties of the company are typically located in large, supply-constrained infill markets in close proximity to airports, seaports and ground transportation facilities, which facilitate rapid distribution of customers’ products. The solid demand for Prologis’ strategically located facilities has driven healthy operating performance over the past several years.

Last month, PLD came up with a better-than-expected fourth-quarter 2024 core funds from operations (FFO) per share. Results reflected a rise in rental revenues and healthy leasing activity. However, high interest expenses acted as a spoilsport.

YTD Price Performance

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Investors might be pondering whether they have missed the investment opportunity or still have time to take a position. Let us delve deeper to understand whether it is prudent to consider assuming or increasing positions in PLD.

What’s Driving Prologis Stock?

For a large part of 2024, economic activity and political uncertainty have affected the demand for industrial real estate space. Customers remained focused on cost controls and delayed their decisions with respect to decision-making for leasing, affecting demand. However, management noted that following the U.S. elections, leasing activity in the company’s portfolio has been strong, and the pipeline for 2025 has started at healthy levels. Prologis’ share of net effective rent change was 66.3% in the October-December quarter, while the cash rent change was 40.1%. Cash same-store net operating income grew 6.7%.

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 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. We expect such efforts to drive this industrial REIT’s growth over the long term.

Moreover, the data center industry is currently experiencing significant growth, driven by the demands of the evolving needs of today’s digital economy, cloud and AI applications. To capitalize on this growing opportunity, Prologis is focusing on both warehouse conversions and ground-up developments. The company ended 2024 by divesting its Elk Grove data center, which remains under development.

Prologis also boasts a solid balance sheet strength with ample flexibility. PLD exited 2024 with a total of $7.4 billion in liquidity, while its weighted average interest rate on its share of the total debt was 3.2%, with a weighted average term of 9.0 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. Given its balance sheet strength and prudent financial management, as well as investment capacity in co-investment ventures, the company is well-poised to capitalize on long-term growth opportunities.

Finally, solid dividend payouts are arguably the biggest enticements for REIT shareholders and Prologis remains committed to that. Recently, the company announced a 5% hike in its quarterly cash dividend to $1.01 per share from 96 cents paid out in the prior quarter, taking the annualized dividend to $4.04 per share. The increased dividend will be paid out on March 31 to its shareholders of record as of March 18, 2025. 

In the last five years, Prologis has increased its dividend six times, and its five-year annualized dividend growth rate is 13.66%. Given the company’s solid operating platform, opportunities for growth, and a decent financial position compared with the industry, this dividend rate is expected to be sustainable over the near term.

Challenges to Prologis’ Growth Trajectory

Prologis is not free of challenges. Concerns still remain for oversupply in some regions. Also, anticipations of Federal Reserve rate cuts have diminished considerably in recent months and so, like other REITs, PLD has been subject to investors’ concerns. While commercial real estate values suffer in such an environment, borrowing costs also stay elevated.

Demand concerns are another challenge, with Prologis experiencing a decline in occupancy levels. The company reported a portfolio occupancy of 95.8% in the fourth quarter, marking a sequential decline of 30 basis points and a year-over-year drop of 150 basis points. Additionally, PLD’s 2025 guidance forecasts an average occupancy of 95% at the midpoint, signaling further declines. Lower occupancy rates could impact rental growth and profitability, especially if economic conditions soften or tenant demand weakens.

Prologis’ Estimate Revisions and Valuation

The recent estimate revision trends do not provide a favorable picture. The full-year 2025 and 2026 consensus mark for FFO per share moved south over the past month.

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

In terms of valuation, Prologis stock looks expensive as it is trading at a forward 12-month price-to-FFO of 21.16X, ahead of the REIT-Other industry average of 15.44X and also higher than its one-year median of 20.31X. PLD is also currently trading at a premium compared to its industry peers like Rexford Industrial Realty, Inc. REXR.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

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Final Thoughts on PLD

Prologis is well-poised to benefit from its portfolio of strategically located industrial real estates in some of the world’s busiest distribution markets. Strategic buyouts and development activities appear promising. Its new and renewal leases assure steady revenues. Its scale drives efficiency and a solid balance sheet strength aids its growth endeavors. The company’s focus on data centers to capitalize on the growing opportunity in this asset category also augurs well.

However, at current levels, PLD stock looks expensive. Also, given the southward estimate revisions, it would be prudent to wait for greater clarity on policy changes, inflation trends and their potential impact on PLD before determining whether it will be prudent to accumulate the stock or sell it. Existing shareholders may choose to remain invested, given the company’s strong history of paying growing dividends and focusing on appealing property sectors.

At present, PLD Properties carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Prologis currently has an average brokerage recommendation (ABR) of 1.77 on a scale of 1 to 5 (Strong Buy to Strong Sell). Of the 24 brokers covering PLD, 15 rate it a “Strong Buy”, one calls it a “Buy”, seven rate it a “Hold” and one a “Strong Sell”.

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Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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