Prologis PLD is well-poised to benefit from its portfolio of strategically located industrial facilities. Strategic buyouts and development activities appear promising. 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, choppiness in the industrial real estate market and high interest expenses raise concerns.
Last month, in a boost to shareholders’ wealth, PLD announced a 5% hike in its quarterly cash dividend to $1.01 per share from 96 cents paid out in the prior quarter. The increased dividend will be paid out on March 31 to its shareholders of record as of March 18, 2025.
Shares of Prologis have rallied 12.9% over the past three months, outperforming the industry’s rise of 7%.
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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 its 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. 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%. We estimate occupancy to be 94.9%.
Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. In the fourth quarter of 2024, the company’s share of acquisitions amounted to $384 million, and development starts totaled $375 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.
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.
The data center industry is currently experiencing significant growth, driven by the demands of the evolving needs of today’s digital economy. 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.
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 in 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.
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. PLD’s consolidated debt as of Dec. 31, 2024, was $30.88 billion. For 2025, our estimate indicates a 16.5% year-over-year increase in the company’s interest expenses.
Analysts seem bearish on this Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2025 FFO per share indicates an unfavorable outlook as it has moved marginally southward over the past month to $5.73.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are SL Green Realty SLG and SBA Communications SBAC, 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 marginally over the past two months to $5.52.
The Zacks Consensus Estimate for SBA Communications’ 2025 FFO per share has been raised marginally over the past two months to $12.91.
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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