Is it Wise to Retain Prologis Stock in Your Portfolio Now?
Prologis PLD is poised to gain from its strategically located modern distribution facilities in key markets globally and scale. Prudent buyouts and development and a healthy balance sheet will drive growth. 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 with respect to leasing. Elevated interest expenses add to PLD's concerns.
What's Aiding Prologis Stock?
Prologis 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 facilitates rapid distribution of customers' products. The solid demand for Prologis' strategically located facilities has driven healthy operating performance over the past several quarters. The company's new and renewal leases are expected to translate into considerable rises in future rental income. Our estimate points to a year-over-year increase of 6.3% in rental revenues in 2025.
Prologis continues to bolster its presence in high-barrier, high-growth markets through strategic acquisitions and development activities. In the first quarter of 2025, the company's share of acquisitions amounted to $811 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 $1.5-$2.0 billion.
Prologis maintains a healthy balance sheet position with ample flexibility. As of March 31, 2025, this industrial REIT had a total available liquidity of $6.52 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 8.7 years. In addition, as of March 31, 2025, the company's credit ratings were A2 (Outlook Positive) from Moody's and A (Outlook Stable) from Standard & Poor's, enabling the company to borrow at an advantageous rate.
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 both warehouse conversions and ground-up developments, which will aid future revenue growth.
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 13.71%. 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.
Analysts seem bullish on this Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2025 FFO per share indicates a favorable outlook as it has moved marginally northward over the past month to $5.70.
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 the second half of 2024, the interest rate is still high and is a concern for Prologis. The company's consolidated debt as of March 31, 2025 was $32.26 billion. For 2025, our estimate indicates an 11.7% year-over-year increase in the company's interest expenses.
Shares of Prologis have declined 6.2% over the past three months, underperforming the industry 's fall of 1.2%.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties VICI and W.P. Carey WPC,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 VICI Properties' 2025 FFO per share is pegged at $2.34, up 3.54% year over year.
The Zacks Consensus Estimate for W.P. Carey's2025 FFO per share is pegged at $4.88, up 3.83% year over year.
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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Prologis, Inc. (PLD): Free Stock Analysis Report
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