Industrial Property Demand Aids Prologis Amid Supply Woes

The e-commerce boom has buoyed the industrial real estate asset category. In fact, e-retail continues to play a pivotal role, transforming the way how consumers shop and receive their goods. Moreover, services like same-day delivery are gaining traction, and last-mile properties in high-income urban areas are witnessing solid pricing, occupancy and growth in rentals.

This is spurring growth demand for industrial real estate space, thus, benefiting REITs, including Prologis Inc. (NYSE:PLD) , Duke Realty Corp. (NYSE:DRE) , Terreno Realty Corporation (NYSE:TRNO) and PS Business Parks (NYSE:PSB) .

As for Prologis, the company has solid capacity and is well poised to bank on this favorable trend. Specifically, its properties are typically located in large, supply-constrained in-fill markets near airports, seaports and ground transportation facilities, which facilitates rapid distribution of customers’ products.

Further, Prologis is focused on acquisitions and developments to drive growth. In fact, the company has a number of build-to-suit developments that are advantageously located and will enjoy demand from multi-site customers. In addition, in second-quarter 2019, Prologis’ share of building acquisitions amounted to $214 million, with a weighted average stabilized cap rate of 4.5%.

The company also has decent balance-sheet strength to pursue these accretive transactions. In fact, it exited the June-end quarter with cash and cash equivalents of $401.2 million, up from the $251 million recorded at the end of the first quarter. Prologis ended the second quarter with $4.2 billion of liquidity.

Nevertheless, lately, rising supply and the cooling U.S. economy, as well as a slowdown in global growth, together with trade disputes, have raised concerns about the industrial real estate’s growth prospects.

In fact, a number of new buildings are slated to be completed and made available in the market in the near term, leading to higher supply. This is expected to impede Prologis’ rent and occupancy growth. Additionally, protectionist trade policies will affect the company’s business over the long term.

Further, Prologis generates a significant portion of its revenues from operations outside the United States. This international presence makes the company’s performance vulnerable to unfavorable foreign-currency movements and other economic fluctuations that might impair top-line growth.

Prologis currently carries a Zacks Rank #3 (Hold). Moreover, in the past three months, the company’s shares have gained 6.9% compared with the industry’s growth 3.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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