Prologis Today: A Commercial REIT Staying Afloat

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Part 2
Prologis Today: A Commercial REIT Staying Afloat PART 2 OF 10

Prologis Is Riding High on This

Business momentum to continue

Factors like lower unemployment, rising optimism about economic wellbeing, and the e-commerce boom have triggered a spike in shopping among consumers. To compete with online giant Amazon.com (AMZN), retailers are promoting their businesses with services like same-day delivery and supply-chain consolidations.

These services can boost demand for warehousing facilities and logistics infrastructure, which can be blessings for commercial REITs (real estate investment trusts) like Prologis (PLD), Duke Realty (DRE), and Kilroy Realty (KRC). All three of these companies have been showing revenue growth over the past few quarters.

Prologis Is Riding High on This

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Prologis is expected to see a high business growth trajectory backed by strategic investments. The company boasts a rich history of solid top-line growth, and the trend is expected to continue going forward.

With its properties in large industrial areas, the company aims to keep close proximity to customers and boost the efficiency of its supply chain. Prologis is expected to generate a revenue growth of 6.7%, 5.1%, 6.4%, and 5.1%, respectively, in 2Q17, 3Q17, 4Q17, and 1Q18.

Robust revenue growth in 1Q17

PLD’s revenue gained nearly 3.8% in 1Q17 driven by growth in rental and strategic capital. Its net effective rent change on rollover was 19.6%, led by a healthy rent change of 29.2% in the US. The gain in rent change marked the fifth-straight quarter of rent change above 20%.

Prologis leased a total of 39 million square feet of land in 1Q17. This was a little lower than its level one year ago, as the company faced constraint of land availability. Its revenue drivers include real estate operations (rental operations and development) and strategic capital, and rental operations contributed almost 90% to its total revenues.

Occupancy level expansion

Meanwhile, the company’s occupancy level expanded 50 basis points to 96.6%, backed by a gain of 180 basis points in Europe. Europe benefited from the ongoing demand-supply imbalance in the region, especially in the UK, Germany, and the Netherlands. Improvements in the rest of Europe were partially offset by a decline in Poland, which is currently facing industrial headwinds.

Same-store assets excluding development stood at 5.1% on a global basis in 1Q17. Prologis expects its revenues to be impacted favorably by higher deployment and higher promotions going forward. The company raised its forecast for occupancy and now expects its occupancy to range between 4.5% and 5.25%.

Notably, Prologis, Due Realty, Kilroy, and Boston Properties together make up 14.1% of the iShares Cohen & Steers REIT ETF (ICF).


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