On Sep 24, 2013, we reaffirmed our long-term recommendation on
) at Neutral. Our decision is based on the company's decent
second-quarter results, strategic measures to improve its core
operations and recent efforts to increase its dominance in the
industrial real estate market of Europe and Asia. Yet, with the
sluggish economic growth, we are not overtly optimistic on the
stock and believe that the risk/reward profile is currently
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Prologis delivered a positive earnings surprise of about 7.9% for
the second quarter of 2013. This industrial real estate
investment trust (REIT) reported core FFO (funds from operations)
per share of 41 cents, beating the Zacks Consensus Estimate of 38
cents. However, it fell short of the prior-year quarter figure by
Results primarily reflect a decent reduction in expenses, though
the benefit was partly offset by a fall in revenues. Yet, the
company's strategic measures and capital market moves have helped
enhance flexibility, extend maturities and lower interest
Going forward, we believe that with a larger customer base, rise
in e-Commerce application and supply chain consolidation, there
will continue to be an increasing demand for Class-A facilities
and Prologis stands to benefit as it has the capacity to offer
modern distribution facilities in strategic infill locations.
Moreover, of late, the company penned a Build-to-Suit deal with
Hi Logistics in UK for facilities spanning over 700,000 square
feet. A similar agreement was inked with L'Oreal, the French
cosmetics group for a 270,000 square feet space in France. Most
recently, the company entered into a Build-to-Suit deal with
Walmart.com Brazil - WMB Comercio Eletronico LTDA, a unit of
Wal-Mart Stores Inc.'s (
) global e-commerce organization for a distribution center, which
would span 576,000 square foot in Sao Paulo, Brazil.
Yet, the protracted economic growth in most parts of the world
makes us skeptical on the stock. Moreover, cut-throat competition
and market vacancy increases may reduce its ability to push
through rental-rate increases while rising interest rates leads
to a rise in cost of financing.
Notably, for full-year 2013, Prologis narrowed its core FFO
guidance to $1.63 to $1.67 per share from the prior range of
$1.60 to $1.70 per share. Alongside, the company raised its
full-year deployment outlook. It increased the range by $1.7
billion to $3.5 billion - $4.1 billion.
Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO
per share increased 1.2% to $1.64. However, for 2014 it moved
down 1.1% to $1.79 per share. The stock currently has a Zacks
Rank #3 (Hold).
Other Stocks to Consider
Better performing REITs that are worth a look include
Sovran Self Storage Inc.
), both carrying a Zacks Rank #2 (Buy).
FFO, a widely accepted and reported measure of the
performance of REITs is derived by adding depreciation,
amortization and other non-cash expenses to net income.