We have recently upgraded our recommendation for
, a leading industrial real estate investment trust (REIT), to
Neutral from Underperform as we anticipate it to perform in line
with the broader market.
The change in recommendation is also driven by the fact that the
company has reported strong third quarter 2011 results. Prologis
reported third quarter 2011 fund from operations (FFO) of $0.45 per
share compared with $0.48 in the year-earlier quarter. Fund from
operations, a widely used metric to gauge the performance of real
estate investment trusts (REITs), is obtained after adding
depreciation and other non-cash expenses to net income.
Recurring FFO for the reported quarter was $0.44 per share
compared to $0.33 in the year-ago quarter. The third quarter 2011
recurring FFO beat the Zacks Consensus Estimate by $0.05. Total
revenues during the reported quarter were $501.4 million compared
to $228.6 million in the year-ago quarter. Total reported revenues
were well ahead of the Zacks Consensus Estimate of $433
Prologis acquires, develops, operates and manages industrial
real estate space in North America, Asia and Europe. Prologis had
merged with the erstwhile namesake company in an all-stock deal to
become a behemoth of sorts in the industrial real estate
The combined entity has brought together two of the most
complementary customer franchises on the same platform and created
a $44 billion asset pool at the time of merger. The merger is
expected to lead to potential cost savings through operational
synergies and would help create a stronger platform for value
creation and sustainable growth in the long term.
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 at close proximity to airports,
seaports, and ground transportation facilities, which enable rapid
distribution of customers' products. This has enabled the company
to gain a significant pricing advantage over its competitors.
Furthermore, Prologis has significantly reduced operating risks
through continued lease-up of its development portfolio. The
gradual revival of the economy is expected to support industrial
demand in the long-run, improving occupancy and rental rates. This
provides a strong upside potential for the company.
However, the credit crunch has widened the bid-ask spread
between buyers and sellers of commercial real estate, which has
caused deal volumes to fall compared to pre-recession levels. In
addition, market vacancy increases will mitigate Prologis' ability
to push through rental rate increases, and is expected to affect
its long-term growth.
Currently, Prologis shares maintain a Zacks #3 Rank, which
translates to a short-term 'Hold' recommendation. We also have a
'Neutral' recommendation and a Zacks #3 Rank for
First Industrial Realty Trust Inc.
, one of the competitors of Prologis.
FIRST INDL RLTY (
): Free Stock Analysis Report
PROLOGIS INC (
): Free Stock Analysis Report