Last Tuesday, Prologis, the largest industrial REIT with a market cap of $27 billion, officially opened the Q2 season for U.S. equity REITs with good news. Although the stock fell flat following the release, the results were better than expected, crowning a year-to-date return of about 21%. For us, one of the most important results were upping the same-store NOI midpoint growth for 2016 to 5%.
The 2016 increase of same-store NOI is an indication that industrials have not yet their reached saturation point. The 5% growth is just slightly lower than last year’s numbers. Same-store metrics allow investors to determine what portion of growth has come from existing properties and what portion can be attributed to the opening of new stores. Prologis, with its large number of properties, gives us a fairly clear indication that the industry growth is still coming from within.
Investors realized that the company’s exposure to the UK was minimal, a realization that was reinforced by CEO Hamid Moghadam during the Q2 release call. When the Brexit results were announced, the stock fell more than 5% in the following days before and then recovering to the current level of $51. 28% of Prologis’ square feet are located abroad, so initial concerns regarding the potential impact on the company were valid. However, it turns out that the UK actually makes up less than 3% of their portfolio.
You really cannot go wrong with Prologis. This is a global, large cap with lower volatility and a diversified portfolio that has experienced management and enjoys an investment grade credit rating. However, with the recent rally, it is becoming increasingly harder to extract any upside and stock appears to be in the right place.
In conclusion, we cannot say for sure that Prologis is right for your portfolio, but we definitely see Prologis as a good fit for anyone looking for a lower return, lower risk investment.
Source: Prologis, Inc.(NYSE:PLD)
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Disclosure: The author is long FCH, XHR, and CLDT.