Rating Upgrade at Prologis - Analyst Blog

Industrial real estate investment trust (REIT) – Prologis, Inc. PLD received a rating upgrade from Standard & Poor's Ratings Services. The company now enjoys corporate credit and senior unsecured debt ratings of BBB+, up from BBB, with a stable outlook.

The rating upgrade is backed by Prologis' early accomplishment of its post-merger integration, portfolio repositioning, and de-leveraging strategy in mid-2013. The rating agency also acknowledged the company's strategy of focusing on key global and regional markets and its efficient investment management business with fewer and longer-duration funds and lower financial risk.

Furthermore, according to the rating agency, amid favorable industrial subsector conditions, solid management expertise and more accommodating financial policies, Prologis remains well poised to implement its 3-year plan and this view supports its stable outlook.

The rating upgrade of Prologis is encouraging. In fact, this plays a major role in preserving investor confidence in the stock and helps boost its creditworthiness in the market.

In February, Prologis ushered in good news for its shareholders by disclosing an 18% hike in its quarterly dividend rate to 33 cents per share. We expect Prologis to benefit from the demand supply imbalance in its markets. In fact, efficiencies from enhanced scale, development initiatives and recovering rents set the ground for growth for this REIT. However, competition is intensifying and interest rates are expected to rise in the long term which is a growing concern.
 
Prologis is scheduled to report its first quarter 2014 earnings results on Apr 22. Currently, the Zacks Consensus Estimate for 2014 funds from operations (FFO) per share is pegged at 42 cents, representing 4.8% year-over-year growth.

Prologis presently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Cousins Properties Inc. CUZ, Public Storage PSA and STAG Industrial, Inc. STAG. All these stocks carry a Zacks Rank #2 (Buy).

Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.