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On Wednesday, Morgan Stanley expressed continued confidence in ProLogis (NYSE:PLD) shares, maintaining an Overweight (OW) rating on the real estate investment trust (REIT) specializing in logistics facilities. The firm's stance comes despite the subsector's underperformance year-to-date, with a decline of 2% compared to the broader REIT sector's 14% gain. This underperformance is attributed to subdued demand in 2024, which has led to increased availability rates and stagnant year-over-year rent growth.
Morgan Stanley's analysis points to investor concerns centering around Southern California data and potential market turns. Southern California, accounting for approximately 20% of ProLogis's net operating income (NOI), is anticipated to see availability rates peak in 2025, with net absorption possibly turning positive. ProLogis's recent operational updates have revealed that the region still offers the highest potential for rent increases within the company's portfolio.
The financial institution projects a 7.3% growth in same-store net operating income (NOI) and a 7.5% year-over-year growth in funds from operations (FFO) for ProLogis in 2025. These projections are based on the expectation that Southern California will continue to be a strong market for the company.
In contrast, the analysis for EastGroup Properties (EGP), another player in the sector, is more cautious due to valuation concerns. While the percentage of stock under construction in the Sun Belt is slightly higher than the national average, EastGroup is expected to be relatively shielded from the competition due to less supply of smaller warehouses in the region. Morgan Stanley forecasts a 5.9% increase in same-store NOI and a 6.8% rise in FFO growth for EastGroup Properties, maintaining an Equal-Weight (EW) rating on the stock.
Morgan Stanley's outlook suggests a nuanced view of the logistics real estate market, recognizing regional differences and supply dynamics that could influence the performance of companies like ProLogis and EastGroup Properties.
In other recent news, ProLogis, a logistics real estate company, has seen several changes in its financial outlook based on recent developments. The firm issued $1.1 billion in new debt securities, consisting of notes due in 2035 and 2054, with the proceeds intended for general corporate purposes, including repaying borrowings under global lines of credit.
Analysts have adjusted their projections for the company. Evercore ISI trimmed its price target for ProLogis to $122, reflecting a more conservative outlook on rent growth and net operating income projections. However, the firm maintained an In Line rating on the stock.
RBC Capital downgraded ProLogis stock to a Sector Perform rating from an Outperform rating, citing limited medium-term upside. Yet, the firm slightly increased the price target to $127. Meanwhile, Citi raised its price target for ProLogis to $150, maintaining a Buy rating, based on the company's improved fundamentals.
Argus also increased its price target for ProLogis from $120 to $135 while maintaining a Buy rating, indicating confidence in the company's growth potential. ProLogis has also declared a dividend of $0.96 per share on its common stock and a dividend of $1.0675 per share on the 8.54% Series Q Cumulative Redeemable Preferred Stock.
InvestingPro Insights
ProLogis (NYSE:PLD) remains a prominent player in the Industrial REITs industry, and recent data from InvestingPro underscores some key financial metrics. With a market capitalization of $121.33 billion and a P/E ratio of 42.17, the company trades at a high earnings multiple, reflecting a premium valuation in the market. Despite concerns over a potential sales decline in the current year, ProLogis has demonstrated a strong track record of dividend growth, having raised its dividend for 10 consecutive years and maintained payments for 14 consecutive years, which may appeal to income-focused investors.
While the company operates with a moderate level of debt, analysts have revised their earnings expectations downwards for the upcoming period. Nevertheless, ProLogis has shown resilience with a 17.97% return over the last three months and is trading near its 52-week high, currently at 93.71% of this peak.
These InvestingPro Tips, along with additional insights available on the platform, can help investors navigate the complexities of the logistics real estate market and make informed decisions. In total, there are 16 InvestingPro Tips available for ProLogis, providing a comprehensive analysis of the company's financial health and market position.
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