Prologis Inc: Amazon’s Landlord Could Be a Soaring E-Commerce Play
Capitalizing on the Booming E-Commerce Industry
It’s no secret that e-commerce is a booming industry that has made many investors rich over the years.
Just take a look at Amazon.com, Inc. (NASDAQ:AMZN) and you’ll see what I mean. In just the last five years alone, Amazon stock has skyrocketed more than 440%. Earlier investors of the e-commerce giant are certainly laughing all the way to the bank.
The thing is, though, Amazon—along with other e-commerce platforms—aren’t the only ones capitalizing on this booming industry. For instance, Prologis Inc (NYSE:PLD), a real estate investment trust (REIT) headquartered in San Francisco, has also climbed on board the e-commerce profit train.
Now, I know what you’re wondering. REITs have been around for decades. Most of them are just landlords that collect rental income from their properties. How can a REIT be a part of the e-commerce boom?
Well, the secret lies in the type of properties that Prologis owns.
You see, the company doesn’t focus on shopping centers, office buildings, or apartment complexes. Instead, it specializes in logistics real estate.
As of September 20, Prologis had a portfolio totaling 797 million square feet located in 19 countries around the world. These properties are diversified across more than 5,000 tenants in two major categories: business-to-business and retail/online fulfillment. (Source: “Fact Sheet,” Prologis Inc, September 30, 2019.)
The neat thing is, many of this REIT’s properties are used as distribution centers, which happen to be a critical part of the e-commerce ecosystem. When you buy something online, chances are it will travel through a distribution center before arriving at your doorstep.
To give you an idea, the company’s top tenants include key components of the e-commerce industry, such as Amazon, FedEx Corporation (NYSE:FDX), and United Parcel Service, Inc. (NYSE:UPS). Each year, $1.5 trillion worth of goods flow through Prologis Inc’s distribution centers. (Source: Ibid.)
And if you are still not convinced that this Amazon landlord is something special, just take a look at the following PLD stock chart.
Prologis Inc (NYSE:PLD) Stock Chart
Chart courtesy of StockCharts.com
Since the beginning of this year, Prologis stock has surged 48.7%, which actually outperformed e-commerce giant Amazon.
As you’d expect from a company with a soaring share price, Prologis Inc’s business has been firing on all cylinders.
According to the company’s latest earnings report, Prologis generated $712.0 million in rental and other revenues in the third quarter of 2019. The amount represented a 16.5% increase year-over-year. (Source: “Prologis Reports Third Quarter 2019 Earnings Results,” Prologis Inc, October 15, 2019.)
Net earnings came in at $0.71 per diluted share, marking an 18.3% improvement from the $0.60 per share earned in the year-ago period.
Core funds from operations, a critical measure of this REIT’s operating performance, totaled $0.97 per share for the quarter. Again, this represented substantial year-over-year growth because, in the third quarter of 2018, Prologis Inc’s core funds from operations was $0.72 per share.
At the end of September, the company’s portfolio had a strong occupancy rate of 96.5%.
And that was just a start. The company recently made a big move, which could further expand its presence in the e-commerce supply chain.
On October 27, Prologis announced that it is buying Liberty Property Trust (NYSE:LPT) in an all-stock transaction. Including the assumption of debt, the deal is valued at approximately $12.6 billion. (Source: “Prologis to Acquire Liberty Property Trust for $12.6 Billion,” Prologis Inc, October 27, 2019.)
This acquisition, which has already been approved by both companies’ boards, will further expand Prologis Inc’s logistics real estate portfolio.
Liberty Property Trust’s portfolio consists of 107 million square feet of operating logistics properties, 5.1 million square feet of logistics development, 1,684 acres of land for future logistics development, and 4.9 million square feet of operating and in-development office properties.
Instead of keeping everything, Prologis will be focusing on what it’s known for: logistics real estate. It plans to dispose of $2.8 billion of non-strategic logistics properties and $700.0 million of office properties from this acquisition.
“Liberty’s logistics assets are highly complementary to our U.S. portfolio and this acquisition increases our holdings and growth potential in several key markets,” said Hamid R. Moghadam, Chairman and Chief Executive Officer of Prologis.
“The strategic fit between the portfolios allows us to capture immediate cost and long-term revenue synergies.” (Source: Ibid.)
The two companies expect the transaction to close in the first quarter of 2020.
Going forward, the e-commerce industry is projected to grow at a rapid pace. In order for e-commerce platforms to fulfill their rising number of orders while shortening delivery time, they’ll likely need more distribution centers.
The rising demand for logistics real estate could translate to substantial rent increases for Prologis Inc.
At the end of the day, don’t forget that Prologis is also a dividend-paying stock with an annual yield of 2.4%.
While that yield may not seem like much compared to how the price of Prologis stock has gone up, it provides investors with peace of mind knowing there’s always a cash return they can earn from PLD stock.