Industrial real estate investment trust (REIT) – Prologis Inc. (PLD) – announced a $588 million hike in the equity commitment to its China partnership – Prologis China Logistics Venture. The move comes as Prologis gears up to capitalize on the growing fundamentals of the logistics market in China.
Specifically, this $588 million increase involves $500 million of contributions from HIP China Logistics Investments Limited and $88 million by Prologis.
We expect this increased equity commitment to serve the growing business of this China partnership. As a matter of fact, rising domestic consumption as well as an increase in e-commerce application is propelling the fundamentals of the logistic market in China. Alongside, with low vacancy rates amid barriers to supply, rents are expected to exhibit a rising trend, going forward.
Formed in 2011, Prologis China Logistics Venture offers a good investment vehicle for Prologis to capitalize on this improving market fundamental on the Chinese soil. This venture enjoys committed equity of over $1.75 billion as well as potential investment capacity together with leverage of $3.5 billion.
In May, Prologis inked a build-to-suit deal for 447,000 square foot of space in that country with an existing customer, Deppon Logistics Co, a leading Chinese logistics provider. The new facility would come up at Prologis Tianjin Ninghe Logistics Center and will serve as Deppon’s regional distribution center for the greater Beijing area. (Read: Prologis Expands on Chinese Soil). We expect such strategic investments to drive the company’s fundamentals in the period ahead.
Prologis is slated to release its second-quarter 2014 earnings on Jul 22, prior to the market opening. The Zacks Consensus Estimate for funds from operations (FFO) for the quarter is currently pegged at 46 cents per share, reflecting an 11.2% rise from the year-ago period.
Prologis currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Chatham Lodging Trust (CLDT), Parkway Properties Inc. (PKY) and Terreno Realty Corp. (TRNO). All these stocks carry a Zacks Rank #1 (Strong Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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