Logistical Cashflows for Income & Growth
August 13, 2020
Retail stores are closing on a daily basis as online retail rapidly becomes the way to shop.
Pure online retail sales have climbed 103.3% in the trailing five years alone, using US Census data. Add in traditional retail moving online, and overall online sales will move higher at an increasing pace.
This means all of the industries and companies behind the scenes of this commerce are on a long-term roll.
Warehouses and logistics are the backbone beyond the websites, cloud services and data centers. After all, somebody has to store, process and deliver that mountain of goods. Here’s a way to cash in now, with plenty of income and growth to follow.
A Pro at Problem-Solutions
Prologis (PLD) is one of the largest warehousing and logistics support companies in the US and around the major economies of the globe. It has 4,655 buildings amounting to 963 million square feet (MSF) of warehouse and related facilities.
Its occupancy is currently running at 95.7%, and it’s expanding its capacities with eager tenants. It added new facilities in the second quarter and expanded and locked-in tenants at others. Its commenced new construction on additional facilities that are 100% pre-leased and committed with more in the works.
Like other real estate investment trusts (REITs), it has some stressed tenants, but that only amounts to 0.5% of its overall rents. And rent collection continues to rebound strongly, hitting 98%.
The company calculates that $2.2 trillion worth of goods flow through its facilities on an annual basis. And in the countries where it operates, the goods and services running through amount to 3.5% of those nations’ gross domestic products (GDPs). That equates to 2.5% of the globe’s overall economy.
Its top customers leasing properties are a “who’s who” in logistics and commerce. They include Amazon (AMZN), DHL Worldwide Express, FedEx (FDX), UPS (UPS) and XPO Logistics (XPO). Home Depot (HD) wouldn’t have its depot without Prologis. And it even has some data centers for its customers Amazon, Microsoft (MSFT) and others.
A Pro at Income & Growth
Revenue at Prologis is up over the trailing year by 18.8%. And that includes the highly challenging first and second quarters of this year, complete with remote work, stay at home and all of the lockdowns and cross-border limits.
But that isn’t just a one-off good year. Revenues continue to climb by an average of 17.8% on a compound annual growth rate (CAGR) basis for the past five years.
Prologis Revenue & Intrinsic (Book) Value—Source: Bloomberg Finance, L.P.
The company runs a profitable ship with low general and administrative expenses. And that in turn has driven a return on funds from operations (FFO) of 11%.
Prologis continues to expand its assets with eager and confirmed pending tenants. This means that the intrinsic (book) value of the company, currently sitting at $46.66 per share, should continue to increase. Over the past five years alone, the intrinsic value of the company has continued to climb at a 10% CAGR.
Prologis, S&P 500 & S&P Real Estate Indexes Total Returns—Source: Bloomberg Finance, L.P.
PLD has returned 192.2% over the past five years, which is way above the S&P 500’s return of 79.7% and the S&P Real Estate Index’s return of 36%.
But the stock is still a value. It’s only valued at 2.3 times its intrinsic (book) value. This is far cheaper than the average S&P Real Estate Index member, which is running at 3.3 times book.
A Pro at Paying Out
Prologis continues to pay a reasonable dividend distribution that currently yields 2.3%. That’s on the lower side, but it has been on the rise over the past five years by 10% annually.
Its retention of cash is fueling its expansion, which in turn is resulting in that continued rise in underlying intrinsic value.
The stock market continues to acknowledge the company’s rising value and rising revenue with its outperformance relative to the sector and the general market. This all makes it a proven growth company with sturdy distributions for income investors.
All My Best,
Editor, Income Investor’s Digest & Profitable Investing
Author, Income for Life