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Investing.com -- Moody’s Ratings has upgraded Prologis (NYSE:PLD), L.P.’s domestic and foreign senior unsecured ratings to A2 from A3, indicating a strong credit profile. The rating agency also upgraded Prologis’ commercial paper rating to Prime-1 from Prime-2 and changed its outlook from positive to stable.
The upgrade reflects Prologis’ dominant position in the global logistics real estate segment and its excellent track record through economic cycles. These factors continue to drive income growth and enhance the value of its portfolio.
Moody’s expects Prologis’ operating metrics, such as occupancy, cash rent growth, and cash same-store net operating income growth, to remain strong. The firm’s net debt to EBITDA and fixed charge coverage ratios are expected to be in the 5-6x range in 2025 and 2026.
Prologis’ credit strengths include access to capital at efficient pricing, a large unencumbered asset base, and a solid record of timely completion and lease-up of development projects. Despite challenges in certain US markets and potential increases in its development pipeline, Prologis’ dominant market position and strong portfolio operating metrics are expected to sustain its A2 ratings.
Prologis’ cash same-store net operating income is expected to grow by 4-5% in 2025. Despite the uncertain macroeconomic environment impacting logistics landlords, Prologis’ diverse and market-leading portfolio is well-positioned to benefit from improving leasing conditions in late 2025 and 2026.
At the end of 2024, Prologis’ portfolio was 95.9% occupied. The REIT’s aggregate EBITDA grew by 4.7% in 2024 to $6.3 billion. Prologis’ net debt to EBITDA ratio, which has remained below 5x over the last 18 months, will increase to the low to mid 5x range due to larger development outlays for data center projects.
Prologis’ fixed charge coverage was at 6.3x in 2024 and is expected to remain well above 5x in 2025 and 2026 despite the higher cost for the debt that will be refinanced and the larger debt balance. At the end of 2024, Prologis’ effective leverage was 29.2%.
Prologis’ investment in development starts in 2024 was 60% lower than 2023 due to market conditions. The REIT’s investment in development projects will increase over the next 1-2 years, largely driven by its data center strategy.
The upgrade of Prologis’ CP rating to Prime-1 is a consequence of the upgrade of its senior unsecured ratings. Prologis’ credit quality benefits from its strong liquidity, over 96% availability on its revolving credit facilities that expire in June 2026 and June 2027, and an almost fully unencumbered high-quality asset base. At the end of 2024, Prologis had no outstanding CP borrowings and has $205 million of debt maturing in 2025. The REIT has $2.1 billion of debt maturing in 2026, including about $1.3 billion of senior notes and $780 million of term loans.
Moody’s noted that sustained strong operating performance, high occupancy rates, and consistent growth in same-store cash NOI could lead to an upgrade of Prologis’ ratings. Conversely, if the macroeconomic environment deteriorates or the demand for logistics real estate weakens, the ratings could be downgraded.
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