The Ultimate Real Estate Stocks to Buy Now with $1,000

Prologis is a huge real estate company that is trading at a rare discount after its latest earnings.

Prologis (PLD -1.15%) is not a stock that often goes on sale. The logistics real estate company has excellent asset quality, top-notch credit and a tenant list that reads like a who’s who of e-commerce and shipping companies.

Due to interest rate headwinds and geopolitical risks, as well as management’s somewhat pessimistic near-term expectations, Prologis is now trading more than 20% below its recent highs. But for patient long-term investors, it looks like an opportunity.

What does Prologis do?

Prologis is a real estate investment trust, or REIT, that specializes in “logistics” real estate. Its properties consist primarily of distribution centers and warehouses, and it leases space to e-commerce, retail and logistics companies, including (AMZN -2.56%), FedEx (FDX 1.37%), DIY store (HD 0.74%)and about 6,700 others.

As a REIT, Prologis’ scale is simply unparalleled. It is the largest REIT in the world, with more than 1.2 billion square feet of leasable space and $216 billion in assets under management. It operates in North America, Western Europe, Asia and some parts of South America. Over the years, Prologis has grown its funds from operations (FFO – the real estate equivalent of earnings per share) and its dividend faster than other industrial REITs.

Growth opportunities

Despite its enormous size, Prologis isn’t necessarily done growing yet. The e-commerce boom may have slowed since the pandemic-induced boom, but it’s important to realize that e-commerce still only accounts for about 15% of U.S. retail sales, and even less in many of the international Prologis markets.

Furthermore, Prologis recently announced that it will enter the data center space, where AI is creating huge demand, and that it will invest quite aggressively.

Last but certainly not least, Prologis has enormous embedded rental growth in its current portfolio. To say the least, the COVID-19 pandemic caused a surge in demand for logistics real estate, and a corresponding increase in rental prices. Because most Prologis tenants have leases with terms of five to seven years or longer, we continue to see leases being gradually extended to higher rents.

In the first quarter of 2024, Prologis’ cash rental growth on both new and extended leases was a whopping 48%. The company said that at the end of 2023, the difference between market rent and what tenants actually paid was 57%. We will therefore see a lot of rental income growth from the existing real estate portfolio in the coming years.

Temporary headwinds create buying opportunities

To be fair, Prologis is offline for a reason. Not only are REITs generally interest rate sensitive, but due to the global nature of Prologis’ business, they are also sensitive to the geopolitical uncertainty in the world right now. In its first-quarter earnings report, Prologis reported a decline in both occupancy and retention rates (both still strong), and management said the next two months could be challenging.

However, this offers excellent opportunities for long-term investors. Prologis is still a powerful REIT with huge long-term growth potential, and has a well-covered dividend yield of 3.6% for income investors. While the short term may be turbulent, this could be one of the biggest beneficiaries once interest rates begin to normalize and economic fears begin to subside.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matt Frankel has positions at Amazon and FedEx. The Motley Fool holds positions in and recommends Amazon, FedEx, Home Depot, and Prologis. The Motley Fool recommends the following options: Long $90 January 2026 calls on Prologis. The Motley Fool has a disclosure policy.