S&P Lifts Outlook on Prologis (PLD) to Positive; Sees Business Strengths Improving

Standard & Poor's Ratings Services revised its outlook on Prologis (NYSE: PLD), Prologis L.P., Prologis, and PLD International Finance Inc. (collectively Prologis) to positive from stable. We affirmed our 'BBB+' corporate credit rating as well as our 'BBB+' issue-level rating on the company's senior unsecured debt and 'BBB-' rating on its preferred stock.

"The positive outlook reflects our view that Prologis' business strengths may improve over the next 12 to 24 months if the company drives rent growth and remains measured in development funding while industrial and commerce fundamentals remain resilient, leading to a modest upgrade," said credit analyst Robert Schulz. "We would also want to believe that Prologis' financial policies would continue to support debt reduction; for example solid prospects for adjusted leverage declining toward the mid-6x range."

The positive outlook reflects our view that industrial fundamentals should continue to improve over the next 12 to 24 months and that Prologis' well-diversified global portfolio will experience stable to improving occupancy and rent growth leading to modest NOI growth and improving our view of the company's business strengths. These trends, along with some further deleveraging, and continued prudent development, reflecting conservative financial policies would further support an upgrade.

We could revise the outlook to stable if business fundamentals for the company's portfolio begin to experience deterioration, leading to slower or negative net rent growth, and/or the company pursues more aggressive development/acquisitions and financing strategies, such that key credit measures fail to improve with adjusted debt to EBITDA sustained at or above 7.5x and FCC declines towards in the 3x area.

We would raise the rating to 'A-' if Prologis continues to sustain strong operating performance and pursues development prudently such that funding is at least leverage neutral, while reducing overall leverage, and seems poised to drive adjusted debt to EBITDA to the mid 6x area.

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