Investment advice
We believe that the lease plan for important tenants in Dianshan Lake Logistics Park may be adjusted or caused part of the area to be vacant, compounded by weak demand in the warehousing and logistics market or putting some pressure on the subsequent operation of the project. We lowered the rating of Zhongjin Prologis REIT to hold, and the total return target for 12 months was lowered to 2%.
The reasons are as follows:
The major tenants of Dianshan Lake Logistics Park adjusted their leasing plans. We estimate that it will affect about 3% of the fund's revenue in 2024: On June 29, 2024, CICC Plus REIT issued an “Business Notice” 1, disclosing that Jiangsu Jingxun, the main tenant of Dianshan Lake Logistics Park, adjusted its leasing plan for some reason and plans to cancel the lease in batches (the total leasable area of the project is about 0.159 million square meters, accounting for 87.8% of the total leasable area of the fund). The manager actively solicited investment and completed the removal of approximately 0.071 million square meters before the announcement. We estimate that if the rent of the newly signed tenants remains unchanged and the vacant space is not successfully leased, the incident is expected or affected by 3% of the total revenue predicted in the 2024 recruitment letter.
Project operations may face some pressure under the industry adjustment cycle. As of the end of 2023, Prologis REIT's weighted average remaining lease period was 556 days, and we expect some tenants to expire in 2024-25. Looking ahead, we believe that overall demand in the industry is weak. 2024-25 may still be in an adjustment period of stock removal, which will put some pressure on the growth rate of project occupancy rates and rental renewal rates (for details, please refer to our previous report “Where has the logistics real estate market gone?” 2).
Diversified geographical distribution combined with active management helps maintain business resilience. Prologis REIT's diversified geographical distribution of underlying assets helps diversify operating risks; at the same time, its management team has strong active management capabilities, and we believe it is expected to maintain project management resilience under macroeconomic pressure.
What is our biggest difference from the market? We believe that tenants' rent-outs and overall weak market demand may put some pressure on project management, but strong active management ability or hedging some of the downward pressure.
Potential catalysts: Vacant space is slow to attract investment, and market competition intensifies.
Profit forecasting and valuation
Carefully considering vacancies caused by tenant refunds and the slowdown in future rent renewals, we lowered our 2024-25 revenue forecast by 6% and 5% to 4.86 and $0.501 billion. At the same time, considering smooth fluctuations in cash from managers or the beginning of the application period, we kept the 2024 allocatable forecast unchanged (+2% year over year), and lowered the 2025 allocation-ready forecast by 2% to $0.36 billion (basically the same year over year). Due to weak market demand and continued supply pressure, we downgraded our rating to hold and expect a total return of 2% for 12 months.
The current price is trading at 1x the year-end 2024 P/NAV, corresponding to a 5.3% 2024 dividend distribution rate.
risks
The leasing progress of vacant space in Dianshan Lake Logistics Park has exceeded expectations; demand in the national warehousing and logistics market is picking up.