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FIBRA Prologis

Terrafina Acquisition Will Create Largest Industrial REIT In Latin America, But Tariff Uncertainties May Impact Revenue

AN
Consensus Narrative from 13 Analysts
Published
12 Dec 24
Updated
26 Mar 25
Share
AnalystConsensusTarget's Fair Value
Mex$75.85
13.7% undervalued intrinsic discount
26 Mar
Mex$65.48
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1Y
-6.5%
7D
-1.4%

Author's Valuation

Mex$75.9

13.7% undervalued intrinsic discount

Analyst Price Target Fair Value

Key Takeaways

  • The acquisition and integration of FIBRA Terrafina position FIBRA Prologis as a leader in industrial real estate in Latin America, potentially boosting revenue and market share.
  • Investment in ESG initiatives, alongside asset recycling strategies, enhances financial flexibility and focuses on core markets, potentially strengthening earnings and attracting ESG-focused investors.
  • Uncertainty in tariffs and geopolitical conditions slows leasing, raises vacancies, and affects revenue, while acquisition costs and asset sales impact short-term earnings and liquidity.

Catalysts

About FIBRA Prologis
    A leading owner and operator of Class-A industrial real estate in Mexico.
What are the underlying business or industry changes driving this perspective?
  • The acquisition of FIBRA Terrafina and subsequent integration has positioned FIBRA Prologis as the largest publicly traded industrial real estate company in Latin America, potentially increasing revenue through an expanded customer base and market share.
  • The strong performance of consumption markets, driven by high e-commerce growth and increased retail sales, especially in Mexico City and Guadalajara, is expected to continue supporting revenue growth and operational stability.
  • The company's significant rent renewal growth of 61%, driven by strong customer relationships and investment in properties, suggests potential for increased net operating income (NOI) and improved net margins.
  • FIBRA Prologis's strategy of asset recycling and dispositions of non-core assets from the Terrafina acquisition could enhance financial flexibility and focus on core high-performing markets, potentially strengthening overall earnings.
  • The commitment to further investments in green initiatives and ESG compliance, such as increasing solar capacity, could improve operating efficiencies and attract more ESG-focused investors, contributing to long-term earnings growth.

FIBRA Prologis Earnings and Revenue Growth

FIBRA Prologis Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming FIBRA Prologis's revenue will grow by 12.3% annually over the next 3 years.
  • Analysts assume that profit margins will shrink from 236.6% today to 60.6% in 3 years time.
  • Analysts expect earnings to reach MX$8.6 billion (and earnings per share of MX$5.38) by about March 2028, down from MX$23.8 billion today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from 4.4x today. This future PE is greater than the current PE for the MX Industrial REITs industry at 4.4x.
  • Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 15.65%, as per the Simply Wall St company report.

FIBRA Prologis Future Earnings Per Share Growth

FIBRA Prologis Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Uncertainty regarding tariffs and geopolitical conditions has led to slowed decision-making and leasing activity in manufacturing markets, potentially impacting future revenue growth.
  • The increase in period-end vacancy in border markets from 1.6% to 5.7%, mainly due to slower decision-making from uncertainty regarding tariffs, could negatively affect net margins.
  • A consumption slowdown since July, despite a 3% increase in real retail sales, may signal weakening demand, impacting revenue stability in logistics and consumption-related facilities.
  • The initial one-time acquisition expenses of $9 million related to the purchase of Terrafina, impacting 2024 financials, could suppress short-term earnings.
  • The process of selling noncore assets from Terrafina may face delays due to antitrust approvals and other external factors, potentially affecting liquidity and balance sheet management.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of MX$75.851 for FIBRA Prologis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$90.0, and the most bearish reporting a price target of just MX$57.9.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$14.3 billion, earnings will come to MX$8.6 billion, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 15.7%.
  • Given the current share price of MX$65.69, the analyst price target of MX$75.85 is 13.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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