What Makes Prologis So Powerful
When it comes to logistics investments, we initially had our eyes on Deutsche Post DHL. While it is undoubtedly one of the best transportation companies globally, we had to reconsider our investment strategy due to the cyclical nature of businesses like DHL. That’s when we turned our attention to Prologis, the world’s largest industrial REIT.
Founded in 1983, Prologis has emerged as a true industry powerhouse, boasting a well-diversified tenant portfolio that includes giants like Amazon, FedEx, and even DHL. With close to $200 billion in assets under management and over 6,700 customers, Prologis operates in highly advanced buildings, primarily catering to businesses with steady demand, such as e-commerce.
What sets Prologis apart is its focus on owning assets critical to the supply chain, allowing them to benefit from long-term secular drivers. The company maintains a remarkable financial health, with a low debt-to-EBITDA ratio and a stellar balance sheet, making it a standout in the REIT space.
3Q23 Was A Huge Success!
Amidst an economic landscape filled with uncertainties, Prologis delivered a strong performance in the third quarter of 2023. The company projected over 10% core funds from operations (FFO) growth and displayed confidence in its occupancy levels. Prologis’ leading indicators and proprietary metrics suggest stable lease proposals and rental income growth in most of its markets.
Additionally, Prologis demonstrated its financial strength, raising approximately $1.4 billion in new financings at an average interest rate of 3.2% in a time when most companies are financing operations at much higher yields. Its healthy balance sheet, with an A-credit rating, serves as a testament to its stability and prudent financial management.
The PLD Dividend and Valuation
While Prologis may not offer a particularly high yield compared to some REITs like Realty Income (O), it comes with a 61% 2023E core FFO payout ratio and a top-tier balance sheet. Over the past five years, Prologis has consistently compounded its dividend at an impressive rate of 12.6% per year.
Prologis’ stock is currently trading at 23.1x adjusted FFO, presenting potential growth opportunities. If the company returns to its average valuation since 2013 while incorporating anticipated growth rates, it could potentially offer a 20% return through 2025.
As we searched for the perfect logistics investment, we shifted our focus from Deutsche Post DHL to Prologis. Prologis’ position as the world’s largest industrial REIT, along with its diversified tenant portfolio and focus on highly advanced buildings, make it a strategic addition to any investor’s portfolio.
With strong projected growth, confident occupancy levels, and exceptional financial health, Prologis stands out among its peers in the REIT space. While it may not offer the highest yield, it compensates with consistent dividend growth and the potential for long-term returns.
In summary, Prologis is an industry juggernaut that we are thrilled to include in our investment mix.