The Billion Sq/Ft Gorilla REIT to Own
Real estate has been on fire, despite a challenging economy. Rents continue to soar, as do property values. From 2020 to 2021, during the heart of the COVID-19 pandemic, REITs performed extremely well, with earnings of up 24.6 percent.
Indeed, REIT returns over the past few decades have rivaled the stock market, making them a sound investment. But there’s a billion-square-foot gorilla REIT you’ve got to know about and fast.
So, What Exactly Is This Gorilla REIT?
Prologis (PLD) is the billion-square-foot gorilla REIT because that’s how many square feet of warehouse space it owns around the world. That’s some 4,700 warehouses, with the majority in the U.S.
Prologis leases its modern distribution facilities to approximately 5,200 customers in two primary categories — business-to-business and retail/online fulfillment. Prologis also has business offices serving nearly every major metro market in the U.S., as well as sites in Mexico, Brazil, Toronto, Europe, and Asia.
PLD boasts a five-year rate of 234.7 percent, so is it too late to buy or is it just getting started?
Who Works With Prologis?
Think about any major distributor of goods, and you’ll likely be on track in terms of Prologis’ customer base. One of the biggest is Amazon. Other big names include:
- Land Rover
- The Home Depot
- The U.S. government
What’s the Prologis Story?
AMB Property Corporation, Prologis’ predecessor, was founded in 1984 by Hamid R. Moghadam, CEO and Chairman. In 2011, AMB’s shareholders approved a merger with Prologis.
In 1998, the company acquired Meridian Industrial Trust for $1.5 billion. In 2004, Prologis acquired the Keystone Industrial Trust for $1.5 billion and formed its first joint venture in China. The next year, Prologis completed a merger with Catellus, a North American industrial development company, for $5.3 billion.
In 2006, Prologis was named to the Fortune 1000. In 2011, Prologis sold the majority of Catellus-held retail and mixed-use assets to TPG Capital for $353 million. The same year, Prologis joined Allianz Real Estate in a €470 million joint venture.
In 2015, Prologis acquired KTR Capital Partners for $5.9 billion, and in 2018, the company acquired DCT Industrial Trust for $8.5 billion. Continuing its aggressive M&A activity, Prologis also acquired Industrial Property Trust for $4 billion in cash, as well as an all-stock acquisition of Liberty Property Trust for $13 billion.
Today, Prologis has more than $215 billion under management and claims an economic impact of $2.2 trillion, or 2.5 percent of the world’s gross domestic product (GDP.) In 2013, Prologis was named to the S&P 500.
Committed to Sustainability
Prologis is proud of its company-wide commitment to sustainability. It’s been ranked No. 3 in SEIA Solar Means Business and is part of the Dow Jones Sustainability Indices, awarded to the top 20 percent of invited companies ranked in sustainability.
Prologis developments incorporate green principles, including:
|Installing skylights and clerestory windows||Natural light lowers electricity use and greenhouse gas emissions while improving the indoor environmental quality for workers.|
|Using high-reflectance roof membranes||Prologis builds with white thermoplastic polyolefin (TPO) roof membranes, also known as “cool roofs,” which cost the same as traditional black ethylene-propylene membranes. This reduces energy use overall.|
|Bicycle, hybrid, and carpool vehicle parking||Prologis includes parking spaces for bikes, hybrid vehicles, and carpools.|
|Using recycled and local construction materials||Prologis uses recycled materials, including steel, concrete, and other materials, in warehouse construction.|
|Offering onsite recycling||Supporting customer recycling helps reduce landfill waste.|
|Installing energy-efficient lighting||Prologis uses energy-efficient LED and fluorescent lighting, including light-sensing controls.|
|Conserving water||Exterior landscaping, motion-activated water faucets, low-flow toilets, waterless urinals, and captured rainwater reduce the use of water.|
|Using low-emitting sealants, adhesives, and carpeting||Using non-petroleum-based products improves indoor air quality.|
|Solar, storage, and wind power||Prologis encourages the use of photovoltaic solar cells and battery storage, as well as wind power, at its warehouses.|
Customer Value Proposition: Turnkey Services
One of the reasons for Prologis’ great success is its out-of-the-box thinking. Not only do they own and develop warehouse space, but it also offers a service, Prologis Essentials, to make it as easy as possible for the customers to equip nearly every aspect of their operations.
Ranging from recruitment to automation, move-in/move-out services, maintenance, and equipment, these services not only reduce the time management must spend, but also build customer loyalty for the Prologis brand.
Buy? Sell? Hold?
All signs point to a slight downtrend in PLD’s value in the short term, which makes sense given the stormy economy.
In the near term, we noted several interesting candlestick patterns in PLD’s recent history, all of which indicate a near-term bearish reversal:
- Gravestone Doji
- Doji Star Bearish
- Three Outside Down
Given these three signs (all three have medium reliability), Prologis may be a watchlist candidate for now. But keep it high up on your radar because the fundamentals look outstanding.
Cash flow, growth and profitability are all stellar. Over the past 5 years, Prologis has grown every year at very respectable rates given its size. Here are the revenue growth rates over the past few years:
- 2017: 4.6%
- 2018: 8.2%
- 2019: 13.8%
- 2020: 34.1%
- 2021: 9.0%
In 2022, Prologis is slated to report $4.48 billion in top line sales. That is forecast to grow to $6.6 billion by 2026. Over the same period earnings per share is projected to grow by over 100% from $3.23 per share to $6.91 per share.
Clearly small percentage increases in revenue translate to significant leaps in earnings, which Wall Street should reward. Indeed if Prologis reports 2026 earnings as forecast and maintains its current P/E multiple, it would translate to a price per share that is 74.8% higher than the current share price. Even if the multiple compresses, there is lots of upside. Any short-term pullback will amplify the return potential.