How Prologis is Investing

The World's Largest REIT Tries to Convince Investors It's Not "Too Big to Grow"

Prologis CEO Hamid Moghadam

I had the opportunity to attend Prologis’ Investor Forum at NYSE this past Wednesday and wanted to share some thoughts on the company and offer a framework for how investors should evaluate the world’s largest REIT. All of the slides featured below can be found on Prologis IR site here. All quotes are from the event unless otherwise noted.

“Well, now is it too big to grow? " Well, I think it's a sort of silly question in the context of real estate because real estate growth stems from the same place, which is really market rent growth at the end of the day, which is independent of owning one building or 10 buildings or 1,000 buildings. That's going to be the primary driver. So then you need to then think about what else can I do on top of that baseline growth beyond owning the best portfolio to add additional growth. And that's what we've done here.

- Tim Arndt, Prologis CFO

Investor Days are typically PR-driven investor relations efforts and Prologis' Investor Forum was no exception. In my experience it is not the content of the presentations but their omissions that are most telling.

Amidst Prologis' exaltation of scale, their efforts to help reduce tenants' carbon footprint and lots and lots of talk about something called "customer centricity" management tried to assure analysts that PLD 0.00%↑ was not "too big to grow."

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Based on the plans laid out at the Investor Forum, I believe Prologis investors should expect a greater return of capital than either management or the share price is offering.

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CEO Hamid Moghadam and team deserve credit for a well-executed industrial bull cycle, but it is clear the current environment will not offer the same low-hanging fruits of growth. For a company that has been accustomed to deploying $1-$2 billion per year in acquisitions, it is clearly becoming more difficult to keep the acquisitions machine humming in this environment.

Acquisitions guidance has been more than cut in half since last year, but some of that can be attributed to the $3 billion portfolio purchase from Blackstone and the integration of the Duke Realty portfolio. Spec development has been taken off the table by a surge of building through 2021 & 2022. For Prologis, the menu of capital deployment has gotten smaller.