Executive Summary / Key Takeaways

• Prologis is the global leader in logistics real estate, strategically positioned in high-barrier, high-growth consumption markets, benefiting from long-term trends like e-commerce growth and supply chain modernization.
• Despite recent market uncertainty driven by tariffs and economic concerns, the company's operational performance remains robust, evidenced by strong Q1 2025 results, near-record leasing activity, and a significant embedded lease mark-to-market of 25% ($1.1 billion potential NOI).
• Prologis leverages its scale, global land bank, and technological initiatives like Prologis Essentials, data center development (2 GW in advanced stages), and energy solutions (targeting 1 GW solar/storage by year-end 2025) to drive efficiency, create value, and differentiate itself in a competitive landscape.
• A fortress balance sheet with $6.5 billion in liquidity and strong credit ratings provides resilience against market volatility and enables opportunistic investments, while strategic capital partnerships expand capacity and generate durable fee income.
• While near-term market conditions may see slower decision-making and potential modest rent softening in some areas, the company's disciplined capital deployment, favorable supply backdrop (low starts, declining completions), and structural demand drivers position it for continued long-term growth and value creation.

The Backbone of Global Supply Chains

Prologis, Inc. (PLD) stands as the undisputed leader in the logistics real estate sector, a critical, yet often overlooked, component powering the global economy. Since commencing operations in 1997 and electing REIT status, Prologis has built an expansive network of logistics facilities across 20 countries on four continents. Operating as a unified enterprise through Prologis, L.P., the company's strategy has consistently centered on owning, acquiring, developing, and managing high-quality properties in key markets strategically located near end consumers. This focus on high-barrier, high-growth consumption centers, rather than production hubs, has been a foundational element of its success and a key differentiator.

The company's business model is primarily structured around two reportable segments: Real Estate Rental Operations and Development, and Strategic Capital. The Real Estate segment, contributing 90-95% of consolidated revenues and earnings, focuses on the ownership and leasing of properties, benefiting from a diversified lease portfolio with contractual, often inflation-linked, escalations. The Development arm within this segment leverages a vast global land bank and local expertise to build modern facilities, creating significant value as projects are leased and stabilized. The Strategic Capital segment, contributing 5-10% of earnings, manages properties for unconsolidated co-investment ventures, generating durable fee income and expanding the company's investment capacity through partnerships with large institutional investors. This co-investment model also serves to mitigate foreign currency exposure for non-U.S. investments.

In a competitive landscape that includes other large real estate players, Prologis distinguishes itself through its unparalleled scale, operational excellence, and strategic positioning. While companies like Public Storage (PSA) and Extra Space Storage (EXR) operate primarily in the self-storage sector with different operational models and margin profiles, and Digital Realty Trust (DLR) focuses on data centers, Prologis dominates the large-scale, modern logistics facility market. Its U.S. portfolio consistently outperforms the market on occupancy by over 320 basis points, a significant widening from its historical norm, reflecting a "flight to quality" as vacancy normalizes. While competitors like PSA and EXR may exhibit higher net margins due to simpler operational structures, Prologis's focus on complex, high-throughput logistics centers and its global network provide a deeper competitive moat. Its scale allows for significant procurement advantages and the implementation of efficiency-enhancing technologies across its portfolio.

Technological Edge and Future Growth Vectors

Beyond traditional real estate, Prologis is increasingly leveraging technology and expanding into adjacent business lines to enhance its competitive position and drive future growth. The Prologis Essentials platform provides customers with solutions addressing operations, energy, and sustainability needs, simplifying decision-making and supporting environmental goals. This platform is underpinned by proprietary technology, data analytics, and strategic partnerships.

A significant area of technological focus and investment is the burgeoning data center market. Prologis is uniquely positioned to capitalize on this trend by converting logistics assets and leveraging its extensive land bank and energy expertise. The company has made substantial progress in securing power capacity, a critical bottleneck for data center development. As of the first quarter of 2025, Prologis had secured 1.4 gigawatts of power and moved an additional 400 megawatts into the advanced stage category upon agreement with utilities, bringing its total in advanced stages to 2 gigawatts. This positions the company to pursue significant development opportunities, with an aggregate TEI of $0.6 billion already in its consolidated development portfolio. Management sees 10 gigawatts of development potential across its portfolio over the next 10 years, leveraging its team, customer relationships (especially with hyperscalers), development and energy expertise, advanced procurement capabilities, and capital. While specific performance metrics of the data center technology itself (like processing speed) are not detailed, the strategic intent is clear: to provide mission-critical infrastructure that requires significant capital and execution capability, areas where Prologis believes its competitive position is getting better compared to private players without a strong balance sheet.

In the energy sector, Prologis is rapidly expanding its solar and storage capacity. By the end of Q1 2025, the company had over 900 megawatts in operation or under development, advancing towards its goal of 1 gigawatt by year-end 2025. This initiative not only supports customer sustainability goals but also represents a growing business with attractive long-term prospects.

These technological and adjacent business initiatives are not merely supplementary; they are strategically integrated to enhance the core logistics offering, create new revenue streams, and deepen customer relationships, contributing to Prologis's long-term growth narrative.

Performance Amidst Shifting Tides

Prologis delivered a strong performance in the first quarter of 2025, demonstrating the resilience of its business model even as the market tone shifted due to external uncertainties. Consolidated net earnings increased slightly to $639.5 million, up from $630.8 million in the prior year period. This was supported by robust growth in both core segments. Real Estate Segment NOI grew by $139 million, reaching $1,501 million, driven by net acquisitions, development completions, and strong same-store growth. Strategic Capital Segment NOI saw a significant increase to $80.4 million, up from $49.6 million, reflecting improving market sentiment and fundraising activity in its co-investment ventures, although capital raising for flagship open-ended funds was near neutral in Q1 2025 ($400 million raised vs. similar redemptions).

Operational metrics remained impressive. The company leased a near-record 58 million square feet in Q1 2025. Occupancy ended the quarter at 95.1% (company share), outperforming expectations due to strong retention. The embedded lease mark-to-market remains a powerful driver of future growth, standing at approximately 25% on a net effective basis at March 31, 2025. This represents an estimated $1.1 billion of incremental NOI yet to be captured as existing leases roll to market rates. Rent change on leases commenced during the quarter was a substantial 53.7% on a net effective basis.

Financially, Prologis maintains a fortress balance sheet. At March 31, 2025, total available liquidity stood at $6.5 billion, including $5.8 billion in borrowing capacity on credit facilities and $0.7 billion in unrestricted cash. The weighted average remaining maturity of consolidated debt was a healthy 9.0 years with a weighted average interest rate of 3.10%. The company's A/A2 credit ratings provide advantageous borrowing costs and flexibility. Net cash provided by operating activities was $1.16 billion in Q1 2025, supporting investing activities, which saw $1.55 billion used primarily for real estate development and acquisitions.

While the first quarter showed strength, management acknowledged that the recent uncertainty stemming from global tariffs and their potential downstream impacts has introduced volatility. This uncertainty is expected to slow customer decision-making in the near term, potentially impacting leasing pace, which saw a roughly 20% dip in the two weeks following the April 2nd tariff announcements compared to the usual pace.

Outlook and Risks

Despite the near-term uncertainty, Prologis is maintaining its full-year 2025 Core FFO guidance range of $5.65 to $5.81 per share (including Net Promote) and $5.70 to $5.86 per share (excluding promote expense). This decision, despite Q1 outperformance prior to the tariff news, is grounded in a severe stress test that supports the existing range, reflecting confidence in the company's ability to weather potential headwinds.

The outlook is underpinned by several key assumptions and expectations:

• Market Bottoming: Management believes the market is in a bottoming process, with market vacancy topping out and rents expected to inflect later in 2025.
• Supply Dynamics: Completions are expected to decline significantly (approximately 35% below 2024 levels), and development starts remain muted compared to historical peaks, contributing to a favorable supply backdrop that should support vacancy stabilization and eventual rent growth.
• Demand Drivers: While near-term decision-making may slow, the underlying need for space is considered real. Management expects inventory levels to increase long-term for resiliency and anticipates e-commerce will continue to gain share. Global markets like Mexico, Brazil, India, and Canada are expected to benefit from supply chain adjustments.
• Capital Deployment: Development start guidance was reduced to $1.5 billion-$2.0 billion (company share) reflecting caution on spec development, while combined contribution/disposition guidance was also lowered to $400 million-$1.0 billion due to capital market uncertainty. However, the company remains disciplined and ready to leverage its $8 billion of pad-ready opportunities when conditions warrant, focusing on build-to-suit opportunities in both logistics and data centers. Acquisition guidance was increased in prior quarters, reflecting attractive opportunities.

• Adjacent Businesses: Significant progress is expected in the energy business, targeting 1 gigawatt of solar/storage capacity by year-end 2025. Data center starts are anticipated in the 200-400 megawatt range for 2025 (excluding from main development guidance).

Key risks to this outlook include the potential for a deeper or more prolonged economic downturn, the unpredictable evolution of global tariff policies and their impact on trade flows and customer demand, and adverse changes in interest rates or capital market conditions affecting financing and property values. Increased competition, particularly in specific submarkets or from alternative solutions, also poses a risk. However, Prologis's diversified global portfolio, strong tenant base, contractual revenues, financial strength, and strategic focus on operational excellence and value creation are significant mitigating factors. The embedded lease mark-to-market provides a substantial buffer against potential near-term market rent declines.

Conclusion

Prologis is a fundamentally strong company operating at the nexus of global commerce and evolving supply chain dynamics. While the current market environment presents uncertainties, particularly related to trade policy and economic growth, Prologis is well-equipped to navigate these challenges. Its strategic global footprint, diversified customer base, and contractual revenues provide a robust defense. The significant embedded lease mark-to-market offers a clear path for continued organic NOI growth, providing a buffer against potential near-term market softness.

Looking ahead, the investment thesis is further bolstered by a favorable supply backdrop, the company's disciplined capital deployment strategy, and its proactive expansion into high-growth adjacent areas like data centers and renewable energy. These initiatives leverage Prologis's core strengths in real estate, energy expertise, and customer relationships, positioning the company for long-term value creation beyond traditional logistics. While investors should monitor the impact of macroeconomic factors and tariff developments, Prologis's fortress balance sheet, operational excellence, and strategic vision underscore its potential for durable, industry-leading growth, making it a compelling consideration for discerning investors focused on the long haul.