Executive Summary / Key Takeaways

• Prologis, Inc. ($PLD) is solidifying its position as the global leader in logistics real estate, leveraging its extensive portfolio and strategic focus on high-barrier, high-growth markets. The company's long-term investment thesis is underpinned by secular demand drivers like e-commerce growth and supply chain modernization, which continue to fuel robust rent growth and historically low vacancy rates.
• The company delivered a strong performance in Q3 2025, with record leasing activity of nearly 62 million square feet and an uptick in portfolio occupancy to 95.3%. Core FFO, excluding net promote expense, reached $1.50 per share, surpassing forecasts. This operational strength is reflected in increased full-year 2025 guidance for Core FFO, same-store NOI growth, and strategic capital revenue.
• Prologis is making significant strides in its data center business, which represents a substantial new growth vector. With 5.2 gigawatts of power capacity either secured or in advanced stages, and a potential investment of $15 billion (up to four times for turnkey solutions), this initiative is poised to be "one of the most significant value creation opportunities" in the company's history.
• The company maintains a fortress balance sheet with $7.50 billion in total available liquidity as of September 30, 2025, and strong credit ratings (A/A2). This financial strength enables disciplined capital deployment, including a focus on high-return build-to-suit developments and strategic acquisitions, while exploring new capitalization strategies for data centers.
• Despite ongoing economic uncertainty and geopolitical headwinds, management observes improving customer sentiment and an "inflection point" in market conditions, with demand strengthening and supply declining. The substantial lease mark-to-market (19% net effective) and the significant premium of replacement costs over in-place rents (50%) are expected to drive robust long-term earnings growth.

Prologis: A Global Logistics Powerhouse with a Visionary Edge

Prologis, Inc. ($PLD) stands as the undisputed global leader in logistics real estate, a position meticulously built since its inception as a startup in 1983 and its public debut in 1997. The company's core business revolves around the ownership, acquisition, development, and management of modern logistics facilities, strategically concentrated in high-barrier, high-growth markets across 20 countries on four continents. This expansive footprint, encompassing approximately 1.3 billion square feet of properties and development projects by September 30, 2025, serves a diverse base of approximately 6,500 customers, primarily in business-to-business and retail/online fulfillment sectors.

The company's overarching strategy is to capitalize on secular trends such as the relentless growth of e-commerce and the modernization of global supply chains. These drivers necessitate additional logistics space to enhance resiliency and distribution capabilities, leading to sustained demand, strong rent growth, and historically low vacancy rates. Prologis's commitment to investing in markets where goods are consumed, rather than produced, has proven to be a resilient strategy, particularly in an increasingly "disconnected world" that management believes will require more warehouse space, not less.

Technological Differentiation and Innovation: The Foundation of Future Growth

Prologis distinguishes itself not merely as a landlord but as a provider of integrated infrastructure solutions, with technology and innovation forming a critical competitive moat. The company's strategic investments in its Prologis Essentials platform and its burgeoning data center and energy businesses are central to this differentiation.

The Prologis Essentials platform offers customers solutions for their operational, energy, and sustainability needs, simplifying decision-making and advancing environmental goals. A key component of this is the Energy Business, which focuses on renewable energy assets, including solar, electric vehicle (EV) charging, and energy storage. Prologis is on track to achieve its one-gigawatt goal for solar generation and storage by year-end 2025, having delivered 28 megawatts in Q3 2025 alone, reaching 825 megawatts of current capacity. This initiative is crucial as customer interest remains robust amid increasing energy prices and forecasted power shortages. The company also develops its own microgrids, which operate autonomously to "bypass grid constraints, avoid utility delays and meet even the most demanding energy requirements". This capability is particularly vital given that Prologis is the "No. 2 generator of on-site power in the US".

The most significant technological differentiator, however, lies in Prologis's aggressive expansion into the Data Center business. The company is uniquely positioned due to its vast land bank, access to power, deep customer relationships, and extensive development expertise. By Q3 2025, Prologis had secured or was in advanced stages of procuring 5.2 gigawatts of power capacity for data centers, a substantial increase from 2 gigawatts in Q1 2025. This capacity translates into a potential investment of $15 billion for powered shells, which could multiply by up to four times if delivered in a turnkey format. This scale and capability provide a significant edge, as "Land, energy, capital, and experience" are the critical factors for success in the data center space.

The "so what" for investors is clear: these technological advancements directly contribute to Prologis's competitive moat and long-term financial performance. The energy procurement strategy, for instance, enhances the value of its land portfolio by enabling conversions of select logistics sites into energy-ready data center developments. Furthermore, the power demands of fully automated warehouses and EV charging are projected to increase fivefold, from approximately 5 kilowatt-hours per square foot to 25 kilowatt-hours per square foot over time. This trend underscores the increasing importance of Prologis's energy solutions and its ability to integrate them with its real estate, driving higher utilization and value. The data center business, in particular, offers the "best incremental return on our investment", promising substantial value creation that can be recycled back into the core logistics business.

Competitive Landscape and Strategic Positioning

Prologis operates in a highly competitive industrial real estate market, facing both direct and indirect rivals. Direct competitors include other industrial REITs such as Rexford Industrial Realty (REXR), EastGroup Properties (EGP), and First Industrial Realty Trust (FR). Prologis's global scale and diversified portfolio provide a significant advantage over these more regionally focused players. While Rexford excels in infill markets in the Western U.S., and EastGroup focuses on Sunbelt shallow-bay facilities, Prologis's broad geographic reach and ability to serve global supply chains offer superior market positioning and resilience to regional economic fluctuations.

Prologis's strategic advantage is further amplified by its technological differentiators. Its advanced energy solutions and data center capabilities, for example, position it ahead of competitors who may lack the expertise, land, or capital to procure and manage power at such a scale. This is particularly relevant as the rise of AI and data centers drives demand for specialized facilities, where Prologis's integrated approach provides a distinct edge. The company's extensive land bank, with potential to support $37 billion in Total Expected Investment (TEI) for new developments, acts as a formidable barrier to entry for smaller players.

Indirect competitors include technology firms developing automated warehousing solutions and alternative real estate models. However, Prologis's proactive investment in logistics technology through Prologis Ventures and its emphasis on integrated solutions via Prologis Essentials help mitigate these threats by keeping the company at the forefront of industry innovation. The company's strong customer relationships and ability to offer comprehensive services across its 1.3 billion square foot portfolio also foster loyalty, making it a "partner of choice" for many large global customers.

Financial Performance and Operational Strength

Prologis's financial performance in the nine months ended September 30, 2025, underscores its operational effectiveness and strategic resilience. The Real Estate Segment, the largest component of the business, saw its Net Operating Income (NOI) increase by $392 million, or approximately 9.24%, compared to the same period in 2024, reaching $4.61 billion. This growth was primarily driven by "significant rent change due to higher rental rates on the rollover of leases". The Strategic Capital Segment also demonstrated robust growth, with NOI increasing by approximately 17.25% to $243.69 million for the nine months ended September 30, 2025, reflecting strong management fees and modest net inflows into its open-ended funds.

The company's profitability metrics remain strong, with a TTM Gross Profit Margin of 67.69%, Operating Profit Margin of 46.98%, and Net Profit Margin of 36.70%. Its EBITDA Margin stands at an impressive 79.57%, indicating highly efficient operations. Cash flow generation is also robust, with annual operating cash flow at $4.91 billion.

Prologis's balance sheet is a cornerstone of its investment thesis, characterized by conservative leverage and ample liquidity. As of September 30, 2025, the company boasted $7.50 billion in total available liquidity, including $6.30 billion in credit facility capacity and $1.20 billion in unrestricted cash. Its consolidated debt had a weighted average remaining maturity of 9 years and a weighted average interest rate of 3.20%. The company's A/A2 credit ratings from S&P and Moody's, respectively, provide "unrivaled access to global capital" at favorable rates. This financial flexibility is critical for funding its ambitious development pipeline and strategic initiatives.

Outlook and Guidance: A Path to Sustained Growth

Prologis's management expresses confidence in the long-term outlook, anticipating a favorable market inflection. For the full year 2025, Core FFO, excluding net promote expense, is projected to range between $5.83 and $5.86 per share, a $0.02 increase from prior guidance. GAAP earnings are expected to be between $3.40 and $3.50 per share.

Key operational guidance for 2025 includes:

• Average Occupancy: Unchanged at a midpoint of 95% at Prologis's share, with expectations for occupancy to "sustain around this level" and build into 2026.
• Rent Change: Expected to average in the low 50s for the full year. The lease mark-to-market stood at 19% net effective at September 30, 2025, representing a further $900 million of NOI as leases roll. This significant embedded growth is a powerful driver of future earnings, even without further market rent increases.
• Same-Store NOI Growth: Increased to a range of 4.25% to 4.75% on a net effective basis and 4.5% to 5.25% on a cash basis.
• Strategic Capital Revenue: Increased to a range of $580 million to $590 million.
• Development Starts: Increased to a new range of $2.75 billion to $3.25 billion at Prologis's share, with build-to-suits expected to represent over half of the full-year volume. Data center starts, excluded from this guidance due to their lumpiness, are nevertheless expected to commence new projects in 2025, likely in the range of 200 to 400 megawatts.

• Dispositions and Contributions: Increased by $500 million to a range of $1.5 billion to $2.25 billion at Prologis's share.

Management's optimism stems from several factors: demand is "clearly better" with strengthening customer sentiment and improved leasing velocity. U.S. net absorption was estimated at 47 million square feet in Q3 2025, holding market vacancy steady at 7.5%, which is expected to "top out". Supply is also favorable, with the construction pipeline depleting and starts below pre-COVID levels. Longer term, the path for uplift from market rents to replacement cost rents remains significant, with replacement costs currently 50% higher than in-place rents.

Risks and Challenges

Despite the positive outlook, Prologis acknowledges several risks. The "potential impact of ongoing economic uncertainty" and geopolitical factors, such as tariffs, can slow decision-making and disrupt supply chains. While customers are adapting by accelerating shipments and seeking flexible overflow space, "customers simply lack a steady backdrop upon which to plan their businesses". This uncertainty could lead to "choppy" conditions over the next few quarters.

Interest rate fluctuations pose another risk, as a 10% increase in variable rate debt could result in an additional $4 million in annual interest expense for the quarter ended September 30, 2025. Bad debt expense, while elevated at approximately 40 basis points on revenue, is managed by the company's strong credit selection and the significant lease mark-to-market, which can make defaults "NPV positive" if space is re-leased within 15 months. Adverse changes to credit ratings could also negatively affect financing and growth plans.

Conclusion

Prologis, Inc. is a compelling investment opportunity, firmly entrenched as the global leader in logistics real estate with a clear vision for the future. The company's robust financial performance, highlighted by strong Q3 2025 results and increased full-year guidance, reflects its operational excellence and strategic agility in a dynamic market. Its pioneering efforts in data centers and renewable energy, underpinned by unique technological capabilities and an expansive land bank, are poised to unlock significant value creation and diversify its revenue streams.

With a fortress balance sheet, a disciplined approach to capital allocation, and a deep understanding of evolving customer needs, Prologis is well-equipped to capitalize on long-term secular trends. While macroeconomic uncertainties and geopolitical shifts present near-term challenges, the company's embedded rent growth potential, declining supply, and improving market sentiment position it for sustained growth. Prologis's ability to combine real estate, power access, customer relationships, and capital creates a formidable competitive advantage, ensuring that its "best years are still ahead".