Story Stocks^®

Prologis (PLD +4%) is trading nicely higher after wrapping up FY24 on a strong note. This REIT, which focuses on logistics facilities (warehouses; largest customers include AMZN, HD, FDX), reported core FFO, excluding net promote income/expense, that was 10.1% higher yr/yr and was above analyst expectations. Rental revenue rose 10.7% yr/yr to $1.95 bln, roughly in-line, but a noticeable improvement from Q3's +6.9% increase.

• This industry has been weak in recent quarters. Prologis noted on its Q3 call that its industry is located on the consumption end of the supply. As such, if consumer spend slows, then PLD's customers expand less. PLD said in October that it had seen customers make fewer decisions around expanding and make more decisions around contracting or consolidating where they can.
• The outlook in today's report struck us as more upbeat. That was evident when we got our first look at 2025 core CFO guidance (excluding net promote income/expense), which was in-line. The 2025 guidance of $5.70-5.86 was a nice improvement from $5.53 in FY24. Investors appear to be reacting favorably to the solid guidance and breathed a sigh relief.
• It seems that some customers were waiting to see how the election played out before expanding. Prologis said this morning that post-election leasing activity has been strong and that its ongoing conversations with customers support PLD's expectation that the market is nearing an inflection point. We suspect this positive commentary was just as important as the guidance.
• Prologis also made news recently when it announced last month that it sold a data center development in its Chicago market to HMC Capital. Prologis, in partnership with Skybox Datacenters, is converting one of its warehouses into a high-capacity, turnkey data center with a marketed capacity of 32MW. Because it has the world's largest portfolio of warehouses, PLD sees great potential for warehouse conversions in key markets. With 490 MW under construction, Prologis sees itself as one of the leading data center developers in the industry.

Prologis saw its shares generally trade lower in 2024 given some industry softness. However, the 2025 guidance and its comments about a strong uptick in leasing activity post-election has resulted in a nice gain today. Saying that its market was nearing an inflection point is good to hear as well and likely eased investor concerns. Also, the company sounds pretty bullish on its ability to transform some warehouses into data centers and benefit from the data center buildouts going on. Given these factors and its solid 3.4% dividend yield, investors are giving Prologis a fresh look.