Don't Throw Out ProLogis With REIT Bathwater - Barron's

All REITs suffered in 2007, but Barron's thinks ProLogis (PLD) doesn't deserve to. "From an operational standpoint we expect to outperform in '08, given our international platform. Hopefully, it'll be reflected in the stock price," says CEO Jeffrey Schwartz of the $15 billion company. ProLogis has grown double-digits annually through a unique business model with three sources of income: It owns/manages/leases industrial properties; it has 17 investment funds, whose fees provide cash for development and acquisitions and enable ProLogis to avoid expensive borrowing; it also services and develops corporate distribution facilities, generating rental fees.

Funds from operations [FFO] were strong at $4.40-$4.50/share in 2007, and derived mostly from non-U.S. assets. That's up from $3.69 in 2006, and projections for 2008 are $4.65-$4.85. FFO is the preferred measure of a REITs health, and ProLogis expects 12%-14% FFO growth annually. ProLogis' 3% dividend is lower than the industry's 4% norm, but PLD expects to keep raising it. Q3 earnings topped analyst estimates, and management aims to more than double assets under management, to $60B, by 2010. A global slowdown could hurt development projects, but ProLogis' global focus, particularly on hot Asian economies, should help it decouple from U.S.-centric REIT shares. It's $58.60 shares could reach $70 in 2008.

Additional Reading: ProLogis Lifts Full Year Forecast • ProLogis: Industrial Real Estate 'Holding' Value • ProLogis: Wish I Never Sold It