All REITs suffered in 2007, but Barron's thinks ProLogis (NYSE: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.