Investing in Solar, Storage, and Real Estate Furthers Earnings and Revenue Growth

What are the underlying business or industry changes driving this perspective?

• Prologis anticipates significant earnings growth driven by nearly 11% earnings increase in the previous year and a continuous deployment of over $7 billion into new investments, potentially enhancing revenue and net margins.
• The expectation that development starts will keep declining across the market, creating a conducive environment for strong market rent growth between 4% and 6% over the next 3 years, which could contribute to increased revenue.
• The company's strategic positioning in solar and storage with roughly 515 megawatts in operation and an additional 70 under construction, hinting at potential revenue growth from energy initiatives.
• Prologis projects stabilization activity with expected yields of approximately 6.25% on a range of $3.6 billion to $4 billion, indicating potential for higher earnings from their development portfolio.
• The forecasted Core FFO per share range uplift for the next period, from $5.50 to $5.64 per share, suggests optimism for improved earnings amidst a recovering demand and controlled supply environment.

How have these above catalysts been quantified?

• Analysts are assuming Prologis's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.7% today to 38.3% in 3 years time.
• Analysts expect EPS to reach $3.74 ($3.7 billion in earnings) by about February 2027, up from $3.3 today.

What could happen that would invalidate this narrative?

• High near-term deliveries compared to recovering demand in some submarkets could impact occupancy rates and leasing activity, potentially affecting revenue growth.
• A decline in market occupancy by approximately 100 basis points suggests a competitive leasing environment which may lead to pressure on rental growth rates and affect net operating income.
• The quantified decline in global market rents by 90 basis points, primarily due to a significant drop in Southern California, indicates potential for broader market rent adjustments that could affect lease mark-to-market gains and overall revenue.
• A large volume of near-term deliveries needing market absorption over the next few quarters could outpace demand, potentially impacting vacancy rates and slowing revenue growth from new lease-ups.
• The current geopolitical and infrastructural challenges, including issues in the Suez and Panama Canals, although potentially temporary, could disrupt shipping routes and logistics, impacting customer demand and operational costs, which may, in turn, influence net margins and earnings.