pld pitch book
TRANSCRIPT
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Trade RecommendationBUY
Sebastian Tucker Meera NarayananChris KasinskiJennifer Perez
Ticker: PLDMarket Price: $40.37Target Price: $43.83
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Background
1983- Douglas Abbey, Hamid Moghadam, T. Robert Burke founded AMB Property Corporation
1991- Incorporates under Security Capital Industrial Trust (SCI)
1994- SCI IPO on NYSE
1996- Starts expanding outside US with acquisitions in Mexico
1997- Closes IPO at $2.8B and opens offices in Amsterdam
1998- Changed to “ProLogis”
2001- Enters Japan
2003- Adds to S&P 500, enters China
2006- Become Fortune 1000 co.
2009- Sells China operations ($1.3B)
2014- Completes IPO for “FIBRA ProLogis” in Latin America
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Culture and Social Responsibility
Vision: ProLogis: Enduring excellence in global real estate
Mission
Core Values: Integrity, Mentorship, Passion, Accountability, Courage, Teamwork (IMPACT)
Global 100 Most Sustainable Corp. IMPACT day
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Leadership
Hamid R. Moghadam• Chairman of the Board & CEO• 30+ years of experience• Stanford MBA
Gary E. Anderson• Chief Executive Officer (Europe/Asia)• 10+ years of experience• UCLA MBA
Michael S. Curless• Chief Investment Officer• 20+ years of experience• Indiana University MBA
Edward S. Nekritz• CLO and General Council • 20+ years of experience• University of Chicago JD
Thomas S. Olinger • Chief Financial Officer• 5+ years of experience• Indiana University B.S. Finance
Eugene F. Reilly• Chief Executive Officer (Americas)• 15+ years of experience• Harvard B.A. Econ
Source: Prologis Website
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Service Divisions
Investment: Real Estate Operations, Capital Deployment, Strategic Capital
Property Leasing: Single point of contact and support throughout process & during occupancy, regional organization
Property Management: In-house management and local market representatives for convenience and commitment to excellence
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Product Divisions
Real Estate: Facilities, properties, portfolios
Brokers & Agents: Effective and efficient aid in service divisions
Research: Monitors, analyzes and reports on key trends & dynamics in RE, SCM, and customer relations
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Revenue by Segment
Real Estate Operations Americas
2012: $1,176,920,000 2013: $1,288,925,000 2014: $1,403,564,000
Europe 2012: $435,244,000 2013: $174,397,000 2014: $74,413,000
Asia 2012: $221,575,000 2013: $107,692,000 2014: $62,939,000
Strategic Capital Americas
2012: $69,422,000 2013: $72,474,000 2014: $95,168,000
Europe 2012: $37,047,000 2013: $63,794,000 2014: $86,549,000
Asia 2012: $20,310,000 2013: $43,204,000 2014: $38,154,000
Source: Prologis 2014 10-k
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SWOT Analysis
STRENGTHS• Strong market position and strong
competitive advantage• Diverse geographic presence• Research offers advantage over
competitors
WEAKNESSES • Insufficient insurance coverage• Declining NOI from investment
management in the Americas • Fitch downgraded Prologis’ ratings
OPPORTUNITY • Japanese markets• Growth in the US economy • Growing REIT market• Develop new facilities
THREATS • Environmental risks • Intense competition • Economic slowdown in the U.S.
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Mergers & Acquisitions
ProLogis acquisition of KTR Capital Partners
Purchase Price: $5.9 Billion
KTR Portfolio: 60 MSF of high-quality operating properties 89% Occupancy 3.6 MSF of development-in-progress and land with
build-out potential of 6.8 MSF
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Mergers & Acquisitions
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Financial Condition
Prologis Inc.
Duke Realty Corp.
First Ind. Realty
PS Business
ParkPeer
Average Condition
Profitability(%)
Net Profit Margin 36.1 20.9 14.3 46.2 28.5 Excellent
ROA 4.6 3.5 0.8 5.5 3.6 Excellent
ROE 6.9 9.3 4.4 17.0 8.1 Below Average
Leverage(%)
Debt-to-Equity 61.8 154.6 123.8 13.1 88.3 Excellent
Interest Coverage 0.9 0.8 1.22 9.2 1.04 Average
All data provided by Bloomberg
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Financial Condition
Prologis Inc.
Duke Realty Corp.
First Ind. Realty
PS Business
ParkPeer
Average Condition
EquityPrice/FFO 18.2x 17.7x 17.8x 16.0x 17.2x Average
Div. Payout 1.07x 1.23x 2.39x 1.12x 1.18x Average
YoY Growth (%)
Revenue 0.6 7.8 8.2 4.7 5.34 Poor
Op. Income 5.1 2.9 10.9 -4.0 3.7 Good
Net Income 85.5 27.8 21.8 68.6 50.9 Excellent
FFOPS 1.8 0.0 18.4 -4.6 0.9 Excellent
Overall Above Average - Good
All data provided by Bloomberg
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DuPont Analysis
ROE (%) Profit Margin (%) Asset Turnover Financial Leverage
PM*AT*FL NI/Revenue Revenue/Assets Assets/Equity
PLD DRE PLD DRE PLD DRE PLD DRE
2014 4.6 9.0 36.1 20.9 0.07 0.15 1.83 2.86
2013 2.7 8.4 19.6 17.7 0.07 0.14 1.99 3.38
2012 -0.3 -3.8 -2.0 -7.3 0.07 0.14 2.15 3.75
All data provided by Bloomberg
Formula: ROE = PM x AT x FL
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WACC
Weight Cost W x C
Equity 72.4% 8.2% 5.9%
Debt Cost (A-T) 27.4% 1.3% 0.4%
Preferred Equity 0.2% 8.9% 0.0%
WACC 6.3%
All data provided by Bloomberg
Formula: WACC = (E/V)* Re + (D/V) * Rd * (1 – tax)
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Valuation – Perpetuity
2014 2015 2016E 2017E 2018E 2019E
FFOPS 2.00 2.24 2.46 2.66 2.82 2.93
YoY Growth 12% 10% 8% 6% 4%
WACC Summary
Terminal Growth Rate
Perpetuity Value
Present Value Range
KE 8.20% 1.50% 44.39 32.39 Low
KD (A-T) 1.30% 2.00% 48.20 35.17 Medium
WACC 6.3% 2.50% 52.69 38.44 High
Perpetuity Value = FFOPSFY+4*(1+g)/(KE-g)Present Value = Perpetuity Value/(1+KE)4 Target: $35.17 < Market: $40.37
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Valuation – Gordon Growth
2014 2015 2016E Growth Rate
FFOPS 2.00 2.24 2.46 1.0% 1.5% 2.0% 2.5% 3.0%
Required Rate of Return
7.2% 39.68 43.16 47.31 52.34 58.57
WACC Summary 7.7% 36.72 39.68 43.16 47.31 52.34
KE 8.2% 8.2% 34.17 36.72 39.68 43.16 47.31
KD (A-T) 1.3% 8.7% 31.95 34.17 36.72 39.68 43.16
WACC 6.3% 9.2% 30.00 31.95 34.17 36.72 39.68
Formula : GGM = FFOPSFY+1/(KE-g) Target: $39.68 < Market: $40.37
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Valuation – Multiple Approach
FFO in 2015 2016 (E)
2.24 2.46
FFO 2015 2016
PLD 18.02x 18.05x
Formula: FFO Multiple x FFOPS
FFO Multiple Stock Value Range
17x $38.08 Low
18.02x $40.32 Medium
18.5x $41.44 Medium
19x $42.56 High
Year
Target: $41.44 > Market: $40.37
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Valuation – DCF Model
2015 2016E 2017E 2018E 2019E
Growth 10% 8% 6% 4%
FFO/Share 2.24 2.46 2.66 2.82 2.93
45.89 TVDiscount
Rate 7%
Multiple 14.28x
2.09 2.15 2.17 2.15 32.72
Valuation 41.29
Multiple = 1/.067 = 14.93xTerminal g = 2.5%2015 FFO/Share = 2.24
Target: $41.29 > Market: $40.37
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Valuation Matrix
Valuation Equally Weighted Weights Weights
GGM $39.68 25% 10% 5%
Perpetuity Model $35.17 25% 10% 15%
FFO Multiple $41.44 25% 40% 20%
DCF $41.29 25% 40% 60%
Totals: $39.40 $40.58 $40.32
Target Price: $40.58 x 1.08 (for franchise value) = $43.83
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Trade Recommendation
We are tracking Prologis, Inc. (PLD) and it’s competitors. Based on our research we forecast PLD’s stock price to rise to $43.83 and continue to grow at a favorablegrowth rate for the foreseeable future.
We base this valuation on a steady rise in ROE, a profitable acquisition of KTR CapitalPartners, likeliness to lower leverage multiple in the coming year and growth potential. Therefore, we recommend the following 3 trades.
Prologis, Inc.
Actions:• Buy on Margin• Buy Calls• Write Puts
Trades: Total of 3 trades
Ticker: PLD