Trade RecommendationBUY

Sebastian Tucker Meera NarayananChris KasinskiJennifer Perez

Ticker: PLDMarket Price: $40.37Target Price: $43.83

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

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

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

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

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

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

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.

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

Mergers & Acquisitions

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

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

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

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)

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

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

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

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

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

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