BMW and the real estate next door

Two days ago, I wrote about Porsche and its game plan, ultimately concluding that this isn’t the right time to buy. Not at the valuation it’s trading at.

I love the cars themselves, mind you. There’s very little I take issue with there. German engineering, performance, and attention to detail shines throughout my Porsche Panamera and how it handles.

I’ve driven BMWs as well, which show the same qualities. Not at the same luxury level, mind you, but there’s a lot to like nonetheless.

I actually know this twice over considering the company’s massive manufacturing complex down the road from me in Spartanburg, South Carolina.

Opened in 1994, it now manufactures BMW's X3, X5, X6, X7, and XM models with an annual production capacity of 450,000 vehicles. Last year alone, it exported almost 200,000 vehicles to about 120 countries.

That added up to an export value of around $9 billion, making the company America’s largest automotive exporter by value.

My original intent was to recommend BMW today. But I crunched the numbers and, like Porsche, it’s just not trading where it needs to be.

So I’m walking across the street instead to another company I admire: global warehouse giant Prologis (PLD). This real estate investment trust (REIT) isn’t trading at the biggest bargain right now…

But considering its multi-level potential, I think we’ve got a Buy anyway. Keep reading to see why.

When I say I’m focusing on the company across the street from BMW’s Spartanburg plant, I mean it literally. One of Prologis’ properties, Caliber Ridge 125, directly faces that facility.

It’s a 126,000-square-foot warehouse with convenient access to Interstate 85 and the Greenville-Spartanburg International Airport. And it exists directly because of BMW’s contribution to the local economy.

I wrote about this larger setup in early September, noting how:

There are also dozens of supporting companies such as Michelin, Lear, Magna, Gestamp, Benteler, and Dräxlmaier. These businesses rely on strategically located warehouses in order to move and store their parts, pieces, and products.

That’s precisely why Prologis built in Spartanburg: to take advantage of that physical need with physical space.

I put it that way to emphasize its HALO attributes, where it’s Heavy on Assets that are Low on Obsolescence. In other words, Prologis isn’t at risk of becoming outdated anytime soon from disruptive technologies like artificial intelligence (AI).

As long as physical goods are being made en masse and shipped from place to place? This warehouse owner should stay relevant.

This is especially true considering exactly how enormous its network of warehouses is. As the world’s largest logistics real estate company, it’s got properties all across the Americas, Europe, and Asia – and in all the right places.

Naturally then, its “tenants” include global retailers and manufactures. Amazon (AMZN), for instance, makes up about 5.6% of Prologis’ net effective rent.

Though, for the record, the REIT remains very well diversified client-wise. Its 10 largest customers – Amazon included – still make up just 15.3% of rent altogether.

For its third quarter, Prologis reported average occupancy of 95.1%, climbing even higher to 95.6% by period’s end.

Customer retention, meanwhile, was 75.9%. Cash same-store net operating income rose 5.9%. And cash rents on leases that began during Q3 rose 23.4% over expiring leases, with Prologis capturing higher rental income from the new contracts it signs.

In other good news, core funds from operations (FFO) rose 7.4% year over year from $1.49 to $1.60. And management tightened its full-year core FFO guidance to $6.25–$6.29 per share and its expected cash same-store net operating income (NOI) growth range to 7.0%–7.5%.

These are encouraging developments in this challenging interest-rate environment we’re in. As is the fact that Prologis is investing so aggressively in future growth.

This shows in management’s decision to raise its 2026 development-start expectations – including projects undertaken through its owned and managed platforms – to $6 billion–$6.75 billion.

Prologis is also growing its data center business, an area it only adopted a few years ago. Yet it already has quite the edge in this regard.

While many competitors struggle to obtain permits, it already controls numerous well-placed sites that could easily work for data center development.

Management recently reported a potential data center pipeline of approximately 5.8 gigawatts (GW), with 1.7 involving secured power and 4.1 in advanced stages. And it also disclosed letters of intent for about 1 gigawatt of prospective demand.

Again, these are potential projects. None of it is guaranteed.

However, they are promising details nonetheless – especially when Prologis’ data centers are still a side business, not its main income-producing category by far.

Prologis shares closed on October 20 at $127.47, which is roughly 17% below their 52-week high of $153.35 from July. So investors would be paying about 20.3x management’s midpoint core FFO guidance for the year.

As I acknowledged earlier, that’s not the cheapest valuation I’ve ever seen. Then again, I’m willing to consider Prologis anyway when it’s one of the world’s highest-quality REITs.

I’m also factoring in its annualized dividend of $4.28 per share. At today’s price, that makes for a 3.4% yield.

It also represents about 68% of core FFO if we use management’s 2026 FFO midpoint. So it seems safe to say that its dividend is well-covered.

That means new investors get a decent and sustainable yield with the potential for both dividend growth and capital appreciation.

It’s certainly enough to take the sting out of my inability to recommend BMW. And it goes to show you that there really is more than one way to cook an egg.

By investing in Prologis, I still get a piece of BMW’s profitable pie – just in a roundabout way. The ecosystem BMW created requires a reliable chain of warehouses around the country and the world. And Prologis is there to give it exactly that.

All things considered, I’m rating it a Buy at under $130 per share.

Happy SWAN investing,

Brad Thomas
Editor, Wide Moat Daily