Prologis (PLD): Q2 FFO Beat, Bigger Development Push, and the Balance- Sheet Trade-Off

Q2 Shockwaves: FFO Beat and a Clear Signal to Build#

Prologis [PLD] opened the second half of 2025 with a concrete payout: Core FFO per share of $1.46 in Q2 (a +9.0% year-over-year increase) and a raised development-starts target of $2.25–$2.75 billion for 2025. Those two items — an FFO beat and a larger-than-expected development commitment — together crystallize the company’s operating posture: defend cash flow today while selectively restarting supply where tenant demand is visible. The market is pricing that dual message at $112.68 per share as of the latest quote, and analysts including Scotiabank have responded with a more constructive view on multi-year FFO after the quarter Prologis Q2 2025 Results; Scotiabank Research.

Those top-line headlines matter because they reconcile two tensions facing the industrial-REIT complex. On one hand, high-quality landlords are showing cash-flow resilience even as some submarkets digest speculative inventory. On the other, reaccelerating development — even if concentrated in build-to-suit product — increases near-term capital deployment and raises questions about leverage and cash conversion. Below, we quantify both sides using Prologis’s FY2024 financials and the Q2 operational disclosure.

Recalculating the Financial Base: What the Numbers Actually Show#

Using Prologis’s FY2024 reported figures (revenue $8.20B, net income $3.73B, EBITDA $7.53B, cash at year-end $1.32B, total debt $31.49B, shareholders’ equity $53.95B) we recomputed key leverage and cash-flow ratios to ensure every claim is traceable to the raw line items in the company filing Prologis FY2024 filing; U.S. SEC filings provide the underlying statements SEC Filings.

Our base calculations produce the following: net-debt-to-EBITDA = 30.18B / 7.53B = 4.01x, enterprise-value-to-EBITDA = (MarketCap 104.57B + Debt 31.49B - Cash 1.32B) / 7.53B = 17.89x, and dividend yield = 3.94 / 112.68 = 3.50% (TTM dividend $3.94). Using FY2024 revenue and free cash flow, FCF margin is 4.91B / 8.20B = 59.88%, a reflection of the REIT cash conversion dynamic where depreciation is a large non-cash expense and EBITDA is high relative to statutory net income. These recalculated ratios differ modestly from some pre-packaged metrics in the dataset; where discrepancies exist we call them out and explain them explicitly below.

To be precise: the dataset’s reported net-debt-to-EBITDA of 4.57x and enterprise-value/EBITDA of 18.77x are materially higher than our FY2024-based calculations. That divergence is most plausibly explained by the data provider using a trailing-12-month or adjusted EBITDA definition, or a market-cap snapshot from a different timestamp. For transparency, we prioritize line-by-line FY2024 financials supplied in the company filing and use the contemporaneous market-cap in the stock quote to compute EV-based multiples.

Income Statement — Trends and Margin Dynamics#

Prologis’s FY2024 income statement shows a continuation of very high gross and EBITDA margins reflecting the capital-light characteristics of its landlord model and the large non-cash depreciation add-back in REIT accounting. Gross profit of $6.14B on $8.20B revenue implies a gross margin of 74.92%, and EBITDA $7.53B implies an EBITDA margin of 91.84%. Net income of $3.73B produces a net margin of 45.50%. The company’s YoY revenue growth from 2023 to 2024 was modest at +2.22%, but net income grew faster at +21.98%, signaling operating leverage and non-operating items that favored the bottom line.

Those margin levels are extraordinary versus most operating companies but are characteristic of large global logistics landlords that report significant depreciation and generate strong leasing economics. The critical caveat for investors is not the headline margin but how recurring cash flow — measured as Core FFO and free cash flow — evolves with occupancy, leasing spreads, and development cadence.

(Values sourced from Prologis FY financials; see Prologis FY2024 filing.

Balance Sheet and Cash Flow: Strength with Manageable Leverage — But Watch the Trajectory#

Prologis’s balance sheet is large: total assets $95.33B and total stockholders’ equity $53.95B at year-end 2024. Total debt of $31.49B and cash of $1.32B gives net debt $30.18B. From those numbers, debt-to-equity (total debt / equity) is 31.49B / 53.95B = 0.58x (58.37%). The company’s stated or TTM ratios in commercial feeds show variability because providers use different denominators or pro forma adjustments; our direct balance-sheet arithmetic uses reported year-end balances.

We re-evaluated the liquidity picture by recomputing the current ratio from the fiscal statement lines: total current assets $2.42B divided by total current liabilities $2.64B = 0.92x. That result is healthier than some third-party TTM figures that report 0.61x, and the gap is again attributable to timing and classification differences (for example, inclusion of restricted cash or short-term investments elsewhere). Regardless, Prologis operates with significant long-term capital commitments and depends on capital markets access and stable operating cash flow rather than a high current ratio as its liquidity model.

(Values sourced from Prologis FY2024 financial statements; see Prologis FY2024 filing.

Two points emerge from the cash-flow profile. First, the company’s operating cash flow and free cash flow are large in absolute terms ($4.91B free cash flow in 2024), supporting the dividend and enabling targeted development starts. Second, leverage measured as net debt to EBITDA is meaningful (we calculate ~4.0x), so additional development activity funded with balance-sheet capital or unsecured borrowing will incrementally increase interest-rate sensitivity. That’s manageable given current cash generation, but it is the core trade-off investors must monitor.

Operational Signals: Occupancy, Build-to-Suit, and Development Starts#

Prologis reported occupancy of 95.1% at the end of Q2 2025, a small sequential dip that nonetheless keeps the company well above broader-market averages according to management commentary Prologis Q2 2025 Results. The company also disclosed that approximately 65% of Q2 development starts were build-to-suit, and that the first half of 2025 recorded about $1.1B of starts with Q2 exceeding $900M of new starts. Management’s willingness to raise full-year development-start guidance to $2.25–$2.75B indicates selective confidence that tenant demand exists in targeted, higher-quality locations.

This build-to-suit tilt matters because build-to-suit projects shift leasing risk from landlord speculation to tenant commitment, typically providing credit-backed, longer-term cash flows with less leasing volatility on stabilization. In contrast, speculative projects expose a landlord to absorption and rent-reversion risk during market troughs. For Prologis, the strategy of leaning into build-to-suit helps to protect future FFO visibility while still expanding the company’s topical product set (notably logistics tied to data-center and semiconductor supply chains).

What the Scotiabank Upgrade Means — And What It Doesn’t#

Scotiabank’s upgrade to Sector Perform and its $114 price reference were anchored to the same signals the company reported: resilient margins, modest revenue growth, and a visible development pipeline. The research house adjusted multi-year FFO expectations upward and tightened capitalization assumptions for NAV calculations, reflecting a higher confidence in cash-flow durability Scotiabank Research.

That external validation is meaningful because it shows that at least one institutional analyst is willing to incorporate current execution into longer-term cash-flow models. It is not, however, a substitute for tracking the core variables that will determine whether FFO gains persist: occupancy trends, leasing spreads on renewals versus new leases, and stabilization timing for the new development starts.

Reconciling Risks: Oversupply, Submarket Variance, and Interest-Rate Sensitivity#

The principal macro risk remains submarket oversupply. While speculative starts have fallen sharply from peak levels — reducing the marginal new supply that pressured rents in prior cycles — delivery schedules, localized vacancy pockets and the pace of absorption vary materially across geographies. Markets with concentrated speculative product may see longer stabilization periods and weaker rent comps.

Prologis’s global scale and concentration on high-barrier-to-entry locations reduce its exposure, but they do not eliminate it. The sharp trade-off is balance-sheet sensitivity: standalone leverage of ~4.0x net-debt-to-EBITDA and the company’s continued dividend (TTM payout $3.94 per share) create a fixed-cost layer that is more sensitive to higher financing costs. Our recalculation shows a cash-dividend payout ratio relative to GAAP EPS of ~106% (3.94 / 3.71). That headline over-100% figure overstates distribution risk because REITs are evaluated on FFO and adjusted funds from operations, not GAAP EPS, and Prologis’s FFO coverage metrics look different. Still, the arithmetic underscores why high free-cash-flow conversion and disciplined capital allocation matter.

Historical Context: Execution Track Record and Why It Matters#

Prologis has a multi-year record of expanding development selectively and capturing premium occupancy in core logistics hubs. The company’s revenue grew from $4.76B in 2021 to $8.20B in 2024, a multi-year trajectory that benefited from e-commerce growth, supply-chain reconfiguration, and selective acquisitions. That record shows management can grow scale while maintaining margin profiles that support significant cash returns to shareholders.

Two lessons from that history are relevant now. First, when Prologis chooses to restart development it tends to focus on high-credit, long-duration leases (build-to-suit), which reduces leasing risk compared with speculative programs. Second, management’s track record of adjusting starts with market signals suggests the current visibility on demand should translate into measured, accretive roll-forward of cash flows — provided macro conditions, particularly financing costs, remain stable.

What This Means For Investors#

Prologis’s Q2 disclosures and FY2024 base show a company with strong cash-generation, a high-quality portfolio and an active but selective development strategy. The data create a clear, testable set of hypotheses for investors to monitor over the next 12–18 months. First, whether occupancy and leasing spreads remain resilient enough to sustain elevated FFO growth. Second, whether development starts — now guided to $2.25–$2.75B for 2025 — stabilize or increase net debt and interest expense materially. Third, whether the gap between GAAP earnings and FFO narrows or widens as projects stabilize.

From a metrics perspective, the most important items to watch are occupancy trends (already reported at 95.1% in Q2), net-debt-to-EBITDA (we calculate ~4.0x on FY2024 numbers), and the speed at which new build-to-suit projects reach stabilized occupancy and contractual cash flows. These three variables together determine free cash flow and the sustainability of dividend coverage.

Key Takeaways#

Prologis’s Q2 performance demonstrates operating resilience with a Core FFO/sh of $1.46 (+9% YoY) and management’s willingness to reaccelerate development selectively. Our independent recalculation of FY2024 balance-sheet and cash-flow metrics shows meaningful operating cash flow ($4.91B FCF) but non-trivial leverage (net-debt-to-EBITDA ≈ 4.01x). The company’s pivot toward build-to-suit development and its high occupancy — 95.1% in Q2 — lower leasing risk, but they require near-term capital deployment that increases sensitivity to financing conditions and delivery timing.

Investors should therefore trade the company’s strengths (scale, tenant roster, build-to-suit advantage, strong FCF) against the key risks (submarket oversupply, timing of development stabilization, and interest-rate exposure tied to leverage). Watch the next several quarters for occupancy trajectory, stabilization timelines for starts, and any material change in leverage metrics reported on the balance sheet.

Closing Synthesis#

Prologis is acting like a company that believes demand is sufficiently visible to justify selective supply creation while protecting cash flow. That posture is consistent with the company’s historical emphasis on high-quality locations and long-duration tenant relationships. Our recalculated financials confirm the operating strength but surface a trade-off: sustained development and the current dividend policy rest on continued high cash conversion and disciplined capital markets access. The coming quarters will show whether incremental starts translate into the predictable FFO uplift management and analysts expect, or whether market nuances and financing dynamics create a more extended adjustment phase.

Sources: Prologis — Q2 2025 Results and FY2024 financial statements (Investor Relations) Prologis Q2 2025 Results; Scotiabank Research coverage note on Prologis Scotiabank Research; U.S. Securities and Exchange Commission filings SEC Filings; Oxford Economics economic impact analysis referenced by management Oxford Economics.