Here's Why the Third Avenue Real Estate Value Fund Increased its Holdings in Prologis (PLD)

Third Avenue Management, an investment management company based in New York City, released its “Third Avenue Real Estate Value Fund” second-quarter 2025 investor letter. A copy of the letter can be downloaded here. For the six months ended June 30, 2025, the fund returned +6.38% (after fees) compared to +6.66% (before fees) for the FTSE EPRA NAREIT Developed Index. The fund generated an annualized return of +8.94% (after fees) since its inception in 1998. For more information on the fund’s top picks in 2025, please check its top five holdings.

In its second-quarter 2025 investor letter, Third Avenue Real Estate Value Fund highlighted stocks such as Prologis, Inc. (NYSE:PLD). Prologis, Inc. (NYSE:PLD) is a global leader in logistics real estate. The one-month return of Prologis, Inc. (NYSE:PLD) was -2.47%, and its shares lost 13.33% of their value over the last 52 weeks. On August 7, 2025, Prologis, Inc. (NYSE:PLD) stock closed at $105.73 per share, with a market capitalization of $98.124 billion.

Third Avenue Real Estate Value Fund stated the following regarding Prologis, Inc. (NYSE:PLD) in its second quarter 2025 investor letter:

"When considering the above factors and the significant volatility for all things “trade related” more recently, the Fund opted to increase its holdings in Prologis, Inc. (NYSE:PLD) (“Prologis”) and WESCO International Inc. (“Wesco”) during the quarter.

Prologis is a U.S-based real estate investment trust (“REIT”) that is the largest owner of modern industrial and logistics real estate globally, with a portfolio that spans nearly 1.3 billion square feet across the Americas, Europe, and Asia. The company is also remarkably well-capitalized with its unrivaled portfolio generating more than $6.5 billion of recurring cash flow annually, as well as very modest encumbrances given a loan-to-value ratio of less than 25%.

In Fund Management’s view, Prologis is also one of the few U.S-based REITs with prospects to meaningfully increase its underlying value in a higher “real rate” environment. Put otherwise, the company faces limited refinancing risk and has multiple drivers to enhance its corporate net-worth, including: (i) realizing the significant gap between “in-place” rents and “market” rates which could yield an incremental $1.1 billion of recurring cash flow, (ii) developing out its well-located landbank, which has the potential to accommodate more than 200 million square feet of additional space, (iii) further expanding its $65 billion asset management platform, particularly as it relates to the build out of nearly 10 GW of data center opportunities within the portfolio and (iv) further establishing its Essentials platform, primarily by adding “rooftop” solar to its facilities with the potential for 7 GW of capacity.

Despite this, the company’s stock trades at a meaningful discount to Net-Asset Value (“NAV”), in Fund Management’s view. In fact, prices at quarter-end implied a 6.5% “cash” cap rate (i.e., initial yield) on “market” rental rates, without assigning meaningful uplift to its land bank, nor any value to the “below market” nature of its debt. Alternatively, prevailing prices imply $165 per square foot for the portfolio on a “what is” basis, representing nearly a 25% discount to replacement cost, by our estimates."

Prologis, Inc. (NYSE:PLD) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held Prologis, Inc. (NYSE:PLD) at the end of the first quarter which was 55 in the previous quarter. While we acknowledge the potential of Prologis, Inc. (NYSE:PLD) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Prologis, Inc. (NYSE:PLD) and shared Baron Real Estate Fund's views on the company. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.