Baron Funds, an investment management company, released its “Baron Real Estate Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In Q1 2025, stocks were sold due to economic growth slowdown, inflation, and policymaking issues, including Baron Real Estate Fund®, without considering value. The fund declined 6.69% (Institutional Shares) in the quarter compared to a 3.11% decline for the MSCI USA IMI Extended Real Estate Index (the MSCI Real Estate Index) and a 0.76% gain for the MSCI US REIT Index (the REIT Index). In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first-quarter 2025 investor letter, Baron Real Estate 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 5.39%, and its shares lost 2.88% of their value over the last 52 weeks. On May 14, 2025, Prologis, Inc. (NYSE:PLD) stock closed at $107.60 per share with a market capitalization of $99.845 billion.
Baron Real Estate Fund stated the following regarding Prologis, Inc. (NYSE:PLD) in its Q1 2025 investor letter:
“During the quarter we re-acquired shares of best-in-class industrial REIT Prologis, Inc. (NYSE:PLD). For the last year we have been cautious on industrial REITs, as the companies were facing several near-term headwinds that included demand normalization to pre-pandemic levels (elongated corporate decision making), elevated supply deliveries in 2024, moderating rent growth in most geographic markets, inventory de-stocking, and pricey headline valuations relative to other REIT categories. As we noted at the time, we were likely to revisit industrial REITs at a later point given our optimism for the multi-year prospects for industrial REITs. Our optimism remains predicated on a compelling multi-year outlook for demand/supply/rent growth, significant embedded growth potential from in-place rents that are generally 30% below market rents, and several secular demand tailwinds (e-commerce, supply chain logistics, more inventory safety stock, near-shoring/onshoring).
We began re-acquiring shares for four reasons. First, we recently observed a notable pick up in leasing activity, which gave us confidence that the industry is on a better footing than a year ago. Second, we are encouraged by the sharp decline in supply deliveries forecasted for 2025 (down 50-75% year-over-year). Third, we expect that improved demand and supply can support stabilizing rents in most markets over the next year. Fourth, valuation multiples for industrial REITs screened more favorable following a recent correction in their share prices.
Prologis owns a high-quality real estate portfolio that is concentrated in major global trade markets and large population centers across the Americas, Europe, and Asia. It has an unmatched global platform, strong competitive advantages (scale, data, and technology), an exceptional management team, and attractive embedded growth prospects. We continue to believe the appreciation potential for Prologis’ shares remains compelling given that the company’s rents on its in-place leases are more than 40% below current market rents, thus providing a strong runway for cash flow and earnings growth in the next several years.”
A large logistic facility within the industrial real estate sector.
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 fourth quarter compared to 49 in the third quarter. While we acknowledge the potential of Prologis, Inc. (NYSE:PLD) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.
In another article, we covered Prologis, Inc. (NYSE:PLD) and shared the list of best REIT stocks to buy according to billionaires. In addition, please check out our hedge fund investor letters Q1 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.
