Do you think Prologis can’t get bigger? Think again
Prologis (PLD -0.11% ) started in 1994 as a small real estate investment trust (REIT) focused primarily on community shopping centers. With nearly three decades of acquisitions and strategic moves in industrial real estate, Prologis now holds the title of being the largest REIT by market capitalization and largest owner of industrial real estate in the world, having ownership and l interest in 1 billion square feet of industrial properties. space in 4,735 properties in 19 countries.
Given the gigantic size of Prologis, some investors are unsure whether or not it can continue to grow. After all, being the biggest in this space means the company risks reaching a point of market saturation, where growth is no longer easily achieved. But there are several reasons to believe that this is simply not the case with Prologis. Here’s why it could get much, much bigger in 2022.
Major deal on the horizon
At the end of March 2022, rumors began to spread of a potential $23 billion bid for Prologis to acquire Mileway, a last mile industrial operator in the European Union owned by Blackstone Group (BX -0.58% ). Blackstone has publicly announced its intention to recapitalize Mileway at the end of February 2022, during a “go-shop” period that will last up to 75 days and allow multiple bidders to shop for the acquisition of Mileway.
Acquisitions like this have become a popular way for the company to grow. Prologis completed the acquisition of DC Industrial Trust in 2018 for $8.5 billion, then Industrial Property Trust in January 2020 for $4 billion, and later Liberty Property Trust in February 2020 for $13 billion. dollars. The deal with Blackstone would be the largest private acquisition ever and would require Prologis to raise capital for the acquisition, given that it has approximately $15.5 billion available for investment.
While representatives of both parties declined to comment, the move would notably add to Prologis’ portfolio in the EU and make the company much larger. Mileway’s portfolio comprises approximately 14.7 million square meters of industrial space, which equates to approximately 158 million square feet of industrial space, across 1,700 properties across 10 EU countries.
There’s more than one way to grow
Prologis also recently announced plans to expand its existing presence in the US market, adding nearly 40% to its presence in Portland, Oregon. Expansion projects and acquisitions are key drivers of portfolio growth, but expanding its footprint isn’t the only thing the company relies on to boost revenue.
Demand for industrial space due to limited supply drove global rents up 15.4% year-over-year for all of 2021. US markets saw rents rise an average of 17.4% over the past year. This resulted in a nice increase in Prologis’ revenues while achieving historically low vacancy rates. High demand and low supply leading to increased rental growth is a trend that Prologis expects to see continue in 2022. However, the results for the first quarter of 2022, which will be shared on April 19, 2022, will give more information. on the growth it achieved initially. of the year.
Long-term demand drivers, including supply chain issues and the continued growth of e-commerce, should mean that demand for industrial buildings won’t falter any time soon. Prologis is in a strong position for its future growth. Currently, the shares are trading at around 40 times its funds from operations (FFO), which means they are highly valued.
Its premium price is no huge surprise, given its title as the largest and largest industrial operator in the world, as well as its reliability as a business. It has maintained consistent growth and paid reliable dividends. It recently increased its dividend by 25% and certainly has room to grow. There are several other attractive industrial REITs to invest in that don’t trade at such a high premium, but investors shouldn’t underestimate the benefit of having exposure to the biggest and one of the best operators in the world. sector.
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