Prologis (PLD +0.57%) is a real estate behemoth. The company owns over 5,000 buildings with more than 1.2 billion square feet of rental space across 19 countries. It's currently the largest publicly traded real estate investment trust (REIT), with a market cap of more than $100 billion.
Rental income is the company's primary revenue driver, which won't change. However, Prologis has been adding incremental revenue streams to drive additional growth over the years.
One source is Prologis Essentials, a platform of solutions to help customers solve some of their biggest issues. In particular, its focus on providing energy essentials could be a hidden catalyst that helps power incremental growth for the industrial REIT in the coming years.
NYSE: PLD
Key Data Points
Making a hidden difference
Prologis' essentials platform has four parts:
- Operations: It provides turnkey access to everything a logistics customer needs to simplify and streamline their operations.
- Energy and sustainability: The company empowers customers to decarbonize by providing solutions that reduce costs and carbon emissions.
- Transportation: It provides electric-vehicle (EV) charging and hydrogen fueling solutions so tenants can reduce the emissions and costs of their fleets.
- Workforce: The company helps customers by training employees and offering robotics and automation solutions.
This business platform generates incremental income for Prologis. It also enhances the appeal of its properties, which improves its ability to attract and retain tenants, boosting its rental income.
Prologis' essentials platform is a differentiator in the sector. It was one driver behind its $26 billion deal to acquire rival Duke Realty.
When Prologis made its offer for Duke public, co-founder and CEO Hamid Moghadam wrote that the company's essentials platform is one of the things that set it apart from the industry. Moghadam noted: "The Essentials platform will continue to fuel superior growth. At this point, we are creating recurring revenue both in our own platform and others, including yours."
When the two companies finally agreed to a deal, Prologis estimated that the combination could generate $375 million to $400 million in annual earnings and value creation, with $70 million to $90 million of that from incremental property cash flow and essentials income.
Continuing to build its differentiating platform
Prologis continues to make investments that enhance its essentials platform. One notable investment has been to add solar energy-generating capabilities to its rooftops.
The company has grown its U.S. solar capacity from 145 megawatts (MW) in 2019 to 217 MW this year. As a result, it now ranks second in the country for on-site solar generation, according to the Solar Energy Industries Association. Meanwhile, its global capacity is up to 378 MW, enough to power 60,000 household equivalents.
The company plans to reach 1 gigawatt of solar and battery storage capacity by 2025. That would enable it to provide more customers with the ability to reduce their costs and carbon emissions.
Prologis is also installing additional electric-truck charging stations. It recently installed two more stations, to allow a leading national logistics company to charge up to 38 battery-electric trucks simultaneously.
The company's ability to offer differentiated solutions, like electric-truck charging, empowers customers to reach their sustainability goals. That improves Prologis' ability to retain customers while providing incremental revenue as customers use these stations. The company expects to continue installing recharging and hydrogen refueling stations to help its customers achieve their sustainability goals.
One of many growth drivers
Prologis has delivered peer-leading core funds from operations (FFO) per share and dividend growth over the last several years. The company's differentiated strategy, which includes its essentials platform, has been a contributing factor.
With more companies setting sustainability goals, Prologis' investments in solar, EV charging, and hydrogen refueling could pay big dividends in the future. They could help the company continue delivering peer-leading growth, potentially giving it the power to produce strong total returns in the coming years.
