Prologis (PLD -1.37%) is one of the world's largest real estate investment trusts (REITs), with a market cap of about $120 billion. That size is important to keep in mind as you look at its long-term business opportunity. Of late, however, investors have been more focused on the short term. Here's why you may want to dig deeper.

Prologis' shares have cooled off

Supply chain problems related to the coronavirus pandemic caused investors to rush into the warehouse market. As the leader of this REIT sector, Prologis was a big beneficiary. The story is pretty simple. With more people stuck at home, online shopping grew quickly. Companies needed more warehouse space to accommodate those sales. On top of that, supply chain snarls caused by the pandemic resulted in companies holding higher levels of inventory than normal. Again, a need for more warehouse space was the end result.

A person in a warehouse looks at a tablet.

Image source: Getty Images.

Increased demand resulted in rising rental rates. The numbers are kind of shocking. For example, in the third quarter of 2023 Prologis was able to increase rents by a whopping 74% on expiring leases, which was actually down sequentially from the second quarter. As you might expect, big rent hikes are good for business. All of the REIT's leases don't expire at the same time, so the benefit has been ongoing and is likely to continue for a while longer.

Early on, Wall Street was very excited about this story and pushed Prologis's share sharply higher. And then reality seems to have set in that this situation wouldn't last forever. The stock has since fallen back down to earth, though it remains well above where it started out in 2020.

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Here's the thing: Rent hikes are only one avenue for growth that Prologis has to offer investors.

Prologis has other levers to pull

This brings the story back to Prologis's size, which its enormous market cap highlights. The most obvious growth path was put on display in 2022, when Prologis agreed to pay $26 billion to buy rival Duke Realty. That's a big chunk of change, but given Prologis's size it was a manageable transaction. It's highly likely that no other REIT could have pulled off that deal. Being an industry consolidator is a key growth path, as indicated by Prologis's follow-up purchase of a large property portfolio from alternative investment manager Blackstone.

But there's something of a hidden gem waiting to be taken advantage of within Prologis' globally diversified portfolio. Here are the numbers. In North America the REIT owns 803 million square feet of space across 3,877 buildings and 7,885 acres of undeveloped land. In South America the numbers are 83 million square feet across 341 buildings and 1,960 acres of undeveloped land. In Europe the REIT owns 242 million square feet across 1,112 buildings and has 2,157 acres of undeveloped land. And in Asia, Prologis operates 114 million square feet of warehouse space across 283 buildings and owns 89 acres of undeveloped land.

The takeaway is that it owns a massive portfolio of working properties in key transportation hubs. And, right in the same areas, it has land that it can develop if demand for property merits the investment. Prologis estimates that this land could be a $40 billion investment opportunity, which is even bigger than the Duke deal. Clearly, that won't all happen at one time. But that's actually good news, since it suggests that there are years of growth ahead for Prologis even after the benefit from rent increases dwindles.

There are still reasons to like Prologis

It is likely that Wall Street got ahead of itself with Prologis coming out of the pandemic disruptions. But investors looking at the REIT today need to think long-term. Yes, the benefit of rolling over expiring leases to higher rates will eventually peter out. But the company's ability to act as an industry consolidator and its massive portfolio of vacant land suggest that there are other powerful growth drivers here. With the 2.7% dividend yield still near its highest levels in five years, growth and income investors should probably give Prologis a second look.