Executives at the world's largest industrial developer and landlord expect to ramp up property sales and acquisitions this year as they bet that almost all its warehouse properties will remain leased and rents will keep rising in the face of economic uncertainty.
Prologis anticipates raising $800 million to $1.2 billion from selling properties in 2024 as interest rates and property valuations begin to stabilize in coming months, encouraging buyers and sellers to make more deals. That's what Chief Financial Officer Tim Arndt told investors as the real estate investment trust discussed its earnings results for the fourth quarter and full year 2023 and its plans for the coming year.
“The expectations of market participants and the theoretical pricing of assets is converging,” Arndt said. “Bottom line, we think we're seeing the near bottom valuations, both in the U.S. and Europe. With this level of stability and sort of bottom-forming, you'll see more volume coming through in terms of real deals.”
These expectations align with those of some other property companies — including real estate investment firm Blackstone — that are expecting dealmaking to increase in coming months from 2023 levels. Last year included the end of a record pace of interest rate increases that gave investors pause in the face of rapidly rising borrowing costs.
San Francisco-based Prologis, which owns more than 1.1 billion square feet of warehouses and other industrial buildings, also said it expects to add $1.75 billion to $2.25 billion to its logistics development and other investment funds in 2024. Prologis plans to use the proceeds to help fund new development projects valued between $3 billion and $3.5 billion this year.
The combined $3 billion in property sales and investment fund contributions would be nearly 87% higher than 2023 levels, said Tom Catherwood, a BTIG analyst who tracks Prologis and other large REITs.
“The fourth-quarter earnings suggest resilient fundamentals, and the company’s 2024 guidance implies a rebound in transaction volume for the year ahead,” Catherwood said in a note to investors.
Prologis also plans to step up its acquisition of land and buildings this year as more sellers bring deals to the market, company President Dan Letter said during the call.
The company's acquisition teams "are out there turning over every stone,” Letter said. “It was a low-volume year in the marketplace last year, and I expect that to be much, much higher this year.”
Prologis reported a nearly 8% revenue increase to just under $1.9 billion in the fourth quarter from the same time a year earlier, and $8 billion in revenue for the full year in 2023, compared with just under $6 billion in 2022.
The company posted a profit of $631 million in the fourth quarter, compared with $587.2 million for the year-earlier quarter.
Average occupancy in the company’s warehouses was 97.1%, the same as in the previous quarter. Prologis projected average occupancy of 96.5% to 97.5% in its warehouses for the full year of 2024 across its portfolio.
Average warehouse rents gained nearly 5% during the quarter for a full-year total increase of 28%.