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Prologis Expands Development Venture, Eyes Growth in China

Zacks Equity Research

Prologis Inc. PLD is capitalizing on growth opportunities across the globe. This industrial REIT recently opted for expansion of its development venture in China, increasing the development capacity to more than US$3.5 billion. The company has also announced formation of a US$1.7-billion open-ended Prologis China Core Logistics Fund, LP (PCCLF).

This expansion in China is a strategic fit, with the nation being the largest consumption opportunity in the world. The e-commerce market is growing at a rapid pace and there is a solid demand for premium logistics assets in key consumption markets in the region. This is grabbing attention of investors, spurring strong demand for China logistics.

Particularly, in an effort to grow Prologis China Logistics Venture 3, an additional US$882 million of equity has been committed by HIP China Logistics Investments Limited and Prologis. With leverage, this will let the venture to develop roughly US$3.5 billion of logistics properties in China. The partners will keep their respective ownership percentages in this venture.

Further, the China open-ended perpetual life fund — PCCLF — will make investments in operating logistics properties in Prologis' target markets in China. Around RMB 3.1 billion, which approximates US$445 million, has already been raised. It will acquire the current portfolio of assets of roughly 22 million square feet, with a fair value of RMB 12.3 billion or US$1.7 billion from Prologis China Logistics Venture 1. While HIP will stay as a major investor in PCCLF, Prologis will maintain its ownership stake.

In fact, not only in China, but worldwide also, the industrial real estate asset category has grabbed headlines and continues to play a pivotal role in a rising e-commerce market, transforming the way how consumers shop and receive their goods. Services like same-day delivery are gaining traction and last-mile properties in high-income urban areas are witnessing solid pricing, occupancy and growth in rentals.

Furthermore, demand for distribution space has been rising, as e-commerce continues to expand to sectors like grocery and furniture. Also apart from e-retail, food & beverage and home improvement companies are helping drive leasing activities. This, in turn, is spurring demand for industrial/warehouse spaces, enabling industrial landlords, like Prologis, Duke Realty Corp. DRE and Terreno Realty Corporation TRNO, among others, to enjoy a favorable market environment.

Prologis remains well poised to grow, backed by its balance-sheet strength and prudent financial management. The company had US$111 billion of assets under management, including US$58 billion in its nine co-investment ventures globally, as of Sep 30, 2019. It has also been actively banking on its growth opportunities through acquisitions and developments.

This October, Prologis announced that it has entered into a definitive merger agreement with Liberty Property Trust LPT to acquire the latter in an all-stock transaction, valued at roughly $12.6 billion, including the assumption of debt. The acquisition, anticipated to close in first-quarter 2020, will strengthen Prologis’ presence in target regions such as Chicago, Lehigh Valley, New Jersey, Houston, Central PA, and Southern California.

Also, earlier in July, the company announced signing a definitive merger agreement to acquire warehouse owner Industrial Property Trust Inc. (IPT) in an all-cash deal valued at about $3.99 billion, including debt, from Black Creek Group. Moreover, in 2018, Prologis gained significant scale by acquiring DCT Industrial Trust Inc., for $8.5 billion, in a stock-for-stock deal.

Shares of Prologis have outperformed the industry it belongs to in the past six months. This Zacks Rank #1 (Strong Buy) company’s shares have gained 17.6%, while the industry has recorded 1.8% growth during the same time frame. You can see the complete list of today’s Zacks #1 Rank stocks here.



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