Prologis To Ramp Up Acquisitions, Says Market Has 'Opened Up'
The world's largest industrial landlord has significantly increased the amount it plans to spend on acquisitions this year, signaling that the transaction market is beginning to heat up.
Prologis now plans to spend between $1B and $1.5B this year to acquire properties, a 66.7% increase from its previous projection of $500M to $1B, it revealed in its second-quarter earnings report Wednesday.
Prologis Chief Financial Officer Tim Arndt said on its Wednesday earnings call that the increase is "due to the increased activity we're seeing in the capital markets and deals completed year to date."
The San Francisco-based company, which has a 1.2B SF portfolio, is the first publicly traded REIT to report its Q2 earnings. Its increased acquisition spending validates expectations from some REIT experts that the transaction market for publicly traded real estate companies would ramp up soon amid hopes for interest rate cuts.
Prologis President Dan Letter said the REIT’s executives are getting early signs from the brokerage community — with brokers performing more broker opinion of value assignments — that the markets are opening up and normalizing after a particularly slow period.
"We definitely want to take advantage of the market as it's opened up," Letter said. "And we have also been turning over all sorts of interesting opportunities in many markets around the globe, and we’re really excited about our acquisition volume for the year."
Prologis deployed $279M for acquisitions this past quarter, up from just $5M in Q1 and $166M in Q2 of last year.
Prologis CEO Hamid Moghadam said on the call he expects transaction volume to ramp up due to a few different market conditions: closed-end funds with exit timelines that need to be realized, companies that have portfolios under pressure — specifically from office distress — and are looking for liquidity, and the "tremendous" amount of money raised for buying that hasn't been spent.
In terms of deal size, he said the "sweet spot" right now is for midsized acquisitions in the $100M to $200M range.
Prologis has also seen success offloading some assets, Arndt said, causing the company to increase its projected full-year disposition total 20% from between $800M and $1.2B to between $1B and $1.4B.
In Q2, the company sold a 5M SF portfolio across the Minneapolis-St. Paul area, disposing of most of its holdings in the Twin Cities.
"We've outperformed across the board in our disposition business, which is why you saw us move our guidance up," Arndt said.
The REIT's net earnings last quarter totaled $859.8M, down from $1.2B in Q2 2023. It reported $2B in revenue, down from $2.45B during the same period last year.
The company slightly raised the low end of its guidance for 2024 funds from operations from between $5.37 and $5.47 to between $5.39 and $5.47.
Prologis’ stock price gained 1.4% after its earnings report through Wednesday's market close.
