Prologis (NYSE: PLD) is the largest publicly traded real estate investment trust (REIT). It operates 1.2 billion square feet of warehouse space across several global markets. It's one of the biggest players in global trade (2.8% of global GDP flows through its distribution centers each year).
The leading industrial REIT's dominance in logistics is one of the top reasons I own the stock. However, it recently began leveraging its massive land position and energy expertise to tap into an enormous emerging growth opportunity: data centers. These facilities are crucial to supporting digital transformation initiatives and new technologies like AI. That AI-powered upside is one of the reasons I just bought more of this leading REIT .
Building on its legacy
Prologis is a leader in logistics real estate. It owns over 5,500 warehouses across North and South America, Europe, and Asia. The company has about 6,700 customers that lease space in its facilities under long-term contracts. Those leases supply the company with predictable and growing cash flow. The REIT expects the net operating income (NOI) from that existing portfolio to grow at a 7.5% to 8.5% annual rate over the next few years, driven primarily by rent growth (from escalators in its long-term leases and capturing higher market rents as legacy contracts expire).
On top of that driver, the company expects to expand its warehouse empire by developing additional facilities. It has a vast land base to support future developments. It's currently investing $6.9 billion to build 46 million square feet of logistics space. It anticipates investing $20 billion over the next five years in expanding its warehouse portfolio. Meanwhile, it has enough land to support a total investment of $39 billion to build 226 million square feet of capacity over the long term.
Prologis is also investing heavily in sustainability initiatives like adding solar energy and electric charging to its existing facilities. The REIT currently operates 511 megawatts (MW) of solar energy, which generated $40 million in NOI last year. It's pursuing up to 2 gigawatts (GW) of additional solar, storage, and charging projects, which could add $150 million to $200 million to its NOI over the medium term. It sees a longer-term opportunity to add 7 GW of power, which could produce $800 million of NOI. That's a meaningful uplift for a company that produced $5.7 billion of NOI last year.
A growth accelerator
Prologis already has plenty of built-in growth potential as it expands its warehouse portfolio and dives deeper into providing energy services to its customers. However, that hasn't stopped the company from seeking new opportunities to increase shareholder value. It has started to evaluate better uses for its existing facilities and land. One of those it has zeroed in on is developing data centers.
The REIT plans to invest $7 billion to $8 billion to develop data centers over the next five years. It has identified 20 opportunities to convert existing warehouses to data centers and invest in build-to-suit projects for data center operators using some of its vast land bank . Longer term, Prologis sees more than 100 potential data center investment opportunities.
Securing power is one of the keys to building its data center platform. Traditional data centers are power-hungry facilities (they use 10 to 50 times the energy per floor space as a typical office building). Meanwhile, AI data centers use even more power because the powerful chips needed to run those applications require more energy.
Prologis has a built-in competitive advantage to meet the power needs of data centers due to its expertise in solar and battery storage. It also has strong relationships with utilities. The company has already secured 1.3 GW of power to support its data center investments and is working to lock in another 1.5 GW. That puts it in a strong position to execute its data center development plans, which should help it capitalize on the AI-driven growth for these facilities.
Quietly adding a new growth driver
Prologis expects to grow briskly over the next few years as it benefits from rising rents in its legacy warehouse business. Meanwhile, its anticipated new development projects and its growing energy business would provide an additional boost. On top of all that, it's now leveraging its large land position and expertise in development and energy to build out a data center platform to capitalize on the AI boom. That will enhance its already robust long-term growth prospects. That under-the-radar growth driver recently led me to boost my position in Prologis. It improves the REIT's ability to deliver above-average total returns in the coming years.
Matt DiLallo has positions in Prologis. The Motley Fool has positions in and recommends Prologis. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy .
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