Warehouse giant Prologis Inc. plans to generate more revenue from renting out equipment and providing other add-on services as it benefits from strong demand amid ongoing supply-chain strains .
The San Francisco-based company operates warehouses around the world for customers such as e-commerce giant Amazon.com Inc., retailer Walmart Inc. and shipping firm FedEx Corp. Prologis, a real-estate investment trust, generates about 84% of its revenue from rental income from warehouses.
Last year, total revenue increased 7% from a year earlier, to $4.76 billion, as customers paid more rent and signed new leases to keep up with pandemic-driven shifts in consumer demand, Chief Financial Officer Thomas Olinger said. Profits roughly doubled to $2.93 billion.
Demand for warehouse space has surged over the past year as retailers have confronted supply-chain backlogs and challenges delivering goods to consumers on time, analysts said. Global rents at Prologis properties rose 18% during 2021 over 2020 and are expected to go up another 10% or more this year, Mr. Olinger said. Occupancy at the company's warehouses reached 97.4% in the past quarter, an all-time high.
Prologis is now looking at ways to grow its non-real estate services to customers and boosting revenues further. The company, through what it calls its "essentials" business, offers customers the ability to purchase solar energy from panels on top of its warehouses, among other services. It plans to expand its offering this year to include equipment rentals for items including forklifts, racking systems and generators, Mr. Olinger said.
Prologis expects the essentials business, which launched in 2018, to generate $75 million in revenue this year, about double the amount last year, and has said it has the potential to someday generate $1 billion.
Prologis also works on providing customers access to automation and other technology, as companies across industries are paying up for low-wage workers and struggling to fill warehouse vacancies because of the tight labor market . Automation could help them reduce costs.
Through its venture capital arm, the company has invested around $135 million in startups focused on warehouse robotics and other logistics tech. It is currently using or piloting the technology at some customers' warehouses, Mr. Olinger said. "We are hearing our customers loud and clear," he said, referring to customers' labor-market challenges.
Warehouse rents are forecast to remain above average for the foreseeable future, in part because retail customers expect quicker delivery of goods, said Michael Carroll, an analyst at investment firm RBC Capital Markets. "If you want things that next day, you need more industrial space," he said. Prologis's competitors include private-equity firm Blackstone Group, which in 2019 acquired a network of U.S. logistics warehouses from Singapore-based GLP.
Strong demand for warehouse space is bolstering Prologis's business, and add-on services could help the company retain customers and justify further rent increases further down the road, said David Rodgers, a research analyst with investment firm Robert W. Baird & Co. The investments Prologis has made in technology are a key way to differentiate itself from rivals, Mr. Rodgers said.
"For a vast majority of our large customers, we're their largest landlord. What other services can we help provide them?" Mr. Olinger said, discussing how the company plans to expand its essentials business.