On October 8th, Prologis announced that it will merge its fund management business, Prologis Capital GCP (GLP Capital Partners, "GCP"), with its international operations in Japan, the United States, Europe, Brazil, and Vietnam ("GCP International"), with Ares Management Corporation ("Ares"), a leading alternative asset management company listed on the New York Stock Exchange.
The total transaction value includes an initial consideration of $3.7 billion and a deferred consideration of up to $1.5 billion tied to performance targets. The transaction, subject to regulatory approval and other closing conditions, is expected to be completed in the first half of 2025. This segment of the business accounts for less than 10% of Prologis's core operational EBITDA.
Established in 2011, Prologis Capital GCP had an asset management scale of $128 billion as of the end of 2023, with a compound annual growth rate of 21%. In February 2023, Prologis Capital GCP announced the completion of its spin-off, establishing a globally independent structure to become the exclusive investor and asset manager for the Prologis Group.
Following the transaction, Prologis Capital GCP's asset management scale will reach $81 billion, with Prologis retaining its ownership of Prologis Capital GCP.
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Ming Mei, Founder and CEO of Prologis and Prologis Capital GCP, said: "We are looking forward to this transaction, which will strategically optimize our business development across regions. We are deeply confident about the future, and Prologis will continue to seek attractive growth and integration opportunities in the high-growth new economy sectors driven by long-term trends."
Optimized Structure Transaction
Through this transaction, Prologis will further strengthen its financial resilience and health. The upfront capital gains from the transaction will provide Prologis with greater liquidity, which will be used to continue reducing debt, enhancing the group's balance sheet, and improving key financial indicators. After the transaction, the group's net leverage ratio is expected to further decrease to 24%.
Li Hao Zhuang, Chief Financial Officer of Prologis, said: "This monetization transaction is consistent with our goal of continuously optimizing the balance sheet by reducing leverage, and we continue to achieve growth by seizing development opportunities in core areas such as logistics real estate, digital infrastructure, and renewable energy."
The more significant meaning of this transaction for Prologis is that it is expected to provide Prologis with a total of $5.2 billion in liquidity. With the obtained liquidity, Prologis can further optimize its global asset allocation structure.Zhuge Wenjing, Executive Vice Chairman and Chairman of the Executive Committee of Prologis China, said: "The transaction between Prologis Capital GCP and Ares does not involve its China business and assets. Prologis's investment weight in China has been relatively enhanced. The two parties to the transaction are expected to serve the investment and layout needs of various investors and customers across domestic and international markets through ecological collaboration, and explore more 'coming to China' and 'going global' development opportunities."
Continuously increasing investment in Chinese assets
On October 24, 2023, Prologis Capital GCP held a Prologis China Offshore Fund Investor Conference in Shanghai, with more than 20 overseas investment institutions, as well as nearly a hundred guests including economists, industry experts, corporate clients, and Prologis ecosystem companies.
Mei Zhiming stated at the conference that over the 20 years since Prologis entered China, the average annual investment scale has exceeded 2 billion US dollars. Given China's vast consumer market, the booming logistics and e-commerce industries, the demand for data centers ignited by artificial intelligence, and the rapid development of new energy, Prologis firmly believes in the Chinese market and hopes to invest in the infrastructure development and industrial services of China's new economy at a higher level.
This is not the only time Mei Zhiming has publicly expressed optimism about the Chinese market and Chinese assets in the past year. A few days later, on November 8th, Mei Zhiming continued to be bullish on China at the International Financial Leaders Investment Summit organized by the Hong Kong Monetary Authority (HKMA): "From the perspective of energy and service industry consumption growth, achieving the expected annual GDP growth target of 5% is feasible. China has been 'oversold' in asset allocation, and I have always been optimistic about the Chinese market."
In 2023, there was a market view that China's actual use of foreign capital declined year-on-year, which to some extent meant that some foreign capital reduced its confidence in the Chinese market and was withdrawing from China. This view ignored the background that the global overseas investment market was also declining, and in fact, China's overall use of foreign capital was still at a peak, with the structure further optimized.
Also in this year, Prologis not only repeatedly expressed optimism about the Chinese market but also further increased its holdings in China. In 2023, Prologis and its managed funds added 3.03 billion US dollars in new capital to the Chinese market. Prologis has actually become a bridge between China and overseas markets, and a connector for China's foreign investment attraction.
On January 26, 2024, GCP announced the completion of the fundraising for the latest China Income Fund (Prologis China Income Fund XII, CIF XII), with an investment scale of nearly 10 billion yuan. The investors of this fund are leading international institutional investors; on November 3, 2023, GCP announced the completion of the fundraising for China Income Fund IX, with a total investment scale of about 3.6 billion yuan. The fund investors are well-known insurance institutions in the Asia-Pacific region.
Zhuge Wenjing said: "Prologis's commitment to deep cultivation in China remains unchanged. In the Chinese market, we will continue to expand the scale of asset management, invest at a higher level in the development of China's new economic infrastructure and industrial services, create a foundation for the development of people's livelihood and industrial upgrading, help customers improve efficiency and quality, enhance competitiveness, create value for investors and partners, and make a greater contribution to incubating and nurturing new quality productive forces, serving the high-quality development of cities and regional economies."Prologis, which entered the Chinese market in 2003, is gaining new growth momentum as it deepens its cultivation of the Chinese market. The return on investment in Chinese assets is significant.
In the second quarter of 2024, Prologis China's logistics and industrial infrastructure delivered over 930,000 square meters of new area, a year-on-year increase of 47%; nearly 8.2 million square meters of new lease contracts were signed, a year-on-year increase of 20%; at the end of the second quarter, the stable occupancy rate increased compared to the same period last year, exceeding 85%, leading the market.
In the first half of 2024, Prologis China's core operating business maintained strong profits, with operating earnings before interest, taxes, depreciation, and amortization (operating EBITDA) reaching $240 million, a 5% increase compared to the same period last year. Benefiting from excellent operation management, continuous asset monetization plans, and a robust financial policy, as of June 30, 2024, Prologis China's net financial leverage ratio was reduced to 24.30%, with ample liquidity and a healthy capital structure. So far, China International Capital Corporation Prologis REIT has completed two distributions in 2024, with a total distribution amount of about 194 million yuan for the year, and has distributed dividends 8 times since its listing, with a total distribution amount of about 856 million yuan, with a dividend ratio close to 100%.
China's economy is entering a stage of high-quality development. In this new stage of development, China is continuously increasing its investment in new infrastructure construction and improving the efficiency requirements for the circulation industry. The "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization" proposes to "build a new infrastructure planning and standard system, and improve the mechanism for the integrated use of new infrastructure." New infrastructure construction has also opened its doors to private enterprises and foreign-funded enterprises, with multiple documents emphasizing the need to encourage private enterprises and foreign-funded enterprises to participate in China's new infrastructure construction.
The open door has brought a continuous stream of new dividends from the Chinese market to Prologis, which is deeply cultivating the Chinese market: innovation and green. Zhuge Wenjing said: "We see that the market demand remains strong, and technological development has given birth to new business models and new species. Prologis' customers have also iterated accordingly, such as cross-border e-commerce, live e-commerce, and other emerging business platforms, and emerging manufacturing industries such as new energy vehicles have become new increments. Entering the AIGC era, the demand for computing power and data storage has exploded, and everything has just begun. In terms of new energy, under the guidance of the 3060 direction, the demand for green electricity and green certificates from customers in logistics parks, industrial parks, and data centers has also increased accordingly."
At present, Prologis China's business map has formed three major directions: supply chain, big data, and new energy. In the first half of this year, Prologis has maintained rapid growth in both data center and new energy construction.
In terms of data centers, in the first half of 2024, Prologis' data center business IT load continued to grow, with a cumulative delivery volume increasing by 17% compared to the beginning of the year. In particular, the construction and delivery capabilities of intelligent computing centers are outstanding, driving the steady rise of revenue performance, with a year-on-year increase in revenue reaching 54% in the first half of the year. In terms of new energy, in the second quarter, Prologis added 29.7MW (megawatts) of new grid-connected installed capacity, including 4 newly built projects, 3 acquired projects, and 2 grid-connected capacity expansion projects, with a new project installed capacity of 69.5MW.
Zhuge Wenjing said: "We believe in the prospects of the Chinese market and are optimistic about the market potential driven by the world's leading population scale and forward-looking industrial policies. In the three major directions focused by Prologis - supply chain, big data, and new energy - the demand for these tracks will not change for ten, twenty, or thirty years."