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Alternative Investment

More Likely to 5x First: Prologis vs. Blackstone

Two high-growth real estate stocks that are absolutely dominating their respective industries are Prologis (PLD 1.26%) and Blackstone (BX 5.58%). Both stocks have doubled investors’ money over the last five years, and growth opportunities are nowhere near slowing.

Considering both stocks are down roughly 20% and 28%, respectively, this year, let’s see which stock has the best chances of growing by five times first. 

1. The case for Prologis

Prologis is the largest industrial operator in the world, having interest and ownership in roughly 1 billion square feet of industrial real estate across 19 countries. The industrial REIT leases its warehouses, manufacturing, distribution, and logistics properties to a wide range of tenants in the manufacturing, e-commerce, third-party logistics, and transportation industries.

Recent concern over waning demand for industrial real estate has pushed the stock down just over 20% this past year after two of Prologis’s tenants, Amazon and FedEx, indicated they plan to scale back their industrial footprint. But despite these concerns, demand for Prologis’ properties has never been stronger.

Occupancy remains near historic levels, with less than 3% of its properties being vacant. Lack of supply for the state-of-the-art facilities Prologis owns, acquires, develops, and leases have driven its net effective rents to grow just under 60% since last year. This phenomenal growth doesn’t include its recent acquisition of Duke Realty, a formerly publicly traded industrial real estate investment trust (REIT) that Prologis acquired in the third quarter of 2022.

It’s worth noting, that double-digit growth, let alone 60% year-over-year growth isn’t the norm nor is it sustainable. The REIT is taking precautionary measures to reduce its guidance for the full years 2022 and 2023 as it knows demand is starting to return to more normalized levels. Management has stated it plans to conserve capital and slow down on new acquisitions and developments until there’s a better understanding of where the economy will go in the near future. This may slow down how quickly it can 5x return for investors, but I don’t think it prohibits its long-term growth opportunities. It’s historically been able to maintain healthy rental growth and increase its funds from operations (FFO) over the last 20 plus years.

The company has a lot of cash to fuel its expansion in a high-demand industry with extremely low debt. And historically, it’s done a fantastic job of growing its share price by four or five times. From 2012 to its peak pricing in 2022, the company saw its share price grow by 418%. Today’s beaten-up share price means it’s trading for lower multiples than in recent history and offers a more attractive entry point.

2. The case for Blackstone

Blackstone is one of the largest alternative asset management company in the world, managing over $951 billion for wealthy individuals, investment firms, and insurance companies. Over the last year, demand for Blackstone’s management services has grown by 30%, with investors pouring more money than ever into its funds. In turn, its fee-related earnings (FRE), which make up the bulk of its income, jumped by a staggering 51%. 

Despite this remarkable growth, its share price is down 28%. Concern over a slowdown in the real estate market, rising interest rates, and increased redemption requests in its private REIT, BREIT, led to a massive sell-off. The stock has made a notable rebound this year, up 15% since the start of 2023.

From 2012 to peak pricing near early 2022, the company saw its share price grow by nearly seven times, and I believe the next decade could deliver similar market-beating growth. Blackstone offers investors a passive way to invest in highly profitable asset classes like real estate, life sciences, debt equities, and renewable energy, along with countless others. These industries are usually challenging for everyday investors to participate in because they require a large capital investment, specialized knowledge, and skilled management — something Blackstone can offer.

Blackstone’s services aren’t something investors will stop needing. Even when the next bull market comes, many high-net-worth individuals will continue to diversify their holdings with alternative assets. This means the company has a largely untapped market for sustained growth in the decades to come.

Which stock can grow faster?

Both stocks have a good chance of growing five times their current share price, but it will take time. Prologis and Blackstone pay above-average dividend returns, 2.5% and 5.8%, respectively, which eats into the company’s ability to grow rapidly. With that being said, Blackstone is likely the stock to grow faster of the two because it isn’t required to pay a percentage of taxable income in the form of dividends like REIT Prologis is. That means there’s more flexibility in where and how it spends its money in order to grow.

There is still plenty of upside for share price growth, but expect these returns to be delivered over 10- to 20-year periods. I’m personally invested in both stocks, considering they offer different exposure to fast-growing, high-demand industries while paying attractive dividends to boot.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Liz Brumer-Smith has positions in Blackstone and Prologis. The Motley Fool has positions in and recommends, Blackstone, FedEx, and Prologis. The Motley Fool has a disclosure policy.

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