BMO Capital Markets moved Prologis Inc. (PLD) to an Outperform rating from Market Perform and raised its price target to $162 from $137, pointing to the industrial landlord and developer’s growing exposure to data center demand as a principal driver of potential upside.
Analyst John Kim said Prologis has "considerable ability to benefit from data center demand," noting the company now has a secured and late-stage development pipeline equal to 3.7 gigawatts of leaseable capacity. Kim also highlighted that data center suppliers represent roughly 10% of Prologis’s new leasing volume.
Data center activity has become a larger part of Prologis’s development starts. In the first quarter, data center development starts increased sharply within the company’s pipeline, reaching $1.2 billion and representing 69% of total starts. BMO values the company’s 10-year, $23 billion data center development program at a net present value of $5.3 billion on the assumption of 4.9 gigawatts of leaseable capacity.
The broker raised its net asset value estimate to $138.65 per share from $136.68 per share.
Kim also pointed to tentative signs of recovery in Los Angeles, Prologis’s largest market. First-quarter absorption turned positive, driven by resilient demand for Class A space, even as broader market fundamentals remain uneven.
"Investment activity is improving around modern, value-add assets, a setup we believe favors PLD given its higher Class A exposure," Kim wrote, noting that the company’s portfolio composition positions it to benefit if investment flows concentrate on higher-quality product.
Reflecting these developments, BMO lifted its core funds from operations per share estimates for 2026 and 2027, implying roughly 6% and 9% growth respectively. The analyst attributed the projected acceleration to a combination of rising occupancy, wider re-leasing spreads, and growing contributions from strategic capital initiatives and Prologis’s Essentials business.
Despite the positive outlook on data center demand and improving market activity, BMO flagged valuation and demand-related headwinds. The stock is trading at 27.6 times next-twelve-month adjusted funds from operations, which the broker notes is a 29% premium to the industrial REIT sector average and nearly 8% above data center REITs.
Kim also highlighted that embedded rent growth, measured as mark-to-market, has declined to 17% from a peak of 68% and is expected to fall further to around 8.6% by year-end.
Amazon’s changing approach to new real estate was cited as another potential constraint on future leasing volumes. The e-commerce company now plans to own 67% of newly built assets, compared with owning only 5% of its existing portfolio, a shift BMO said is unlikely to recreate the leasing surge observed in 2020 and 2021.
Overall, BMO’s upgrade and higher price target rest on Prologis’s expanding data center pipeline and signs of demand stabilization in key markets, balanced against above-average valuation multiples and evolving tenant behavior in large occupiers.
Additional analysis from the broker updated valuation metrics and growth forecasts while underscoring both near-term operational improvements and structural risks tied to tenant strategies and mark-to-market momentum.