Prologis Inc. (PLD) – the erstwhile AMB Property Corp., has recently acquired a 302,600 square foot warehouse property in Tolleson, Arizona, for $9.95 million in an all-cash transaction. This is the second major acquisition of the company in the region in the past one month.
Prologis had earlier purchased a 250,800 square foot distribution facility in Phoenix for $9.1 million. In the past 18 months, Phoenix has witnessed a plethora of acquisition activities of larger industrial buildings with at least 200,000 square feet of contiguous space. This has resulted in over 6 million square feet of net industrial space absorption by leading companies such as Amazon.com Inc. (AMZN) and Suntech Power Holdings Co. Ltd. (STP). Net absorption is the change in total occupied square footage for a given area over a given period of time, usually based on financial quarters or annually.
The industrial market in the greater Phoenix area has fairly stabilized in the past couple of quarters despite a challenging macroeconomic environment. Total transactional volumes were up by 20% in the first half of 2011 compared to the previous year. However, regardless of a significant headway in the stabilization of market fundamentals, the industrial real estate sector is yet to achieve its pre-recession peak values in the region.
Prologis, a leading industrial real estate investment trust (REIT), acquires, develops, operates and manages industrial real estate space in North America, Asia and Europe. Given its international presence, Prologis has lately faced unfavorable foreign currency movements and other economic fluctuations that have impaired its top-line growth.
Furthermore, although second quarter 2011 results were in line with the company’s expectations, macroeconomic headwinds had contributed to a slower pace of recovery as the industry was affected by the continued concerns about sovereign debt issues, rising energy costs, global military actions and the devastation and loss caused by the earthquake and tsunami in Japan.
In addition, the unrelenting troubles in the residential sector are weighing on commercial property operations. The credit crunch has also widened the bid-ask spread between buyers and sellers of commercial real estate, which has caused deal volumes to fall comparatively.
In addition, market vacancy increases will mitigate Prologis’ ability to push through rental rate increases. This has significantly affected the long-term growth of the company.
We currently have an ‘Underperform’ recommendation and a Zacks #3 Rank for Prologis, which translates into a short-term ‘Hold’ recommendation.
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