Prologis Inc. (PLD), a leading industrial real estate investment trust (REIT), has recently fully leased ‘Prologis Tolleson Distribution Center 1’ – a 302,600 square foot warehouse property in Tolleson, Arizona, to an unnamed retailer for an undisclosed amount. The leased facility was earlier acquired in August 2011 for $9.95 million in an all-cash transaction.
The lease-up of the distribution facility within a short span of time highlights the inherent quality of the asset portfolio of Prologis and signifies the strong demand of large blocks of industrial space in the Phoenix submarket. To capitalize on this opportunity, Prologis presently has approximately 3 million square feet of operating assets in Phoenix, as well as a land pool to accommodate approximately 2.5 million square feet of additional development in the region.
In the recent past, 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 spurt in the industrial market in the greater Phoenix area is primarily due to the stabilization of market fundamentals in the past couple of quarters despite a challenging macroeconomic environment. According to market reports, total transactional volumes were up by 20% in the first half of 2011 compared to the previous year. However, regardless of a significant headway, the industrial real estate sector is yet to achieve its pre-recession peak values in the region.
Prologis 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 third quarter 2011 results exceeded the Zacks Consensus Estimates, macroeconomic issues 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.
We currently have a ‘Neutral’ recommendation and a Zacks #3 Rank for Prologis that translates into a short-term ‘Hold’ rating.
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