Prologis Additional Equity Offer to Reduce Debt

Jul. 05, 2011 7:05 AM ET
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Hope you had a great Fourth of July weekend! This week, I'm seeing continued selling pressure in the global stock market, and have a short-sell on Prologis real estate investment trust.

By Zacks Investment Research Earnings Estimates Revisions Winning Portfolios

Prologis Inc, the erstwhile AMB Property Corp., has priced its equity offer of 30.0 million common shares at $33.50 each. The secondary offering was announced recently as part of its strategic initiative to raise cash and repay debt. The company has also decided to grant the underwriters an option to purchase an additional 4.5 million shares to cover any over-allotments.

BofA Merrill Lynch – the investment banking and wealth management division of Bank of America Corporation; JPMorgan Chase & Co.; Deutsche Bank Securities Inc. – the U.S. investment banking and securities arm of Deutsche Bank AG; Morgan Stanley; The Goldman Sachs Group, Inc.; and Citigroup, Inc. are acting as joint book-running managers for the public offering.

The company intends to utilize the proceeds from the equity offer to fully repay debt under the existing Prologis European Properties bridge facility. The remainder of the proceeds would be used for general corporate purposes and for reducing debt under its global senior credit facility.

Prologis, a leading industrial real estate investment trust (REIT), acquires, develops, operates and manages industrial real estate space in North America, Asia and Europe. The majority of the company’s portfolio comprises high throughput distribution (HTD), which provides multiple options for quick movement and the distribution of goods to the customer and serves as a critical element in creating efficiencies in the global supply chain.

HTD properties are warehouses or other industrial properties that are located near airports, seaports, and ground transportation facilities, which enable rapid distribution of customers’ products.

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 first quarter 2011 results were in line with the company’s expectations, macroeconomic issues 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 dramatically. 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.

Sell-Short Prologis - Ticker PLD

Sell Entry: 38.07 to 35.13

Stop-Loss: 41.12

Take Profit Areas: 31.97 to 31.49, 30.90 to 30.44, 27.40 to 26.99, 20.72 to 20.46

Company Profile

ProLogis operates as a real estate investment trust in the United States. It owns, operates, and develops industrial distribution properties in North America, Europe, and Asia. The company operates in three segments: Property Operations, Fund Management, and Corporate Distribution Facilities Services (CDFS). The Property Operations segment engages in the ownership, management, and leasing of industrial distribution and retail properties. As of December 31, 2005, this segment consisted of 1,461 operating properties with approximately 186.7 million square feet. The Fund Management segment provides investment management services for unconsolidated property funds and other properties. As of the above date, this segment had investments in approximately 14 property funds. The CDFS segment primarily develops properties that are contributed to a property fund or sold to third parties. This segment also engages in commercial mixed-use development activities, such as selling the land or completed projects to third parties. As of the above date, this segment had approximately 72 distribution properties. As a REIT, the company would not be subject to federal tax to the extent that it distributes at least 90% of its taxable income to its shareholders. It has a strategic cooperation agreement with China National Materials Storage & Transportation Co. and Zhongchu Development Stock Co., Ltd. to develop logistics and storage markets. The company also has a joint venture agreement with K Raheja Corp. for the acquisition and development of properties in Mumbai, Chennai, Delhi, Bengaluru, Kolkata, and Pune, India. ProLogis was founded as Security Capital Industrial Trust in 1991 and changed its name to ProLogis Trust in 1998. Subsequently, it changed its name to ProLogis. The company is based in San Francisco, California.

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