Zacks_Analysts' Blog : Prologis Prices Equity Offer - Analyst Blog

Prologis Inc. (PLD) – 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 (BAC); JPMorgan Chase & Co. (JPM); Deutsche Bank Securities Inc. – the U.S. investment banking and securities arm of Deutsche Bank AG (DB); Morgan Stanley (MS); The Goldman Sachs Group, Inc. (GS); and Citigroup, Inc. (C) 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.

Wecurrently have an ‘Underperform’ recommendation and a Zacks #3 Rank for Prologis, which translates into a short-term ‘Hold’ recommendation.