FUR Winthrop Realty Trust New (delisted)

Prologis Inc. (PLD), a leading industrial real estate investment trust (REIT), has recently signed a lease agreement spanning 139,000 square feet of its development portfolio in the UK with Dalepak Limited, a third-party logistics service provider, for an undisclosed amount. The lessee would occupy the space at Prologis Park Pineham DC139, which is located in between Birmingham and London in Northampton.

With the lease, Dalepak would presently occupy about 340,000 square feet of space in Northampton and the leased facility would house its new headquarters. The distribution warehouse would provide immediate access to the national motorway network and primary consumer markets of the region, thereby enabling Dalepak to better serve its UK business.

In addition, the leased distribution center possesses a sustainable industrial design, with an ‘Excellent’ accreditation from BREEAM (Building Research Establishment Environmental Assessment Method) and an Energy Performance Certificate (EPC) rating of ‘B’. The EPC provides ratings from ‘A’ to ‘G’, wherein ‘A’ indicates the most energy-efficient building. As a result, the leased facility is expected to augment the sustainable initiatives of Dalepak in the long run.

On the other hand, the lease agreement enables Prologis to expand and cement its strategic ties with leading third-party global logistics service providers like Dalepak, who remain focused on improving supply chain efficiencies through the lease-up of functional and modern distribution space. Consequently, the lease agreement is a win-win deal for both the participating companies. 

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 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 compared to pre-recession levels. Moreover, market vacancy increases is expected to mitigate Prologis’ ability to push through rental rate increases, thereby affecting the long-term growth of the company.

We currently have a ‘Neutral’ recommendation and a Zacks #3 Rank for Prologis, which translates into a short-term ‘Hold’ rating. However, we have an ‘Outperform’ recommendation and a Zacks #3 Rank for Winthrop Realty Trust (FUR), one of the peers of Prologis.

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