Prologis (PLD), a leading industrial real estate investment trust (REIT), has recently divested a significant chunk of its portfolio in Korea for net proceeds of $65.6 million. The asset sale was part of the corporate strategy of the company to better align the portfolio with its investment policy, sprucing up of private capital business, and strengthening the balance sheet.
The company sold 8 wholly-owned properties in Korea as well as a 20% stake in the Prologis Korea Fund, which consisted of 12 properties spanning 1.7 million square feet. With the divesture, Prologis will have a portfolio of 3 industrial buildings left in Korea totaling approximately 594,000 square feet of operating space, which were 100% leased as of June 30, 2011.
The asset sale is an integral plan of Prologis to enhance investor returns in its private capital funds. Over the years, the company has been selectively selling properties where it has maximized value or where the properties are no longer a strategic fit.
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 second 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 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’ rating. However, we have a ‘Neutral’ recommendation and a Zacks #3 Rank for Winthrop Realty Trust (FUR), one of the peers of Prologis.