Amazon might be reporting that it has too much warehousing space in the face of a moderation in e-retail demand, but that is not dampening the optimism of warehousing property giant Prologis.
It has bid the equivalent of $23.7bn for US logistics property REIT Duke Realty Corporation, using an offer of 0.466 shares for each Duke Realty share, something that Prologis assert represents a 29% premium to Duke’s closing price before the bid.
The management of Duke is clearly interested but wants a higher price, stating that “as we have repeatedly made clear to Prologis during our discussions over the past several months, consistent with its fiduciary duties, our Board of Directors has carefully evaluated proposals from Prologis and we remain open to exploring all paths to maximize shareholder value, and we believe the latest offer, virtually unchanged from its prior proposals, is insufficient in that regard.”
Duke is a leading US logistics property developer which describes itself as having “160 million rentable square feet of high-quality industrial assets in 19 key U.S. logistics markets”. Its portfolio is restricted to the US, growing from a regional presence in Indianapolis to become a national player in logistics property.
Of course, the background to Prologis’ offer is the booming market for warehousing space in the US and across much of the World. Prologis’ latest briefing on the US market comments that rents are still strong, rising quarter-on-quarter by 8.5%. The combination of strong consumer demand and “supply chain volatility” continues to underpin the market yet supply is constrained with “logistics customers” absorbing “88 million square feet (MSF) in Q1, down from about 120 MSF in the prior quarter”. This is making Prologis very bullish. It views the market as continuing to be under-supplied, with retailers’ inventory position still low implying an “incremental 800 MSF of logistics space would be needed to correct the current shortage and build inventory growth of 10 percent”.
Prologis has stumbled before as a result of its over-aggressiveness, however, at present, the US warehousing market is still hungry for the right sort of facility. Even in the face of a downturn in consumer demand this is still likely to be the case and will probably prevent Prologis from getting its fingers burnt too badly if it overpays for assets.
Source: Transport Intelligence, 12th May 2022
Author: Thomas Cullen