Amazon Warehouse Contraction, Market Slowing No Big Deal: Prologis Execs
The industrial market nationwide is poised to soften a bit as 2022 plays out, but only compared to the record-setting success it experienced earlier this year and in 2021, according to Prologis executives speaking during the company's second-quarter earnings call on Monday.
And reports of Amazon returning industrial space to the market are much ado about nothing, at least as far as Prologis is concerned, Chief Customer Officer Michael Curless said during the call. He also dismissed the prospect of industrial overbuilding as a problem for the company.
The earnings call was a wide-ranging discussion on the robustness of the industrial market and Prologis' corporate health in particular but glossed over the company's hulking deal to purchase Duke Realty.
In June, Prologis announced a $26B all-stock acquisition of Duke Realty, which is expected to close in the fourth quarter of 2022. Upon completion, Prologis will add about 165M SF of assets, all in the U.S., to its global portfolio, but the company's leadership was silent on the subject during the call.
In answering a question put to him by an analyst, Curless touched on one of the larger industrial market stories of the year so far, reports that Amazon would shrink its use of warehouse space.
"What matters is what we're seeing on the ground, and what we're seeing on the ground is not much," Curless said.
"Let's go to our portfolio of 132 spaces," he said, referring to space Amazon leases from Prologis. "We've had zero in play."
In the last 18 months, he added, the retention rate for space Prologis leases to Amazon has been 95%, 20 percentage points higher than the company average at the same time.
Overall, Prologis execs stressed on the call, the U.S. industrial market has the potential to soften further this year, but only when compared to 2021 and early 2022, a period that set unprecedented records in demand, leasing and rent growth in the sector.
Regardless, Prologis Chief Financial Officer Tim Arndt said, the company is in a good position to weather what comes, citing a number of metrics, including demand for the little space that the company has for lease. Prologis' average occupancy in Q2 2022 was 97.6%.
"Seventy-one percent of leases expiring in the next 12 months are either pre-leased, or in negotiations," Arndt said, which is ahead of the pre-pandemic average of 56% for the same metric.
Prologis is the world’s biggest industrial and logistics property owner, with a market capitalization of $118B and industrial holdings of about 1B SF. It has about $5.2B in liquidity as well.
Investors have been less enthusiastic about Prologis recently, though that is in the context of a marketwide slide in the value of equities this year. Prologis traded at nearly $120 per share on Monday, down nearly 5.5% over the last year. As of Monday, the S&P 500 was down about 9.6% year-over-year.
In the last five years, however, Prologis stock price has gained more than 103%.
