Wednesday, April 22, 2020

Warehouse Giant Prologis Grants 7% of Coronavirus Rent Relief Requests

Prologis Inc., the world's largest logistics property operator, said it is prioritizing small tenants as it evaluates requests for rent relief spurred by the coronavirus pandemic, but it has only granted a fraction of the requests.

The San Francisco-based business, has so far granted 7% of the requests by tenants for rent relief and denied 70%, which cumulatively account for 4.3% of the company’s gross annual rent revenue, executives said during the company's first-quarter earnings conference call late Tuesday.

Executives said the company is still reviewing just under a quarter of the requests, giving preference to smaller firms “with legitimate needs stemming from COVID-19, and not for opportunistic requests” in the form of loans due by the end of the year, Prologis Chief Investment Officer Gene Reilly told analysts.

Prologis is among the largest logistics operators on the globe, with an industrial property portfolio of 965 million square feet in 4,660 buildings across 19 countries. Its properties were valued at $125 billion as of March 31. The requests it has received for rent relief and the amount that is has been willing to provide a glimpse into what the company sees ahead for the larger market as the coronavirus pandemic takes a toll on businesses and the global economy.

While food companies are reporting strong increases in sales, clothing, sporting goods and home furnishings sales are down sharply, Reilly noted.

“Our customers that are in contraction are going through a short-term shock,” Reilly said. “Some will recover fairly quickly, others face a longer transition to normalcy and unfortunately, certain businesses will not survive.”

The coronavirus threatens to affect returns for investors in Prologis and other publicly traded warehouse owners and builders, a group that gained more in terms of stock price than other major commercial property types in the past five years. While leasing has slowed considerably in the past few weeks, CoStar recorded net demand of at least 28 million square feet of logistics and warehouse space in the first quarter.

"April and May collections are of extreme interest," said Stifel analyst John Guinee in an April 17 investor note on industrial REITs. "The farther fundamentals drop, the steeper and longer the climb. Right now, (REIT executives) are playing nothing but defense. We think investors will soon think of 2020 as a complete wash-out and focus on 2021."

Even as the requests came in, Prologis said it has collected roughly 85% of April rent payments, which is close to normal collection rates, the company said.

Prologis doesn't seem to be betting on a significant slowdown in demand for logistics properties anytime soon either.

The company reported strong demand for its logistics properties in the first three months of 2020, driven by strong leasing by food and beverage providers and other companies that provide staple goods for the temporary “stay at home economy,” Reilly said. Larger customers are faring much better than smaller tenants during the pandemic, he added.

The last few weeks have also accelerated the shift from from brick-and-mortar stores to buying products online, increasing demand for logistics property, the company said. E-commerce companies signed 40% of all new leases compared to 23% before the crisis began in March, Reilly said.

Prologis expects its overall business to slow over the next few months along with the global economy but executives said an eventual development of a vaccine for the deadly virus could cause a snapback in demand for its buildings.

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