Warehouse developer's shares down 96 percent

By John Rebchook, Rocky Mountain News (Contact)

Published November 24, 2008 at 9:39 p.m.
Updated November 24, 2008 at 11:50 p.m.

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The stock of ProLogis has fallen more than General Motors.

Or Ford or Citigroup or most of the stocks hammered during this latest financial crisis.

Denver-based ProLogis, by far the top competitor in the worldwide warehouse business, represents one of the largest and most unexpected victims of the global economic crisis.

Blame it on fears that the company will not be able to make payments or refinance more than $11 billion in debt, at a time when demand and lease rates are falling for its giant warehouses throughout North America, Europe and Asia.

Depending on whom you talk to, the company will make recent investors rich or take all their money in a bankruptcy.

"It's tragic," said Byron Koste, director of the Real Estate Center at the University of Colorado. "The whole world kind of looked at them as the logistics elite. They understood this stuff better than anybody else. The company, with all of its holdings, had been seen as the best example of how to go global. It was the best the U.S. had."

The company's stock has fallen 96 percent from its 52-week high of $71.79.

The stock closed at $2.82 on Monday, down about 7 percent from $3.04 on Friday, on a day the overall market rallied.

It is now trading for less than a third of its initial price offering of $8.17 per share (adjusted for splits and dividends) in 1995.

The company, one of Colorado's biggest by market cap, employs about 1,500 people worldwide, with 360 of them in the Denver area. Three years ago, ProLogis, already the nation's largest REIT focused on warehouse and distribution properties, bought real estate investment trust Catellus Development Corp. in a $3.6 billion cash and stock deal.

With the stock in the tank, the company has no choice but to trim its work force. ProLogis hasn't determined how many people will go, although it already had one high-profile resignation - Jeffrey Schwartz, the former CEO and chairman.

Schwartz is walking away with a package valued at $15.1 million.

Much of the drop has occurred in recent weeks as investors panicked about its massive debt and because of its investments worldwide.

"A year ago, everyone loved them because they were internationally diversified, and now everyone hates them for that," said Joel Bloomer, an analyst with Morningstar.com.

Bloomer said there is a 20 percent chance that ProLogis will file for bankruptcy. Other analysts are much more bullish.

In fact, if it doesn't file for bankruptcy, it arguably is extraordinarily undervalued.

Some analysts think ProLogis is making all the right moves - cutting its administration costs by 25 percent, slashing its dividend, putting hundreds of millions of dollars of planned developments on hold, and selling some assets.

The 52-week target for the stock is $25, according to an analyst's report by Barclays Bank.

Analyst Lou Taylor of Deutsche Bank is predicting a $15 price for the stock over the next year.

"The company simply has to execute the plan for the stock to move higher," Taylor wrote in a Nov. 13 report. "We think there is tremendous value in the shares. But they are being weighed down by the sum of all the fears that exist in the market right now."

ProLogis, a real estate investment trust that trades under the symbol PLD on the New York Stock Exchange, may be acting like a high-flying company from the tech bust of 2000 and 2001, but nothing could be further from the truth.

It is the leader in what is considered one of the strongest sectors of commercial real estate.

It controls a vast network of sophisticated warehouses. Its clients include such well-known names as Amazon.com, General Electric, Home Depot, Kimberly-Clark, Sears, Wal-Mart, Adidas, Home Depot, Office Depot, Pepsico, Procter & Gamble and Hitachi.

In total, its 548 million-square- foot portfolio is larger than all of the office buildings in downtown Denver - times 20.

The collapse of ProLogis' stock took Koste, head of the CU Real Estate Center, by surprise.

"I didn't see this coming," Koste said. "Nobody I've talked to saw it coming. It is virtually unbelievable that could have happened to ProLogis. But these are times none of us have ever seen before."

Not only is the breadth of the fall amazing, but how quickly it happened, he said.

"It's the sign of the times - people are scared," Koste said. "I'm guessing it was debt related. We all know the power of debt. It is very powerful in both directions."

While all REITs are down, ProLogis suffered more than most, said Melissa Marsden, senior vice president of investor relations at ProLogis.

"Primarily, (it's) because of our rapid expansion," Marsden said. "We developed in a lot of new markets simultaneously, so we had a large pipeline of assets under development or recently starting to lease up."

Unfortunately, the growth spurt occurred as world markets began to slow down, which means ProLogis will lease less space and at lower rental rates.

Marsden declined to comment on Morningstar's contention the company may file for bankruptcy, other than to say "our intention is to continue as a going concern."

Reporter David Milstead contributed to this report.

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