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Stock Strategist

Real Estate Merger Makes Sense, Not a Moat

Numbers don't lie: Industrial behemoth ProLogis not better off with AMB in fold.


Earlier this year, we downgraded our moat assessments for industrial property landlords ProLogis Trust and AMB Property Corporation as stand-alone businesses to none from narrow. Recently, these firms merged, creating  ProLogis Inc. (PLD), a worldwide behemoth owning industrial property in markets that represent roughly 80% of the global economy. Still, the expected benefits of the merger are not sufficient enough for us to change our outlook on the newly combined firm's moat.

We look at a number of operating and financial metrics when assessing moats among landlords. We think landlords with competitive advantages should be able to post solid operating metrics across a complete real estate and economic cycle and generate returns on real estate assets that exceed their costs of capital. By our reckoning, industrial real estate investment trusts ProLogis and AMB Property failed in both areas as stand-alone companies.

Todd Lukasik does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.