Prologis CEO Expects Businesses to Operate with Higher Inventory Levels Post-Crisis

Prologis, Inc. (NYSE: PLD) chairman and CEO Hamid Moghadam said he expects businesses to operate with a higher level of inventories following the coronavirus crisis.

Speaking on an April 6 business update conference call, Moghadam noted that for approximately the past 20 years supply chains have been structured for efficiency. “People have been squeezing more and more inventory out of the system. The supply chains have been longer and longer, so they’re very vulnerable to disruption,” he said.

Going forward, businesses will operate with a higher level of inventory altogether, Moghadam said, because the advantage of resilience in the supply chain is “becoming pretty obvious.” He said inventory levels could rise by as much as 10% once the current crisis is over. “That’s substantial because this business is a 1%, 1.5% grower per year, so if you have 5% or 10% more inventory you could almost double the growth rate for four or five years.”

Eugene Reilly, chief investment officer at Prologis, also told the call that in addition to a projected increase in inventory levels, logistics real estate is expected to benefit from an accelerated adoption of e-commerce and an increase in the onshoring of manufacturing activity. Prologis has received over 94% of March rent payments, which is basically in line with expectations, while rent payments in April to date are also in line with expectations, Reilly said. “The short-term surge in demand is real. How durable this will be remains to be seen,” he added.

Reilly also pointed out that to date Prologis has received some form of rent relief request from 24% of its customers, as measured by gross rent. The company expects to grant about a quarter of these requests in the form of rent deferrals, equal to about 1% of gross annual rent.

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