6:34PM EST

I haven’t quite done all my research yet but I’ve been working on it on my busy schedule but I’ve done enough to establish a decent SHORT position in Prologis.  I was made aware of this from a wise acquantance.  It seems that this company is rather complex in their accounting and is deriving most of their revenue from some of their entities that they have partial ownership in but total control over.  They call these “funds” where they derive management and capital relationships.  It’s a little odd that they just don’t hold all their holdings in their own balance sheets like most REIT.  There is a huge lack of transparency and it’s very obvious.  Here are my reasons in the short term and long term for this short.  Here are the macro-economic trends that doesn’t help the commercial REIT sector: 

1. The commercial real estate has not bottomed it.  Actually it is just starting. 

2. Commercial lending is growing more and more expensive which will cut into CAP rates and therefore earning. 

3. Dividend pressure.  Many people hold REITs for their dividend and when they have to cut then long term buyers will bail.  

But in addition to these, Prologis is in a less stable real estate sector that is related to retail and industrial warehousing and distribution which is facing large headwinds as consumers and the global economy faces the credit crisis.  

Here is an analysis report: 

RBC analyst Dave Rodgers says, while Prologis (PLD) remains a driving force in global industrial development and fund management, he sees little opportunity near term. He says the shares are likely to gap down sharply at the open, but thinks buyers should be cautious as additional challenges lie ahead for this sector overall. Rodgers notes that beyond slower lease-up and cap rate pressure related to development/contribution business, access to permanent financing could become an increasing problem. He also notes the relatively high level of leverage for PLD and less secure dividend on back of lower gain income could become greater concerns moving forward. He cuts $4.80 2008 FFO a share estimate to $4.05 and $5.15 for 2009 to $4.22. He slashes $60 price target to $33.
 

There is growing headwinds against them as they just lower guidance while increasing their dividend. Here are some writings on the wall:

1. There has been more options exercised than the previous two years.  

2. The drop on Thursday because of the lowered guidance was supported by 21M share volume supporting further downside.  

3. They started six of their fourteen funds within the last two years and five of them in 2007.  It just seems like bad timing to invest money in commercial real estate in 2007.  

4. Their current Cheif Accounting Officer actually was an partner at Arthur Andersen.  But I’m not saying that he was part of the Enron scandal but he sure was partner when that happened.  

5. Did I mention the horrible leveraged free cash flow of -751M?  Huh?  How?  What?  Negative.  Yes, really negative. 

6. The best thing of all other than this fundamentals mumbo jumbo: The chart looks like a one way street to financial sorrow or what the Fast Money crew calls the imfamous “death spiral”

DEATH SPIRAL!!!!   Ok, I’m getting perhaps a little too dramatic but it’s somewhat obvious that it’s in a downtrend and near term resistance is at $45.  I missed my chance at the $45 market because I was a little busy selling all my longs in the morning as my brokers site froze.  Yes of course perfect timing to freeze.  I wish that I had recourse for that but I highly doubt it.  But I will try. 

You can read more about this on Richard Woon’s blog: http://www.stripnomics.com/

I had planned to short into a rally early next week.  But we’ll see.  There are some awfully great shorts out there after this recent market rally.  Get ready it ain’t over yet.  

Disclosure: Short: PLD

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