Upgraded: Declared Pairing of Logistics REITs Expected to Inspire More M&A in Red-Hot Logistics Sector and Beyond
Prologis Inc., the world’s biggest logistics homeowner, has actually agreed to purchase Denver-based DCT Industrial Trust Inc. for $8.4 billion in stock and presumed debt.
The boards of directors of both business all approved the all-stock definitive merger agreement in which Prologis will add DCT’s existing 71 million-square-foot portfolio plus 7.1 million square feet of development and redevelopment projects and 195 acres of land, primarily in Seattle, Atlanta, South Florida and Southern California, with advancement capacity of 2.9 million square feet.
The merger also includes 215 acres of jobs under agreement or alternative for sale in New york city and New Jersey, Southern California, Northern California and Chicago with build-out potential of more than 3.3 million square feet.
The portfolio boosts Prologis’ (NYSE: PLD) existence in such high-growth markets as Southern California, the San Francisco Bay Area, New York and New Jersey, Seattle and South Florida. Prologis Chairman and Chief Executive Officer Hamid Moghadam said the San Francisco-based REIT has for some time thought about DCT’s portfolio to be complementary in quality, market position and growth capacity.
Gene Reilly, Prologis CEO of the Americas, kept in mind that the company expects to sell off about $550 countless the DCT residential or commercial property over the next two years, less than 7% of the portfolio.
“This high level of tactical fit will permit us to record substantial scale economies instantly,” Moghadam said. “What we’re getting is 71 million square feet of irreplaceable real estate and we’re keeping 93 percent of it. It would have taken us years and years to [aggregate] this portfolio in this type of market.”
Moghadam kept in mind that the two companies’ complementary portfolios in essential submarkets, often within the exact same organisation parks like DCT properties in Sumner, WA; Brisbane, CA in the San Francisco Bay Location and Miami’s Beacon submarket, make the merger better than the sum of its parts.
“Having that type of share and market presence, the capability to move tenants around and the ability to understand renters’ options and have the ability to serve them much better, those are all intangibles that we have definitely not factored into the economics of this deal,” Moghadam said.
Logistics Firms Join Accommodations, Mall Cos. as M&A Targets
Experts stated to anticipate more consolidation activity this year among REITs and other real estate operators.
In addition to the proposed Prologis/DCT merger, Marriott Vacations Worldwide Corp. today agreed to buy ILG Inc. in a stock-and-cash offer valued at $4.7 billion, developing the biggest high-end brand for timeshare getaway resorts. The pairings are the 2nd and third notable property buyout transactions announced this year, in addition to mall owner GGP Inc.’s acceptence of a $9.25 billion cash-and-stock offer from Toronto-based Brookfield Residential Or Commercial Property Partners L.P.
. In the lodging sector, Pebblebrook Hotel Trust last week stepped up overtures to buy LaSalle Hotel Residence, upping its deal to $3.7 billion.The proposed $26.5 billion pairing of T-Mobile United States and Sprint Corp. announced over the weekend might affect millions of square feet of industrial residential or commercial property.
With REITs trading at discount rates to net-asset worths in the mid-teens and the marketplace awash in public and personal capital, 2018 is placed to be a year of combination, REIT analyst Mitch Germain said in a note to customers.
“We prepare for the potential for extra M&A activity as there are record levels of private-equity dry powder on the sidelines and financial obligation funding is easily available,” Germain stated.
Logistics has been amongst the hottest residential or commercial property sectors as e-commerce development has fueled need for more warehouse, including locations near population centers in the last link of the supply chain to deliver online purchases rapidly to consumers. The deal is Prologis’s largest since the $8.4 billion acquisition of AMB Residential or commercial property Corp. in 2011, at the time the second-largest commercial REIT behind Prologis.
John Guinee, expert with Stifel, Nicolaus & & Co., stated financiers must try to find more mergers & & acquisitions activity in the industrial REIT sector amidst excellent operating and leasing conditions and stronger-than-expected e-commerce demand.
“While we do not anticipate a topping quote [for DCT], we do presume that the other industrial REITs will be fielding or warding off acquisition proposals earlier than later on,” Guinee stated.
The merger shows the aggravation of many purchasers and abundance of capital trying to compete for an extremely minimal variety of logistics properties pertaining to market, said John DeGrinis, senior executive vice president, North Los Angeles in Colliers International’s Encino market.
“This does not amaze me,” DeGrinis informed CoStar News, adding he expects to see more M&A activity in the sector. “It was ending up being really apparent a year ago that these two REITs and 30 or 40 other companies are all trying to do the very same thing, which is buy and lease industrial properties or purchase land to develop assets.”
“Bear in mind that when a big portfolio pertains to market, there are probably 100 entities that would enjoy to purchase it, but 40 people that get the offering memorandum and only one wins,” DeGrinis added. “It’s so tough that I was wondering when the REITs would start taking control of one another as another way to generate properties.”
Under the terms of the offer expected to close in the third quarter, DCT shareholders will get 1.02 Prologis shares for each DCT share. The cost represents an approximately 16% premium for DCT investors. Prologis anticipates DCT President and CEO Philip Hawkins to sign up with the Prologis board of directors.
Matt Kopsky, REIT expert with Edward Jones, said the merger is an excellent strategic fit, as DCT owns storage facilities in high-growth markets, which overlap perfectly with Prologis’s portfolio.
“DCT has a robust development pipeline in core markets,” Kopsky said. “While a great deal of [the pipeline] is speculative, our company believe there is strong demand in these markets to fill them rapidly.”
While the financial cycle remains in its later phases, Kopsky stated commercial property markets have strong staying power provided the growth in e-commerce demand and the modernization of supply chains to accommodate that development.
“Well-located commercial realty has prices power and we believe that Prologis paid a fair cost to acquire more of this,” Kopsky stated.
J.P. Morgan is functioning as financial consultant and Mayer Brown LLP serving as legal advisor to Prologis. BofA Merrill Lynch is working as financial consultant and Goodwin Procter LLP as legal advisor to DCT.
Editor’s note: This story was upgraded at 12:50 pm and 4:55 pm PT with extra merger activity and analyst commentary.