Prologis acquisition of Duke Realty is a done deal

The much-anticipated acquisition of Indianapolis-based Duke Realty Corporation, a sustainable industrial real estate development and the largest domestic-only logistics REIT (Real Estate Investment Trust) by San Francisco-based real estate investment trust company Prologis became a done deal earlier today, according to Prologis.

Under the terms of the deal, the all-stock transaction, which Prologis said is valued at approximately $23 billion and was approved by Prologis and Duke shareholders, includes the assumption of debt, with the company adding it “expands Prologis’ presence in key U.S. markets.

Prologis is the largest industrial global real estate company, with ownership, or investments in, on a wholly-owned basis or through co-investment ventures, properties and development projects expected to total approximately 1.0 billion square feet (93 million square meters) in 19 countries, according to its website. Prologis leases modern logistics facilities to a diverse base of approximately 5,800 customers principally across two major categories: business-to-business and retail/online fulfillment, it added.

Prologis outlined various benefits the acquisition of Duke Realty provides, including:

• 142 million square feet of fully operational logistics buildings (~480) in 19 major U.S. markets, including Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta;
• 7 million square feet of buildings under development; approximately 17 million square feet of developable land;
• and more than 500 new customers

The company also noted that James Connor, Duke Realty Chairman and CEO, has been named to the Prologis Board of Directors.  

“In addition to the day-one accretion and avenues for further earnings growth, this acquisition gives us an even stronger ability to support our customers and their growth,” said Prologis Co-founder, CEO and Chairman Hamid R. Moghadam in a statement. “We’re gaining high-quality properties and more than 500 new customers in key markets. These new customers will be able to tap into our Essentials platform, which delivers end-to-end solutions to address critical supply chain challenges and contributes to their broader sustainability efforts.”

And on a June conference call he said that “Duke’s assets are highly complementary to those of Prologis both in terms of physical qualities and market selection, he said.

“We pursued this acquisition primarily because the combination makes great sense from a long-term growth perspective for both companies’ customers and shareholders,” he said. “Our focus on customer innovation has created a platform on which assets simply perform better. Our M&A history clearly demonstrates our ability to integrate assets and people into our business and to unlock additional value in acquired portfolios.”

And with Duke officially in the fold, Prologis said that it is expanding its presence in major regions in the U.S. and adding Savannah, Georgia, the fourth-largest U.S. gateway for container imports, explaining that with an expanded U.S. presence in key logistics hubs, the company will be even better poised to meet customer needs. What’s more, Prologis said it will be actively onboarding Duke Realty customers it is gaining and introducing them to the aforementioned Prologis Essentials platform.

The closing of this deal followed a June announcement by Prologis, in which it said it had entered into a definitive agreement to acquire Duke.

But, as previously reported by LM, it was not a straight line to the deal’s completion, with Duke spurning a previous offer from Prologis in May.

In a May 10 letter sent to Duke Realty CEO Connor, Prologis’ Moghadam said that Prologis is highly confident that bringing Duke into the fold “will deliver superior value to the shareholders of both companies over the long term,” citing various benefits, including: a highly strategic and complimentary combination; incremental value created from Prologis’ platform; enhanced external growth; and significant synergies.

And he told Connor that while Prologis would prefer to continue working privately towards a deal with Duke, in an effort to benefit shareholders for both companies, “the approach clearly is not working,” leading Prologis to “conclude that a public approach may be more constructive for all.”   

At that time, Duke labeled the Prologis offer as insufficient. But Duke made it clear that the offer was insufficient.

“As we have repeatedly made clear to Prologis during our discussions over the past several months, consistent with its fiduciary duties, our Board of Directors has carefully evaluated proposals from Prologis and we remain open to exploring all paths to maximize shareholder value, and we believe the latest offer, virtually unchanged from its prior proposals, is insufficient in that regard,” the company said in a statement. “We have delivered superior returns for our shareholders based on our best-in-class industrial warehouse portfolio, world-class organization and the execution of our growth-oriented strategic plan. Our business is robust, and we have significant momentum, as evidenced by the record levels of in-service and stabilized occupancy and considerable leasing success of our development pipeline. We will continue to drive sustainable value creation and are confident in our ability to generate consistent double-digit growth in FFO, AFFO and dividends for our shareholders for years to come.”

Ward Richmond, executive vice president for global commercial real estate firm Colliers International, observed in a recent LinkedIn post that investing in high quality industrial real estate in key markets is an intelligent move.  

“There are few companies out there with such a solid portfolio of well positioned (110% leased or something?) industrial real estate assets as Duke (not to mention Prologis!),” he wrote. “If I had that Prologis money, I would do the exact same thing!”

Richmond added he has been encouraging Colliers’ tenant clients to seriously consider buying instead of leasing as well, adding that the ones who have been doing so are “high fiving each other as we speak,” as rents double on renewal rates in certain markets.

“Inflation, global conflict, pandemics, working from home, supply chain disruption all seem to point to one direction: own and control as much industrial real estate as possible (big box, last mile, infill, ports, intermodal, truck terminals, truck parking, and if you want to keep it simple—buy (or attempt to buy) elusive Industrial land sites and just hold it while you decide what innovative new facility you need to build to take your business to the next level,” said Richmond.