Earlier this week, San Francisco-based real estate investment trust company Prologis signaled its desire to buy Indianapolis-based Duke Realty Corporation, a sustainable industrial real estate development and the largest domestic-only logistics REIT (Real Estate Investment Trust).
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. And Duke Realty owns and operates approximately 164.9 million rentable square feet of industrial assets in 19 major logistics markets.
Under the terms of the proposed offer, Duke stakeholders would receive 0.466 shares of Prologis common stock for each share of Duke Realty common stock they own, according to Prologis officials. The company said the proposal is valued at $61.68 per Duke Realty share based on Prologis’ May 9 closing price, representing a premium of 29% to Duke Realty’s closing price on the same date. A Wall Street Journal report stated that the purchase price would be roughly $24 billion.
“We are confident that the proposed combination will be a win-win for our respective shareholders,” said Prologis CEO and co-founder Hamid R. Moghadam in a statement. “Prologis has a proven track record serving as a leader and innovator in our industry. We are known for providing exceptional service to customers and delivering superior value for our shareholders, including the shareholders of companies we have merged with or acquired in the past. We have no doubt that Duke Realty's shareholders would similarly benefit from long-term value created by the combination of our companies.”
This is not the first overture Prologis has made to Duke, regarding a sale. On November 29, 2021, Prologis first sent a letter to Duke Realty on November 29, 2021 regarding a potential transaction at an exchange ratio of 0.465, representing a 20% premium to Duke Realty's stock price at the time, it said. It added that over the past five months, Duke Realty has not substantively engaged while the implied premium of Prologis offer has steadily increased. On May 3, 2022, Prologis said it “modestly increased the proposed exchange ratio—representing a 34% premium to Duke Realty's stock price at the time—in a final attempt to engage privately to reach agreement on a mutually beneficial transaction. Duke Realty rejected the Prologis proposal that same evening,” it said.
In a May 10 letter sent to Duke Realty CEO James B. 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.”
While Prologis has been persistent in its efforts to get Duke to accept its offer, Duke has made it clear that the offer is 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. Duke Realty will have no further comment on the proposal at this time.”
Prologis officials had not replied to LM, for comment at press time.
Ward Richmond, executive vice president for global commercial real estate firm Colliers International, observed in a 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.