Prologis buys rival to boost presence in growth markets

Bloomberg

For Prologis Inc., the world’s largest warehouse owner, the biggest challenge to growth has been acquiring land in the markets most important to its e-commerce tenants. The solution: buy a rival.
The real estate investment trust agreed to acquire DCT Industrial Trust Inc. for $8.4 billion in stock and assumed debt.
REITs that lease out space at warehouses and logistics centres have been outperforming those that focus on malls, rental apartments or office buildings.
Shopping at Amazon.com Inc. and other internet retailers still accounts for less than 10 percent of retail sales in the US, but e-commerce is reconfiguring supply chains and shaping the fortunes of industrial landlords. Demand is especially high in and around large cities, where online shopping has caught on fastest.
DCT’s 6.6 million square metres of real estate will help San Francisco-based Prologis deepen its presence in high-growth markets including Southern California, the San Francisco Bay area, Seattle, South Florida and New York and New Jersey, the companies said. Those are the places that have seen the greatest demand for warehouse space and logistics services, thanks largely to e-commerce.
“DCT markets are 100 percent aligned with our markets,” Prologis CEO Hamid Moghadam said. “There’s perfect alignment between the portfolios. Think of DCT as a smaller, US-focussed version of Prologis. In the US we’re very similar — the same kinds of customers, the same customers in many cases.”
The boards of both companies approved the purchase, which is expected to be completed in the third quarter. “Land is hard to come by in high-rent markets where warehouse demand is especially high,” said Lindsay Dutch, a Bloomberg Intelligence analyst.
DCT and Prologis have competed to improve e-commerce services for their tenants, often in warehouses literally right next to each other, Hawkins said. He will serve on the board of the combined company, while most executives from DCT will leave, DCT CEO Phil Hawkins said.
DCT and Prologis have “spent the past dozen years trying to get ahead of the other, and that competition has made us better,” Hawkins said.
The companies don’t expect any antitrust issues to throttle the deal. While both REITs are large, their combined market share in most markets is less than 20 percent, Hawkins said.
JPMorgan Chase & Co. is serving as Prologis’s financial adviser, and Bank of America Corp. is advising DCT.