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Prologis acquiring Duke Realty in $26B transaction

Deal reached after months of rejection

Prologis gets Duke Realty to the table (Photo: Jim Allen/FreightWaves)

Prologis announced Monday it entered into an agreement to acquire competitor Duke Realty in a $26 billion all-stock transaction.

After months of rejecting its offers, Duke Realty (NYSE: DRE) finally came to the table and agreed to logistics warehouse operator Prologis’ sweetened bid. In early May, Prologis (NYSE: PLD) said it made a “final attempt to engage privately,” offering a 34% premium for Duke’s 165 million square feet of space. The $24 billion offer was rejected by Duke on the same day it was made.

“We have admired the disciplined repositioning strategy the Duke Realty team has completed over the last decade,” said Hamid Moghadam, Prologis co-founder, CEO and chairman. “They have built an exceptional portfolio in the U.S. located in geographies we believe will outperform in the future. That will be fueled by Prologis’ proven track record as a value creator in the logistics space.”

The deal will give each Duke shareholder .475x of one share of Prologis stock. The previously offered exchange ratio was .466x. Duke shareholders will own 19.5% of the combined entity.

Prologis will also assume Duke’s debt, which stands at 5x adjusted earnings before interest, taxes, depreciation and amortization.

Acquisition price~$25.6 billion
Duke Realty annual revenue (2021)$1.1 billion (165 million square feet of space)
Prologis annual revenue (2021)$4.8 billion (1 billion square feet of space)
Acquisitions by PrologisLiberty Property Trust, DCT Industrial Trust and KTR Capital Partners
Financingcompany stock
Table: Company reports

The deal still has to be approved by shareholders and remains subject to customary closing conditions. However, both boards have unanimously approved. Duke Realty will receive one seat on Prologis’ board and “a number of Duke Realty personnel” will be retained.

Duke will add nearly 550 logistics properties to the Prologis portfolio, including “high-quality properties” in Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta. The portfolio also includes 11 million square feet of development in progress, which represents $1.6 billion in total investment.

Prologis said it will retain roughly 94% of the Duke portfolio after exiting one undisclosed market.

“We have always respected Prologis, and after a deliberate and comprehensive evaluation of the transaction and the improved offer, we are excited to bring together our two complementary businesses,” said Jim Connor, Duke chairman and CEO.

The deal is expected to be immediately accretive, adding $310 million to $370 million in cost savings, operating leverage and mark-to-market adjustments on debt and leases. In the first year, Prologis expects to see core funds from operations increase by 20 cents to 25 cents per share. Prologis’ current consensus estimate for 2022 is $5.15 per share.

An additional $375 million to $400 million in annual earnings and value creation were also outlined.

The deal brings 557 new customers to Prologis, which will have a portfolio of 1.17 billion square feet in its global portfolio following a fourth-quarter close.

“This transaction increases the strength, size and diversification of our balance sheet while expanding the opportunity for Prologis to apply innovation to drive long-term growth,” said Tim Arndt, Prologis CFO. “In addition to generating significant synergies, the combination of these portfolios will help us deliver more services to our customers and drive incremental long-term earnings growth.”

Connor said, “We are confident that this transaction — including the meaningful opportunity it provides for shareholders to participate in the growth and upside from the combined portfolio — is in the best long-term interest of Duke Realty shareholders.”

Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) are serving as financial advisers to Prologis. Morgan Stanley (NYSE: MS) is the lead adviser to Duke.

Prologis Ventures is an investor in FreightWaves.

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.