Logistics real estate company Prologis, Inc. (NYSE: PLD) announced that it had signed an agreement to acquire Industrial Property Trust, Inc. (IPT) in its second quarter 2019 earnings report. The cash transaction of $3.99 billion, including the assumption of IPT’s debt, is expected to close in the fourth quarter of 2019 or the first quarter of 2020.
The acquisition includes 236 properties and 37.5 million square feet of industrial real estate, 96 percent of which is located in Prologis’ existing markets. The deal will expand Prologis’ current footprint in Atlanta, Chicago, Dallas, New Jersey, the San Francisco Bay area, Seattle and southern California.
“This is a compelling opportunity to acquire a portfolio of excellent asset quality and submarket composition consistent with our U.S. investment strategy and footprint. We expect to capture significant cost and revenue synergies, in addition to enhancing customer relationships and insights,” said Prologis’ Chief Investment Officer Eugene F. Reilly.
This deal likely doesn’t come as a surprise as Prologis has been active in the market recently. In late May the company was named as a potential suitor of Singapore logistics real estate giant GLP’s U.S. warehouse holdings. The Blackstone Group’s (NYSE: BX) real estate private equity arm ended up walking away with 179 million square feet of logistics real estate assets in the $18.7 billion transaction.
This announcement also came on the day that real estate services firm CBRE (NYSE: CBRE) published a report showing the available supply of U.S. industrial and logistics real estate increased for the first time in more than eight years during the first half of 2019. The availability rate for industrial space increased six basis points to 7.1 percent.
In its second quarter 2019 earnings report, Prologis reported core funds from operations of $0.77 per share, a penny higher than the consensus estimate. The company ended the quarter with a 96.8 percent occupancy rate, which was 60 basis points lower year-over-year, but flat with first quarter 2019. Additionally, the company raised its earnings guidance for 2019.
Net earnings are now expected to be in the range of $2.38 to $2.46 per share (from $2.08 to $2.18) with core funds from operations in a range of $3.26 to $3.30 per share (from $3.20 to $3.26). The IPT acquisition is not included in the new guidance, but is expected to add $0.05-0.061 per share annually, which includes approximately a 4 percent decline in general and administrative expenses as a percentage of assets under management.
Prologis’ core funds from operations excludes items from net earnings like “real estate depreciation and amortization expense, gains (losses) recognized from real estate transactions and early extinguishment of debt, impairment charges, deferred taxes and unrealized gains or losses on foreign currency or derivative activity.”
The transaction is subject to the approval of IPT stockholders and other customary closing conditions.
“We have worked diligently to create a balance sheet that allows us to take advantage of opportunities such as this, and we remain committed to maintaining our financial strength. This accretive transaction advances our strategy of using our scale to grow earnings with no incremental overhead,” said Prologis’ Chief Financial Officer Thomas S. Olinger.
The San Francisco-based company will now own more than 800 million square feet in industrial real estate across 19 countries. Many of its warehouses in the U.S. service ports on both coasts, regional distribution hubs and rail and intermodal facilities.
Shares of PLD are up less than 1 percent.