Logistics real estate and supply chain logistics firm Prologis (NYSE: PLD) will acquire Liberty Property Trust (NYSE: LPT) in an all-stock transaction worth approximately $12.6 billion, both companies announced on October 27.
The boards of both companies unanimously approved the transaction, which will also include the assumption of Liberty’s debt. The transaction is expected to close in the first quarter of 2020 and is subject to the approval of Liberty shareholders.
Acquiring Liberty will “deepen” Prologis’ presence in markets such as Lehigh Valley in Pennsylvania, as well as Chicago, Houston, central Pennsylvania, New Jersey and southern California, said Prologis, whose headquarters are in San Francisco.
“Liberty’s logistics assets are highly complementary to our U.S. portfolio and this acquisition increases our holdings and growth potential in several key markets,” said Prologis CEO Hamid R. Moghadam. “The strategic fit between the portfolios allows us to capture immediate cost and long-term revenue synergies.”
The acquisition comes after Prologis declared on October 15 that third-quarter core funds from operations came in at 97 cents per diluted share, up from 72 cents per share in the third quarter of 2018 despite global economic headwinds. The company also recently added assets in the competitive Los Angeles market and it signed an agreement to acquire Industrial Property Trust in a $4 billion deal slated to close in the fourth quarter of 2019 or the first quarter of 2020.
Prologis said the most recent acquisition would result in approximately $120 million in cost synergies coming from corporate general and administrative cost savings, operating leverage, lower interest expense and lease adjustments.
There is also the potential to generate approximately $60 million in annual savings, including $10 million from revenue synergies and $50 million from incremental development value creation, Prologis said.
Assets resulting from merging Prologis and Liberty include a 107-million-square-foot logistics operating portfolio with an 87% overlap in key markets. The merged company will include 5.1 million square feet of logistics development in progress, 1,684 acres of land for future logistics development with a build-out potential of 19.7 million square feet and a 4.9 million square foot office operating and development portfolio.
Prologis would shed approximately $3.5 billion of assets on a pro rata share basis, including $2.8 billion in non-strategic logistics properties and $700 million in office properties.
“Liberty and Prologis represent two of the finest teams of real estate professionals and two of the finest portfolios of industrial real estate ever assembled,” said Bill Hankowsky, Liberty CEO. “The joining of these two platforms at this moment, when industrial logistics has become so pivotal to the new economy, will further the industry’s ability to support the nation’s supply chain and enhance value creation for our combined shareholders. It is a testament to Liberty’s outstanding teams of professionals, both present and past.”
Liberty shareholders will receive 0.675 of a Prologis share for each Liberty share owned, Prologis said.
Prologis continues to benefit from the growth in e-commerce fulfillment as companies seek industrial locations that are closer to their customers to offset supply chain costs such as labor and transportation. Demand is solid across property types of all sizes, company executives said during Prologis’ third-quarter earnings call. Smaller-size properties more suited for e-commerce fulfillment have the best potential for rent growth, company executives said.
(Editor’s note: Prologis is an investor in FreightWaves)