Prologis to Acquire DCT Industrial Trust for $8.4B

By Scott Baltic

Hamid Moghadam, CEO, Prologis

Prologis Inc. and DCT Industrial Trust Inc. have agreed to a merger under which Prologis will acquire DCT for $8.4 billion, the companies announced Sunday. The boards of directors of both companies have unanimously approved the stock-for-stock transaction.

The 71-million-square-foot operating portfolio deepens Prologis’ presence in high-growth markets including Southern California, the San Francisco Bay Area, New York/New Jersey, Seattle and South Florida. The acquisition includes:

• 1 million square feet of development, redevelopment and value-added projects;
• 195 acres of land in pre-development, predominantly in Seattle, Atlanta, South Florida and Southern California, with build-out potential of over 2.9 million square feet; and
• 215 acres of land under contract or option, predominantly in New York/New Jersey, Southern California, Northern California and Chicago, with a build-out potential of more than 3.3 million square feet.

“For some time, we have considered DCT’s realigned portfolio to be the most complementary to our own in terms of product quality, market position and growth potential,” Prologis chairman and CEO Hamid Moghadam said in a prepared statement. “This high level of strategic fit will allow us to capture significant scale economies immediately. In addition, our current platform initiatives, particularly in the areas of advanced analytics, customer experience and procurement and ancillary revenues, will enable us to extract significant upside from the combined portfolios.”

DCT shareholders will receive 1.02 Prologis shares per DCT share. The transaction, which is currently expected to close in the third quarter, is subject to the approval of DCT stockholders and other customary closing conditions.

At closing, it’s anticipated that DCT President and CEO Philip L. Hawkins will join the Prologis board of directors.

The merged company’s C-suite “will remain the exact same, and we expect all divisional, regional and market leadership to remain unchanged. We also expect to retain a number of DCT employees to help manage the portfolio [and] execute the development and other capital deployment activities under way,” a Prologis spokesperson told Commercial Property Executive.

DCT did not respond to CPE’s request for additional information.

Per DCT’s website, its acquisitions over the past nine months have focused on Chicago, Cincinnati, Dallas, Denver, Orlando and California.

True to form, Prologis has made some sizable moves in the past year or so. In February 2017, the company partnered with CBRE Global Investors for a development venture in the United Kingdom worth at least $1.2 billion.

In a $362 million deal last summer, Prologis bought out its partner’s interest in a portfolio of 20 Brazilian industrial properties.

And in January of this year, Prologis and JV partner Norges Bank Real Estate Management completed a two-phase, $244.9 million disposition of 27 logistics properties in metro Chicago, Florida and New Jersey.

The experts weigh in

“The DCT acquisition fits nicely into the Prologis footprint, increasing their presence in coastal markets,” Ron DeVries, senior managing director of IRR-Chicago, told CPE. “Prologis should see some notable savings in their operating structure with the added economies of scale achieved through the acquisition.”

“Industrial remains a high target asset with the strongest market fundamentals we’ve seen in years,” he continued. “We’ve had a multi-year pattern of double-digit total returns with absorption rates exceeding the pace of new development, bolstering occupancy levels and rent growth in almost every major market nationwide. Yields remain low given the amount of capital that has been attracted to the market.”

“Similar to other sectors, M&A in commercial real estate is active,” commented Kenneth J. Szady, national director – North America and Canada, with Marcus & Millichap Institutional Property Advisors. “In our sector, there will emerge the big three: Prologis, Blackstone and a third.Think Apple, Microsoft and Google or Verizon, AT&T and now the recently announced T-Mobile/Sprint.”

“What is compelling to me is the greater reach to the common core customers (tenants) and the bricks and mortar to service them…global tenants like the efficiencies of dealing with a familiar landlord in multiple locations,” he added. “All of this is the empirical evidence of just how strong and deep the industrial sector is performing.”