Prologis to acquire DCT Industrial Trust for US$8.4b

New York

PROLOGIS has agreed to acquire DCT Industrial Trust for US$8.4 billion in stock and assumed debt, making the world's largest warehouse owner even bigger as demand surges in the age of online shopping.

DCT stockholders will receive 1.02 Prologis shares for each of theirs, the companies said in a statement on Sunday.

That represents a premium of about 16 per cent over DCT's closing price of US$58.75 last Friday.

The boards of both San Francisco-based Prologis and Denver-based DCT approved the purchase, which is expected to be completed in the third quarter, the companies said.

DCT's 71 million square feet of real estate will help 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, according to the statement.

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 per cent aligned with our markets. There's perfect alignment between the portfolios," Prologis chief executive officer Hamid Moghadam said in an interview. "Think of DCT as a smaller, US-focused version of Prologis. In the US we're very similar - the same kinds of customers, the same customers in many cases."

Real estate investment trusts that specialise in industrial properties have been outperforming Reits that focus on malls, rental apartments and office buildings.

Shopping at Amazon and other Internet retailers still accounts for less than 10 per cent of retail sales in the US, but it's reconfiguring supply chains and shaping the fortunes of warehouse landlords.

Demand is especially high in and around large cities, where online shopping has caught on fastest.

"Many of our customers are in the business of not just shipping pallets to stores, but also shipping direct to consumers," DCT CEO Phil Hawkins said in an interview.

"To be in that business, you need to be in the right markets, where consumers live, and to be close in. The efficiency of the e-commerce supply chain requires location as well as functionality."

DCT and Prologis have competed to improve e-commerce services for their tenants, often in warehouses literally right next to each other, Mr Hawkins said. He will serve on the board of the combined company, while most executives from DCT will leave, Mr Hawkins added.

The acquisition of DCT includes 7.1 million square feet of development, redevelopment and value-added projects; 195 acres in the pre-development stage, predominantly in Seattle, Atlanta, South Florida and Southern California, with the potential for more than 2.9 million square feet once built out; and 215 acres under contract or option, predominately in the New York and New Jersey area, Northern and Southern California, and Chicago, with a build-out potential of more than 3.3 million square feet.

DCT and Prologis have "spent the past dozen years trying to get ahead of the other, and that competition has made us better", Mr Hawkins said.

Overall, the transaction is expected to result in about US$80 million in cost savings, operating leverage, interest expense and lease adjustments, and has the potential to generate US$40 million of additional annual revenue and development profit in the future, the companies said.

JPMorgan Chase is serving as Prologis's financial adviser, and Bank of America is advising DCT. BLOOMBERG