SAN FRANCISCO AND DENVER — San Francisco-based Prologis Inc. (NYSE: PLD) and Denver-based DCT Industrial Trust Inc. (NYSE: DCT) have entered into a definitive merger agreement wherein Prologis will acquire DCT Industrial Trust for $8.4 billion.
The sale will be structured as an all-stock transaction. DCT shareholders will receive 1.02 shares of Prologis stock for each share of DCT stock they own. Under the terms of the transaction, which is expected to close during the third quarter, Prologis will assume all of DCT’s outstanding debt.
During a conference call on the morning of April 30, the leaders of both companies pointed to the similarities in their operating strategies as key incentives behind the merger.
“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,” said Hamid Moghadam, Prologis’ chairman and CEO. “This high level of strategic fit will allow us to capture significant economies of scale immediately.”
“We competed against Prologis for many years and it has always been apparent that their approach to developing and operating is very similar to ours,” said Phil Hawkins, president and CEO of DCT. “This merger represents an opportunity to create value through scaled platforms and access to lower costs of capital.”
During the conference call, executives from both companies referenced Prologis’ lower cost of capital as a major driver behind the deal. Of the roughly $80 million in savings that the merger is expected to generate, approximately $36 million will come in the form of interest expenses via DCT transferring its outstanding debt to Prologis.
In addition, the deal is expected to save $30 million in general and administrative expenses, $7 million in property in operating costs via the scaling of the property management and leasing platforms, and $7 million in lease adjustments with DCT’s tenants. Regarding those leases, Prologis executive Eugene Reilly noted that the deal “diversifies our customer roster through the addition of some 500 new relationships.”
The merger will add approximately 71 million square feet of stabilized industrial properties to Prologis’ portfolio, as well as 32 development and value-add projects totaling 7.1 million square feet.
The sale also includes 195 acres of land in pre-development phases and 215 acres of land under contract for acquisition. Combined, this acreage has the capacity to house more than 6 million square feet of new space.
DCT’s 414-building portfolio had an occupancy rate of 97.9 percent at the time the merger was announced. Prologis’ 1,977-building portfolio had an occupancy rate of 97.2 percent. The firms expect the combined portfolio’s occupancy to sit at 97.3 percent following the closing of the deal.
Upon completion of the merger, Prologis’ portfolio will total approximately 424 million square feet across 2,391 buildings. However, Prologis has announced plans to dispose of roughly $550 million of DCT’s holdings, which represents about 7 percent of the acquired portfolio.
J.P. Morgan is acting as exclusive financial advisor and Mayer Brown LLP is serving as legal advisor to Prologis. Bank of America Merrill Lynch is acting as exclusive financial advisor and Goodwin Procter LLP is serving as legal advisor to DCT.
Prologis’ stock price closed at $65.76 per share on Friday, April 27, up from $54.55 per share a year ago.
DCT’s stock price closed at $58.21 per share on Friday, April 27, up from $50.69 per share a year ago. Following the announcement of the merger, the company’s stock price opened at $64.23 per share on Monday, April 30, a one-day increase of roughly 10 percent.
— Taylor Williams