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Prologis to Buy Duke Realty for $26B
The all-stock deal, expected to close in the fourth quarter, will see Prologis gain 153 million square feet of industrial assets in 19 markets.
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Prologis and Duke Realty have revealed a $26 billion merger, which will see Prologis acquire 153 million square feet of completed industrial assets in an all-stock transaction. The companies expect the deal to close in the fourth quarter of this year.
Prologis, the country’s largest private industrial real estate owner, continues to get bigger. As of March, the REIT had approximately 1 billion square feet of industrial assets around the globe in 19 countries. With the acquisition of Duke, not only will Prologis gain the completed properties but also 11 million square feet of construction projects underway, valued at an estimated $1.6 billion, plus an additional 1,228 acres of land with the option to build 21 million square feet more.
Trying Again
This deal comes two months after Prologis had made a slightly smaller bid to acquire Duke. The Wall Street Journal reported that the proposal valued Duke Realty at nearly $24 billion. The bid was almost immediately rejected. The new proposal, however, was unanimously approved by both companies’ boards of directors.
The companies expect the deal to immediately provide $310 to $370 million in operating efficiencies, owing to administrative and other cost consolidations. The transaction is projected to be earnings neutral in its first year. After the acquisition, Prologis will maintain ownership of 94% of Duke’s portfolio. The company does intend to exit one market entirely, though the market and the timeline were not disclosed.
Under the terms of the deal, Duke Realty shareholders will receive 47.5% of a Prologis share for each Duke share they own. Goldman Sachs and Citigroup are acting as financial advisors to Prologis. Duke engaged J.P. Morgan Securities as its financial advisor in the exchange.
Related Questions
What are the benefits of Prologis buying Duke Realty?
The benefits of Prologis buying Duke Realty include immediate operating efficiencies of $310 to $370 million, projected to be earnings neutral in its first year, and the ability to exit one market entirely. Additionally, Duke Realty shareholders will receive 47.5% of a Prologis share for each Duke share they own. Goldman Sachs and Citigroup are acting as financial advisors to Prologis, and Duke engaged J.P. Morgan Securities as its financial advisor in the exchange.
Source: https://www.commercialrealestate.loans/blog/prologis-to-buy-duke-realty-for-26b
What are the implications of Prologis buying Duke Realty for the commercial real estate market?
The implications of Prologis buying Duke Realty for the commercial real estate market are twofold. First, the acquisition is expected to provide $310 to $370 million in operating efficiencies, owing to administrative and other cost consolidations. Second, the acquisition is projected to be earnings neutral in its first year. This could be beneficial for the commercial real estate market, as it could lead to increased investment opportunities and more efficient operations.
Additionally, the acquisition could lead to increased investment in experiential retail and neighborhood grocery-anchored assets, as evidenced by Hines' recent acquisition of a retail center in Raleigh. This could be beneficial for the commercial real estate market, as it could lead to increased occupancy and user base in certain submarkets.
How will Prologis' acquisition of Duke Realty affect the financing of commercial real estate?
The acquisition of Duke Realty by Prologis is expected to provide $310 to $370 million in operating efficiencies, which could have a positive effect on the financing of commercial real estate. The acquisition is projected to be earnings neutral in its first year, which could also have a positive effect on the financing of commercial real estate. Additionally, the acquisition could lead to cost consolidations, which could also have a positive effect on the financing of commercial real estate.
However, the debt coverage ratio (DCR) is an important factor in commercial real estate financing. The DCR is a measure of a property's ability to generate enough income to cover its debt payments. A higher DCR indicates that a property is more likely to be able to cover its debt payments, and is therefore more likely to be approved for financing. It is important to note that the DCR is just one factor in commercial real estate financing, and other factors such as the borrower's creditworthiness and the property's location and condition are also important.
If you have any questions about commercial real estate financing, please fill out the form on our website to speak with a commercial real estate loan specialist.
What are the potential risks associated with Prologis' acquisition of Duke Realty?
The potential risks associated with Prologis' acquisition of Duke Realty include the possibility of a decrease in operating efficiencies, a decrease in earnings, and the potential for market exit. According to Prologis' press release, the companies expect the deal to immediately provide $310 to $370 million in operating efficiencies, but this is not guaranteed. The transaction is projected to be earnings neutral in its first year, but there is no guarantee that this will be the case. Additionally, Prologis intends to exit one market entirely, though the market and the timeline were not disclosed.
What strategies can commercial real estate investors use to mitigate the risks associated with Prologis' acquisition of Duke Realty?
Commercial real estate investors can mitigate the risks associated with Prologis' acquisition of Duke Realty by diversifying their property types, considering alternative investments, reviewing their debt structure, and increasing their cash reserves.
Diversifying property types can help investors spread their risk across different markets and asset classes. This can include investing in different types of commercial real estate, such as office, retail, industrial, and multifamily.
Alternative investments, such as real estate investment trusts (REITs) and private equity funds, can also help investors diversify their portfolios and reduce their risk.
Reviewing debt structure is also important. Investors should consider refinancing their loans to take advantage of lower interest rates, or restructuring their debt to reduce their exposure to risk.
Finally, increasing cash reserves can help investors prepare for any potential downturns in the market. This can include setting aside funds for unexpected expenses or investing in short-term investments that can be liquidated quickly if needed.