Commercial Real Estate: REIT Investor News
Leading the News
ProLogis to Buy Rival for $3.6 Billion
By Dennis K. Berman and Ray A. Smith
705 words
6 June 2005
The Wall Street Journal
A3
English
(Copyright (c) 2005, Dow Jones & Company, Inc.)
ProLogis is buying fellow real-estate investment trust Catellus Development Corp., in a $3.6 billion cash and stock deal that will create the nation’s largest REIT focused on warehouse and distribution properties, the companies said last night.
The deal, which is expected to be announced today, will give Catellus shareholders $2.35 billion in ProLogis stock and an additional $1.26 billion in cash. That price represents a takeover premium of 16%. ProLogis will also assume $1.3 billion of Catellus’ debt in what is so far the largest U.S. real-estate deal of 2005.
Aurora, Colo.-based ProLogis owns and manages more than 2,000 industrial distribution centers in 75 markets throughout the world, and primarily serves other large multinational corporations shipping products around the world. “It is a significantly expanding global economy,” ProLogis President and Chief Operating Officer Walter C. Rakowich said in an interview last night. “By being a larger company, we can better take advantage of customers as they expand” throughout Asia, Europe, and the U.S.
Catellus — a historical remnant of the Sante Fe Pacific Corp. railroad, which originally spun off the company 15 years ago — primarily operated industrial buildings near railroad lines. Since then, the company has expanded rapidly, and now has 40.5 million square feet of property under management, which is primarily in distribution centers but also in mixed-use and residential projects such as Union Station in Los Angeles.
Under the terms of the deal, Catellus shareholders will get the choice of either $33.81 in cash per share or an exchange of .822 shares of ProLogis stock for each of their Catellus shares. Those elections will be prorated, so that the entire deal will consist of 65% stock and 35% cash.
On Friday, shares of ProLogis rose five cents to close at $41.37 in 4 p.m. composite trading on the New York Stock Exchange. Also on the Big Board, Catellus fell 12 cents to $29.24.
This purchase will solidify ProLogis as a leader in the consolidation of the industrial REIT sector, which is now becoming a sector with a handful of big companies rather than a multitude of players.
The deal comes one year after ProLogis bought Keystone Property Trust, a West Conshohocken, Pa., industrial REIT for about $1.7 billion. That transaction expanded ProLogis’ portfolio to include four of North America’s key logistics markets — New Jersey, Eastern Pennsylvania, Indianapolis and the Miami airport market — and positioned the REIT to take advantage of the recovering U.S. industrial real-estate market.
Demand for industrial space in the U.S. is increasing, particularly for new space. Industrial real-estate tenants leased an additional 20 million square feet of space in the first quarter, up from an additional 13.6 million in the year-ago quarter, pushing the national vacancy rate down to an average of 10.8% from 11%, according to real-estate research firm Reis Inc. Completed constructed industrial buildings rose to 15.1 million from nearly 11 million.
In response, and in anticipation of even more demand, ProLogis has ramped up development in North America to 3.9 million square feet, a marked increase over recent years. Some of the new construction is “build to suit,” for tenants that have committed to occupying the space. But a fair amount is for what the company calls “inventory,” space that is built for a growing customer before the customer actually realizes it needs to lease more space.
As the overall U.S. industrial real-estate market softened due to the economic downturn in the early half of the decade, ProLogis built up its portfolio abroad. ProLogis has 311 million square feet owned, managed and under development. In recent years, it has been extremely active in Europe and in Asia, mainly China and Japan. Last month, the company announced the planned development of a one million square foot distribution park at Beijing Airport.
Prologis was advised by Bank of America and attorneys at Mayer, Brown, Rowe & Maw. Catellus was advised by Morgan Stanley and law firm O’Melveny & Myers.
