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ProLogis, AMB May Merge to Create $14 Billion REIT

Jan. 27 (Bloomberg) -- ProLogis, the world’s largest warehouse operator, is in talks to combine with rival AMB Property Corp. that would create a $14 billion real estate investment trust.

The two companies are considering an all-stock, at-market transaction at a price based on the value of their shares before a newspaper report about a possible deal yesterday. The transaction would be a “merger of equals,” ProLogis and AMB said in a statement yesterday.

The combination of the two largest industrial REITs would help reduce costs as the U.S. market recovers. The vacancy rate for the country’s industrial space is dropping, signaling that demand for warehouse space is recovering, commercial real estate broker Grubb & Ellis Co. said yesterday. ProLogis has a market value of $8.36 billion, while AMB is worth $5.53 billion.

“In the U.S., the warehouse industry is the biggest in terms of space and most important sector for property investment,” said Takashi Ishizawa, a real estate analyst at Mizuho Securities Co. in Tokyo. “The merger is positive for the companies to increase their competitiveness and promote expansion.”

The talks were reported by the Wall Street Journal before markets closed yesterday. Melissa Marsden, a spokeswoman at Denver-based ProLogis, couldn’t be reached in her office after business hours. Tracy Ward, a spokeswoman for San Francisco-based AMB, declined to comment beyond the statement.

Valuation

The merger will create a trust with $23.7 billion of total assets, the most among office and industrial REITs tracked by Bloomberg. ProLogis trades at 0.96 times its book value, almost half of AMB’s 1.78 multiple, according to data compiled by Bloomberg. Both are lower than the 2.11 average multiple for the world’s 100 biggest office and industrial REITs, the data show.

“For REITs, scale does matter,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “That will help in securing financing when they need to raise their gearing, and size will help widen their market knowledge and expand their investment opportunities.”

A merger of the two REITs would allow them to cut costs by closing duplicate offices in markets around the world and obtain “tremendous” general and administrative savings, according to Steven Frankel, an analyst at Green Street Advisors in Newport Beach, California.

“Both of these are global industrial companies and they tend to operate in similar markets,” Frankel said in a telephone interview before the statement was released. “There’s a lot of geographic overlap.”

ProLogis, which has a presence in 105 markets in 19 countries, reported five consecutive quarters of losses as the economic slump reduced demand for space in distribution centers. AMB operates in 48 markets in 15 countries, according to its website. Both companies have properties in Asia, Europe and North America.

The fourth-quarter U.S. industrial vacancy rate was 10.4 percent, down from a high of 10.9 percent in the first quarter, according to Santa Ana, California-based Grubb & Ellis.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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