ProLogis, the world’s largest warehouse operator, and AMB Property Corp. climbed in New York trading after the rivals announced talks to merge in a deal that would create a $15 billion real estate investment trust.
ProLogis, based in Denver, rose $1.17, or 8 percent, to $15.87 at 4:15 p.m. in New York Stock Exchange composite trading, after rising to as high as $16.52 earlier in the day. San Francisco-based AMB advanced $1.15, or 3.5 percent, to $34.01, after trading as high as $36.04.
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 rising, commercial real estate broker Grubb & Ellis Co. said yesterday. ProLogis has a market value of $9.03 billion, while AMB is worth $5.73 billion, based on today’s closing share prices.
“While PLD is the larger of the two entities, it has been under pressure since the credit crisis to reduce leverage, cut overhead costs and rationalize its underproductive assets,” Dave Rodgers and Michael Carroll, analysts at RBC Capital Markets LLC in Solon, Ohio, wrote in a report today. “We expect that in this merger, AMB would be the surviving entity.”
The deal would be a “merger of equals,” ProLogis and AMB said in separate statements yesterday. The companies are considering an all-stock, at-market transaction at a price based on the value of their shares before the Wall Street Journal reported the talks yesterday, they said.
The companies said they may not come to a definitive agreement and they won’t comment before a deal is reached or abandoned.
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.
A merger of ProLogis and AMB would be the largest transaction between publicly traded real estate investment trusts in several years. REITs have been buying properties from privately held companies, including HCP Inc.’s planned purchase of real estate from HCR ManorCare Inc. for $6.1 billion, a deal announced last month.
The biggest REIT takeover ever was Blackstone Group LP’s 2007 purchase of Equity Office Properties Trust for $39 billion.
ProLogis’s Largest Deal
ProLogis’ largest purchase was in 2005, when it bought Catellus Development Corp. for $5.1 billion. ProLogis agreed last month to sell retail and mixed-use properties obtained in the transaction to TPG Capital for about $505 million. ProLogis said it was shedding the real estate because it’s focusing on owning industrial properties.
ProLogis, which operates in 105 markets in 19 countries, reported five consecutive quarters of losses as the economic slump reduced demand for distribution centers. The company’s funds from operations excluding non-cash items rose 15 percent in the third quarter. The cash-flow measure, used by REITs, doesn’t comply with generally accepted accounting principles.
AMB reported a 55 percent decline in adjusted FFO in the third quarter. The company has properties in 48 markets in 15 countries, according to its website.
Both companies operate in North America, Asia and Europe.
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.