Logistics real estate behemoth Prologis Inc. is adding to its war chest of distribution centers and warehouses with the $26 billion purchase of Duke Realty Corp. announced Monday, underscoring industrial’s long-term value play.
The purchase price reflects about a $2 billion premium over Duke’s rebuff of Prologis’ nearly $24 billion offer made last month. Duke called the prior proposal “insufficient” and “unchanged” from Prologis’ earlier overtures.
“We have admired the disciplined repositioning strategy the Duke Realty team has completed over the last decade,” Prologis co-founder, CEO and chair Hamid Moghadam said in a statement Monday. “They have built an exceptional portfolio in the U.S. located in geographies we believe will outperform in the future. That will be fueled by Prologis’ proven track record as a value creator in the logistics space.”
Prologis’ portfolio totals roughly 1 billion square feet with leases to about 5,800 customers, including Amazon.
Duke will bring about 153 million square feet of industrial space into Prologis’ fold, with locations in 19 domestic markets. Duke also has about 11 million square feet of projects in development valued at about $1.6 billion, along with 1,228 acres of land.
The deal grows Prologis in strategic markets such as Southern California, New Jersey, south Florida, Chicago, Dallas and Atlanta.
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There’s overlap of some 239 tenants between the two companies once combined, while adding 557 new ones to Prologis’ portfolio.
The deal underscores the strength of the industrial market, even with major logistics tenants such as Amazon pulling back as some retailers now grapple with how to manage excess inventory in the latest twist to the supply-demand imbalance of the past three years.
Amazon last month confirmed it is subleasing some of its industrial space in a bid to “relieve” the company of “financial obligations associated with an existing building that no longer meets our needs.”
A company spokesperson declined to say how much space was being considered for sublease, but reports pegged the amount at as much as 10 million square feet. Amazon, and others in a position to do so, had snapped up industrial real estate at a rapid clip in more recent years in an effort to get ahead of rising e-commerce demand. However, as consumer demand has cooled so too has the need for as much space.
Still, Prologis’ Moghadam has said supply chain shifts and disruptions have typically been a boon for Prologis and the broader industrial market.
“Any kind of disruption ultimately creates more demand for warehouse space because that’s where goods go when they’re incomplete and can’t get to the consumer,” he said in an interview with CNBC last month.
Prologis said it will hire “a number” of Duke employees as part of the all-stock transaction, which is expected to close in the fourth quarter.
The deal follows Prologis’ purchase of Liberty Property Trust for $13 billion in 2020 and DCT Industrial for $8.5 billion in 2018.
Prologis shares were trading down 8.1 percent to $107.77 and a market cap of $80.4 billion on Monday amid a general decline among industrial real estate investment trusts. Meanwhile, shares of Duke were up less than 1 percent to $49.94 and a market cap of $19.4 billion.