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Tuesday, June 28, 2022

Two big Amazon landlords in Texas to combine in $26B merger

Two major Amazon warehouse landlords and industrial real estate powerhouses will combine after Prologis announced plans to buy Duke Realty Corp. in a $26 billion all-stock transaction impacting millions of square feet of industrial real estate in Texas. 

The deal comes after Duke Realty previously had rejected a $24 billion offer by Prologis to buy the company in May, calling the offer insufficient, the Wall Street Journal reported

Houston, a large market for both companies, comprises 4.3 percent of San Fancisco-based Prologis’ 705 million-square-foot portfolio in the U.S., according to a company report. Prologis owns and manages 868 million square feet globally.

Already the largest industrial property owner in Houston with 30.2 million square feet across 210 buildings in the local market, Prologis will gain 5.8 million square feet in 22 buildings with the acquisition of  Indianapolis-based Duke Realty, according to the companies’ first quarter reports.

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The combined footprint of the companies, totaling more than 36 million square feet, represents about 6 percent of the 569 million square feet of industrial space across the Houston region, based on total market size data provided by Transwestern Real Estate Services.

With the acquisition, Prologis will pick up additional properties in key markets of Southern California, New Jersey, South Florida, Chicago, Atlanta and Dallas. 

Prologis is gaining Duke’s 17.2 million square feet in industrial real estate spread across 45 buildings in Dallas, according to Duke’s first quarter earnings. 

Prologis said it would maintain about 94 percent of Duke’s portfolio and shed one market, but it did not disclose which market. The acquisition includes 153 million square feet of operating properties across 19 major U.S. markets, plus 11 million square feet of new properties under development and 1,228 acres of land. 

“This transaction increases the strength, size and diversification of our balance sheet while expanding the opportunity for Prologis to apply innovation to drive long-term growth,” said Tim Arndt, Prologis’ chief financial officer. “In addition to generating significant synergies, the combination of these portfolios will help us deliver more services to our customers and drive incremental long-term earnings growth.”

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The companies said so-called synergies created by the merger have the potential to generate approximately $375-400 million in annual earnings and value creation, including $70-90 million from incremental property cash flow and essentials income, $5-10 million in cost of capital savings and $300 million in incremental development value creation.

Prologis also picks up quite a bit of Amazon properties with the acquisition. Amazon represents Duke’s Realty’s biggest customer, representing about $48.2 million in annualized rent for the firm as of the first quarter. In Houston, Duke sold two major Amazon warehouses it developed in Brookshire and Katy at the end of 2020 and early 2021.

Amazon is also Prologis’ biggest customer as of the first quarter.

E-commerce demand continued to drive  construction last year with 24 million square feet of new industrial space delivered throughout the Houston area, according to commercial real estate firm NAI Partners. Last quarter Houston’s industrial real estate market saw solid demand outpacing supply with net absorption of 5.6 million square feet, meaning significantly more tenants moved into space than moved out, according to NAI Partners.


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