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Prologis buying Duke Realty in deal worth $26 billion

By Patrick Clark | Bloomberg

San Francisco-based Prologis boosted its bid for U.S. warehouse landlord Duke Realty Corp. to an all-stock offer of about $26 billion including debt, securing a deal after months of negotiations.

Prologis plans to hold about 94% of Duke Realty’s assets and exit one market, the companies said in a statement Monday. Both firms’ boards have approved the transaction.

Prologis, which owns industrial warehouses across the US and other countries, went public with a $24 billion acquisition offer in early May after months of private pushback from Duke. That initial bid was rejected by Duke, which called the offer “insufficient.”

Prologis shares fell 8.9% to $106.77 at 11:08 a.m. in New York Monday. Duke stock declined less than 1%.

“Whatever macro-environment, good or bad, that we have, the new company will perform even better than the old company,” Prologis Chief Executive Officer Hamid Moghadam said on a conference call. “We’ve really seen no let-up in demand and trajectory of rent in most markets.”

“Prologis’ planned purchase of Duke Realty for $26 billion, after the prior $24 billion offer was met with resistance, demonstrates the strength and longevity of warehouse rent growth,” said Lindsay Dutch, an industry analyst.

The deal shows how the ongoing shift to e-commerce is creating strong demand for industrial space, giving landlords ample room to raise rents. The vacancy rate for US warehouses fell to 3.4% in the first three months of this year even as developers rushed to build new logistics properties, according to Jones Lang LaSalle Inc.

Prologis sees that demand holding up even after made waves in the commercial real estate world by telling investors that it had overbuilt its logistics network. The retail giant followed that disclosure by seeking to sublease millions of square feet of industrial real estate.

Duke has more exposure to Amazon leases than Prologis has in its existing portfolio, Moghadam said on the call.

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