Two logistics giants plan to merge in $12.6B deal

A real estate company with a 26-million-square-foot industrial portfolio in Pennsylvania, many of them properties throughout Lehigh Valley and Central Pennsylvania, could merge with a San Francisco-based multinational real estate investment trust.

Prologis Inc. and Liberty Property Trust said both companies have agreed to a merger where Prologis plans to acquire Liberty in an all-stock transaction valued at about $12.6 billion.

The transaction should close in the first quarter of 2020, if it meets approval of Liberty shareholders and other customary closing conditions.

“Liberty’s logistics assets are highly complementary to our U.S. portfolio and this acquisition increases our holdings and growth potential in several key markets,” said Prologis chairman and CEO Hamid Moghadam, in a news release. “The strategic fit between the portfolios allows us to capture immediate cost and long-term revenue synergies.”

The transaction would increase Prologis’ presence in target markets such as the Lehigh Valley, Central Pennsylvania, Chicago, New Jersey and Southern California.

Many of Liberty’s properties in both the Lehigh Valley and Central Pennsylvania markets are in close proximity to each other, and are often newer properties. Liberty also has a corporate office in Bethlehem.

In a conference call about the transaction, Moghadam said the average property is about seven years younger than those in Prologis’ portfolio.

“Ninety percent of the whole portfolio is within three miles of a Prologis asset,” Moghadam said.

In the Lehigh Valley, the Liberty portfolio would bring 26 million square feet and an additional 4 million square feet in new construction.

“While Central Pennsylvania has experienced oversupply, the Lehigh Valley is much more constrained,” he added.

With a 3.8 percent vacancy rate in the Lehigh Valley, the officials said there is not much more space to build in that area going forward.

Once complete, the transaction would create a 900-million-square-foot portfolio that could generate about $60 million in annual savings, including $10 million from revenue synergies and $50 million from incremental development value creation.

Furthermore, the transaction could create immediate cost synergies of about $120 million from corporate general and administrative cost savings, operating advantage, lower interest expense and lease adjustments.

The officials described the transaction as a merger that would allow Prologis to acquire mostly industrial properties, including:

• A 107-million-square-foot logistics operating portfolio with an 87 percent overlap with key markets;
• 1 million square feet of logistics development in progress;
• 1,684 acres for future logistics development with buildout potential of about 20 million square feet;
• A nearly 5 million square foot office operating and development portfolio.