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Prologis (PLD) Seals $26B All-Stock Deal to Buy Duke Realty

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Prologis, Inc. PLD recently announced that it has entered into a definitive merger agreement to acquire Duke Realty Corporation DRE in an all-stock transaction valued at $26 billion, including the assumption of debt. The transaction is expected to be completed in the fourth quarter of 2022, subject to the approval of shareholders of both the companies and other customary closing conditions.

Shares of Duke Realty gained roughly 1% in the Jun 13 trading session following the announcement, while shares of Prologis tanked 7.51%.

Per the agreement, Duke Realty shareholders will be receiving 0.475x of a Prologis share for each Duke Realty share owned.

The portfolio to be acquired will consist of operating properties in 19 major U.S. logistics regions, encompassing 153 square feet. It will also include 11 million square feet of development projects underway with a total expected investment of around $1.6 billion and 1,228 acres of land owned and under option with a build-out of roughly 21 million square feet. PLD intends to retain roughly 94% of Duke Realty’s assets and exit one market.

The transaction is expected to create immediate accretion of roughly $310-$370 million from corporate general and administrative cost savings and operating leverage as well as mark-to-market adjustments on leases and debt. In one year, the company’s annual core funds from operations (FFO) are anticipated to rise 20 cents to 25 cents, excluding promotes. Moreover, future collaborations are expected to generate roughly $375-$400 million in annual earnings and value creation.  

Prologis has been actively banking on its growth opportunities through acquisitions and developments. Since the Prologis–AMB merger in 2011 through year-end 2020, this industrial REIT has accomplished investment transactions aggregating more than $131.4 billion across 30 global markets. In the first quarter of 2022, Prologis’ share of building acquisitions amounted to $98 million. Development stabilization aggregated $212 million, while development starts totaled $1.02 billion, with 36.6% being built to suit.

This transaction is a strategic fit as it will be adding high-quality properties to Prologis' portfolio in major regions across the nation, including Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta.

According to Tim Arndt, the chief financial officer of Prologis, "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."

As for Prologis, with enhanced scale and top-quality assets in most-sought-after markets, the company is well poised to capture the benefits of favorable industrial market conditions.

The demand for industrial real estate space is soaring given an e-commerce boom, the growth in industries and companies striving to improve supply-chain efficiencies. Additionally, a rise in inventory levels of companies as a precautionary measure for any supply-chain disruption is expected to lend to the long-term growth momentum for this sector, thereby serving a favorable market to industrial landlords.

Prologis currently holds a Zacks Rank #2 (Buy). In the past three months, PLD shares have declined 28.6% compared with the industry’s fall of 9.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Other Stocks to Consider

Some other key picks from the REIT sector are Rexford Industrial Realty REXR and OUTFRONT Media OUT.

The Zacks Consensus Estimate for Rexford Industrial Realty’s ongoing year’s FFO per share has been raised 1.6% over the past two months to $1.93. REXR carries a Zacks Rank #2, currently.

The Zacks Consensus Estimate for OUTFRONT Media’s current-year FFO per share has moved 51.5% northward in the past two months to $2.09. OUT carries a Zacks Rank of 2 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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