AMB, ProLogis Announce REIT Merger

AMB Property Corp. (NYSE: AMB) and ProLogis (NYSE: PLD) announced on Jan. 31 that they are entering into a “merger of equals.”

The new company will form the fourth-largest U.S. REIT in terms of net equity market cap, behind mall REIT Simon Property Group (NYSE: SPG), office REIT Vornado Realty Trust (NYSE: VNO), and apartment REIT Equity Residential (NYSE: EQR).

The two industrial REITs expect the all-stock deal to close at some point in the second quarter of 2011. The terms of the transaction call for each ProLogis common share to be converted into 0.4464 of a new AMB share.

The merged company will operate under the ProLogis name and retain the ProLogis ticker symbol, PLD. AMB Chairman and CEO Hamid Moghadam and ProLogis CEO Walt Rakowich will serve as co-CEOs through the end of 2012, at which point Rakowich will retire. Moghadam will be chairman of the board for the combined company and be in charge of “the company's vision, strategy and private capital franchise.” During the remainder of his tenure, Rakowich will oversee “operations, integration of the two platforms and optimizing the merger synergies.”

AMB and ProLogis separately are two of largest REITs in the industrial sector. Together, they will have a combined equity market capitalization of approximately $14 billion, a total market capitalization of more than $24 billion, gross assets of approximately $46 billion and approximately 600 million square feet of industrial space around the world.

“By joining forces, this merger will create a company positioned to be the leading global provider of logistics real estate,” Moghadam said. “This enhanced platform will enable us to better serve the needs of multi-market customers and provide them with both existing world-class facilities and unmatched development capabilities.”

The companies have a strategy in place that will enable the merger to go through “seamlessly,” according to Rakowich. He also said the union of AMB and ProLogis would help both companies more easily achieve a number of shared goals.

“These priorities include improving efficiency and reducing costs by better aligning our portfolios through the reduction of non-core assets and the recycling of capital into higher growth opportunities; increasing asset utilization by stabilizing the operating portfolio; leasing up the development portfolio; and monetizing the land bank,” Rakowich said.

When news of negotiations between AMB and ProLogis first surfaced on Jan. 26, analysts commenting on the potential deal generally agreed that the merger could create beneficial cost efficiencies. The companies said in their Jan. 31 that they estimate the merger will result in approximately $80 million in estimated annual gross G&A savings once the companies are fully integrated.

John Perry, a REIT analyst with Deutsche Bank, pointed out that the two companies compete in a number of major U.S. markets, including New York, southern California, Atlanta and Chicago. “Thus, we think it is logical that the removal of their competitive relationship would result in some pricing power benefits,” he said in a note on Jan. 27 responding to media reports of the deal.

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