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Prologis (PLD) and Duke Realty Inch Closer to Merger

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Prologis (PLD - Free Report) and Duke Realty inched closer to their merger, with PLD stockholders and DRE shareholders approving the deal. The transaction is now expected to close in early October, subject to the satisfaction or waiver of customary closing conditions.

The merger will result in the addition of high-quality properties to the Prologis' portfolio in major regions across the nation, including Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta.

On materialization of the merger, Duke Realty shareholders will be receiving 0.475 of a newly issued share of Prologis common stock for each Duke Realty share they own just prior to the effective time of the merger.

According to the Prologis’ press release on the merger in June, 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.

Moreover, that time, the transaction was expected to result in 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 year one, the company’s annual core funds from operations (FFO) per share is anticipated to rise 20 cents to 25 cents, excluding promotes. Future synergies have the potential to generate roughly $375-$400 million in annual earnings and value creation.  

With healthy operating fundamentals in the industrial real estate markets, Prologis has capitalized on growth opportunities through acquisitions and developments. In February 2020, the company accomplished the $13-billion acquisition of Liberty Property Trust, strengthening its presence in target regions, such as Chicago, Lehigh Valley, New Jersey, Houston, Central PA and Southern California.

In the second quarter of 2022, Prologis’ share of building acquisitions amounted to $846 million, with a weighted average stabilized cap rate of 3.9% in the reported quarter. Development stabilization aggregated $817 million, while development starts totaled $1.67 billion, with 25.6% being build-to-suit. For 2022, the company anticipates building acquisitions at Prologis share between $1.2 billion and $1.7 billion, while development starts are expected in the range of $4.5-$5.0 billion.

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 carries a Zacks Rank #3 (Hold). In the past three months, PLD shares have declined 12.1% compared with the industry’s fall of 12.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Some key picks from the REIT sector include Extra Space Storage Inc. (EXR - Free Report) and Terreno Realty Corporation (TRNO - Free Report) .

Extra Space Storage presently carries a Zacks Rank of 2 (Buy). The Zacks Consensus Estimate for EXR’s 2022 FFO per share has moved marginally upward in the past week to $8.49. Extra Space Storage’s long-term growth rate is projected at 8.7%.

The Zacks Consensus Estimate for Terreno Realty’s 2022 FFO per share has moved marginally upward in the past two months to $1.93. TRNO presently carries a Zacks Rank of 2.

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

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