Prologis $12.6 Billion Deal Adds to Warehousing Space Race

By Jennifer Smith

Warehouse providers are racing to add scale as the growth of e-commerce drives demand for industrial space near key logistics hubs.

Prologis Inc., one of the world's largest owners of industrial real estate, said Sunday it would acquire rival Liberty Property Trust and its 107 million square feet of logistics space in an all-stock transaction valued at about $12.6 billion, including debt.

The deal for Wayne, Pa.-based Liberty is Prologis's third acquisition in the past 18 months, and will add to a Prologis portfolio that as of Sept. 30 counted about 797 million square feet of industrial real estate in 19 countries.

Prologis shares were down 4.9% to $86.44 in Monday afternoon trading, while Liberty's shares climbed 15% to $58.15.

The acquisition, which Prologis expects to close in the first quarter of 2020, comes as private-equity giant Blackstone Group Inc.'s real-estate funds have snapped up nearly $25 billion of warehouse portfolios this year.

"Both of them are in a race to create ultimately billion-square-foot platforms globally," said Craig Meyer, industrial-division president for the Americas at real-estate services firm Jones Lang LaSalle Inc.

Neither Prologis nor Blackstone have the ability to corner the U.S. industrial real-estate market, which encompasses nearly 14 billion square feet of inventory, Mr. Meyer said. But creating scale in the biggest logistics markets and gateways to major population centers allows Prologis to offer "one-stop shopping in big key markets" to more easily meet demand from clients that want to ramp up operations in places such as Southern California or Pennsylvania, he said.

Liberty's properties include sites in key distribution hubs such as Pennsylvania's Lehigh Valley, Houston, Chicago and Southern California.

"We've been trying to grow our presence in the Lehigh Valley for years," Prologis Chief Investment Office Eugene F. Reilly said on a Monday call with investors. "The combined portfolio going forward in the Lehigh Valley totals 26 million square feet, with additional land to build 4 million square feet in the future."

The deal would give Prologis 5.1 million square feet of developments in progress across the U.S., 1,684 acres of land for future logistics development and nearly 5 million square feet of office space.

The company intends to sell off about $3.5 billion in assets, including $2.8 billion of nonstrategic logistics properties and $700 million of office properties.

Changes in consumer shopping patterns have been reshaping logistics networks, driving up demand for warehouse space, especially for sites near major population centers as businesses push to deliver goods more quickly to consumers.

The deals come amid signs that the market for warehousing and distribution space may be leveling off. This year, new building construction is on track to outpace overall demand by about 70 million square feet, according to Cushman & Wakefield, although the real-estate services company said the national average vacancy rate for industrial real estate remained at a historic low of 4.8%.

Write to Jennifer Smith at jennifer.smith@wsj.com

(END) Dow Jones Newswires

October 28, 2019 16:03 ET (20:03 GMT)

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