Prologis (PLD) Concludes DCT Industrial Buyout for $8.5B

Industrial REIT Prologis, Inc. PLD has finally completed the acquisition of DCT Industrial Trust Inc., in an $8.5-billion all-stock deal, including debt assumption. The company also raised its 2018 core funds from operations (FFO) per share outlook following the acquisition.

Particularly, the move, which included conversion of each DCT common shares into 1.02 shares of Prologis common stock, is expected to be accretive to 2018 core FFO per share by 2 cents. Therefore, the company now expects 2018 core FFO of $3.00-$3.04 per share compared with the previous estimate of $2.98-$3.02. Moreover, Prologis will refinance $1.8 billion of DCT's debt, of which $850 million was paid off at closing, while the remainder is slated to be retired in the ongoing quarter.

With this acquisition, Prologis adds 71-million-square-foot area to its operating portfolio. This enables the company to strengthen its foothold in major high-growth markets of Southern California, the San Francisco Bay Area, Seattle and South Florida.

Further, this deal has helped the company acquire 7.5 million square feet of development, redevelopment and value-added projects, 305 acres of land in pre-development with an estimated build-out potential of more than 4.5 million square feet of area. Also, it has gained 131 acres of land under contract, or option, with a build-out potential of over 1.6 million square feet of space.

Considering DCT’s high-quality closely aligned portfolio, along with an efficient platform and strong customer base, the acquisition is expected to solidify Prologis’ market position and improve its growth curve. Particularly, the combined entity expects immediate corporate G&A savings and significant scale economies within its operating portfolio.

However, as a result of the impact of non-cash real estate depreciation, the company expects the transaction to be dilutive to net earnings per share. Therefore, it has lowered its 2018 net earnings outlook to $2.67-$2.73 per share from $2.80-$2.86 per share guided earlier.

Notably, industrial REITs are expected to gain traction as high consumer spending, strengthening e-commerce market, and a healthy manufacturing environment amid a recovering economy and job market are spurring demand for this real estate category. This, again, will significantly drive performance of REITs in the industrial asset category, including Prologis, Liberty Property Trust LPT, Duke Realty Corp. DRE and Terreno Realty Corporation TRNO.

Nevertheless, any protectionist trade policies will have an adverse impact on economic growth, as well as this asset category’s business over the long term. Additionally, a whole lot of new buildings are slated to be completed and made available in the market in the near term, leading to lesser scope for rent growth.

Prologis currently has a Zacks Rank #3 (Hold). The company’s shares have appreciated 4.5% in a month’s time compared with its industry’s growth of 3.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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