On Monday, industrial REIT ProLogis bought Catellus Development Corporation (also a REIT) for $3.6 billion in cash and stock. The merged company will become the nation’s largest industrial REIT in a move that further consolidates the sector. The multi-billion dollar deal is also the largest commercial real estate merger so far this year.
With Catellus’ reputation as a savvy developer and owner of stabilized warehouse properties, the ProLogis portfolio should benefit from the merger. The only potential negative factors include ProLogis’ increased leverage (the REIT is using bridge financing on the acquisition) and added risk from development.
“The risk is that with an increased focus on development, ProLogis will have added development risk on their balance sheet,” says Matthew Gallino, a managing director at Fitch Ratings.
“ProLogis really bought Catellus for their development acumen and existing assets. Catellus is a very strong developer,” adds Gallino. Fitch expects the merger to give ProLogis a market share of roughly 13% of domestic distribution/bulk real estate development.
Aurora, Colo.-based ProLogis owns and manages roughly 2,000 distribution centers throughout 75 global markets. ProLogis had 15 million sq. ft. of space under development at the end of the first quarter.
San Francisco-based Catellus owns more than 40 million sq. ft. of commercial properties, roughly 90% of which is industrial space. The REIT had 4.3 million sq. ft. of domestic space under construction at the end of the first quarter. The combined ProLogis and Catellus supply pipelines amount to roughly 20 million sq. ft. of space under development.
Last year, ProLogis bought Pennsylvania-based Keystone Property trust for $1.7 billion. That acquisition helped ProLogis establish key beachheads in New Jersey, Pennsylvania, Indianapolis and south Florida. Keystone owned 143 distribution properties encompassing 34 million sq. ft. in the eastern United States.