According to news reports on June 6th, the merger between AMB and Prologis to form the world’s largest warehouse owner is now complete. The new firm, to be known as Prologis Ltd, will now own more than US$46 billion in warehouses and, according to reports, aims to expand aggressively in Asia.
About 12 percent of the REIT’s holdings are in Asia now, and according to an interview that Prologis Ltd’s co-chief executive, Hamid Moghadam gave to Bloomberg, “We need to increase Asia’s percentage over time, and on the margin reduce the percentage of U.S. and Europe. If you think about growth rates, the emerging markets are where all the action is.”
Prologis, which in 2009 sold its Asian operations to the Singaporean government, which subsequently transformed the assets into Global Logistic Properties, will now be re-entering the China and Japan markets through the merger. For members of the industry in China, this may be particularly confusing as Global Logistics Properties continues to go by the same Chinese name formerly used by Prologis in China (普洛斯 ), while the newly merged Prologis apparently plans to use the Chinese name formerly used by AMB.
The deal is valued at about $17 billion including assumption of debt, making it the biggest combination of U.S. REITs, topping the General Growth Properties Inc. purchase of Rouse Co. for $11.3 billion in 2004, according to data compiled by Bloomberg.
Moghadam, formerly the head of AMB, is becoming co-CEO with Prologis’s Walter Rakowich, 53, and will take over as the sole chief at the end of next year. The new company’s corporate headquarters will be in San Francisco, while its operations will be based in the former Prologis’s home in Denver.
Prologis estimates $80 million in annual savings from the merger. However, the biggest advantage will be in the company’s cost of capital. After the merger, the company’s credit profile has improved and according to Moghadam in a recent interview, “What’s most important is that the cost of capital for this company can end up being 100 basis points lower than either company on its own. That is a huge advantage on a $25 billion balance sheet.”
Fitch Ratings on June 5th raised the company’s credit rating to investment-grade level because of the merger. This lower cost of financing should be critical for the new company in China as it competes against government financed rivals who have traditionally enjoyed lower costs of capital than most western firms, particularly in the wake of the global financial crisis.
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