ProLogis, AMB announce merger plans
ProLogis and AMB Property Corp., two of the nation’s largest industrial property developers, have announced plans to merge, a move that
could have a profound impact on the U.S. and global industrial property markets. But the effects might not be noticeable right away. It may
take some time for the balance of power to shift in what has proved to
be an entrenched buyer’s market for U.S.-based warehousing and distribution center space.
By any measure, the merger is a big deal. The combined portfolio
includes about 600 million square feet spanning 22 countries on four
continents. The combined assets have a value of $46 billion, the companies say. ProLogis, which owns and operates 435 million square feet of
industrial property, has the bigger footprint, but analysts say AMB is
considered an equal, if not stronger, presence outside the United States.
ProLogis and AMB both have a large presence in North America,
Western Europe, and Japan. ProLogis is stronger in Central and Eastern
Europe as well as in the United Kingdom. AMB, meanwhile, has a sizable
presence in China and Brazil.
Under terms of the deal,
which is expected to close by
the end of the second quarter,
the combined company will
retain the ProLogis name. The
merged entity’s corporate headquarters will be in San Francisco, AMB’s
current base. Operations headquarters will be housed in ProLogis’s current home of Denver. AMB CEO Hamid R. Moghadam and ProLogis
CEO Walter C. Rakowich will serve as co-CEOs through the end of 2012.
At that time, Rakowich will retire and Moghadam will become the sole
CEO, the companies announced.
The merger is the first major salvo in what may become a multiyear consolidation among industrial real estate investment trusts, or REITs. A
source familiar with the transaction said that even senior ProLogis executives were stunned by the announcement and the deal’s scope. “Shock and
awe” was how the source described the reaction at ProLogis’s headquarters.
Because both companies lease and manage their own industrial capacity, a concentration of this type could, in theory, tighten up the market
and end the leverage that buyers and lessees have been exerting since the
financial meltdown and subsequent recession caused a massive drop in
property values and asking rents. While many property markets have
stabilized in recent months, rents remain relatively low, and developers
report that they still must grant concessions to attract and retain tenants.
Market conditions are not expected to change any time soon, according to Stephen F. Blau, senior director at Newmark Knight Frank Smith
Mack, a Wayne, Pa.-based real estate consultancy. Rents won’t firm, he
said, until demand picks up, and that won’t happen until more favorable
employment trends take hold.
Blau called the merger a “defensive” move by both companies. “It represents an opportunity to scale operating costs across a larger portfolio,
so the first result will be some economies [of scale] that will allow the
merged entity to operate profitably … until the portfolio is stabilized
and rent growth returns,” he said.
—Mark Solomon
ISM exec: U.S.
manufacturing on road
to recovery
A spike in U.S. manufacturing activity
that pushed the Institute for Supply
Management’s January manufacturing
index to an 80-month high is a sign of a
self-sustaining manufacturing recovery
and not a fluke caused by a large injection of government stimulus spending,
according to the chairman of the committee that publishes the influential
monthly survey.
“This is a very good report,” Norbert J.
Ore, chair of ISM’s Manufacturing
Business Survey Committee, told DC
VELOCITY. Ore said the January data indicate a continuation of the momentum
that began in 2010 and suggest that first-quarter 2011 activity may be stronger
than most pundits had projected.
“This is a typical manufacturing recov-
ery,” he said. “I would give stimulus lit-
tle credit for what manufacturers have
achieved through productivity increases
and better business practices.”
The group’s January business report
showed growth in 14 of the 18 industries
that participate in the survey. The
Purchasing Managers Index (PMI), the
most closely watched of the report’s 14
indices, rose to 60. 8 percent. That’s the
highest level since May 2004, when the
PMI hit 61. 4 percent. New orders reached
67. 8 percent, representing the 19th con-
secutive month of growth.
At the same time, deliveries by suppliers to manufacturers slowed in January
for the 20th straight month, indicating
longer delivery lead times as suppliers
cope with rising order volumes. In addition, the “prices” index jumped to 81. 5
percent, an increase of 9 percentage
points over December and the highest
reading since July 2008. A reading above
50 percent indicates that component
prices are trending higher.
Ore warned of a continuing acceleration in prices that could potentially derail
the recovery. “The major concern now is
pricing, as higher costs could slow
growth,” he said.
