AMB, ProLogis mull merger

The two listed industrial developers-cum-fund managers are in talks about merging, in a deal that could create a $14bn REIT. Together AMB and ProLogis manage 20 private funds.

AMB Property is in talks with rival ProLogis to merge the two companies’ REIT and private fund operations in a deal that could create a $14 billion public company.

The listed industrial developers-cum-fund managers said in separate statements that they were considering an “all-stock, at-market transaction” based on their respective company valuations prior to news of the merger leaking yesterday. ProLogis stressed the deal would be a “merger of equals”.

With a combined market value of $14 billion, the merger would create a single REIT and fund management entity with almost $24 billion of assets under management, according to both firm's third quarter earnings reports.

Industrial target

Together, AMB and ProLogis manage 20 private fund vehicles comprising a mix of commingled and open-ended funds, as well as single and multi-investor co-investment funds. AMB has nine formal vehicles and various other joint ventures with a gross book value of $8.8 billion, while ProLogis manages 11 funds, which have outstanding debt secured against them of more than $8.6 billion.

In the years leading up to the financial crisis, ProLogis aggressively expanded its operations globally – a factor that has since seen the REIT shed billions of dollars of assets and portfolios to pay down its debt load. In December, the REIT sold its US Catellus portfolio and brand to private equity firm TPG, a deal which included the direct ownership or equity interests in four shopping centres, two office buildings, 11 mixed-use projects with related land and development agreements, two residential development joint ventures, Los Angeles Union Station, certain ground leases and other right-of-way leases. The deal was valued at $505 million.

The firm has also restructured large swathes of its debt load, and in early 2009 sold its China operations and Japan fund interests to GIC Real Estate for $1.4 billion.

AMB and ProLogis warned in their respective statements today that there was no assurance a merger would take place, adding that neither firm would make “further comment regarding their discussions or negotiations unless and until a definitive agreement is reached or discussions are terminated”.

Guy Jaquier

In December, Guy Jaquier, president of AMB Capital Partners, the private funds arm of AMB Property, said the firm was focused primarily on high traffic, prime industrial and logistics facilities in core markets as retailers started, slowly, to increase their inventory levels.

“Out of the whole supply chain cost, real estate rental rates are usually about eight percent of the total supply chain  cost structure,” said Jaquier, “but it gives us a lot of leverage in that equation. If we have the real estate our customer needs that can unlock or reduce their other costs, then they are less sensitive to what the rent is because you are giving them additional value elsewhere.”

Jaquier also added that AMB in 2011 would have less risk than the AMB of 2008. “Prior to the last cycle, we did have more land, more development and more leverage than we do today,” he said. “It wasn’t so much that when everything hit the fan we faced the financial distress that could really disrupt our business, but it’s not unfair to say we got nervous, just like everybody else in real estate.”