Industrial evolution

In the wake of the merger between industrial giants ProLogis and AMB, Guy Jaquier, head of the combined entity’s private capital group, sees increased opportunities.

Individually, ProLogis and AMB Property already were the two largest owners of industrial properties in the world. So when the Denver-based development company and the San Francisco-based REIT declared their intention to combine their portfolios, there was no doubt that a new titan of the real estate world, let alone the industrial realm, was about to come into existence.

Early last month, that intention became reality when the two companies announced the completion of their merger, one of the few combinations of public US property companies to occur since the global financial crisis and the largest one by far. The combination creates a logistics and distribution property behemoth with combined assets of about $44 billion and approximately 600 million square feet of space across 22 countries.

Executives of the merged entity, which will operate under the Prologis name, were in New York on 6 June to ring the opening bell at the New York Stock Exchange and usher in a new era. Among those in attendance was Guy Jaquier, the former president of private capital at AMB, who maintains his role and responsibilities with the new Prologis.

Later that day, Jaquier stopped by PERE’s offices to discuss how the merger affects the private capital business and what it means for the group’s strategy going forward. What follows is an excerpt from that interview.

PERE: AMB and ProLogis, while focusing on the same sector, had different takes on the private capital side of their business. How have the two private capital teams been integrated?

Guy Jaquier: I think there are some things ProLogis did better than AMB and there are some things AMB did better than ProLogis. ProLogis’ history is in development, and it probably is the better developer. AMB comes from an investment management background, and it probably does that better. So in looking at how the combined team is put together, it is more of the former AMB team on the investment management side of the company, not that there aren’t some ProLogis people as well.

Our intent with most of the funds was to not change the portfolio managers. Although there was a little bit of overlap, the idea was to make the transition as seamless as possible. As a result, there will not be a major shift in strategies. We still will be focused on industrial, both from a core and a value-added perspective.

Of course, there were certain parts of the investment management business where the two companies did not overlap. On the ProLogis side, it did not have a dedicated client services team, whereas AMB did. So that whole function, led by Jim Green, is being incorporated wholesale. A big part of this business is building relationships with investor, and that is something we want to continue to focus on going forward.

PERE: Fund strategy obviously will remain focused on industrial, but are there any nuances of that strategy that will shift post-merger?

GJ: Within the two companies’ funds, there are some differences in style, which is something we intend to preserve. ProLogis’ funds tend to be more broadly diversified by market, tend to offer a higher yield and tend to consist of newer properties, a number of which have come from the ProLogis balance sheet. AMB’s funds, meanwhile, tend to be more focused market-wise and its properties tend to have lower capitalization rates, which we believe offers more growth potential.

As a result, the merged company is likely to position the former AMB funds as a total return investment and the former ProLogis funds as more of a high-yield play. Both are perfectly good strategies and appeal to different groups of investors, as well as appealing to different needs of the same investors.

As far as markets are concerned, both companies have a strong presence in the US, Japan and Western Europe, but each contributes additional markets to the mix. ProLogis adds a large presence in Central and Eastern Europe, while AMB offers exposure to emerging markets like China and Brazil. Taken together, the new Prologis will have a presence in markets generating 78 percent of the world’s GDP.

PERE: As the merger was being finalised, ProLogis was entangled in a takeover battle with one of its largest investors over ProLogis European Properties (PEPR), a listed property vehicle. Now that ProLogis has emerged victorious, buying up most of the outstanding shares, how does PEPR factor into the merged company’s business plan?

GJ: Although it is still a public company, PEPR will be part of the private capital group. Prologis now owns just over 92 percent of the shares in PEPR, and we believe the outcome was positive for all parties, including the shareholders – even those that wanted liquidity. However, it begs the question: why not take the company back on the balance sheet? We are happy to do that if the remaining shareholders decide to sell, but right now it still is a public company and we are content to run it as such.