As warehouse properties create lucrative opportunities for companies engaged in trade around the world, investors such as Brookefield Property Partners LP (BPY, Financial) and TPG Capital have been scrambling to act. San Francisco-based real estate giants Prologis Inc. (PLD, Financial) joined the bandwagon by striking a deal, worth $5.9 billion, for the real estate assets and operating platform of KTR Capital Partners. The deal will be executed by ProLogis U.S. Logistics Venture, in a consolidated joint venture with Norges Bank Investment Management (NBIM, Financial). The worldâs largest industrial retailer and the manager of the Norwegian Government Pension Fund will become 55-45 owners of 3 of KTRâs co-investment funds, along with, 60 million square foot operating portfolio comprising 322 properties.
"It is rare to have the opportunity to acquire a portfolio of such high asset quality, customer profile and market composition that is so consistent with our own," said Hamid Moghadam, chairman and CEO, Prologis. "I have known KTR's leadership for 15 years and have always considered them to be astute investors and one of our toughest competitors in the U.S. This transaction will deliver accretive returns to our shareholders and will enhance our important and successful partnership with NBIM, which will now exceed $11 billion on two continents."
The deal includes ProLogis assuming $700 million in debt from KTR, and $230 million of common limited partnership units being transferred from ProLogis to KTR.
Advantageous position
The deal puts ProLogis in a good spot to expand its operations in southern California, Florida, Chicago, Seattle, Dallas and New Jersey. The transaction, the company expects, will add $0.14 a share, on a stabilised basis, to its forecast for annual core funds from operations.
Industrial real estate prices went up by 17% in the 12 months leading up to February 2015, according to Moodyâs Investor Service. CEO Moghadam is confident, however, that property transaction market is âvery competitiveâ. âSignificant capitalâ is coming in to invest in top-quality real estate, he asserted in the conference call to announce the first quarter earnings of the real estate company.
Market and earnings
The company added 14% to Core Funds from Operations Per Share from $0.43 in the first quarter of 2014 to $0.49 in the first quarter of 2015.
"We had an excellent start to the year and we continue to deliver growth across our three lines of business," said CEO Moghadam, "Generally, market conditions are in great shape, and the scale, quality and diversification of our global platform, combined with solid execution by teams throughout the world, are driving strong financial results."
ProLogis has a market cap of $22 billion and ended Q1 2015 with 95.9% occupancy in its operating portfolio. This represents a 140 basis points increase from Q1 2014. The company, reportedly, created a value to the tune of $264.2 million through its value-added conversion program. ProLogis developed new property worth $280.1 million in the first quarter and ended the quarter with $1.8 billion of land value with build-out potential of $11.1 billion approximately.
Friday trading saw shares fall by 0.21 % to $42.88. With a P/E Ratio of 36.34, ProLogis shares yield dividend at 3.35% and have an EPS of $1.18. Shares have been, generally, coursing up this year, with a peak of $47.56 in January 2015. Eleven out of 16 analysts polled by an Investment research company gave ProLogisâ shares a âStrong Buyâ rating. It remains to be seen how the markets react to news of this deal.
