Investors came expecting a fight, and all they got was the silent treatment.
Prologis’ hostile bid for Duke Realty drew crowds at both companies’ presentations at REITWeek in Midtown Wednesday, but executives deflected questions. The deal remains in limbo some six months after San Francisco-based Prologis made its first play for the Midwest firm.
Duke Realty CEO Jim Connor told investors to direct any inquiries to Prologis about the prospective deal, which would make the combined company the largest REIT by market capitalization. Duke awaits any “alternative proposal” that it can take to its board, he said.
“We’ve said all that we have to say on that,” Connor said. “And we firmly believe that the ball is Prologis’ court.”
REITWeek — industry trade group Nareit’s big annual event — is typically a sober, button-up affair. But Prologis’ leadership didn’t give investors even an inch, declaring the subject no man’s land before its presentation began.
The 29 percent premium offered to Duke by the dominant industrial landlord in a $24 billion all-stock deal had increased by nearly half over months of private dialogue by the time Prologis CEO Hamid Moghadam made the terms public. He was seeking to sway shareholders and was frustrated by Duke’s alleged failure to be “substantively engaged” in the process.
Analysts have described the offer, valuing Duke at nearly $62 per share, as fair. (Duke was trading just above $52 on Thursday.) But they also have acknowledged that Duke, which commands more than 150 million square feet in key U.S. markets, has little reason to sell: Business is good, its leases are long-dated, and the company’s balance sheet is arguably in better shape than Prologis’.
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For now, both companies seem preoccupied with navigating the economic tumult that threatens to derail industrial real estate’s historic run.
In recent weeks, Amazon and other major ecommerce players, whose expansion during the pandemic pushed an already busy industrial real estate market into mania, have pulled back on warehouse space. Amazon’s decision to put up at least 10 million square feet up for sublease was a focus of both companies’ presentations.
Both in back-to-back presentations, Prologis and Duke Realty leadership maintained that demand from other tenants, including other ecommerce players and third-party logistics companies, is strong enough to pick up any slack from Amazon’s pullback.
Prologis’s new CFO, Tim Arndt, predicted the ecommerce giant’s retrenchment would be temporary. “I don’t think they ultimately want to give it back,” he said of the space Amazon plans to sublease. “I think they’re all locations they will need in the long term. They just didn’t have the timing precisely right.”
Prologis has forecast 800 million square feet of additional demand in the coming years as retailers and wholesalers right-size inventories and build up resilience to the supply-chain crisis.
Duke Realty’s Connor said there could be as much as 930 million square feet of new demand through 2025, factoring in an estimated 7 percent to 10 percent growth in ecommerce sales, which he said continue to chip away at brick-and-mortar retailers’ market share.