Shares of DCT Industrial Trust (DCT) were up by about 12% as of noon EDT on news that the company would be acquired by fellow real estate investment trust Prologis Inc. (PLD -2.64%). The stock-for-stock transaction values DCT Industrial Trust at approximately $8.4 billion.
Terms of the transaction call for DCT Industrial shareholders to receive 1.02 shares of Prologis for each DCT share they own. After closing, Prologis shareholders will own approximately 85% of the combined company, with DCT's shareholders owning the balance.
Prologis highlighted the companies' geographic mix as rationale for the transaction, noting that the industrial REITs have 100% overlap in the markets in which they operate. Prologis intends to sell about $550 million, or 7%, of the assets it acquires in the deal.
The combined company would generate approximately 23% of its net operating income in Southern California. New York and New Jersey, and San Francisco round out its top three markets, each generating about 10% of pro forma net operating income, according to a presentation.
Prologis and DCT share many of the same tenants, but the deal also brings Prologis about 500 new customers. Amazon will remain the combined company's largest exposure, at 3.1% of pro forma rent.
Prologis expects that the combination will be accretive to core funds from operation (core FFO), adding about $0.06 to $0.08 to annual core FFO per share. The company believes that it can generate $80 million in synergies immediately, plus $40 million of additional synergies over time from expanded revenue and value creation. DCT Industrial Trust has about 195 acres of land in pre-development, with 215 acres of land under contract or option.
At its current price of $64.80 per Prologis share, the announced transaction values DCT Industrial Trust shares at $66.10 each. DCT Industrial shares are currently trading at a small (less than 1%) discount to that implied value, suggesting that Wall Street believes the transaction will close as anticipated in the third quarter.