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Prologis Proposes to Buy Duke Realty in All-Stock Transaction Valued at $61.68 Per Share

Prologis, Duke Realty
Photo by Ryan Parker

SAN FRANCISCO — Prologis, Inc. (NYSE: PLD) (“Prologis”), the global leader in logistics real estate, today sent a letter to James B. Connor, Chairman and Chief Executive Officer of Duke Realty Corporation (NYSE: DRE) (“Duke Realty”) proposing to acquire Duke Realty in an all-stock transaction.

Under the terms of the proposal, Duke Realty stockholders would receive 0.466 shares of Prologis common stock for each share of Duke Realty common stock they own. Prologis’ proposal is valued at $61.68 per Duke Realty share, based on Prologis’ closing price on May 9, 2022, and represents a premium of 29% to Duke Realty’s closing price on the same date.

“We are confident that the proposed combination will be a win-win for our respective shareholders,” said Prologis CEO and co-founder Hamid R. Moghadam. “Prologis has a proven track record serving as a leader and innovator in our industry. We are known for providing exceptional service to customers and delivering superior value for our shareholders, including the shareholders of companies we have merged with or acquired in the past. We have no doubt that Duke Realty’s shareholders would similarly benefit from long-term value created by the combination of our companies.”

Following personal dialogue between the executive teams, Prologis first sent a letter to Duke Realty on November 29, 2021 regarding a potential transaction at an exchange ratio of 0.465, representing a 20% premium to Duke Realty’s stock price at the time. Over the past five months, Duke Realty has not substantively engaged while the implied premium of Prologis offer has steadily increased. On May 3, 2022, Prologis modestly increased the proposed exchange ratio – representing a 34% premium to Duke Realty’s stock price at the time– in a final attempt to engage privately to reach agreement on a mutually beneficial transaction. Duke Realty rejected the Prologis proposal that same evening.

Prologis sent the following letter to Duke Realty’s Chairman and CEO today regarding the proposal:

May 10, 2022

Mr. James B. Connor

Chairman and CEO

Duke Realty Corporation

8711 River Crossing Boulevard

Indianapolis, Indiana 46240

Dear Jim:

We are writing to reiterate our proposal to acquire Duke Realty. We are making this letter public after numerous private conversations have not led to serious dialogue or consideration. We believe this proposed transaction will be enthusiastically received by both your and our shareholders.

As you know, and we have stated at multiple times in the past, we admire and respect what you, your management team and board have accomplished. Our proposal represents a terrific opportunity for Duke Realty and your shareholders, who would receive 0.466 shares of Prologis common stock for each share of Duke Realty common stock. Based on Prologis’ latest closing price1, this proposal values Duke Realty at $61.68 per share, representing a premium of 29% to Duke Realty’s closing price on May 9, 2022.

On almost every metric (current stock price, VWAPs and consensus price targets) our proposal provides Duke Realty’s shareholders with a premium at the absolute top tier of valuation, as compared to other comparable REIT transactions. The terms we are proposing provide Duke Realty shareholders with the opportunity to participate in the growth and upside potential of the combined company, while also delivering an immediate, substantial, and compelling premium.

Based on the clear strategic and financial benefits outlined below, we are highly confident the addition of your assets to our platform will deliver superior value to the shareholders of both companies over the long term. The benefits include:

  • Highly Strategic & Complimentary Combination
  • Incremental Value Created from Prologis’ Platform
  • Enhanced External Growth
  • Significant Synergies
  • Day 1 Accretion to Core FFO (less promotes) to Both Shareholders

One thing that sets Prologis apart from others in our industry is a substantial strategic capital business and our Essentials platform. The Essentials platform includes solutions around operations, energy, workforce, transportation and digital – offerings that we provide to customers inside and outside of the Prologis portfolio. The Essentials platform will continue to fuel superior growth. At this point, we are creating recurring revenue both in our own platform and others, including yours.

In addition, our track record on creating value through acquisitions is incredibly strong. Our acquisitions of DCT Industrial Trust Inc. and Liberty Property Trust materially benefited the shareholders of those companies through our outperformance since acquisition, outperforming their peers by 41% and 22% respectively.

I have no doubt your shareholders will similarly benefit.

I would note, at the proposed exchange ratio, Duke Realty shareholders will own 19% in the combined company. This would represent on average 26% more ownership in the combined company than would be implied by a straightforward ownership split based on Duke Realty’s earnings contribution in the combined company (whether measured on 2022 or 2023 consensus, FFO or AFFO).

In previous communications, you have contended that the premium is not enough to engage seriously with us. Your shareholders should be aware that the immediate value of our offer has increased by approximately 10% since we began our dialogue more than five months ago:

  • In November 2021, we proposed a fixed exchange ratio of 0.465x representing a 20% premium. In response, you indicated that the proposal did not present a compelling premium to Duke Realty shareholders. You also noted that you believed “a premium in the high 20 or low 30 percent range” was warranted.
  • In March 2022, we met to discuss the merits of a potential business combination and we reaffirmed our willingness to afford your shareholders the same fixed exchange ratio of 0.465x, which then implied an approximately 28% premium. Even with an increasingly compelling premium, you were unwilling to engage further.
  • On April 29, 2022, we had a lengthy conversation in which I reiterated our willingness to transact at the same previously proposed fixed exchange ratio, which continued to imply a compelling premium in-line with your previously articulated expectation.
  • On May 3, 2022, we modestly increased our proposed exchange ratio, as a goodwill gesture, to 0.466x, which represented a 34% premium at the time. Later that same evening, you again declined our offer.

Setting the current market volatility aside, we view this combination as a long-term strategic benefit. As evidence of that, the offer represents a 32% premium to the 30-day volume weighted average prices (VWAP).

While we would prefer to continue working privately with you, as we have with others, to reach agreement for the benefit of your shareholders and ours, this approach is clearly not working as detailed above. This led us to conclude that a public approach may be more constructive for all.

We have engaged Goldman Sachs & Co. LLC and Wachtell, Lipton, Rosen & Katz to assist us in completing this transaction. Our transaction would not be subject to any unusual governmental or third-party approvals, or any other significant contingencies. We believe that this transaction can be completed quickly.

Jim, we are committed to completing the acquisition of Duke Realty. I hope that you, your board and your advisors are prepared to engage with us. Again, we firmly believe this proposal is the best path to driving long-term value for Duke Realty shareholders.

Sincerely,

Hamid R. Moghadam

Co-Founder, Chairman & CEO

ABOUT PROLOGIS

Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of March 31, 2022, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 1.0 billion square feet (93 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 5,800 customers principally across two major categories: business-to-business and retail/online fulfillment.