Update: Shares in SEGRO (SGRO), the £10bn European logistics investor, are in focus after Prologis (PLD), the world’s largest industrial real estate investment trust, launched a hostile £12.6bn bid, appealing directly to shareholders with an all-share offer rejected by the SEGRO board yesterday.
SEGRO shares jumped nearly 19%, or 135p, to 881p, but below the 925p implied by Prologis’ all-share offer. They continued to rise even after SEGRO confirmed its board had “unanimously and unequivocally rejected the proposal, which falls a long way short of SEGRO’s own views on value”.
Other REITs rallied on hopes that further bids could follow from across the Atlantic. Tritax Big Box (BBOX), a SEGRO rival that also has a desirable pipeline of data centre developments, leaped 6.7% or 10.2p to 162p. British Land (BLND) and LondonMetric Properties (LMP) rose over 5% and 3% respectively.
Prologis, a $135bn REIT listed in New York, is offering 0.084 new shares for every SEGRO share. Based on its closing price yesterday of $145.3, that indicates 925p per SEGRO share, a 24.6% premium to the 742p it stood at last night. SEGRO shareholders would own 10.5% of Prologis after the merger.
Prologis says SEGRO has traded persistently below the value of its investments with an average discount to net tangible assets of 19% and 17% over the last two years and three years respectively.
It believes its global platform and strong balance sheet can “unlock the significant embedded value of Segro’s development and data centre pipeline”.
Prologis said its superiority was shown by lower net debt of 22% of enterprise value compared to 37% for SEGRO.
It said it had also outperformed SEGRO with 37% and 39% total shareholder returns over three and five years that exceeded its target’s 19% and -20% over the same periods.
The company urged SEGRO shareholders to encourage its board to engage with Prologis and to allow it to finalise a binding offer.
However, SEGRO described Prologis’ approach as “opportunistic” and indicated it wanted to stand alone, or command a higher price. “Momentum is building in SEGRO’s occupational markets and the company has a large and attractive development pipeline, including an exceptional data centre platform, as well as a long track record of delivery.”
The company announced plans to develop a £1bn data centre at Park Royal in west London in March last year with Pure Data Centres Group owned by Oaktree.
US bidders have been active acquirers of London’s depressed REIT share prices with Blackstone snapping up Warehouse REIT for £489m last year and CareTrust REIT buying Impact Healthcare in an £840m deal.
Our view
Richard Williams, senior analyst at QuotedData, said: “The proposition from Prologis is compelling, being the largest listed logistics developer in the world. SEGRO has delivered lacklustre returns over the past few years as it suffered from significant yield expansion from a very low base following the spike in interest rates in 2022. Prior to this it was trading at a substantial premium to net asset value, with the logistics market experiencing strong growth drivers, exacerbated by Covid. These market fundamentals have not gone away and, in fact, SEGRO’s potential has arguably improved with a latent large data centre development pipeline. The argument now is whether it has the balance sheet capacity to build out this pipeline quickly enough to extract superior returns. In unequivocally rejecting Prologis’ offer, at NAV, the board will have to set out a compelling case to shareholders for its future growth prospects.”
