Catellus to Be Bought by ProLogis

Combining the two REITs will result in an entity that will have warehouse and distribution centers valued at $21 billion.

June 07, 2005|Roger Vincent | Times Staff Writer

Catellus Development Corp., one of California's largest private landowners thanks to a lineage that dates to the earliest days of railroads in the West, has agreed to be sold for $3.6 billion in cash and stock to warehouse and distribution giant ProLogis.

Both companies are real estate investment trusts that develop and operate industrial properties. Catellus also owns Union Station in Los Angeles and a portion of the residential and office development at Mission Bay in San Francisco.

ProLogis will continue to develop Catellus' properties, including Kaiser Commerce Center, a 588-acre former Kaiser steel mill in San Bernardino County near truck routes that serve the ports of Los Angeles and Long Beach. Catellus also is constructing office buildings at Los Angeles Air Force Base in El Segundo with Kearney Real Estate Co.

Under terms of the deal, ProLogis would pay $33.81 a share, a 16% premium over Catellus' closing price Friday, or 0.822 share of ProLogis for each Catellus share. The total value of the deal is $4.9 billion including debt, the companies said, and marks the biggest U.S. real estate acquisition of 2005.

The announcement drove Catellus' shares up $3.75, or 13%, on Monday to $32.99. ProLogis' shares fell $1.26 to $40.11.

The combined company would have more than 350 million square feet of warehouse and distribution centers valued at $21 billion.

"Catellus has the best industrial portfolio in the United States," said Jeffrey H. Schwartz, chief executive of ProLogis. The majority of Catellus' holdings are in California, which Schwartz called the top industrial real estate market in the country, with six times more buildable land in the state than ProLogis.
"We wanted a much larger presence in Southern California, and that was a driving reason to do this" acquisition, Schwartz said.

Catellus is "one of the most aggressive of the developers of new industrial land at the moment," Jim Ulmer, a senior vice president at Baltimore-based LaSalle Investment Management, told Bloomberg News. LaSalle owns 3.2 million shares of ProLogis and no Catellus shares.

"It's a good deal for Catellus, and it's a very good deal for ProLogis," he said.

Nelson Rising, chairman and chief executive of Catellus, said, "We believe this is an excellent way for our shareholders to realize the value of the platform we have built and to participate in the future growth of ProLogis."

Rising, 63, has been Catellus' CEO since 1994 and previously was a senior partner at Maguire Thomas Partners, where he was in charge of major Los Angeles projects including the Library Tower and Playa Vista. Rising, whose 1.4% stake in Catellus is worth about $47 million, would join ProLogis' board of directors, but he would not have a management post.

Catellus' president of commercial development, Ted Antenucci, would become president of global development for ProLogis. Schwartz declined to speculate on possible layoffs of Catellus employees.
The union of the two companies "is very complementary in terms of what they bring to the table," said John Long, chairman of the Richard S. Ziman Center for Real Estate at UCLA and a private real estate investor through Highridge Partners and Golden Boy Partners.

Catellus, based in San Francisco, has a huge inventory of land and expertise at getting government approvals for new construction, while ProLogis is a respected large-scale developer, Long said.

Aurora, Colo.-based ProLogis owns and manages 2,043 warehouse and distribution centers totaling 310.8 million square feet in North America, Europe and Asia. Its customers include FedEx Corp., Home Depot Inc., General Electric Co., Sears Holdings Corp., Unilever and Wal-Mart Stores Inc.

Catellus became a REIT at the start of last year as it shifted its focus to building and operating industrial parks instead of developing urban mixed-used projects such as Union Station and Santa Fe Place in San Diego. It has 40.6 million square feet of property, mainly distribution centers, across the U.S.
Santa Fe Pacific Corp. spun off Catellus to shareholders in 1990.

But the company's roots and gigantic land holdings date to the 1850s, when civil engineer Theodore D. Judah built a 23-mile line called the Sacramento Valley Railroad. It later became the Central Pacific Railroad, the first to conquer the Sierra Nevada. In 1869, the line linked up with the Union Pacific, coming from the East, with the driving of the famed golden spike at Promontory Point, Utah.

As part of its mandate for a transcontinental railway, the federal government gave the railroad builders vast tracts of land as an incentive to complete the historic rail linkage.
Later, with its name changed again, this time to Southern Pacific, the railroad heavily promoted its territory in the West to attract residents and businesses and became one of the most powerful players on the economic scene in 19th century California.

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Combining the two REITs will result in an entity that will have warehouse and distribution centers valued at $21 billion.

Catellus to Be Bought by ProLogis

Combining the two REITs will result in an entity that will have warehouse and distribution centers valued at $21 billion.

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