Western Railroad Discussion > Catellus: Denver firm to buy S.F. developer

Another part of the SP empire fades into the sunset...



Catellus: Denver firm to buy S.F. developer
- Dan Levy, Chronicle Staff Writer
Tuesday, June 7, 2005



ProLogis, the nation's largest industrial real estate investment trust, will buy Catellus Corp., the company that developed much of San Francisco's Mission Bay, in a deal valued at $4.9 billion, the companies announced Monday.

The combined entity, which will be known as ProLogis and based in Denver, will have a global network of 350 million square feet of warehouses and distribution sites around the world.

It will also have the potential to develop 78 million square feet of industrial space, much of it located in the busiest distribution markets in the United States such as Southern California, Chicago, Atlanta and northern New Jersey.

The huge deal includes $3.6 billion in cash and stock and $1.3 billion in Catellus debt, making it the largest U.S. real estate deal so far this year.

The deal caught real estate analysts by surprise. "We did not see the merger coming. These were two companies that had operated independently for over 10 years," said Jay Leupp, a REIT analyst with RBC Capital Markets in San Francisco.

"But it makes sense," Leupp added. "To continue to grow, REITs will have to acquire large portfolios or buy their competitors. ProLogis is, in effect, buying 10 years of developable inventory by acquiring Catellus."

Catellus shares rose $3.75, or 12.8 percent, on the New York Stock Exchange, closing at $32.99. ProLogis shares fell $1.26, or 3.05 percent, to close at $40.11.

The ProLogis offer of $33.81 in cash represents a 16 percent premium above the Friday closing price. Catellus shareholders have the option of accepting either the cash or 0.822 share of ProLogis per share. ProLogis said its cash offer will be limited to 35 percent of Catellus' shares.

REIT valuations have been on a tear as the public has seen real estate as an alternative investment to stocks. Equity capitalization in publicly traded U.S. REITs has grown to $375 billion, according to the National Association of Real Estate Investment Trusts.

Catellus spun off from the old Santa Fe Pacific Railroad 15 years ago. The real estate developer gained its reputation by spearheading urban mixed- use projects in Los Angeles, San Diego, Fremont and other western cities around the railroad's rights of way.

In San Francisco, it has been synonymous with the Mission Bay redevelopment project, which has become the home of UCSF's biomedical campus and thousands of new housing units. City officials hope the 303-acre area will also become home to a future biotech commercial district.

However the company decided last year to switch gears and sell all of its noncore properties and become a REIT specializing in warehouse and distribution space.

Catellus Chairman Nelson Rising said the ProLogis deal "gives our shareholders the opportunity to participate in a combined company which will be extraordinarily powerful in North America as well as participation in ProLogis' global platform."

Catellus sold its ownership stakes in Mission Bay to Farallon Capital last year when it became an industrial REIT. However, the company remains involved in the parcels it sold to Farallon as the developer of future projects.

Rising said the ProLogis acquisition will not change its developer role. "It doesn't affect it at all," Rising said. "ProLogis knows we are in that (Mission Bay) business, which generates fees. That is also a part of their business, so it's very consistent with the overall plan to have the Catellus component add value to the company."

Rising said layoffs are likely, but he could not say how many of Catellus' 100 employees would lose their jobs. "It's too early to know," he said. "We've spent the last period of weeks negotiating the transactions, and we'll spend the next period evaluating the staffing."

ProLogis has developed millions of square feet of industrial space around the country and has a customer roster that includes Wal-Mart, FedEx Corp., Gillette and other corporate heavyweights.

Last year, ProLogis and its affiliated investment funds spent $1.6 billion to buy Keystone Property Trust, giving the company properties in New Jersey, Pennsylvania, Indianapolis and Miami.

But its expansion outside the United States since 1997, starting in the Netherlands, France and the United Kingdom and continuing into Central Europe and Japan, is what set ProLogis apart from other REITs, said analyst Louis Taylor of Deutsche Bank Securities Inc.

"They have followed their customers throughout Europe," Taylor said. "They've seen that companies need to address their warehouse and distribution needs and don't have to do it in individual countries. They can distribute regionally. And somebody has to do that for them."

In an interview, ProLogis chief executive Jeff Schwartz said the company's head start in Europe has given it an advantage, especially since the company's European land and facilities were acquired before the run-up in the value of the euro.

"We have a substantial investment in Europe already, so we have a built- in currency gain and are operating at an advantage because we invested with cheaper dollars," Schwartz said.

Rising will become a director on ProLogis' 12-person board of directors. Catellus' president of commercial development, Ted Antenucci, will be president of ProLogis global development.



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Companies
ProLogis

Headquarters: Denver

Primary business: Owns and manages 310 million square feet of commercial space in United States, Europe and Asia.

Established: 1993

Market cap: $7.49 billion

CEO: Jeff Schwartz.

Catellus

Headquarters: San

Francisco

Primary business: Owns and manages 40 million square feet of commercial space in the United States

Established: 1990

Market cap: $3.43 billion

Chairman: Nelson Rising

Source: The companies, Yahoo

E-mail Dan Levy at danlevy@sfchronicle.com.

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URL: http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/06/07/BUGNSD4FAQ1.DTL

Urban legend here has it that Catellus was very close to tearing down LAUPT until it was "saved" by Metrolink.