Industrial Player Retreats From Global Markets
To shore up capital reserves and decrease expenses, Denver-based ProLogis has
reduced its global footprint. For $1.3 billion, the company has sold its entire operations in China and 20% of its property fund interests in Japan to GIC Real Estate,
the real estate arm of the Government of Singapore Investment Corp. The REIT
expects to record a net loss of roughly 4% to 6% of the book value of the assets sold.
Net proceeds from the transaction will be used to pay down the firm’s debt.
The deal includes 20. 7 million square feet of completed properties and assets
under construction with a total expected investment of $861 million; ProLogis’ stake
in five Chinese joint ventures and a single property fund; 30% interest in SZITIC
CP, a retail JV with a book value of $53 million; and 713 acres with a carrying value
of $213 million. In Japan, the REIT traded an interest in 27. 1 million square feet of
properties. ProLogis will also receive $140 million from the sale of a 637,000-square-
foot buildings in the country from its development pipeline to GIC RE.
Analysts have generally given ProLogis’ action the thumbs up, and on Dec. 24,
the day after the announcement, the company’s stock climbed 28% to $12.93.
“ProLogis has significantly improved its financial flexibility, so our expectation is
that it’s going to be a pretty stable entity going forward,” says Lou Taylor, managing
director at Deutsche Bank Securities in New York City.
“A way for them to raise a significant amount of
capital was to sell assets they had a lot of equity
in, and those happen to be in China.”
DEUTSCHE BANK SECURITIES
The analyst says the company’s effort to de-leverage was a proactive move, not
one borne out of distress. “Their shareholders were saying ‘Look, the credit markets
could be frozen for a longer period of time and we think it’s prudent that you have
more financial flexibility’,” he says. “A way for them to raise a significant amount of
capital was to sell assets they had a lot of equity in, and those happen to be China.”
ProLogis has taken several steps to free up capital in recent months, reducing its
overhead by 20% to 25% over the near term. The company also halted new starts
for the foreseeable future and reduced its development pipeline to $8.2 billion. Of
that figure, between $2.7 billion and $2.9 billion has been allotted for full-year 2008
as of Sept. 30, according to the most recent quarterly release. Additionally, the firm
cut its dividend from $2.28 per share to $1 per common share for 2009.
All of these actions coupled with the firm’s substantial line of credit and its
recent Far East disposition should provide ProLogis with sufficient liquidity for
2009 and 2010, says Sean Pattap, director in Fitch’s US REIT group. However, he
argues this is merely one aspect of the problems facing the REIT. As of the third
quarter, ProLogis’ development pipeline was 47.7% leased on average and Fitch
does not anticipate greater leasing velocity.
“Occupancy rates will continue to fall in this recessionary environment. There
has been endless bad news about the national unemployment rates, which in
turn affects demand for industrial real estate,” Pattap says. Fitch has downgraded
ProLogis over the past two months, changing its ratings outlook to negative.
ProLogis’ shares took a significant hit after its former CEO Jeffrey Schwartz
resigned in November. The managerial shake-up at the REIT goes to further undermine its stability, says Pattap. “The bigger picture for ProLogis is what fundamentals
look like as we work our way through 2009 and the company’s access to liquidity as
they address upcoming debt maturities,” says Pattap.—Danielle Douglas
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TOP CBRE PRODUCERS DONATE
VACATION PACKAGES TO CHARITY
Cabo San Lucas, Mexico—CB Richard
Ellis has decided to forego its 2008
Recognition Conference, which would
have awarded the firm’s top-producing
US professionals. The Los Angeles-based
company is instead donating 100 vacation
packages—which consist of a three-night
stay at the Hilton Los Cabos Beach and
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Another 125 packages will be distributed
among other charitable organizations.
30 MEDICAL FACILITIES SET TO RISE
IN MIDDLE EAST OVER 10 YEARS
Manama, Bahrain—Safe Hands Health
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