ProLogis Buy Eases Debt Squeeze on European Unit

Facing a looming CMBS debt maturity next summer, ProLogis European Properties is getting some much-needed breathing room from its corporate parent. In a deal valued at about 43 million euros, or $61 million, Luxemborg-based PEPR is selling ProLogis a 20 percent share of a private investment fund. The move is the latest in a series that ProLogis has taken since last month to shore up its financial position, Jan Svec, a director and REIT analyst for Fitch Ratings, told CPN. “It’s in [ProLogis’] best interest to make sure that PEPR continues to function,” she noted. PEPR holds Europe’s largest portfolio of distribution facilities. As of the third quarter, it owned or co-owned 364 buildings totaling 8 million square meters of assets in 12 European countries. Proceeds from the sale will be a central part of PEPR’s backup plan to repay 335.9 million euros in CMBS debt that matures next July. In a statement today, the firm said that two banks have presented term sheets for refinancing part of the debt. But if PEPR is unable to seal the deal, it will be still able to meet the July repayment deadline. Besides the proceeds from selling a share of its private fund to ProLogis, PEPR will also be able to draw on cash from operations and a revolving credit line, the company said. Specifically, PEPR is selling ProLogis two-thirds of its stake in ProLogis European Properties Fund II, a private fund that invests in both third-party assets and European assets developed by ProLogis. The value of the stake purchased by ProLogis is about 600 million euros and accounts for one-fifth of the fund’s total value. ProLogis’ decision to step in and give its affiliate relief underscores yet again that even industry leaders are encountering a tough debt market, Svec noted. Ordinarily, refinancing the maturing debt would be routine for a company of PEPR’s size and resources. But strict limits on loan size set by lenders now mean that those bets are off. Besides giving PEPR a plan B to repay its CMBS debt next year, the sale will also ease the pressure on PEPR’s equity commitments through Fund II. ProLogis has taken its affiliate off the hook for an estimated 348 million euros in equity contributions by 2010. PEPR wants to cut its exposure still further by selling its remaining 10 percent stake in Fund II. Since PEPR’s sold one-fifth of the fund for an estimated 30 percent discount, PEPR can buy back its stake from ProLogis and re-sell it to a buyer for a better price, Svec explained.