ProLogis Closes First Leg of $505M Catellus Sale

As per the agreement with TPG Capital, ProLogis will retain a preferred equity interest in Catellus, which the global distribution facilities provider acquired in 2005 in a $5.5 billion acquisition. The total consideration for the first tranche was $353 million.

March 4, 2011
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Tim Green aka atoach

In December 2010, ProLogis announced it had entered into an agreement to sell a group of U.S. retail, mixed-use and ground lease assets from its Catellus Development Corp. portfolio to affiliates of TPG Capital for approximately $505 million, and now the first phase of the deal has closed. The total consideration for the first tranche was $353 million.

ProLogis CEO Walter Rakowich noted that the Catellus assets are high-quality with good long-term prospects, but are not in keeping with corporate strategy of concentrating on core industrial properties.

As per the agreement, ProLogis will retain a preferred equity interest in Catellus–which the global distribution facilities provider acquired in 2005 in a $5.5 billion acquisition–totaling approximately $70 million; $55 million of that total was included in the recent closing. The first tranche involved four shopping centers, two office properties, nine mixed-use developments and the corresponding land and development agreements, two residential development joint ventures and rights to the Catellus name.

The second phase of the portfolio sale to TPG will encompass two additional mixed-use projects and their accompanying land and development agreements, certain ground leases and other right-of-way leases. At the time of the December announcement, Los Angeles Union Station was also part of the deal and ProLogis had committed to providing $30 million first mortgage financing on the 51-acre, mixed-use property. On February 24 of this year, however, the Los Angeles County Metropolitan Transportation Authority announced that it had negotiated the acquisition of the downtown property, including 38 acres of land, from Catellus for $75 million. An historic landmark originally developed in 1939, Union Station is entitled through 2022 for additional development totaling 5.9 million square feet of office, retail, entertainment and residential space.

Part two of the ProLogis-TPG deal is on track to close during the second quarter. The REIT previously announced that it would use profits from the transaction to repay debt and finance future projects. “We’re going to generate a fair amount of proceeds out of the Catellus sale and the land dispossessions, and that is sufficient to fund our development activity this year in a debt neutral manner,” William E. Sullivan, CFO of ProLogis, said during the company’s earnings call last month.