ProLogis Fine-Tuning Deal to Sell Industrial Portfolio to Blackstone for $1B

If it comes to fruition, it will be a very, very big deal for global distribution facilities provider ProLogis.

October 8, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user paul-simpson.org

If it comes to fruition, it will be a very, very big deal for global distribution facilities provider ProLogis. The REIT is in the process of finalizing details of a transaction that would call for the sale of an approximately 20 million-square-foot industrial portfolio to international investment and advisory firm Blackstone Group L.P., according to the Wall Street Journal.

“In the beginning of this year, we set out a goal to sell $1.3 billion to $1.5 billion of primarily U.S. properties in order to fund and retain most of our new developments,” Walter C. Rakowich, ProLogis CEO, said during the company’s second quarter earnings conference call in July. “This strategy basically enables us to enhance our geographical diversification, while also allowing us to deleverage the company further. ”

ProLogis’ direct owned core industrial operating portfolio, featuring a midyear occupancy level of 89.5 percent, is performing in line with the national average. According to the company’s U.S. and Canada Property Market Review report, the overall vacancy rate for the country’s leading 31 markets was 10.2 percent in the second quarter.

As reported by the Journal, the group of assets that ProLogis is preparing to sell to Blackstone consists of warehouse and distribution properties in various U.S. markets. The REIT has done a bit of selling this year, including the disposition of nine properties totaling 700,000 square feet to third parties, and the sale of the 800,000-square-foot Parc Ichikawa II in Metropolitan Tokyo to its joint venture with Japan Logistics Fund Inc. and Mitsui & Co. Logistics Partners Ltd. for cash proceeds of $198.7 million. But the Blackstone transaction would allow the REIT to make a major dent in what it has described as one of its top goals for 2010.

If the deal comes to fruition, however, ProLogis may very well have achieved its objective for the year. “The bigger issue with the asset sales is, we’ve done a pretty good job of pushing off our debt maturities, et cetera,” company CFO William E. Sullivan said during the earnings call. “And so it’s really a use of proceeds question; substantial sales in excess of our targets might be dilutive to short-term earnings, on the one hand. On the other hand, my sense is that the market would probably applaud that. And so we’ll see as we go along and see what opportunities and what needs we have.”