EUROPE - ProLogis European Properties (PEPR) has decided to sell its one-third stake in the ProLogis European Properties Fund (PEPF) II to further de-leverage the firm.
PEPR has agreed to sell its remaining share in the PEPF II to six large institutional investors for €14.4m, representing a 37% discount to the value of its investments and the remaining funding obligations of €174m.
"Since announcing our strategic initiatives to improve liquidity and address debt maturities, we have successfully amended our most pressing debt covenant and disposed of our entire investment in PEPF II," said Peter Cassells, the newly-appointed chief executive office (CEO) of PEPR.
"The disposal reduces outstanding debt and, more significantly, eliminates our obligation to finance further investments of €522m in PEPF II over the next 18 months," he added.
PEPR's total outstanding debt at the end of 2008 increased by 8.6% from the previous year to €2.09bn, largely because of a €244.4m investment in the PEPF II.
The firm is currently trying to refinance €884m of upcoming CMBS maturities with secured debt and is requesting a maturity extension for the €900m credit facility due in 2010 to help meet its debt obligations, which have an average maturity of 2.7 years.
PEPR has also suspended dividends for the foreseeable future to address liquidity concerns and reduce outstanding debt.
"We continue to aggressively take actions to strengthen the balance sheet, improve liquidity through active and open dialogue with our banking partners, complete new leases and renewals and serve our customer base so as to return the best possible long-term performance to our investors," said Cassells.
For the full year 2008, PEPR recorded an International Financial Reporting Standards (IFRS) loss of €577.9m compared to a €171.3m gain in 2007, as a result of higher interest expenses, valuation losses and the loss on disposal on the investment in the PEPF II.
Since 30 June 2008, PEPR's portfolio has suffered a 12.8% decrease in net asset value and is currently valued at €3.441bn.
The UK portfolio recorded the sharpest decline in property values for the last six months, made worse by the weakening of sterling, and falling 29.7% to €565.1m.
Outward yield movements caused the continental European portfolio to decline by 8.5% to €2.875bn. The Central European and Northern European portfolios also decreased by 9.3% and 9.4% respectively. The Southern European portfolio was the most resilient, decreasing by 7.4%.
Rents fell by €15.6m to €293.3m in 2008, caused by the €12.2m decline in UK sourced income, a €1.6m loss of rental income from customers defaulting in the first half of last year and the net loss of €10.7m in rents following the sale of the Garonor portfolio.
Through 22 leasing transactions, ProLogis was able to maintain a 97.3% occupancy level, however it says customers are asking for shorter, more flexible leases and warned new supply is decreasing as a lack of financing has slowed down speculative and customised development.
PEPR made a net profit on disposals for the year of €1.5m from the sale of Zibido DC1, a 12,800 sq m distribution facility near Milan, and the sale of 23,300 sq m of land in towards the north of Amsterdam.
At the end of 2008, PEPR's portfolio included 246 distribution facilities across 11 countries with an open market value of €3.4bn. Third-party logistics companies make up the largest grouping among its customers, representing 56% of annualised rental income.
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