US - ProLogis, the international logistics developer, has stepped in to help ProLogis European Properties (PEPR) by buying a 20% interest in the ProLogis European Properties Fund II (PEPF II).
PEPR has decided to sell two-thirds of its current and future commitment in the fund to its parent ProLogis for €43m in a bid to boost liquidity and reduce debt, saving €348m in future equity commitments, according to Gordon Keiser, chief executive office (CEO) of PEPR.
"Taking into account the ongoing challenges in the real estate and financial markets, we have adopted strategic initiatives, approved by the PEPR Board, to improve our liquidity and address our debt maturities. The disposal of the stake in PEPF II significantly reduces our future debt needs, a key concern expressed by our unit holders and the Board," said Keiser.
The deal is expected to close today and once the transactions are completed, ProLogis, external manager of the fund, will own 37% of the Fund and take €348m of PEPF II's future equity commitments.
These will be deducted from gross contribution proceeds received by ProLogis over the next two years, said Walter Rakowich, chief executive officer (CEO) of ProLogis.
"ProLogis' expanded ownership interest in PEPF II's high-quality properties at an attractive price will yield greater current income to ProLogis. At the same time, PEPR will be relieved of the majority of its funding requirements to PEPF II, which enhances PEPR's liquidity and financial flexibility."
Rakowich said the transaction was the "best solution to PEPR's near-term liquidity issues" and would offer ProLogis shareholders the chance of receiving better shareholder returns.
On 13 November, ProLogis announced plans to de-leverage its own balance sheet by at least $2bn (€1.43bn) through refinancing and/or negotiating debt maturities on its balance sheets and property funds, targeting regional portfolio sales, lowering the dividend, reducing its development through fund contributions and halting new development starts.
PEPR has decided to suspend dividend payments for a year in order to preserve between €130m and €150m of cash in 2009 and is seeking to refinance the €335.9m commercial mortgage-backed securities (CMBS) due in July 2009, with secured debt.
The company expects to have enough capital from the sale, the elimination of its dividend and of two-thirds of the funding requirements of the PEPF II to repay its debt maturing in 2009.
The PEPF II's portfolio consists of fully leased, recently developed European industrial facilities.
At the PEPR's Board meeting on Friday, the Board appointed Geoffrey Bell as chairman of the PEPR Board. Bell is an economist, banker and also the president of Geoffrey Bell and Company, a consultant firm that advices central banks and governments on their international reserve asset and liability management.
ProLogis has $40.8bn of assets owned, managed or under development at the end of September and its clients include manufacturers, retailers, transport companies and third party logistics providers.