APG has 'no regrets' about PEPR exit

APG Asset Management has 'no regrets' about exiting PEPR in 2011, APG's head of European non-listed property investments, told PropertyEU.

At end-December, Prologis and Norway's massive oil-fuelled state pension fund NBIM announced they had formed a joint venture in Europe to buy the €2.4 bn logistics portfolio made up largely of assets held by the former Prologis European Properties (PEPR) fund.

APG sold its 12% stake in PEPR in May 2011 following a battle to obtain full control of the company in partnership with Australian logistics group Goodman. PEPR was delisted from the Amsterdam stock exchange in August last year after the takeover by its Denver-based parent company Prologis.

'PEPR has very good assets and a good operational manager, but we didn't feel comfortable at the time with the governance structure,' APG's Robert Jan Foortse said in an interview. 'In that light we have no regrets that we exited the company.'

Prologis' move to recapitalise the former PEPR through a joint venture with Norway's sovereign wealth fund effectively 'locks up' a portfolio of Class-A properties around Europe for an extended period at a time that the logistics sector is gaining traction among institutional investors. Indeed, demand for the asset class is growing due to high direct returns and low vacancy levels for quality assets.

But Foortse denied that APG's hard stance on corporate governance has left it empty-handed. APG still has exposure to the European portfolio through its 4% stake in Denver-listed Prologis, he pointed out. 'We're very happy with our shareholding - and that stake is worth almost half a billion euros.'

Foortse added that Prologis is not the only player offering exposure to the European logistics sector. 'We also participate in Goodman’s European Logistics Fund (GELF ed.),’ he noted. 'Goodman also has a first-rate portfolio and is a first-rate operator. And in Europe they’re not all that much smaller than Prologis. Goodman has assets totalling almost €2 bn in Europe and is seeking further expansion. They are the biggest logistics developer in Europe at the moment.'

Nevertheless, he conceded that Prologis' tie-up with Norges was a 'clever' move for both parties and that it gives Norges access to a 'big platform with a quality portfolio'. Foortse: 'We had also looked to see whether we could get access to the portfolio through the recapitalization, but we continued to differ in opinion at fund management level.’

That does not necessarily mean Norges is happy to settle for less in terms of corporate governance, he added. ‘We don't know what the terms and conditions of the deal are.’

The move gives Norges in one fell swoop a significant presence in the European logistics market following similar partnerships in the European office and retail sectors. But APG is in a different boat, Foortse noted. 'Our portfolio is already very mature. We have €27 bn in real estate assets worldwide and our portfolio is very diversified. It’s very different for players who have to begin from scratch.'

Nevertheless, the potential for investment in global logistics companies is limited following the merger of Prologis and AMB in 2011, Foortse conceded. Effectively there are now only two big players worldwide although a number of companies are jostling for the number three position in Europe. These include Segro, the UK-listed REIT, but existing fund managers like AEW Europe, AXA Real Estate and CBRE Global Investors are also candidates should they decide to consolidate their logistics platforms and open them up to new investors, Foortse added.

'There are only two big global players (active in Europe ed.) at present, but there are quite a few that could fill the number three position in Europe. There is certainly enough demand in the market.'

Aside from Prologis and Goodman, Global Logistics Properties is also viewed as a major player worldwide; however, the company is not active in Europe.

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