PEPR results for the quarter ended 31 March 2010

Thursday, 22. April 2010 09:00
News release

ProLogis European Properties results for the quarter ended
31 March 2010

PEPR maintains robust operational performance
 and continues to improve balance sheet leverage
Luxembourg - 22 April 2010 - ProLogis European Properties (Euronext: PEPR),
Europe's largest owner of modern distribution facilities, today reports results
for the quarter ended 31 March 2010.


* Received €392.6 million of new secured financing, eliminating all debt
maturities until December 2012 and further reducing the loan-to-value ratio
to 53.7% (2009: 55.0%)

* 31 lease transactions concluded, covering 452,300m2, more than double the
volume for Q1 2009 (16 lease transactions, covering 178,300m2)

* High portfolio occupancy at 94.8%, down 1.3% since end 2009

* EPRA net asset value per ordinary unit of €6.26(1), a 1.8% increase since
year end 2009 as a result of retained earnings; IFRS net asset value per
ordinary unit of €6.01 (2009: €5.97)

* EPRA earnings per ordinary unit(1) of €0.10, a decrease of €0.05 per unit
(Q1 2009: €0.15), primarily related to declining rental income, accelerated
loan amortisation costs, preferred dividends and higher taxes, partially
offset by lower interest expense; IFRS earnings per ordinary unit of €0.11
(Q1 2009: €0.15)

* Moody's Investor Service improves credit rating outlook to stable

(1) = Based on EPRA ( European Public Real Estate Association) Best Practices
Policy Recommendations, issued in July 2009

Commenting on the results, Peter Cassells, chief executive officer of PEPR,

"PEPR continues to achieve robust operational performance and financial results
in spite of the sustained challenging market conditions. Portfolio occupancy
remains high, at 94.8%, and continues to be a primary focus for us. The volume
of leasing completed during the quarter demonstrates that our modern,
pan-European portfolio remains highly sought-after to existing and prospective

"EPRA earnings and distributable cash flow for the quarter, of €0.10 and €0.12
per ordinary unit respectively, are broadly in line with 2010 guidance. These
results reflect the secure cash flows derived from our portfolio and the
relative stability of logistics as a real estate asset class.

"During the quarter, we received a further €392.6 million of new secured
financings, in what remains a tight and conservative credit market. These
financings enabled us to repay all outstanding debt in 2010 and to begin to
reduce our 2012 maturity. The subsequent improved liquidity profile was key to
Moody's improving PEPR's credit rating outlook, an important first step in
achieving our stated objective of returning to an investment grade credit

"Our main operational priority for 2010 is to continue to drive cash flow from
the portfolio through proactive asset management and exemplary customer service.
Whilst the market outlook remains challenging and we continue to be cautious
over net occupier demand and rental levels for the remainder of 2010, we believe
that the strength of our pan-European portfolio and strong customer
relationships leave PEPR well positioned for the future."

Market outlook

The pan-European economic slump ended in mid-2009, but recovery looks to be slow
and intermittent. The below-trend growth projections for 2010 suggest that the
markets will stabilise but not rebound. However, world trade, a key indicator
for logistics real estate, appears to be increasing faster than market
commentators had predicted.

Increased confidence in the capital markets has led to improving investment
yields across the majority of sectors, particularly the UK and core Western
European markets. The volume of investment transactions in the logistics sector
has increased steadily from summer 2009, although demand remains focused on
prime and mid-range properties in the traditional core markets.

Occupier demand continues to be driven by customer consolidation and business
rationalisation, with little net absorption for the time being. Nonetheless,
certain market segments such as food and discount retailers have continued to
expand their supply chains. Demand in 2010 is likely to remain concentrated
around similar sectors and is expected to be at a similar overall level to 2009.

New speculative development remains non-existent across all markets. There is
limited build-to-suit activity as financing of these developments remains
relatively difficult to source. The impact of these demand and supply metrics
has meant that net effective rents have remained under downward pressure.
However, market observers point to a slowing of the rate of decrease and suggest
that the low point may now have been reached.

Looking ahead, we believe that the patchy economic recovery will lead to a
gradual absorption of existing vacancy over the coming months and as such we do
not expect to see material improvement in the occupier markets until later in

Portfolio performance

Leasing activity in the first quarter has remained strong with ProLogis, PEPR's
external manager, completing 31 lease transactions, covering 452,300 square
metres. 20 leases, covering 325,100 square metres, were renewed with existing
customers including DHL, Fiege and ND Logistics. In Germany, Adloq Logistik
expanded their lease by a further 1,700 square metres. In addition, 10 new
leases were signed, totalling 125,500 square metres, with customers such as GE
Energy, Samsung and Wincanton. Whilst these transactions demonstrate the
attractiveness of the portfolio to occupiers and PEPR's continued commitment to
maintaining occupancy, the current challenging market conditions have resulted
in a slight decline in overall portfolio occupancy to 94.8%.

There were 11 leases with breaks or expiries in the first quarter, totalling
136,000 square metres. Of these, only four lease breaks, or 52,700 square
metres, were exercised implying a customer retention rate of 61% in line with
PEPR's historical average customer retention rate.

Overall, the  31 leases signed during Q1 2010 showed an 11% decline in passing
rent, in line with market rental value movements of between 5% in markets
generally unaffected by oversupply such as Northern Europe to 15-20% in markets
in Central Europe.

At the end of March 2009, the portfolio comprised 232 distribution facilities,
covering 4.9 million square metres across 11 European countries with an
estimated net market value of €2.8 billion. The portfolio risk profile remains
highly attractive, with occupancy at 94.8%, a diversified customer base, and on
average 3.3 years to next lease break or 5.4 years to lease expiry. An overview
of the portfolio is provided on page 18.

Financial results


IFRS earnings for the first quarter 2010 decreased by €6.9 million to €22.4
million from €29.3 million in the comparable period of 2009, primarily driven by
a €3.6 million decline in total revenue, €1.4 million of property fair value
movements and €2.8 million of higher taxes.

EPRA earnings, which provide a guide to underlying business performance,
decreased by €8.4 million to €20.8 million from €29.2 million for the same
period last year, primarily driven by a €6.2 million decline in rental income,
€1.1 million of accelerated loan amortisation costs and €2.1 million of higher
taxes, partially offset by €2.7 million of lower interest expense.

After allowing for the additional €1.6 million of preferred dividends, EPRA
earnings for ordinary unitholders decreased to €0.10 per unit from €0.15 per
unit in the prior period.

A reconciliation between IFRS and EPRA earnings is shown on page 11.

Total revenue

Total revenue for Q1 2010 fell by €3.6 million to €64.5 million (Q1 2009: €68.1
million), primarily related to the loss of €4.2 million of rental income from
portfolio sales in 2009 and a decline of €2.4 million in rental income as a
result of leases rolling back to market. This decline in rental income was
partially offset by the one-off receipt of €2.6 million following the
finalisation of insurance and legal claims related to properties in Hemel
Hempstead, UK, that were damaged in the Buncefield oil terminal explosion at the
end of 2005.

Operating expenses

Total operating expenses consist of the cost of operating the portfolio and
managing PEPR as a fund.

Cost of rental activities includes ground rents paid, property management fees,
the provision for bad debt and other non-recoverable property related expenses,
such as property insurance and property tax. During Q1 2010 the cost of rental
activities of €6.3 million was broadly in line with the €6.1 million in the
comparable period. Property management fees of €3.3 million for the quarter were
€1.0 million lower than the prior period as they are directly correlated to the
gross value of the portfolio which has been impacted by portfolio disposals and
valuation movements.

Fund expenses consist of the non-property related costs associated with our
business, including fund management, custodian and professional fees. These
expenses increased by €0.4 million to €3.0 million for the quarter, primarily
due to the write-off of €0.5 million of legal and advisory fees associated with
a potential second preferred equity raise.

Property fair value movements

Whilst no portfolio revaluations were carried out in the first quarter, PEPR
incurred a €1.4 million gross valuation loss on property related to capital
expenditure and rent levelling adjustments incurred during the quarter.


Finance income for the quarter decreased to €0.2 million from €1.8 million for
the same period in 2009 primarily related to the receipt in 2009 of a €1.3
million dividend from ProLogis European Properties Fund II. Lower levels of cash
and lower interest rates received on deposits account for the remainder of the

Finance costs for the period, comprise interest expense, debt amortisation
charges and foreign exchange gains/losses.


Year ended   Three months ended
----------------- ------------------------------
31 December 2009   31 March 2010 31 March 2009

€'000   €'000 €'000

96,173 Interest expense 22,833 25,543

Amortisation of initial
10,524 borrowing costs 3,128 2,659

Net foreign currency
1,092 (gains)/losses (239) 733
----------------- --------------- --------------
107,789   25,722   28,935


Interest expense of €22.8 million for the quarter decreased by €2.7 million, or
10.6%, from €25.5 million for the comparable period, primarily related to
successful deleveraging efforts. These include the repayment of €494.2 million
of Commercial Mortgage Backed Securities ("CMBS") between the two quarters,
partially offset by the increase in weighted average interest rate to 5.2% from

Amortisation charges increased in Q1 2009 to €3.1 million (Q1 2009: €2.7
million), reflecting accelerated amortisation charges related to the €200
million reduction in the size of the revolver and the early repayment of the
first €300 million tranche of the €900 million senior unsecured credit facility,
due December 2010.

Debt structure

PEPR's financing structure utilises a mix of secured and unsecured debt sources.
All of PEPR's secured debt is secured against specific pools of assets, with no
recourse to another debt instruments or assets elsewhere within the business.

PEPR is obliged to comply with a number of financial debt covenants within its
credit facilities. At the end of March 2010, PEPR was in compliance with all of
these covenants.


Limit 31 Mar 2010   31 Dec 2009

Unsecured debt:

€900m unsecured credit facility

Leverage less than 60% 55% 55%

Fixed charge coverage a least 1.5x 2.0x 2.0x

Unencumbered interest coverage a least 1.5x 1.8x 2.0x

Net Worth (excluding Intangible
assets) at least €1.0bn €1.2bn €1.2bn

Unsecured debt as % of unsecured
assets less than 65% 61% 61%

€500m 2014 Eurobond

Secured debt as % of total assets less than 40% 29% 17%

Fonds commun de placement

Loan to value (total debt as
percentage of gross portfolio
value) - see page 12 less than 60%(2) 53.7% 55.0%


(2) = Can be exceeded up to 65% for a maximum of six months

In addition to the covenants in the table above, the €500 million Eurobond is
redeemable at par if there is a change of control of PEPR and a subsequent
downgrade of PEPR's credit rating to Ba1 or below within 120 days. On 15 March
2010, Moody's Investors Service improved PEPR's credit rating outlook to stable,
whilst maintaining the Ba1 rating.

Total outstanding debt as at 31 March 2009 was €1,602.6 million, a 2.2% decrease
since year end 2009 (€1,638.9 million), primarily due to the retention of Q1
distributable cash flow. During the quarter, PEPR repaid €373.0 million of debt,
due 2010, and €20.0 million, due 2012, under the senior unsecured credit
facility. In addition, PEPR repaid €36.6 million of CMBS debt, due May 2010 and
received €392.6 million of new secured financing, as follows:

* €300 million pan-European syndicated loan with six European lenders with
Goldman Sachs as sole arranger. The syndicate includes Deutsche
Pfandbriefbank AG (as Facility and Security Agent), AXA, BAWAG P.S.K.,
Credit Foncier de France, M&G Investments and ING Real Estate Finance. The
loan is secured by a portfolio of 39 properties located in four countries
and will mature in January 2014.

* €74.5 million loan, of which €66.9 million has been received and a further
€7.6 million committed, with Deutsche Pfandbriefbank AG. The €66.9 million
tranche is secured by a portfolio of nine French and UK assets and will
mature in December 2013.

* €25.7 million second tranche of a €74.0 million four-year secured loan with
Landesbank Berlin. The first tranche of €48.3 million was received in
December 2009 with the remainder received in January. The loan is secured by
a portfolio of 17 German and Polish assets and will mature in January 2014.

In addition, PEPR reduced the principal of the €300 million revolving portion of
the €900 million unsecured credit facility by €200 million to €100 million,
effective from 12 February 2010. This reduction will save PEPR €0.8 million in
undrawn facility fees for the remainder of 2010. At the end of the quarter, €100
million remains undrawn under the facility and PEPR has €49.2 million cash on
its balance sheet.

Proceeds from the refinancing and other deleveraging activities have enabled
PEPR to significantly strengthen its balance sheet, reducing total outstanding
debt by 21.7% from €2.1 billion at the end of 2008 to €1.6 billion at the end of
March 2010 and leverage from 57.1% to 53.7% over the same period. The continued
retention of distributable cash flow and the flexibility to complete additional
asset sales or a further equity raise, if required, leave PEPR well positioned
for the future. These factors were key contributors to the positive action taken
by Moody's in respect of PEPR's credit rating outlook.

Since quarter end, PEPR has repaid the final €54.0 million of outstanding CMBS,
releasing €94.2 million of assets into the unencumbered asset pool, which now
aggregates to €1.26 billion.

The weighted average interest rate for the quarter increased to 5.2% compared to
4.8% for Q1 2009, given the 175 basis point increase in the €500 million
Eurobond effective from 23 October 2009 due to the credit rating downgrade in
June 2009. In addition, PEPR has fixed the interest rates on new secured
financing between 4% to 6% in anticipation of possible increases in today's
historically low base rate.

At 31 March 2010, 84.6% of PEPR's debt was at fixed rates of interest, with the
remaining floating debt based on EURIBOR or LIBOR with margins varying between
215 to 270 basis points on the €900 million senior unsecured credit facility.

An overview of PEPR's outstanding debt is on page 17.


The overall tax charge for Q1 2010 is €5.9 million compared to a charge of €3.1
million in Q1 2009, the increase being primarily due to a €2.1 million reduction
in the deferred income tax benefit.

The current income tax expense of €6.5 million for the quarter represents a €0.7
million increase over the comparable period expense of €5.8 million. Current
income tax expense includes corporate income taxes together with other taxes
such as subscription taxes and net wealth tax (specifically for PEPR's
Luxembourg companies), local business taxes, stamp duty and capital taxes and
other taxes and licenses. This expense represents an effective tax rate of
23.6% for the quarter, using EPRA earnings as a proxy for taxable income, up
from the 19.9% reported for full year 2009.The increase in the current tax
charge and effective tax rate is primarily due to taxes on unrealised foreign
exchange gains and the recent settlement of prior period tax returns.

Looking forward, PEPR will continue to pursue strategies to manage its tax
expense and anticipates a slightly lower income tax charge (and thus generally
consistent effective tax rate) than that incurred in 2009.

Distributable cash flow and distributions

In December 2008, PEPR suspended future dividend payments as part of the
business' strategic initiatives to improve liquidity and as a condition for a
debt covenant amendment on PEPR's €900 million unsecured credit facility. Under
the terms of that facility, PEPR is prohibited from paying an ordinary dividend
until either it raised €200 million of aggregate new equity (of which €61.1
million has been raised) or the facility is repaid.

The first quarter distributable cash flow of €22.9 million, or €0.12 per unit,
will therefore be retained in the business to reduce debt and improve liquidity.

PEPR intends to revert to paying an ordinary dividend as soon as it is prudent
to do so and when permitted under the terms of the €900m unsecured credit

PEPR will pay a preferred dividend distribution to holders of its Class A(1)
convertible preferred units ("Preferred Units") on 29 April 2010. The €0.155663
per unit distribution relates to the period from 1 January 2010 to 31 March
2010. The ex-dividend date is 23 April 2010 and the record date 26 April 2010.

Earnings guidance

Management has maintained their guidance for 2010, with EPRA earnings expected
to be between €0.45 and €0.50 per unit for the year.

Distributable cash flow, after payment of preferred dividends, is also forecast
to be between €0.45 and €0.50 per unit. The terms of PEPR's €900 million
unsecured credit facility currently prohibit cash distributions to ordinary
unitholders. As a result, PEPR does not contemplate paying ordinary dividends in

Earnings webcast and conference call details:

We invite you to access the live webcast and conference call, held today,
Thursday 22 April 2010, at 12 noon CET, by clicking on the link entitled "First
Quarter 2010 Financial Results Webcast" located on the homepage of our
website, .

To participate in the conference call please dial:

Toll free Toll

International -- +44 (0)1452 555 566

France 0805 632 056 +33 (0)1 76 74 24 28

Luxembourg 800 27512 --

The Netherlands 0800 023 5091 +31 (0) 20 717 6886

UK 0800 694 0257 +44 (0)844 493 3800

US 1 866 966 9439 --

A replay of the presentation webcast and a transcript of the call will be
available in the "Presentations & Webcasts" page of the Investor Relations
section of the PEPR website.

A replay of the conference call will be available from 4pm CET on Thursday 22
April 2010 until Wednesday 5 May 2010. To access the replay please dial one of
the following numbers, using passcode 64918682#:

Toll free Toll

International -- +44 (0)1452 550 000

UK 0800 953 1533 +44 (0)845 245 5205

US 1 866 247 4222 --

For further information, please contact:

Investor relations Media
ProLogis European Properties M:Communications
+44 20 7518 8708 +44 20 7920 2323 or 7920 2349
Jennifer van der Eem, Investor Ed Orlebar/Charlotte McMullen
Relations /mcmullen@mc

To access the full statement please click below


PEPR Q1 2010:
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