ProLogis Weighs Giant Sale of Warehouses

Cash-strapped ProLogis is setting the stage to offer up to one-quarter of its giant portfolio of distribution centers in order to reduce its debt load.

The Denver REIT has identified some 150 million square feet in its 548 million-sf portfolio that it is willing to sell, though how much will actually end up being marketed is unclear. Almost two-thirds of the company's properties are in North America, with the others in Europe and Asia. Some of the properties are owned via joint ventures.

ProLogis has already tapped Eastdil Secured to find a single buyer for up to 35 million sf of U.S. properties valued at roughly $1 billion. At that price, the initial annual yield would be 10%. If Eastdil is unable to line up a single buyer, ProLogis plans to divide the portfolio into regional packages and list them with several major brokerages. The properties are mostly in secondary and tertiary markets.

ProLogis could finalize some disposition decisions this week. If it decides to pursue additional sales, the properties would be divided into multiple portfolios, based on specific joint ventures, and likely be divvied up among several brokerages.

Investors said ProLogis quietly shopped a large portfolio earlier this year, talking to a select group of possible buyers, but didn't strike a deal. So now the REIT is expected to try a broader marketing strategy. It's unlikely that ProLogis would find single buyers for each portfolio, because the tight credit markets and the downturn in property values have caused most investors to shy away from larger transactions.

ProLogis is the world's largest owner of distribution properties. The biggest concentration - 349.4 million sf - is in North America, with most of those in the U.S. The rest are in Europe (127.7 million sf) and Asia (70.7 million sf).

ProLogis is struggling with a heavy debt load. The company's funds have to refinance $5.2 billion of debt by 2010. Also, the REIT has heavily drawn down its $3 billion of credit facilities, which will also mature in 2010 if extension options are enacted. The company last month announced a deleveraging plan that includes the refinancing or renegotiation of debt maturities and a halt in new development. Last week ProLogis offered to buy back $500 million of unsecured notes that mature in November 2010 at 70% of face amount. It also cut its dividend and replaced chief executive Jeffrey Schwartz.

Earlier this month, Moody's and Fitch cut the senior unsecured debt ratings of ProLogis, citing growing liquidity pressures. Moody's downgraded the rating to "Baa2" (from "Baa1"), while Fitch cut its rating to "BBB" (from "BBB+"). Moody's said the REIT will "face significant challenges" leasing up its $8.2 billion development pipeline because of the weakening economy.

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