ProLogis (PLD), a leading global provider of distribution facilities, has recently completed the majority of its asset sale to TPG Capital, a premier global private investment firm. Earlier, in late 2010, ProLogis entered into an agreement with TPG Capital to sell a portfolio of retail and mixed-use assets for approximately $505 million. The company currently received $353 million in proceeds from the transaction, including a retained preferred equity interest of $55 million.
The held-for-sale assets included 11 mixed-use projects with related land and development agreements, 4 shopping centers, 2 office buildings, 2 residential development joint ventures, Los Angeles Union Station, ground leases and other right-of-way leases to TPG Capital. The recent transaction included the closing of 9 mixed-use projects with related land and development agreements, 4 shopping centers, 2 office buildings and 2 residential development joint ventures.
ProLogis recorded $188 million in impairment charges in fourth quarter 2010 related to the entire asset sale transaction. The sold properties were primarily associated with the Catellus Development Corporation that was acquired by ProLogis in 2005. TPG Capital also bought the rights to the ‘Catellus’ brand name.
The asset sale was part of the long-term strategy of ProLogis to restructure its portfolio to focus on its core business of owning and managing industrial properties. The portfolio reshuffle is likely to improve ProLogis’ internal growth metrics and enable it to capitalize on the gradual revival of the economy that is expected to support strong demand for industrial properties.
Most of the ProLogis employees associated with the traded-off assets are expected to be offered employment with Catellus. As part of the original transaction, ProLogis was supposed to retain a preferred equity interest in Catellus to the tune of approximately $70 million, enabling it to earn a preferred return of 7% annually for the first three years, 8% for the fourth year and 10% thereafter until redeemed. The company expects the remainder of the asset sale to be completed by second quarter 2011.
We maintain our ‘Neutral’ rating on ProLogis, which presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ rating and a Zacks #3 Rank for First Industrial Realty Trust Inc. (FR), a competitor of ProLogis.
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