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ProLogis European Properties (AMS:PEPR) News release (full release attached)
ProLogis European Properties results for the quarter and nine months ended 30 September 2008 Sustained operational performance drives increased occupancy
Luxembourg - 23 October 2008 - ProLogis European Properties (Euronext: PEPR), Europe's largest owner of modern distribution facilities, today reports results for the quarter and nine months ended 30 September 2008.
Highlights
Quarter to 30 September 2008 Nine months to 30 September 2008 § €0.18 distribution per § €0.57 distribution per unit, including €0.02 per unit from unit, returning €107.6 million ProLogis European Properties Fund cash to investors in the form of II dividends § EPRA net asset value([1]) § EPRA net asset value per unit of €11.69, a 1.1% decrease per unit decreased €1.04 to compared to the half year (€11.82); €11.69 over the period (2007: IFRS net asset value per unit was €12.73); IFRS net asset value per €10.84 (HY 2008: €10.98) unit decreased to €10.84 (2007: €11.73) § EPRA earnings(2) § EPRA earnings per unit decreased to €0.16 per unit (Q3 decreased €0.07 to €0.52 (9M07: 2007: €0.18 per unit) €0.59); IFRS loss of €0.01 per unit (9M07 earnings: €1.06 per unit) § €52.5m additional § €214.4m investment into investment in ProLogis European ProLogis European Properties Fund Properties Fund II II § 21 lease transactions § 60 lease transactions covering 81,000m2, increasing covering 479,400m2, compared to directly owned portfolio occupancy 66 transactions covering to 97.7% 434,900m2 in the nine months to 30 September 2007[2]
Commenting on the results, Gordon Keiser, chief executive office of PEPR, said: "In the first nine months of 2008, PEPR has maintained strong operational performance and resilient financial results in the face of the global credit crisis and an increasingly uncertain economic outlook. Occupancy in both our directly owned and combined portfolio increased over the third quarter, to 97.7% and 98.5% respectively, reflecting continued occupier demand for large, modern and well-located facilities.
"As we revalue the directly owned portfolio semi-annually, the slight decrease in our EPRA net asset value per unit for the quarter has been primarily related to accounting for our investment in PEPF II. Our strong operating results, stable cash flows from our high-quality portfolio and increasing distributions received from PEPF II enable us to pay a quarterly distribution of €0.18 per unit, in line with our revised guidance for 2008.
"In this challenging financial environment, we believe it is prudent to conserve liquidity and have reviewed a number of options to realise this including the refinancing of 2009 debt maturities and the advancing of our property disposal programme once real estate markets improve."
Guidance Management has maintained their distribution guidance level for 2008, as updated in July 2008, of between €0.76 and €0.80 cents per unit for the year. In response to the current economic environment, management has accelerated its business plan with regards to financing and asset disposals. As such, guidance for 2009 will be provided with the Fourth Quarter and Year End 2008 results.
Portfolio performance At the beginning of the quarter, PEPR sold Zibido DC1, a 12,800 square metre distribution facility near Milan, for a gross consideration of €6.4 million. Including the lease surrender premium received, the total proceeds represented a premium to the latest NAV of over 14%. In the normal course of business, PEPR would expect to sell €75 to €100 million of assets per annum, on average. Given current market conditions this process slowed in 2008, however PEPR plans to continue its disposal programme once liquidity returns to the market and assuming satisfactory pricing can be achieved. Within the directly owned portfolio ProLogis, as PEPR's external manager, completed 21 lease transactions covering 81,000 square metres during the third quarter with the majority of leases at annualised rental levels in line with or above the previous lease terms. 5 of the 7 new leases, or 23,000 square metres of 49,000 square metres, were in Central Europe with existing customers, such as DHL, L'Oreal and Gefco. 14 leases were renewed, with seven leases incorporating minor extensions, covering a total of 32,000 square metres. These renewals include a nine year lease to DHL in Moerdijk for 14,600 square metres. As a result of this activity, the combined portfolio of PEPR and PEPF II at the end of September comprised 364 distribution facilities, covering some 8.0 million square metres across 12 European countries with an open market value of €6.0 billion. The risk profile of both portfolios remains highly attractive, providing a combined occupancy level of 98.5%, a diversified customer base, and on average 4.8 years to next lease break or 6.7 years to lease expiry. Summaries of the directly owned, PEPF II and Combined portfolios are shown on pages 24 to 26. Of the 19 lease breaks and expiries remaining in 2008, in the directly owned portfolio, 5 have been exercised, equating to €3.7 million of annualised rental income. Furthermore, of the 12 lease breaks or expiries due in Q1, 68% by value will not be exercised.
ProLogis European Properties Fund II ("PEPF II")
PEPR has committed to invest up to a total of €900 million in PEPF II by August 2010. Investments are made as called for by PEPF II, and PEPR anticipates investing €60 to 70 million per quarter on average over the remaining period, with contributions from the ProLogis development pipeline typically weighted towards the fourth quarter. Neither PEPR nor any other PEPF II investor can withhold or delay investments into PEPF II without incurring punitive penalties. PEPR invested a further €52.5 million into PEPF II in the third quarter, increasing its gross investment in PEPF II to €347.7 million and maintaining its 30% ownership in the fund. While the current market environment continues to be challenging, PEPR is a long-term business focused on cash flow generation and believes that prime logistics assets will withstand economic cycles with less volatility than most other real estate classes. Given the difficulty in sourcing suitable and sufficient opportunities in the open market, management are satisfied that investing indirectly in new, fully leased distribution facilities in prime locations at market price is an attractive use of capital over the long-term. During the third quarter, PEPF II acquired €395.9 million of modern distribution facilities, covering 548,500 square metres, in six European countries, representing a 7.1% gross yield on investment. Four of the 25 buildings were sourced from third-parties with the remainder contributed from the ProLogis development pipeline. On average, the 25 facilities are two years old, 99.9% leased to Pan-European customers, such as Kuehne + Nagel, Schenker, Schneider Electric and Wincanton, and have 7.7 years to lease expiry, or 5.4 years to lease break. 35 buildings or €471 million of properties in the PEPF II portfolio were revalued during the third quarter with net market values decreasing by 7.1% since contribution. PEPR received a €4.4 million distribution from PEPF II in the third quarter, a substantial increase over the second quarter distribution of €3.5 million, reflecting the addition of 23 facilities in the second quarter and to a lesser extent the 25 facilities acquired in the third quarter. For the nine months to end September 2008, PEPR has received €9.7 million of distributions from PEPF II corresponding to a 5.7% annualised cash return[3], on target to achieve our expected income return of 6.5% to 7% on average per annum on a ten-year time horizon.
Market outlook While the macro-economic and general real estate sector outlook is clearly challenging, the logistics sector has so far shown resilience in the face of global stresses. Occupier demand across most markets has remained steady, although customers are taking longer to make decisions. Market yields are increasing across Europe, with those in the UK having experienced the sharpest correction. However, the continental markets continue to show higher occupancy levels while new supply is decreasing. Management is confident that it will be able to continue to deliver strong operational performance, to successfully manage the business' financial position and deliver value to unitholders.
Financial results PEPR, in conjunction with its external auditors, has changed the accounting treatment for a number of items in the financial statements following the review of the interim 2008 results. These changes relate to:
1. Profit/Loss on disposal of investment properties 2. Share of gain/loss of an associate 3. Property fair value movements
Overall, these changes have no impact on distributions and have limited impact on EPRA earnings and net asset values.
As a result, PEPR has restated the comparative income statements and balance sheets as well as the EPRA and distributable cash flow calculations for September 2007, December 2007 and June 2008. Reconciliation between prior and restated disclosures are provided on pages 27 to 34.
In addition, PEPR has improved transparency through the provision of a more comprehensive statement of changes in equity and additional disclosure on its investment in PEPF II. Pages 21 to 23 contain a summarised income statement, balance sheet and overview of debt facilities for PEPF II and the statement of movement in investment in an associate, on page 14, provides a reconciliation of PEPF II's results to what PEPR has recorded in its inancial statement.
Earnings PEPR reported an IFRS gain for the third quarter of €18.5 million, compared to €80.3 million for the same period last year. This decline mainly relates to the gain on sale of the Garonor portfolio in 2007, higher interest expense in 2008 and the fair value adjustment associated with the investment in PEPF II. EPRA earnings, a measure of underlying profitability, were €30.8 million for the quarter, or €0.16 per unit, a decrease from €35.1 million or €0.18 per unit for the same period last year, related primarily to increased interest expense. PEPR reported an IFRS loss for the nine months to September 2008 of €1.0 million compared to a €202.1 million gain for the same period last year. This is largely due to the impact of unrealised valuation losses in 2008 of €113.1 million compared to €55.1 million of unrealised valuation gains, a movement of €168.2 million. Additionally, PEPR recorded a €43.2 million gain on disposal of the Garonor portfolio in 2007. EPRA earnings for the nine months decreased by €12.9 million, from €112.2 million to €99.2 million, primarily due to the inclusion in last year's results of an exceptionally large UK lease termination receipt of €6.0 million. Total revenue for the period fell €20.7 million offset largely by dividends received from PEPF II of €9.8 million and a €4.3 million decrease in fund expenses Total revenue Third quarter rental and other property income of €73.7 million, remained in line with the same period last year. Underlying rental income is down compared to last year due mainly to the Garonor portfolio sale in July 2007, three customer defaults in the first half of 2008 and the devaluation of sterling. Offsetting this shortfall is a combination of increased occupancy levels and release of further rent indemnifications received when properties were acquired. Rental and property income for the nine months to September 2008 reduced by €19.4 million to €221.7 million, primarily related to the loss of €13.3 million in rents following the sale of the Garonor portfolio and a €5.5 million decline in UK sourced income due to the weaker sterling.
Operating expenses Total operating expenses comprise the cost of operating the portfolio and managing PEPR as a fund.
Nine months to 30 September Change 2008 2007 €'000 €'000 %
Cost of rental activities, 25,078 22,788 10.0% including property management fees
Fund expenses, including fund 9,159 13,440 management fees Reversal of provision for - (5,241) incentive fee 9,159 8,199 11.7%
Underlying operating expenses 34,237 30,987 10.5%
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 the nine months to September 2008 PEPR provided for €2.8 million of bad debt expense, including €2.4 million related to customer defaults in the first half of the year. Property management fees are correlated to the gross value of the directly owned portfolio and as such has declined €1.2 million compared to the same period last year. Fund expenses include the non-property related costs associated with our business, including fund management, custodian and professional fees. During the nine months, €1.0 has been expensed for non reclaimable VAT. Fund management fees are also correlated to the gross value of the directly owned portfolio and as such have declined €0.4 million compared to the same period last year. At the end of September 2007, the incentive fee had been estimated at €5.2 million for the period from IPO to that date and was provided for in the nine months results. Following subsequent portfolio revaluations, this hurdle rate was no longer exceeded and the provision was reversed. There is no current accrual for the incentive fee.
Profit on disposal of investment properties Net profit on disposal for the third quarter of €0.9 million relates to the sale of Zibido DC1, a 12,800 square metre distribution facility near Milan, and will be distributed as part of the Q3 dividend. For the nine months to 30 September, profit on disposals also includes a €0.6 million gain related to a land sale in Hungary.
Property fair value movements Total property fair value movements for the nine months resulted in a net loss of €113.1 million, comprising €37.5 million of revaluation gains, €155.3 million of revaluation losses and a €4.7 million reduction in PEPR's purchasers' cost provision. There were no portfolio revaluations carried out in the third quarter for the directly owned portfolio.
Investment fair value movements PEPR recorded a €6.2 million negative fair value adjustment for the first nine months of 2008 relating to its investment in ProLogis European Properties Fund II. PEPR's share of the operating income was more than offset by its share of the purchaser's costs on the 75 properties acquired by PEPF II in 2008 and its share of PEPF II's portfolio revaluation losses for the period which had partially been provided for at the end of 2007. PEPR received €4.4 million of distributions from PEPF II for the third quarter, taking distributions for the nine months to €9.8 million.
Financing and debt Interest income of €4.3 million for the nine months of 2008 showed a €0.8 million increase over the comparable period, relating to the higher level of cash on deposit during the second and third quarters. Interest expense of €80.2 million for the nine months increased by €6.7 million compared to the same period in 2007, primarily related to the PEPR's refinanced debt structure and the increase in interest rates over the past year. The weighted average interest rate for the nine months ended 30 September 2008 was 5.25% (9M07: 4.9%). At the end of September 2008, 65.1% of PEPR's debt is at fixed rates of interest, with the remaining floating debt based on Euribor or sterling Libor with margins varying between 65 to 70 bps on the €900 million senior unsecured debt facility and up to 137 bps on the €151.1 million secured bank loan covering Central European properties. Amortisation charges for the nine months decreased substantially to €4.7 million (2007: €7.2 million) due to the termination of two Commercial Mortgage Backed Securities facilities in the third quarter of 2007. Total outstanding debt at the end of September 2008 was €2.1 billion, an 11.8% increase since the end of 2007 (€1.9 billion), mainly due to the €214.4 million investment into PEPF II. The €300 million revolving portion of the senior unsecured facility has not yet been utilised and PEPR has €98.6 million cash on its Balance Sheet. An overview of PEPR's outstanding debt is on page [19]. At the end of September, PEPR's loan to value was 48.0%, without the consideration of the use of cash on hand, as compared to 48.4% at the end of June (2007: 43.3%) and remains well within the 60% limit as set out in our Management Regulations.
Tax The overall tax recorded in the Income Statement for the nine months is a credit of €10.0 million, comprising current income tax expense of €15.9 million offset by a large deferred tax credit of €25.9 million. The deferred tax credit results primarily from the decline in the valuation of the portfolio in June which lead to a partial reversal of deferred tax liabilities previously recorded on unrealised revaluation gains. The current income tax expense of €15.9 million for the nine months represents a 7.5% decrease over the prior year expense of €17.2 million and represents a consolidated effective tax rate of 13.0% for the nine months to September 2008 compared to 12.0% for the same period last year.
Distributable cash flow and distributions PEPR distributes substantially all of its distributable cash flow on a quarterly basis, whilst making provision for anticipated capital expenditure or other obligations and retaining discretion to reinvest gains on disposals. In compliance with our Management Regulations, PEPR pays all distributions quarterly from operational cash flow. The third quarter distribution per unit is €0.183166, including €0.02 relating to income from PEPR's investment in PEPF II. Distributions for the nine months equalled €0.57 per unit, returning €107.6 million of cash to unitholders. The third quarter distribution will have an ex-dividend date of 27 October 2008, a record date of 29 October 2008 and a payment date of 5 November 2008.
Earnings webcast and conference call details: We invite you to access the live presentation webcast and conference call, held today, 23 October 2008, at 4pm BST/5pm CET, by clicking on the link entitled "Third Quarter 2008 Financial Results Webcast" located on the homepage of our website, www.prologis-ep.com. 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, www.prologis-ep.com. A replay of the conference call will be available from 7pm GMT/8pm CET on Thursday 23 October 2008 until Wednesday 5 November 2008. To access the conference call replay, please dial one of the following numbers, using passcode 67207012#:
Toll free Toll International +44 (0)1452 550 000 UK 0800 953 1533 +44 (0)845 245 5205 US 1 866 247 4222
Financial statements and portfolio information The financial statements have been produced in accordance with International Financial Reporting Standards.
Page PEPR financial statements Consolidated income statement - three months to 30 September 8 2008 Consolidated income statement - nine months to 30 September 9 2008 Consolidated balance sheet 10 Performance measures - calculation of EPRA earnings 11 Performance measures - calculation of EPRA net asset value 12 Financial ratios 12 Consolidated statement of investment in property 13 Statement of movement in investment in an associate 14 Consolidated statement of cash flows - three months to 30 15 September 2008 Consolidated statement of cash flows - nine months to 30 16 September 2008 Reconciliation of profit to distributable cash flow - three 17 months to 30 September 2008 Reconciliation of profit to distributable cash flow - nine 18 months to 30 September 2008 Consolidated statement of changes in equity attributable to 19 unitholders Outstanding debt 20
PEPF II summarised financial statement Summarised income statement - three months to 30 September 21 2008 Summarised income statement - nine months to 30 September 21 2008 Summarised balance sheet 22 Financial ratios 23 Outstanding debt 23
Portfolio information PEPR direct portfolio overview 24 PEPF II portfolio overview 25 Combined portfolio overview 26
Restated accounts 27 - 34
For further information, please contact:
Investor relations ProLogis European Properties +44 20 7518 8708 Jennifer van der Eem, VP Investor Relations jvandereem@prologis.com
Media M:Communications +44 20 7153 1523 or 7153 1549 Ed Orlebar/Charlotte McMullen orlebar@mcomgroup.com/mcmullen@mcomgroup.com
[1] Based on EPRA (European Public Real Estate Association) Best Practices Policy Recommendations, issued in May 2008 [2] Excluding 35 leases, covering 36,200 square metres related to the Garonor portfolio sold in July 2007 [3] Based on a time weighted cash investment
This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
