Fitch Affirms ProLogis' IDR at 'BBB+'; Outlook Stable

Business Wire, Dec 12, 2006

NEW YORK -- Fitch Ratings has affirmed the following ratings for ProLogis (NYSE:PLD):

--Issuer Default Rating (IDR) at 'BBB ';

--Senior unsecured debt at 'BBB ';

--Revolving and term loan facilities at 'BBB ';

--Preferred Stock at 'BBB'.

The Rating Outlook is Stable.

ProLogis' rating strengths center on the size and quality of its diverse multinational pool of industrial warehouse properties and its strong development track record. Moreover, PLD's directly owned and managed portfolio has exhibited solid occupancy rates and a strong quality of tenants and tenant diversity. In particular, Fitch believes that the company's international presence continues to add diversity and robustness to the core earnings stream and gives the company an edge in its ability to attract and retain high quality tenants as well as gather and interpret market intelligence. In addition, ProLogis has demonstrated substantial acumen at managing development projects in a variety of the world's most desirable warehouse and industrial real estate locations. Other strengths center on the company's deep management team.

ProLogis' interest and fixed charge coverage metrics continue to be adequate for its rating level. However, in recent years the company has shown increasing reliance on gains on sale and equity in the income of unconsolidated subsidiaries. Although PLD's all-in EBITDA fixed charge coverage ratio (as defined below) was a solid 2.8 times (x) for 3Q06, the company's core NOI (which only includes revenues and expenses related to directly owned, stabilized properties) adjusted for recurring capital expenditures covers the company's fixed charges (including interest expense, capitalized interest and preferred dividends), by only 1.3x. Clearly, this scenario would reflect a severely stressed economic environment, as the core NOI fixed charge coverage ratio does not include any contribution from the development pipeline prior to stabilization but includes the costs incurred to fund the pipeline.

Fitch is therefore comforted by multiple offsets. In particular, Fitch notes the granularity of the construction portfolio and its relatively short construction and stabilization periods, which provide Fitch with some assurance that PLD could throttle back its development program within a reasonable period of time, especially during periods punctuated by severe economic stress. Moreover, and unlike other industrial REITs with development programs, Fitch is also comforted by PLD's strong global franchise, which provides geographic and tenant diversification, granularity and quality of tenant, and softens the negative impact of regional economic and tenant related stress. Finally, it should be noted that PLD's fund structure provides willing buyers for its completed warehouses. However, the funds are only obligated to purchase the facilities if they are stabilized and meet specified yield levels. (Fixed Charge Coverage defined as EBITDA, as indicated, less tenant improvements, recurring capital expenditures, and straight line rents divided by the sum of interest expense, preferred dividends and capitalized interest).

Fitch views PLD's leverage expansion cautiously, as core leverage (defined as on balance sheet debt divided by undepreciated book capital), currently stands at 52.3% (as of September 30, 2006), up from 50% at YE05. Fitch does note that PLD's leverage will tend to oscillate as warehouses become stabilized and are contributed to the funds. However, the upward trend is somewhat concerning. Additionally, Fitch believes that PLD's risk adjusted leverage has increased, reflecting the company's growing component of undeveloped land, development properties, and equity in unconsolidated joint ventures. One metric that is disadvantaged by these growing asset classes is the company's unencumbered asset coverage ratio, which currently stands at a relatively low 1.2x (September 30, 2006). Fitch defines this ratio as gross unencumbered stabilized real estate divided by total unsecured debt. It should be noted that the company's development portfolio, which is not included in the numerator, is supported by a sizeable level of outstanding borrowings on the company's unsecured credit line, which is included in the denominator.

Headquartered in Denver, Colorado, ProLogis owns, manages, and develops, industrial distribution facilities in 81 markets in North America, Europe and Asia. ProLogis owns or manages over 400 million square feet and serves approximately 4,700 customers. The company's own asset base was approximately $14.9 billion at the end of the first quarter, while managed assets were in excess of $25 billion.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.