Fitch Affirms ProLogis' Sr. Unsecured Debt at 'BBB+'; Outlook Stable

Business Wire, Feb 26, 2008

NEW YORK -- Fitch Ratings has affirmed the following ratings of ProLogis (NYSE: PLD; 'the company'):

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

--Unsecured Lines of Credit at 'BBB ';

--Senior Unsecured Notes at 'BBB ';

--Unsecured Convertible Notes at 'BBB ';

--Cumulative Preferred Shares at 'BBB'.

The Rating Outlook is Stable. Fitch's action affects approximately $8.9 billion of unsecured debt (including lines of credit) and $350 million of preferred stock.

PLD's ratings are reflective of the company's solid coverage metrics, fueled by substantial cash flows generated from PLD's three main businesses: property operations, corporate distribution facilities services (CDFS), and fund management. Additionally, the ratings echo PLD's seasoned management team, granular tenant base, and large and highly diversified portfolio.

The company's global footprint of wholly-owned, partially-owned and managed industrial facilities, which are located in the United States, Mexico, Canada, 13 European countries, and three Asian countries, also provides a significant level of geographic diversification, which should temper any negative impacts of regional or country-specific economic slowdowns in 2008.

PLD's coverage metrics remain solid, as evidenced by the company's 2007 recurring EBITDA-to-total-interest-and-preferred-stock and fixed-charge-coverage ratios of 3.1 times (x) and 2.8x, respectively. This is driven by PLD's positive same-property performance in 2007 and augmented by fund management revenues.

In addition, PLD derives a material component of cash flows from its CDFS business, the results of which may vary over time. For example, CDFS gains (defined as CDFS disposition proceeds less cost of CDFS dispositions) was $231.4 million in the third quarter of 2007 but $91.4 million in the fourth quarter of 2007. While the extent to which development projects are successful is dependent on real estate demand, PLD's development business exhibits several favorable characteristics from a ratings perspective: the timeframe for completing most industrial real estate development projects is relatively quick, the Company has an established development track record, and unlike several other industrial real estate investment trusts (REITs) with development platforms, PLD has a proven fund model that has committed private equity capital (via must-take and must-put provisions) for takeout of its stabilized development pipeline. Overall, recurring cash flows generated from PLD's operations and fund management businesses remain sizeable and minimize potential reliance on CDFS.

Additional support for the ratings affirmation centers on PLD's granular customer base, consisting of creditworthy multinational companies. In aggregate, PLD's top 10 customers represent roughly 15% of total annualized base rents as of Dec. 31, 2007. Although PLD's leased percentage of assets in the company's North American stabilized property portfolio increased from 94.96% as of December 31, 2006 to 95.86% as of Dec. 31, 2007, its leased percentage of assets in the European stabilized property portfolio declined from 95.40% as of December 31, 2006 to 93.00% as of Dec. 31, 2007. The company's leased percentage of assets in the Asian stabilized property portfolio also declined slightly, from 99.13% as of Dec. 31, 2006 to 99.08% as of Dec. 31, 2007. However, Fitch believes that PLD's stabilized property leased percentages remain solid for the rating category, and that PLD's lease expiration schedule remains relatively balanced in the company's directly-owned portfolio as well as in PLD's property funds and CDFS industrial joint ventures (JVs).

The ratings affirmations are also reflective of PLD's liquidity position. Recently, PLD has actively raised various forms of capital, including common shares, convertible senior notes, senior notes, and private equity capital. Although the company's ratio of unencumbered operating properties-to-unsecured debt has declined modestly over the past several years (primarily due to the assumption of secured debt associated with the Catellus acquisition), PLD's overall unencumbered asset-to-unsecured debt ratio has been steady. ProLogis has been diligent in replacing on-balance sheet secured debt as it matures with unsecured debt. Overall, PLD's liquidity position has improved, as the company had $419 million of cash as of Dec. 31, 2007, $1.8 billion of committed capacity under the company's revolving lines of credit, and substantial additional liquidity from net proceeds of CDFS asset sales.

Fitch's credit concerns for PLD center on the recent increase in PLD's leverage and the company's uneven debt maturity schedule. During 2005, PLD's acquisition of Catellus layered onto the company's balance sheet a material component of debt, which led to a slight increase in leverage, and the 2007 acquisition of select assets of the private U.K.-based Parkridge, funded with a combination of equity and debt, additionally increased leverage. Although PLD's risk-adjusted capitalization has weakened somewhat due to the company's increase in leverage, PLD's debt-to-undepreciated book capital and debt-to-EBITDA ratios of 54.2% and 6.6x as of Dec. 31, 2007 remain adequate for the rating category. In addition, PLD's debt maturity schedule exhibits refinance risk in 2009, when PLD's Global Line matures. However, the line is extendable for a year at PLD's option and Fitch expects that PLD will address the renewal of the line early in 2009 on similar terms that will allow PLD to minimize currency valuation risk and actively fund CDFS business activities.