- ProLogis European Properties results for the quarter ended 31 March 2009
- Solid operational performance and constructive progress on deleveraging initiatives
Luxembourg - 29 April 2009 - ProLogis European Properties (Euronext: PEPR), Europe's largest owner of modern distribution facilities, today reports results for the quarter ended 31 March 2009.

Highlights
Sustained operational performance: occupancy at an industry leading 97.0% (2008: 97.3%)
16 lease transactions concluded, covering 178,300m2, compared to 20 lease transactions covering 106,900m2 in Q1 2008
EPRA net asset value per unit[1] of €8.18, a 2.0% increase since year end 2008 as a result of the improved sterling exchange rate; IFRS net asset value per unit of €7.52 (2008: €7.38)
EPRA earnings1 per unit €0.15, a decrease of €0.03 per unit (Q1 2008: €0.18), primarily related to a further weakening of sterling; IFRS earnings per unit of €0.15 (Q1 2008: €0.18)
Terms agreed for €235 million of new secured bank loans, subject to final credit committee approval
€115 million portfolio disposal agreed, subject to closing of contracts
Commenting on the results, Peter Cassells, chief executive office of PEPR, said:
"PEPR has maintained strong operational performance and resilient financial results in spite of the continued turmoil in the financial markets and an uncertain economic outlook. Portfolio occupancy remains high, at 97.0% and we believe that our modern, pan-European portfolio remains highly attractive. EPRA earnings for the quarter of €0.15 per unit is in line with 2009 guidance, reflecting the secure cash flows derived from our portfolio and the relative stability of the logistics real estate market.

"Our priority for operations in 2009 is to continue to drive cash flow from the portfolio through proactive asset management and exemplary customer service.

"In addition, we have made good progress with our actions to improve the financial flexibility and overall leverage levels of the business. We have €235 million of new secured bank loans agreed, subject to final approval with further negotiations underway with other liquidity sources. We are in the final stages of agreeing the disposal of a portfolio of assets generating approximately €115 million of proceeds and have a number of discussions underway for further property disposals.

"Whilst the global economic outlook will remain challenging for the remainder of 2009, we believe that the strength of our pan-European portfolio, strong customer relationships and further progress with deleveraging initiatives will leave PEPR well positioned for the future."

Guidance
Management has maintained their guidance for 2009, with EPRA earnings expected to be between €0.55 and €0.60 per unit for the year. IFRS losses are expected to be in the range of €0.85 to €0.90 per unit and distributable cash flow anticipated to be between €0.55 and €0.60 per unit. However PEPR suspended future dividend payments in December 2008 and this cash flow will be retained in the business to reduce debt and improve liquidity.

Portfolio performance
Leasing activity in the first quarter has been encouraging with ProLogis, as PEPR's external manager, completing 16 lease transactions, covering 178,300 square metres, at market rental levels. 10 leases, covering 140,600 square metres, were renewed with existing customers such as C&A, DHL and Nippon Express. In addition, six new leases were signed, totalling 37,700 square metres, of which 23,800 square metres in The Netherlands had been vacant. These transactions demonstrate the attractiveness of the portfolio to occupiers and PEPR's commitment to maintaining occupancy, particularly during current challenging market conditions.
Of the 15 lease breaks and expiries in the first quarter, covering 145,800 square metres, only four leases, or 15,600 square metres, were exercised implying a customer retention rate of 85%. Of this, 10,600 square metres or €1.1 million of annualised rental income remains unlet.
Furthermore, of the 30 lease breaks or expiries due in the second and third quarters of 2009, covering 219,000 square metres, the known retention rate is 65% based on agreements already concluded with occupiers.
At the end of March 2009, the portfolio comprised 246 distribution facilities, covering over 5 million square metres across 11 European countries with an estimated open market value of €3.4 billion. The portfolio risk profile remains highly attractive, with occupancy at an industry-leading 97.0%, a diversified customer base, and on average 3.9 years to next lease break or 6.2 years to lease expiry. An overview of the portfolio is provided on page 17.
Post quarter end, PEPR is in the final stages of agreeing the disposal of a portfolio of assets for approximately €115 million. When completed, net proceeds of the transaction will be used to repay debt. In addition, PEPR is in discussions with a number of potential purchasers interested in acquiring prime logistics assets.

ProLogis European Properties Fund II ("PEPF II")
PEPF II is a private equity fund, established by ProLogis (NYSE: PLD), to acquire assets from both ProLogis' development pipeline in Europe and from third-parties. In August 2007 PEPR committed to invest €900 million over a three-year period in PEPF II, for a 30% stake. In December 2008, PEPR sold two-thirds of its investment and associated future funding obligations in PEPF II to ProLogis, thereby decreasing PEPR's ownership in PEPF II to 10% and its total gross commitment to €300 million, of which €125.9 million had already been invested.
In February 2009, PEPR disposed of its remaining one-third stake in PEPF II to six institutional investors for €14.4 million, eliminating future funding obligations of €174.1 million. As a result of this transaction, PEPR has no stake in PEPF II and no future funding obligations.
PEPR received a pro-rata distribution of €1.3 million from PEPF II for the first quarter of 2009.

Market outlook
Deteriorating macro economic indicators and the slowdown resulting from the dislocation in the global credit markets continue to affect the real estate market.
Investment demand remains limited and is currently solely focused on prime buildings and locations with longer lease lengths. The resultant lack of transactional evidence has led to uncertainty over portfolio values with market commentators predicting further declines throughout the year.
Occupier demand for new distribution space has weakened following decreased consumer spending. However, the requirement for occupiers to reduce operating costs combined with the lack of new supply of comparable distribution facilities has led to an increase in customers seeking to restructure leases and remain in place.

Financial results
Earnings
IFRS earnings for the first quarter 2009 decreased by €5.6 million to €29.3 million from €34.9 million in the comparable period of 2008.
EPRA earnings, PEPR's preferred measure of underlying profitability, decreased to €29.2 million or €0.15 per unit from €33.7 million, or €0.18 per unit, for the same period last year. The reduction in both earnings numbers was largely driven by a €5.6 million decline in total revenue and increased interest expense, partially offset by decreased operating costs.
A reconciliation between IFRS and EPRA earnings is shown on page 10.
Total revenue
Rental and property income for Q1 2008 fell by €5.6 million to €68.1 million (Q1 2008: €73.7 million), primarily related to a €3.0 million fall in UK sourced income when measured in euro, the loss of €0.6 million of rental income from space vacated following customer defaults and a decline of €0.5 million in rental income as a result of leases rolling back to market.
Operating expenses
Total operating expenses comprise the cost of operating the portfolio and managing PEPR as a fund.
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 Q1 2009 the cost of rental activities decreased to €6.1 million, from €7.7 million in the comparable period largely as a result of higher levels of recoverable expenses in 2009 and the timing difference between the incurrence of such expenses and the recoveries being billed. In addition, property management fees declined 10.4%, to €4.3 million for the quarter (Q1 2008: €4.8 million) as they are directly correlated to the gross value of the portfolio which recorded negative valuation movements during the year.
Fund expenses comprise the non-property related costs associated with our business, including fund management, custodian and professional fees. These expenses remained flat at €2.6 million for the quarter (Q1 2008: €2.7 million).
Property fair value movements
There were no portfolio revaluations carried out in the first quarter.
Financing
Interest income for the quarter increased to €1.8 million from €0.8 million for the same period in 2008 primarily related to the receipt of a €1.3 million dividend from PEPF II, offset by lower rates of interest received on deposits during Q1 2009.
Finance costs for the period, comprise interest expense, debt amortisation charges and foreign exchange gains/losses.

page of the Investor Relations section of the PEPR website, www.prologis-ep.com.