ProLogis European Properties results for the quarter and six months ended 30 June 2009

Additional progress on deleveraging initiatives and sustained operating and financial performance

Luxembourg - 23 July 2009 - ProLogis European Properties (Euronext: PEPR), Europe's largest owner of modern distribution facilities, today reports results for the quarter and six months ended 30 June 2009.

Highlights
96.9% occupancy at 30 June through continued focus on customer requirements
€119.5 million portfolio disposal agreed, €92.2 million completed
Additional £64.4 million UK portfolio disposal completed
Further progress on €226 million of new secured bank loans, subject to meeting conditions precedent and receiving funding
13.0% valuation decrease on the portfolio since 31 December 2008 (9.3% excluding disposals and foreign exchange adjustments)
Appointment of David Doyle, formerly chief financial officer at Colliers CRE, as chief financial officer with immediate effect
Quarter to 30 June 2009 Six months to 30 June 2009
EPRA earnings[1] decreased marginally to €0.16 per unit (Q2 2008: €0.18 per unit)
EPRA earnings[1] per unit decreased €0.04 to €0.32 (HY 2008: €0.36 per unit), due to a decrease in rental income and the loss of dividend receipts from ProLogis European Properties Fund II

IFRS loss of €1.40 per unit (Q2 2008 loss: €0.28 per unit), largely due to portfolio devaluations
IFRS loss of €1.24 per unit for the period (HY 2008 loss: €0.10 per unit) , largely due to portfolio devaluations

EPRA net asset value[1] per unit of €6.74, a 17.6% decrease compared to 31 March 2009 (€8.18 per unit)
EPRA net asset value[1] per unit decreased 16.0%, to €6.74 over the period (2008: €8.02 per unit) as a result of the portfolio devaluation and asset sales, partially offset by currency movements

IFRS net asset value per unit of €6.40 (Q1 2009: €7.52 per unit)
IFRS net asset value per unit decreased 13.3% to €6.40 (2008: €7.38 per unit)

18 lease transactions covering 219,600m2, maintaining high portfolio occupancy
34 lease transactions covering 397,900m2, compared to 42 transactions covering 245,800m2 in HY 2008

Commenting on the results, Peter Cassells, chief executive officer of PEPR, said:

"Our operational performance remains resilient and our financial performance is in line with guidance in spite of the challenging market conditions, reflecting both our proactive management of the business and the inherent stability of the logistics real estate sector.

"We have made good headway on a number of activities in accordance with the deleveraging initiatives that we announced in December 2008. This includes further progress to finalise €226 million of secured bank loans and some €190 million of asset sales. We will continue to pursue and refine this strategy in order to further improve financial flexibility and position ourselves for the next stage of the cycle."

Guidance

Management has maintained underlying earnings guidance for 2009, with EPRA earnings expected to be between €0.55 and €0.60 per unit for the year and distributable cash flow also anticipated to be between €0.55 and €0.60 per unit. IFRS losses are now expected to be in the range of €1.50 to €1.70 per unit as a result of higher portfolio devaluations and losses on portfolio sales.

The terms of PEPR's unsecured credit facilities, as amended in December 2008, prohibit cash distributions for so long as PEPR remains below certain financial thresholds, therefore PEPR does not contemplate paying dividends for the foreseeable future and intends to use distributable cash, instead, to pay down debt.

Deleveraging initiatives

In December 2008, PEPR outlined a series of initiatives to improve liquidity and address upcoming debt maturities. The plan included the suspension of dividends and the use of sales proceeds to reduce outstanding debt, the raising of new secured debt to substantially refinance the 2010 Commercial Mortgage Backed Securities ("CMBS") maturities and a requesting a maturity extension for a portion or all of the 2010 tranches of the €900 million unsecured credit facility.

During the first six months of 2009, PEPR has agreed terms and received credit committee approval on a three-year extension, to March 2013, for €126 million of the €151.1 million secured bank loan that matures in March 2010. The extension remains subject to the completion of customary conditions precedent and is expected to complete in Q3 2009.

In addition, PEPR has closed on a new £86 million (€100 million) four-year secured bank loan with Eurohypo AG and expected to receive the funds by the end of July. The loan will be secured on a portfolio of 15 prime UK distribution facilities and will mature in July 2013. The key commercial terms of the loan are a margin of 250 basis points over Libor, an initial loan-to-value of 50% and no amortisation of loan principal during the entire term.

PEPR is currently in active discussions with a number of lenders with regard to seven other secured finance packages targeting over €650 million of commitments.

PEPR agreed to two portfolio disposals during the first half of 2009, one for some €119.5 million related to Dutch and German assets and one, for £64.4 million on UK assets. PEPR received net proceeds of €92.2 million and £64.4 million respectively in relation to these disposals prior to quarter-end and expects to receive the remainder during the third quarter as the final conditions are met.

Proceeds from new financings, asset disposals and operational cash flow will continue to be used to meet working capital requirements and overall de-leveraging targets.

In addition, PEPR has reviewed a range of measures to strengthen its balance sheet. In order to improve its financing flexibility, PEPR has initiated discussions with the Commission de Surveillance du Secteur Financier ('CSSF') with regard to converting its legal form from the current fonds commun de placement ('FCP') to a Société d'Investissement à Capital Fixe ('SICAF'). Following approval of the conversion process from the CSSF, PEPR intends to convene an Extraordinary General Meeting in the third quarter 2009 to enable unitholders to vote on the transformation to a SICAF. The SICAF corporate form is expected to widen the options available to PEPR to increase its capital base and help address upcoming 2010 debt maturities.

Portfolio revaluation

The entire portfolio was revalued as at 30 June 2009, with net market value decreasing 9.3%, excluding disposals and foreign exchange adjustments, from the previous bi-annual valuation in December 2008. The overall net market value, including the impact of disposals and foreign exchange, decreased 13.0%, to €2,994.1 million from €3,441.7 million at year end 2008.

All markets recorded negative valuation movements over the six months to June 2009, driven primarily by adverse yield expansion. The continental portfolio suffered an overall decline of 9.2%, to €2,502.0 million excluding disposals. Property values in Central Europe fell furthest, down 10.5% to €480.1 million, whilst Northern Europe and Southern Europe fell 7.4%, to €621.0 million, and 9.3%, to €1,400.9 million, respectively.

The UK also witnessed a further decline in property values for the six month period, falling 9.8% excluding disposals, to £416.8 million. The UK portfolio has now recorded an overall fall in values of 36.9% since the peak of the market in June 2007, excluding disposals and currency fluctuations. The strengthening of the sterling exchange rate over the second quarter of 2009 has more than compensated this period's decline, with the total value of the UK portfolio, including currency movements, increasing 1.3%, to €492.1 million, excluding disposals. By June 2009 the gross yield[2] on the UK assets increased 90 basis points to 9.6% from 8.7% at the end of 2008.

The gross yield of the direct portfolio at June 2009 increased to 8.8% (8.3% net yield[3]) from 8.0% (7.6% net yield) at 31 December 2008.

Portfolio performance

On 12 May 2009, PEPR agreed to dispose of a portfolio of nine stand-alone assets in Germany and The Netherlands to Curzon Capital Partners II, managed by AEW Europe, a leading European real estate investment manager. The agreed sales price of €119.5 million reflects a 6.4% discount to December 2008 valuations. The portfolio comprises some 229,000 square metres of distribution warehouse space at four locations in Germany (Neumarkt, Peine, Soest and Straubing) and three locations in The Netherlands (Bergen op Zoom, Haaften and Rotterdam), with a remaining average lease length of over six years. As at 30 June 2009, PEPR had completed on five of the assets, receiving €92.2 million, and expects to complete on the remaining four assets in the third quarter 2009.

In addition, on 30 June 2009, PEPR completed the sale of five distribution facilities in the UK to an affiliate of Harbert European Real Estate Fund II, L.P. and Harbert European Real Estate Fund II (Parallel), L.P. (collectively, "Harbert"), generating net proceeds of £64.4 million, a 3.6% discount to June 2009 valuations. The 79,700 square metre portfolio is situated in various locations throughout the UK, with a remaining average lease length of approximately 10 years. The sale of both these portfolios will have an approximately €8 million impact on rental income for the remainder of the year.

Net proceeds from these sales have and will be used to reduce outstanding debt, including a portion of the €373.8 million Commercial Mortgage Backed Security maturing in May 2010.

Leasing momentum in the second quarter remains encouraging with ProLogis (NYSE: PLD), PEPR's external manager, completing 18 lease transactions covering 219,600 square metres. 14 leases, covering 201,700 square metres, were renewed with existing customers such as DHL, Schenker and Schneider. In addition, four leases were expanded, adding 17,900 square metres of space to existing customers' supply chains, of which 14,400 square metres was previously 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 35 lease breaks and expiries in the first six months, covering 273,800 square metres, only five possible breaks or expiries, or 33,500 square metres, were exercised implying a customer retention rate of 88%. Of this, 28,000 square metres or €2.0 million of rental income remains vacant.

Furthermore, of the 42 lease breaks or expiries due in the second half of 2009, covering 382,100 square metres, the known retention rate is 61% based on agreements already concluded with occupiers. The potential retention rate for the second half could increase to 67%, assuming all customers that have not informed PEPR of their intentions at the upcoming lease break or expiry decide to remain.

To date, PEPR's customer base has remained resilient during the economic downturn, with the portfolio showing no further customer defaults in the second quarter. Over 60 days accounts receivable from customers has decreased from €3.7 million at the end of 2008 to €2.7 million at June 2009. During 2009 one property (HY 2008: 3), covering 12,700 square metres (HY 2008: 70,000 square metres) was returned to us following early departure by the customer. However this building was immediately released to an adjacent customer.

At the end of June 2009, the portfolio comprised 232 distribution facilities, covering 4.9 million square metres across 11 European countries with a net open market value of €3.0 billion. The portfolio risk profile remains attractive, with occupancy at an industry-leading 96.9%, a diversified customer base, and on average 3.6 years to next lease break or 5.8 years to lease expiry. An overview of the portfolio is provided on page 22 of the pdf attachment.

Market outlook

The pan-European economy continues to be impacted by the global recession, with real GDP forecast to fall between 4% and 5% in 2009. This decline, combined with the sustained disarray in the global credit markets and worsening consumer confidence, continues to affect real estate activity across all European markets. Occupancy rates, rental levels and property values have all slipped during 2009 and are not expected to improve until 2010 at best.

Whilst investment demand remains limited and financing is hard to obtain, there is growing evidence that more opportunistic investors are returning to the market for both prime and mid-range properties. This is particularly true for the UK, where property values have recorded the largest fall to date and there are signs of stabilisation in the market.

Occupier demand for distribution space remains weak leading to continued pressure on rental levels, particularly in areas with competing space. However, the ongoing requirement for occupiers to minimise operating costs combined with the lack of new supply of comparable distribution facilities has led to high levels of customer retention.

In this environment, PEPR's high-quality pan-European portfolio, which is leased to a diverse customer base, and proactive asset management should enable it to maintain its defensive position and to deliver strong operational performance in these challenging markets.