ProLogis European Properties results for the quarter and year ended
31 December 2010
- Strong operating performance delivers financial results ahead of guidance
Luxembourg - 10 February 2011 - ProLogis European Properties (Euronext: PEPR), one of Europe's largest owners of modern distribution facilities, today reports results for the fourth quarter and year ended 31 December 2010.

Highlights
Adjusted EPRA earnings and distributable cash flow per ordinary unit of €0.45, both ahead of guidance (€0.40 to €0.44)
Record leasing activity increases portfolio occupancy by 180 basis points in Q4 to 94.5% (Q3 2010: 92.7%)
Generated €86.1 million of distributable cash flow (2009: €104.2 million)
Portfolio values remained stable, with overall net portfolio value down just 0.6%, excluding currency impacts (UK +0.1% and Continental Europe -0.8%).
Loan-to-value ratio improved to 53.0% from 55.0% at the end of 2009

Quarter to 31 December 2010 Year to 31 December 2010
Adjusted EPRA(1) earnings €0.14 per ordinary unit (Q4 2009: €0.05 per ordinary unit) Adjusted EPRA earnings €0.45 per ordinary unit (2009: €0.54 per ordinary unit)
IFRS earnings of €0.00 per ordinary unit (Q4 2009: €0.00 per ordinary unit) IFRS earnings of €0.07 per ordinary unit (2009: €1.64 loss per ordinary unit)
EPRA net asset value €6.32 per ordinary unit (Q3 2010: €6.31 per ordinary unit) EPRA net asset value €6.32 per ordinary unit (2009: €6.15 per ordinary unit)
IFRS net asset value €5.62 per ordinary unit (Q3 2010(2): €5.58 per ordinary unit) IFRS net asset value €5.62 per ordinary unit (2009(2): €5.55 per ordinary unit)
68 lease transactions covering 546,600m², compared to 31 transactions covering 331,600m2 in Q4 2009 165 lease transactions covering 1,560,400m², compared to 88 transactions covering 947,300m2 in 2009

Commenting on the results, Peter Cassells, chief executive officer of PEPR, said: "At the end of last year, we set ourselves three main objectives for 2010: to improve net asset value through asset management initiatives, drive occupancy and re-establish our investment grade rating. I am pleased to report we have made substantial progress against these objectives. We have repaid or refinanced over €480 million of outstanding debt, reduced leverage to 53.0% and while we are still working towards achieving an investment grade rating, we did secure an improved credit outlook from Moody's Investor Services.

"In addition, we have completed record leasing of over 1.5 million square metres during the year, some 60% ahead of 2009, maintaining a high level of customer retention and ending the year with above-market portfolio occupancy. This consistently strong operational performance has helped our portfolio valuation to remain flat over the year and ultimately to deliver financial results ahead of guidance.

"During the fourth quarter and into the new year, we have seen improving market fundamentals with increased customer demand for logistics space. Although this provides optimism that we are at or close to an inflection point in terms of both rental levels and the scale of lease incentives, we remain cautious about the pace and scale of the recovery. As such, we expect market rents and property values to remain stable across Europe in the near term, with the opportunity for improvement when the macro economic recovery takes hold."

Chief executive's review
The macro economic recovery is expected to be slow and steady, albeit with differing rates of recovery across the European countries. For the time being, consolidation and outsourcing remain the main drivers of demand rather than GDP growth. We continue to believe that there will be a return to positive net absorption in most markets, particularly in core markets, and we are confident that the quality of our asset and platform will enable us to continue to outperform the market on leasing. Nevertheless, there is likely to be a time lag before we see a positive impact on rental values, especially in secondary or oversupplied markets. In the meantime, we will continue to experience the negative impact of rent roll downs to market on recent leasing activity.

2010 was a challenging year for the European commercial property sector, with uncertainty over the pace and scale of the economic recovery and the introduction of austerity measures in a number of EU member countries hindering improvements in occupier market conditions. Despite these factors, we delivered strong financial results. Our EPRA NAV increased 2.8% to €6.32 per ordinary unit, reflecting stable portfolio valuations and the impact of retaining earnings. Adjusted EPRA earnings of €0.45 per ordinary unit, including €0.04 in lease termination fee income, exceeded revised guidance. Although early termination fee income is part of the normal course of business, the level received in the final quarter of 2010 was significantly higher than average. Excluding this fee income, underlying EPRA earnings were €0.41 per ordinary unit, down from €0.54 in 2009 given higher finance costs, preferred dividend payments and lower rental income associated with higher average level of vacancies and lower rental rates. We generated distributable cash flow of €86.1 million or €0.45 per ordinary unit in 2010 which was retained in the business to further strengthen our balance sheet.

On 31 January 2011, PEPR's external manager, ProLogis (NYSE: PLD), and AMB Property Corporation (NYSE: AMB) announced a proposed merger of equals. There are no contractual 'change of control' provisions or other direct impacts on PEPR arising from the proposed merger.

During 2011, we will strive to improve further our financial metrics, continuing to reduce leverage and pursue a return to an investment grade credit rating. In addition, we will ensure that we remain well placed to capture the benefits of improvements in occupier demand, maintaining high portfolio occupancy through consistently strong leasing performance and driving cash flow from the portfolio through proactive asset management and exemplary customer service.

Guidance
EPRA earnings for 2011 are expected to be between €0.37 and €0.42 per ordinary unit, reflecting the impact of rents reverting to market in 2010 and the likelihood of further rental decline on leases rolling in 2011 given the in-place rents agreed in the past. In addition, guidance reflects management assumptions of broadly stable occupancy levels for the year, no early termination fee income and a return to an ordinary level of asset disposals as part of normal asset management initiatives.

Distributable cash flow, after payment of preferred dividends, is forecast to be between €0.33 and €0.38 per unit reflecting the same factors as for EPRA earning guidance as well as higher anticipated capital expenditures than in 2009 and 2010.

PEPR has retained distributable cash flow since December 2008 as part of the business' strategic initiatives to improve liquidity and as a condition for a debt covenant amendment on PEPR's unsecured credit facility. In October 2010, PEPR received approval from the same bank syndicate to partially remove the restrictions on dividend payments. However, PEPR intends to continue to retain distributable cash flow in 2011 to further deleverage the balance sheet and to ensure a return to an investment grade credit rating.

Market outlook
Economic forecasters predict continued modest positive real GDP growth across Europe of between 1.5 and 2.0% during 2011-2012. Although concerns of a double-dip recession have faded, the recovery remains fragile with differing projected growth rates and the impact of governments' austerity measures across the individual countries.

World trade and shipping volumes have increased more quickly than anticipated and occupier demand for new space is expected to follow. Customer sentiment is improving, particularly in the third-party logistics sector which has seen an increase in the volume of goods handled. As a result, there has been increased demand for logistics space although for the time being this continues to be dominated by consolidation and opportunities to increase operating efficiencies.

Rental levels are expected to remain stable with lease incentives likely to reduce over the course of the year, although secondary or oversupplied locations could still see some downward pressure.

New supply is primarily linked to build-to-suit projects, with a small amount of speculative development started or is expected to start in France, Germany and Poland. Market occupancy rates across Europe remained relatively steady throughout the year, ranging from 90% or more in Northern and Southern Europe to 81 to 88% in Central Europe and the UK.

Investment flows into Europe's core logistics property markets increased by 21% to approximately €8 billion compared to 2009, around half of that experienced at the peak of the market. Investor appetite for risk remains low, leading to a continued focus on prime covenant quality, long-lease length product in core locations.

As a result, capital values have stabilised with no significant change anticipated in 2011 as any further yield compression is likely to be offset by lower market rents in the near-term.

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Earnings webcast and conference call details:
We invite you to access the live presentation webcast and conference call, held today, Thursday 10 February 2011, at 12 noon CET, by clicking on the link entitled "Fourth quarter and year end 2010 financial results webcast" located on the homepage of our website, www.prologis-ep.com