Prologis Inc. (PLD - Analyst Report) – a leading industrial real estate investment trust (REIT) – recently inked a definitive deal with Norges Bank Investment Management (NBIM) to create a Euro-denominated joint venture (JV), Prologis European Logistics Partners Sàrl. The $3.1 billion deal will have an initial term of 15 years, which may be extended for an additional 15-year period.
NBIM is a unit of Norges Bank – the Central Bank of Norway. It is in charge of the operational management of the Norwegian Government Pension Fund Global. Moreover, NBIM manages foreign exchange reserves of Norges Bank.
Prologis European Logistics Partners Sàrl will be a 50 / 50 JV with an €1.2 billion ($1.55 billion) investment by each Prologis and NBIM. As per the deal, Prologis will have the opportunity to reduce its venture ownership to 20% after the second anniversary of the closure of the transaction.
Further, as part of the deal, NBIM received a warrant to purchase 6 million common shares of Prologis based on the closing price of $35.64 per share as on December 19, 2012. The warrant bears a three-year term.
Upon closure, the JV will acquire a portfolio of Prologis’ wholly-owned distribution facilities in 11 European markets. The portfolio includes 195 properties spanning approximately 49 million square feet. The JV may increase its portfolio through strategic acquisitions in target markets to complement the company’s existing asset base.
Management remains upbeat regarding the new JV as it will enable both the companies to deeply penetrate the industrial real estate market of Europe. In addition, the JV transaction signifies a major achievement for Prologis, as it completes the company’s European recapitalization ahead of schedule.
As a matter of fact, Prologis has been active on spreading across the globe through JV agreements and build-to-suit development projects. With improving property values and rising institutional demand for quality properties, the company has witnessed a growing customer interest in new build-to-suit development projects worldwide. Additionally, leasing decisions that were earlier postponed due to volatility in the markets are gradually coming off the shelf.
In last two months, Prologis has signed many build-to-suit deals across the globe, including the core U.S. and UK markets. As of September 30, 2012, Prologis' global development portfolio totaled 16.3 million square feet, with an estimated total investment of $1.5 billion.
Prologis acquires, develops, operates and manages industrial real estate space in North America, Asia and Europe. The industrial distribution warehouse space of the company is located in some of the busiest distribution markets across the globe. The properties of the company are typically located in large, supply-constrained infill markets close to airports, seaports, and ground transportation facilities, all of which enable rapid distribution of customers’ products. This has facilitated the company to gain a significant pricing advantage over its competitors.
For Prologis, which currently has a Zacks #3 Rank (implying a short-term Hold rating), the deal is a strategic fit. It marks an efficient recapitalization effort and would likely help the company to diversify its revenue and serve its growing customer base. Therefore, this might lead to upward revision of its estimates and in turn help in obtaining a better Zacks Rank. One of its peers, Winthrop Realty Trust also carries a Zacks #3 Rank.