ProLogis (NYSE: PLD) has announced that it has formed four new property funds that will own state-of- the-art distribution centers in Europe, the United States, Mexico and South Korea. The new funds have a combined capacity of over $14 billion (c. €9.7bn). They will serve as exclusive investment vehicles for properties from ProLogis' development pipeline in their respective regions and will have the ability to make third-party acquisitions that meet the respective funds' criteria.
"Together with the capacity in ProLogis' existing funds, we now have fund agreements in place to support $33 billion of assets under management in funds -- more than double the $14.2 billion of assets under management at the end of the second quarter," said Jeffrey H. Schwartz, ProLogis chairman and chief executive officer. "We expect to see a commensurate rise in fund management fee income as these new equity commitments are invested over the next three years."
Schwartz noted that the European and Mexican funds were oversubscribed. "These new fund agreements illustrate the quality of our worldwide platform, as well as the global nature of the company's capital relationships," Schwartz said. "Our investment management business continues to serve as a powerful growth engine for ProLogis, allowing us to continue to serve our growing global customer base while redeploying capital efficiently and increasing and diversifying our revenue.
"Taken together, our recent investment management activity represents a transformative event for ProLogis," Schwartz said. "We are building an investment management business on a scale unmatched in our industry. At the same time, we are enabling our fund partners to achieve their investment objectives by delivering stable cash flows, asset appreciation and access to the world's leading industrial platform."
New European fund
ProLogis European Properties Fund II will function as an open-end, infinite-life fund with a total capacity of up to €7.5 billion (US $10.1bn), including equity of €3.0 billion (US $4.0bn) and targeted leverage of 50% to 60%.
ProLogis has identified a portfolio for contribution to the fund in the third quarter of 2007 valued at approximately €600 million (US $810m), comprising recently developed, stabilized properties as well as certain facilities obtained through the company's 2007 acquisition of Parkridge Holdings' European industrial business.
The fund is the second for ProLogis in Europe. The first, ProLogis European Properties (PEPR), was created in 1999 and increased in 2003. PEPR now owns approximately 5.8 million m² of industrial property in 11 countries valued at €4.5 billion (US $6.1bn) as of June 30, 2007. In September 2006, PEPR became listed on the Euronext exchange in Amsterdam.
Among the investors in the European fund are PEPR, the CPP Investment Board, an investment organization that invests the assets of the Canada Pension Plan, and an affiliate of GIC Real Estate Pte Ltd (GIC RE), the real estate investment arm of the Government of Singapore Investment Corporation. GIC RE is an existing ProLogis fund investor in Europe, North America and Japan and is ProLogis' joint venture partner in the South Korea fund.
The new fund will comprise 28 institutional investors, including five repeat and a number of new investors, thereby expanding our network of high-quality institutional relationships. PEPR will have a 30% ownership interest, while ProLogis will initially retain a 17% direct interest in the fund, along with the 8% interest it will own indirectly through its investment in PEPR. ProLogis will serve as external manager of the fund and receive property and asset management fees consistent with many of its other property funds and will also have the potential for periodic recognition of incentive performance fees.
"We're excited about the opportunity to invest in the new European fund," said Robert Watson, chief executive officer of PEPR. "The fund will provide us with continued access to