ProLogis Sells Assets Worth $1 Billion to Blackstone Group Affiliates

Includes: BX, PLD
by: Zacks Investment Research

ProLogis (NYSE:PLD), a leading global provider of distribution facilities, has recently sold a huge portfolio of industrial assets worth approximately $1 billion to affiliates of The Blackstone Group (NYSE:BX). In addition, the company also sold a 25% minority interest in the 1,600-room Hilton New Orleans Riverside hotel property to Hilton Worldwide Inc. for $100 million. ProLogis generated net proceeds of $804 million from the transactions.

The company sold about 182 properties spanning 23 million square feet in the U.S. to Blackstone. The properties were primarily older, non-strategic assets used for warehousing and transportation facilities and were currently 95.6% leased. ProLogis is also under negotiation to sell three of its North American property funds to Blackstone in December 2010.

With improving property values and growing institutional demand for quality properties, ProLogis expects to generate $1.65 billion to $1.70 billion of proceeds in 2010 from sales of existing assets and contributions to funds primarily in the U.S., which is more than the initial target of $1.3 billion to $1.5 billion. The company intends to utilize the proceeds to repay debt and fund its existing development portfolio as well as development starts in 2010.

We maintain our Neutral recommendation on ProLogis, which presently has a Zacks #3 Rank translating into a short-term Hold rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.

Our long-term Neutral recommendation on the stock is based on the belief that ProLogis has considerably reduced operating risks through continued lease-up of its development portfolio. ProLogis also has a geographically diverse portfolio of distribution facilities that integrates international scope and expertise with a strong local presence in its markets, which provides strong upside potential for the company.

However, the continued troubles in the residential sector are weighing on commercial property operations. This has significantly affected the top-line growth of industrial real estate companies like ProLogis.