News release
Results for the quarter and year ended 31 December 2011
Strong operating performance delivers financial results in line with guidance
Luxembourg - 8 February 2012 - ProLogis European Properties (Euronext: PEPR), one of Europe's largest owners of modern distribution facilities, today reports results for the quarter and year ended 31 December 2011.
Highlights
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Portfolio occupancy improved 290 basis points to 94.4% from 91.5% at 30 September 2011
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29 lease transactions completed covering 334,600m2, including 156,700m2 of new or expanded leases (Q4 2010: 68 lease transactions, totalling 546,600m2)
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Further progress with deleveraging objective: loan-to-value ratio reduced to 46.7%
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Completed sale of two non-core assets for €33.7 million, above June 2011 valuations
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Post quarter end, finalising disposal of a portfolio of assets
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Commenting on the results, Peter Cassells, chief executive officer of PEPR, said: "We set three main objectives for 2011: to return to an investment grade credit rating, to improve net asset value through proactive asset management and to maintain high portfolio occupancy. I am pleased to say that we have substantially achieved these objectives. We returned to an investment grade credit rating in August 2011, EPRA NAV increased 2.7% to €6.50 per ordinary unit over the year and a pick-up in leasing activity in the fourth quarter enabled us to end 2011 at 94.4% occupancy.
"Over the year, we completed over 1.3 million square metres of leasing activity, below 2010's record performance but ahead of our annual average. Our portfolio valuation remained flat and our financial results are in line with guidance, due largely to our consistent operating performance.
"Our focus for 2012 will be to improve our credit rating through further deleveraging of our business. As such, we are finalising the sale of a portfolio of assets and will continue to enhance value through selective additional capital recycling initiatives."
Extraordinary General Meeting, 14 March 2012
On 7 February 2012, PEPR provided notice to its Unitholders of an Extraordinary General Meeting ('EGM') to vote on a proposal, made by Prologis, Inc. under Article 18.1 of the Management Regulations, in relation to the process to be followed in the event of a winding-up of PEPR. The proposed amendments have been approved by the Commission de Surveillance du Secteur Financier and the PEPR Board.
The EGM will commence at 09:00 CET on 14 March 2012 in Luxembourg.
Market outlook
The European economic environment remains uncertain. However, customer demand is cautiously positive with take-up for the year significantly higher than the ten-year average. Occupier demand continues to be driven by supply chain reconfiguration, cost management, sustainability and migration from obsolete to modern space. As a result, headline rents and lease concessions remain stable in most markets with some rental growth in supply constrained markets such as Hamburg and Rotterdam.
Capital market activity strengthened towards the end of the year, although investment demand remains largely equity financed and focused on prime locations, high-quality customers and long lease lengths. Prime yields in most markets remained stable in the fourth quarter, with an average NOI yield of 7.60% within the EU-15 according to CBRE.
Portfolio revaluation
The entire portfolio was independently revalued at 31 December 2011, with market value remaining broadly flat, excluding foreign exchange adjustments and asset disposals (actual and planned), from the valuation carried out at 30 June 2011. The overall market value, taking into account the disposals and the impact of foreign exchange, declined by 6.6% to €2,602.6 million compared to €2,786.8 million at 30 June 2011.
Over 2011 as a whole, PEPR's portfolio market value decreased by 1.1%, excluding foreign exchange adjustments and disposals. The overall market value, taking into account these impacts, declined by 7.8% to €2,602.6 million compared to €2,822.0 million at 31 December 2010.
The market value of the Continental European portfolio decreased by 0.8% over the six months to December 2011 to €2,263.0 million, primarily due to the German asset disposal. Excluding this disposal and movement in the Swedish krona exchange rate, continental European values remained flat over the same period. Values for the Northern European portfolio increased by 1.3%, driven by improving portfolio occupancy and a limited amount of yield compression recorded in Germany and Sweden. The Central European portfolio value declined by 1.0% primarily as a result of rebasing rents back to market while the Southern European portfolio experienced a modest decline of 0.4% in property values.
Excluding the Basingstoke disposal and the planned portfolio sale, the UK portfolio value remained stable from 30 June 2011 to 30 December 2011. The strengthening of the sterling exchange rate, particularly in the last quarter of 2011, increased the overall value of the UK portfolio in euro terms by 5.1%, to €339.6 million from €322.2 million at 30 June 2011. When the disposals are taken into account, the UK portfolio decreased by 36% to €339.6 million from €504.8 million at 30 June 2011.
Portfolio performance
Leasing activity increased during the fourth quarter, with 29 lease transactions covering 334,600 square metres completed during that period. These comprised 13 new leases, totalling 147,100 square metres, and three lease expansions with existing customers, adding 9,600 square metres to their operations. In addition, 13 lease renewals, covering 177,900 square metres, were signed with customers such as Sainsbury's Supermarkets in the UK, Unilever in Poland and Decathlon in Belgium.
As a result of this activity, portfolio occupancy increased over the quarter to 94.4%.
Fourth quarter leasing transactions were concluded with an average of 3.8 years to lease break or 6.1 years to lease expiry and resulted in a weighted average rental decline of 9.4% over the previous rental levels. Excluding new leases, the weighted average rental decline was 5.9%. The rental decline on new leases was largely influenced by the fact that approximately 70% of these related to vacant space, which in previous periods had been occupied under long-term, more favourable, indexed lease agreements.
During the quarter, PEPR sold two non-core assets for €33.7 million, both ahead of the June 2011 valuations. In October, Sainsbury's Supermarkets Ltd, one of the UK's leading food retailers, purchased a 10,400 square metre building in Basingstoke, south west of London, which they have occupied since 2004. In December, Samson Aktiengesellschaft, a family owned industrial pump manufacturer, purchased a 21,155 square metre standalone distribution facility in Frankfurt, Germany. Proceeds from both disposals were used to reduce outstanding debt.
Post quarter end, PEPR is currently finalising the sale of a portfolio of assets. These properties are classified as "held for resale" in the statement of financial position at year end 2011. The sale is expected to complete later this week and proceeds will be used to further deleverage the business.
Assuming the completion of the portfolio disposal, the remaining portfolio will comprises 220 distribution facilities, covering 4.7 million square metres across 11 European countries with a market value of €2.6 billion at 31 December 2011. The portfolio risk profile remains attractive, with occupancy at 94.4% and a diversified customer base. On average, the portfolio has 2.8 years to lease break or 4.7 years to lease expiry. An overview of the portfolio is shown on page 11.
Guidance
EPRA earnings are expected to remain broadly stable for 2012, between €0.37 and €0.42 per ordinary unit, despite the planned portfolio disposals. This guidance reflects management assumptions of broadly stable occupancy levels for the year and some further softening of rents as leases are rolled back to market levels.
Distributable cash flow, after payment of preferred dividends, is forecast to be between €0.33 and €0.38 per unit reflecting the same factors highlighted for EPRA earnings guidance and a similar level of capital expenditure as in 2011.
PEPR has retained distributable cash flow since December 2008 as part of the business' strategic initiatives to improve liquidity and intends to continue to do so for the foreseeable future in order to further deleverage the balance sheet to a more conservative level.
Financial results
Earnings
IFRS earnings for Q4 2011 increased to €10.1 million (Q4 2010: €0.8 million), given a €16.8 million lower unrealised portfolio valuation decline, an €8.5 million improvement in operating and financing costs and a €3.9 million profit on asset disposals. These factors were offset by a €10.8 million increase in the charge for current and deferred taxation and a €9.2 million decline in total revenue.
Adjusted EPRA earnings for ordinary unitholders, which provide a better guide to underlying business performance, decreased to €19.7 million in Q4 2011 (Q4 2010: €27.3 million) primarily driven by the increased charge for current and deferred taxation with a reduction in total revenue offset by operating and finance cost savings.
For 2011, IFRS earnings increased to €26.3 million (2010: €20.5 million) as a result of a €29.8 million lower unrealised portfolio valuation decline, €10.9 million of operating and finance savings and a €3.9 million profit on disposals. These improvements were offset by a €21.1 million increase in charge for taxation and a €17.7 decline in total revenue. In addition, 2010 included €8.2 million of early lease termination fee income and a €2.6 million non-recurring receipt of insurance proceeds.
Adjusted EPRA earnings for ordinary unitholders for 2011 decreased to €75.0 million (2010: €85.9 million) as a result of the increased charge for current and deferred taxation as the reduction in rental income was offset by operating and finance cost savings.
A reconciliation between IFRS and EPRA earnings is shown on page 9.
Total revenue
Q4 2011 rental and other property income decreased to €59.3 million (Q4 2010: €68.5 million) as the comparable period included the receipt of early lease termination fee income.
For 2011, rental and other property income decreased to €236.9 million (2010: €254.6 million), primarily due to a €6.3 million reduction in rental income due to lower market rents on new lease agreements and reduced portfolio occupancy over the year, a €0.7 million decrease in UK and Swedish sourced income when measured in euro and the loss of €0.4 million of income related to the two asset sales. In addition, 2010 included €8.2 million of early lease termination fee income and a €2.6 million non-recurring receipt relating to the finalisation of insurance and legal claims.
Operating expenses
The cost of rental activities in Q4 2011 decreased to €6.0 million (Q4 2010: €9.9 million) mainly driven by the €1.8 million non-recurring charge arising from a reassessment of the recoverability of service charges and €1.8 million higher insurance and maintenance costs incurred in the comparable period.
The cost of rental activities for 2011 fell to €25.8 million (2010: €30.8 million), given the €3.6 million of comparable period expenses mentioned above and a €1.1 million lower bad debt charge in 2011. Underlying property management fees decreased slightly to €13.2 million (2010: €13.4 million) as these fees are correlated to the gross market value of the portfolio.
Fund expenses improved to €3.3 million in Q4 2011 (Q4 2010: €4.2 million), primarily due to the higher professional fees associated with tax planning and compliance initiatives in the comparable period.
For 2011, fund expenses increased to €13.2 million (2010: €12.4 million) driven by €2.9 million of professional advisory fees incurred in responding to the Prologis tender offer, offset by a €1.6 million saving in audit and other professional fees. In addition, 2010 included the write-off of €0.5 million of legal and advisory fees associated with the potential second preferred equity raise. Underlying fund management fees decreased slightly to €4.4 million (2010: €4.5 million) as these fees are correlated to the gross market value of the portfolio.
Debt structure and finance cost
Total outstanding debt as at 31 December 2011 is €1,360.7 million, a €28.3 million decrease since 30 September 2011 (€1,389.0 million), given the repayment of £20.5 million of the senior unsecured credit facility, a repayment of £12.2 million under the Crédit Agricole bank loan and quarterly amortisation. These reductions were partially offset by the strengthening of sterling over the quarter. PEPR has no outstanding debt maturities until December 2012, when the €123.1 million outstanding under the senior unsecured credit facility becomes due. PEPR intends to use sales proceeds to further reduce or repay the 2012 senior unsecured credit facility.
The weighted average interest rate for 2011 was 5.6%, in line with 5.6% in 2010. PEPR expects the average interest rate to decrease in 2012 as the interest rate on the €500 million Eurobond decreased by 1.75% to 5.875% on 23 October 2011 following PEPR's return to an investment grade credit rating.
Net finance expense for 2011 decreased to €94.6 million (2010: €101.3 million), primarily due to a €5.6 million reduction in interest expense given the €242.2 million reduction in debt between the two periods and the improvement in the Eurobond and senior unsecured credit facility interest rates in Q4 2011 following the return to investment grade. In addition, 2010 included €1.6 million of accelerated amortisation charges associated with PEPR's debt refinancing activities.
At 31 December 2011, PEPR was in compliance with all financial debt covenants within its credit facilities.
Tax
The overall tax charge for 2011 increased to €40.8 million (2010: €19.8 million) mainly driven by a €15.3 million increase in the deferred income tax charge. The deferred tax increase is a result of further utilisation of tax loss carry forwards and the ongoing decrease in the tax cost basis of the portfolio. The 2011 current income tax expense increased to €19.5 million (2010: €13.8 million) mainly due to non-recurring benefits in 2010 given tax planning initiatives implemented last year, a €2.0 million one-off income tax charge on capital gains generated by asset sales in 2011 and higher taxable profits. The 2011 current income tax charge represents an effective tax rate of 16.8%, excluding the one-off elements (2010: 12.8%), using EPRA earnings before taxation as a proxy for taxable income.
PEPR will continue to manage and implement tax strategies to maintain its future tax expense at a reasonable level.
Distributable cash flow and distributions
For Q4 2011, PEPR generated €17.1 million, or €0.08 per unit of distributable cash flow for ordinary unitholders (Q4 2010: €22.3 million or €0.12 per unit), taking distributable cash flow for ordinary unitholders for 2011 to €68.5 million, or €0.35 per unit (2010: €86.1 million or €0.45 per unit). PEPR will continue to retain distributable cash flow for the foreseeable future to further deleverage the balance sheet to a more conservative level.
PEPR will pay a preferred dividend distribution to holders of its Class A(1) convertible preferred units on 14 February 2012. The €0.159122 per unit distribution relates to the period from 1 October 2011 to 31 December 2011. The ex-dividend date is 10 February 2012 and the record date is 12 February 2012.
Net asset value
IFRS NAV per ordinary unit increased to €5.77 at 31 December 2011 (2010: €5.62), largely driven by the equity offer at a valuation above 31 December 2010 IFRS NAV (impact of €0.04 per unit) and retained earnings of €0.10 per unit.
EPRA NAV per ordinary unit, which makes adjustments to IFRS NAV for the cash flow hedges and deferred tax movements, increased by 2.7% to €6.50 per ordinary unit (2010: €6.32).
A reconciliation between IFRS and EPRA NAV is shown on page 9.
Financial statements and portfolio information
The audited consolidated financial statements for the year ended 31 December 2011 will be available on the PEPR website, www.prologis-ep.com (http://www.prologis-ep.com/), on or before 30 March 2012.
In January 2011, PEPR determined that the accounting treatment relating to the deferred tax liability was incorrect and subsequently restated prior year audited financial statements. The unaudited comparative figures provided herein for Q4 and 2010 are similarly restated.
| Page | |
| Consolidated income statement | 7 |
| Consolidated statement of financial position | 8 |
| Statement of performance measures - EPRA earnings and EPRA net asset value | 9 |
| Reconciliation of profit to distributable cash flow | 10 |
| Portfolio overview | 11 |
For further information, please contact:
| Investor relations ProLogis European Properties Jennifer Crooke +44 207 518 8708 jcrooke@prologis.com | Media M:Communications Charlotte McMullen +44 207 920 2349 mcmullen@mcomgroup.com |
Forward-looking statements
This document may contain certain 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes of results expressed or implied by such forward-looking statements.
Any forward-looking statements made by or on behalf of PEPR speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their accuracy or completeness or the basis on which they were prepared. PEPR does not undertake to update forward-looking statements to reflect any changes in PEPR's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: ProLogis European Properties via Thomson Reuters ONE
