Published: February 01, 2011
Fitch Places ProLogis on Rating Watch Positive & AMB on Rating Watch Negative
NEW YORK - (BUSINESS WIRE) - Fitch Ratings has placed the following credit ratings of ProLogis (NYSE:
PLD) on Rating Watch Positive:
ProLogis
--Issuer Default Rating (IDR) 'BB+';
--Global Line Credit Facility 'BB+';
--Senior Notes 'BB+';
--Convertible Senior Notes 'BB+';
--Preferred Stock 'BB-'.
Fitch has also placed the following credit ratings of AMB Property
Corporation (NYSE: AMB) as well as its operating partnership, AMB
Property, L.P. and its subsidiary AMB Japan Finance Y.K. (collectively,
AMB) on Rating Watch Negative:
AMB Property Corporation
--IDR 'BBB';
--Preferred Stock 'BB+'.
AMB Property, L.P.
--IDR 'BBB';
--Senior Unsecured Notes 'BBB';
--Revolving Bank Credit Facilities 'BBB'.
AMB Japan Finance Y.K
--Unsecured Term Loan 'BBB'.
The rating action follows the announcement yesterday that PLD and AMB,
two industrial REITs, have reached a definitive merger agreement.
Combined, the companies are expected to have a pro forma equity market
capitalization of approximately $14 billion and total assets under
management of $46 billion.
Under the terms of the agreement, each ProLogis common share will be
converted into 0.4464 of a newly issued AMB common share, and the
combined company will be structured as an umbrella partnership REIT. The
merger is subject to customary closing conditions, including receipt of
approval of AMB and ProLogis shareholders. The parties currently expect
the transaction to close during the second quarter of 2011 (2Q'11). The
all-stock merger is intended to be a tax-free transaction. Upon
completion of the merger, the company will be named ProLogis and will
trade under the ticker symbol PLD.
The rating action centers on Fitch's view that the combined entity will
have a stronger fixed charge coverage ratio and lower leverage than PLD
on a standalone basis and a weaker fixed charge coverage ratio and
higher leverage than AMB on a standalone basis. Per the companies'
disclosures, the combined company's fixed charge coverage ratio in 4Q'10
annualized prior to the realization of any synergies is expected to be
2.4 times (x), compared with 2.3x for PLD previously and 2.6x for AMB
previously.
Fitch's last published commentaries indicated that PLD's net debt to
recurring operating EBITDA (including Fitch's estimate of recurring cash
distributions from unconsolidated entities but excluding gains on sale
and other non-recurring items) ratio would approach 9.0x in 2011 and
AMB's net debt to recurring operating EBITDA ratio would be
approximately 7.5x in 2011. Based on these projections, and excluding
the effects of any merger-related costs or synergies, Fitch therefore
would expect the combined entity to initially maintain a leverage ratio
in the 8.0x to 8.5x range, which is consistent with the lower end of the
'BBB' rating category for an industrial REIT.
The rating actions further point to favorable aspects of the transaction
including enhanced scale, a staggered debt maturity schedule, an
expected smooth integration of management, and a diverse customer base.
These favorable attributes are somewhat offset by a sizable development
platform that may adversely impact near-term liquidity, as well
near-term uncertainty regarding the covenants under which the combined
entity will operate.
The combined entity is expected to own and manage 598 million square
feet of industrial properties across 22 countries, with $46 billion of
total assets under management, giving the company significant economies
of scale across global warehouse markets.
The combined company is expected to have a well-laddered debt maturity
schedule with 4.3% of total combined debt maturing in 2011, 16.5% in
2012, 10.7% in 2013, 8.8% in 2014, and 12.3% in 2015, with the remainder
maturing thereafter.
Both companies have structured the integration so the combination of
management teams will occur smoothly. Upon closing of the transaction,
Hamid Moghadam, AMB's CEO, and Walt Rakowich, ProLogis' CEO, will serve
as co-CEOs through Dec. 31, 2012, at which time Rakowich will retire,
and Moghadam will become sole CEO of the combined company. Moghadam also
will be chairman of the board of the combined company and will be
primarily responsible for shaping the company's vision, strategy and
private capital franchise. Rakowich will be principally responsible for
operations, integration of the two platforms and optimizing the merger
synergies. William Sullivan, current ProLogis CFO, will continue to
serve as CFO and will retire from ProLogis on Dec. 31, 2012. During this
period, Thomas Olinger, AMB's current CFO, will be responsible for
day-to-day integration activities and report to the CEOs; he will become
the CFO of the combined company on Dec. 31, 2012.
The combined entity is expected to have a diverse customer base
including DHL (2.6% of combined annualized base rent), Kuehne + Nagel
(1.2%), Home Depot (1.1%) and CEVA Logistics (1%) with no other tenant
comprising more than 1% of annualized base rents, which Fitch views
favorably as individual tenant credit risk is limited.
As a combined entity, the company is expected to have a sizable
development platform including $750 million of assets under development
and $1.5 billion of expected development, which should allow the company
to reduce non-income producing assets but which could adversely impact
near-term liquidity as development funding is needed prior to lease-up.
Since ProLogis and AMB currently operate under different financial
covenants as separate entities, Fitch believes that there is near-term
uncertainty regarding under which covenants the combined entity will
eventually operate.
Fitch anticipates resolving the Rating Watches upon the closing of the
transaction.
ProLogis is a global provider of distribution facilities, with more than
475 million square feet of industrial space owned and managed in markets
across North America, Europe and Asia as of Dec. 31, 2010. The company
leases its industrial facilities to more than 4,400 customers, including
manufacturers, retailers, transportation companies, third-party
logistics providers and other enterprises with large-scale distribution
needs.
AMB Property Corporation is an owner, operator and developer of global
industrial real estate, focused on major hub and gateway distribution
markets in the Americas, Europe and Asia. As of Dec. 31, 2010, AMB
owned, or had investments in, on a consolidated basis or through
unconsolidated joint ventures, properties and development projects
expected to total approximately 159.6 million square feet in 15
countries.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--Corporate Rating Methodology, Aug. 16, 2010;
--Criteria for Rating U.S. Equity REITs and REOCs, April 16, 2010;
--Equity Credit for Hybrids & Other Capital Securities - Amended, Dec.
29, 2009;
--Rating Hybrid Securities, Dec. 29, 2009;
--Recovery Rating and Notching Criteria for REITs, Dec. 23, 2009.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Criteria for Rating U.S. Equity REITs and REOCs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=510465
Equity Credit for Hybrids & Other Capital Securities - Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493112
Rating Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086
Recovery Rating and Notching Criteria for REITs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492828
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
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Fitch, Inc.
One State Street Plaza
New York, NY 10004
Primary
Analyst for AMB and Secondary Analyst for ProLogis:
Janice Svec,
+1-212-908-0304
Senior Director
or
Primary Analyst for
ProLogis and Secondary Analyst for AMB:
Sean Pattap, +1-212-908-0642
Senior
Director
or
Committee Chairperson
Daniel Chambers,
+1-212-908-0782
Managing Director
or
Media Relations
Sandro
Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com
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