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Fitch Places ProLogis on Rating Watch Positive & AMB on Rating Watch Negative

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^{Published in Business and Finance on Tuesday, February 1st 2011 at 12:35 GMT by Market Wire}  

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 ]

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