Moody’s Upgrade for Global Industrial Real Estate Developer

August 30, 2011 / Elizabeth Buckley, Commercial Property Analyst

Moody’s Investors Service has upgraded ProLogis European Properties’ (Euronext: PEPR) corporate credit rating to Baa3, with stable outlook, from Ba1.

Moody’s Upgrade for Global Industrial Real Estate Developer

ProLogis European Properties is a subsidiary of Prologis, Inc. (NYSE: PLD), which operates and develops global industrial real estate.

Early this month, Jefferies upgraded ProLogis from Underperform to Hold with a price target of $31.00. The upgrade was granted given that the Prologis’s recent private market transactions support its current valuation; the industrial real estate developer expects leasing spreads to turn positive in late 2012, which is sooner than we had expected, and its valuation better reflects the risks related to its de-leveraging plan following the stock’s 19 percent decline since the earnings report on 7/28/11.

William Sullivan, chief financial officer, said: “With its return to investment grade PEPR will realize approximately $13 million (euro 9.2 million) in annual interest expense savings. The majority of these savings will begin to be realized in late-October and represent modest upside to our previous guidance.”

PEPR’s rating upgrade to Baa3 came after its announcement to offer up to euro 97.5 million to significant existing unit holders. This upgrade immediately reduces the borrowing margin on PEPR’s approximately euro 248 million senior unsecured term loan by 25 basis points and the borrowing margin on its euro 50 million senior unsecured revolving credit facility by 15 basis points.

The interest rate on PEPR’s approximately euro 494 million Eurobond will decrease by 175 basis points to 5.875 percent from 7.625 percent after the October 23, 2011 annual reset date.

Meanwhile, Moody’s kept the credit rating of Toyota Motor Corp. at Aa3, despite red flags pointing to a possible downgrade. It affirmed its outlook on the company as stable.

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