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Global Credit Research - 17 Jul 2014
Approximately US$6.8 billion in securities affected
New York, July 17, 2014 -- Moody's Investors Service, ("Moody's") today upgraded Prologis,
L.P.'s senior unsecured rating to Baa1, from
Baa2 and Prologis, Inc.'s preferred stock rating to
Baa2, from Baa3. The rating outlook is stable.
The ratings upgrade reflects the REIT's substantial improvement
in its operational metrics with same-store NOI increasing for the
last ten quarters, while maintaining strong portfolio occupancy
of 94.5% as of March 31, 2014. The REIT also
has experienced positive rental growth for the last five quarters,
which is expected to continue for 2014 and beyond. In addition,
Prologis completed large capital transactions which de-levered
its balance sheet and should result in important enhancements to its key
credit metrics. Prologis has good liquidity supported by the REIT's
substantial cash on hand ($189 million as of 3/31/2014),
robust cash flows, as well as committed unsecured bank credit lines
that consist of a $2.5 billion global revolver expiring
in July 2017, with a one year extension, and a Yen45 million
Japanese Yen revolver (approximately $500 million) expiring in
May 2018. The credit lines were largely undrawn with only $120
million outstanding and $73 million in letters of credit at March
31, 2014. Prologis refinanced most its near-term unsecured
debt maturities and there are no unsecured bonds coming due until 2017.
At 1Q14, fixed charge coverage and net debt to EBITDA were at 2.58x
and 8.0x respectively, but are expected to significantly
improve by YE2014 and be more commensurate with a high Baa rating.
Currently, the REITs effective leverage and secured debt levels
are strong for its current rating category. The REIT's operations
are benefiting from strong industrial real estate fundamentals.
The following ratings were upgraded, with a stable outlook:
Prologis, L.P. -- Senior unsecured to
Baa1, from Baa2; senior unsecured shelf to (P)Baa1, from
Baa2; subordinate shelf to (P)Baa2 , from (P)Baa3
Prologis, Inc.-- Preferred stock to Baa2,
from Baa3, preferred stock shelf to (P)Baa2, from (P)Baa3
RATINGS RATIONALE
The Baa1 rating reflects Prologis' position as the world's largest
owner, manager and developer of industrial facilities, strong
franchise, large scale, ample liquidity, and extensive
geographic reach across the Americas, Europe and Asia. Prologis
has $51.1 billion of assets owned, managed and under
development as of March 31, 2014. Prologis has $23.8
billion of directly owned assets and $27.3 billion of assets
under management on behalf of third party funds. The REIT possesses
a global leadership position in the warehouse distribution business,
coupled with a strong management team and demonstrated access to committed
equity capital at some of its funds and access to all capital markets.
The rating is further supported by the REIT's large pool of high
quality unencumbered assets, which should continue to improve in
size, quality and geographic diversity as the REIT continues to
execute on its on balance sheet development program. Prologis'
credit profile benefits from strong tenant relationships underpinning
a growing global franchise and the diversification gains derived from
its established fund management platform and international strategy.
However, these positive ratings factors are counterbalanced by the
REIT's exposure to a large development pipeline and land bank as well
as risks associated with its material share of joint venture arrangements
to support its growth strategy.
The stable rating outlook reflects Moody's expectation that the
REIT will continue to generate meaningful cash flows, maintain good
liquidity and proactively manage debt maturities on balance sheet and
at the funds level. The stable outlook also assumes Prologis' continued
progress to de-lever its balance sheet, while focusing on
maintaining occupancies above 90% in its core portfolio,
growing rental revenue, leasing up its development pipeline and
monetizing its land bank.
Moody's stated that Prologis' ratings could be upgraded if the REIT
continues its strong operating performance while continuing to improve
its credit metrics so that net debt to EBITDA is closer to 5x and fixed
charge is sustained above 3x. A ratings upgrade would also require
that the REIT pursues balanced growth strategy that would limit its JV/Fund
revenues over total revenues and development over total gross assets to
no more than its current levels. Although unlikely in the near
term, a downgrade in Prologis ratings would be precipitated by deterioration
in credit metrics, including net debt/EBITDA greater than 8.0x,
a decline in fixed charge coverage to below 2.2x; coupled
with significant increase in development exposure over 15% of gross
assets and JV/Fund revenues as a percent of total revenues rising above
mid-teens. In addition, broad deterioration in the
macroeconomic or specifically industrial environment would also be viewed
negatively.
Moody's last rating action with respect to Prologis was on July 17,
2013, when the rating agency affirmed the Baa2 senior unsecured
rating and Baa3 preferred stock ratings of Prologis, L.P.
and Prologis, Inc., respectively, and revised
the rating outlook to positive from stable.
The principal methodology used in this rating was Global Rating Methodology
for REITs and Other Commercial Property Firms published in July 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Prologis, Inc. [NYSE: PLD], headquartered
in San Francisco, CA, reported total assets at book of approximately
$24.7 billion and shareholders' equity of approximately
$18.0 billion as of March 31, 2014.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Philip Kibel
Associate Managing Director
Commercial Real Estate Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Nicholas Levidy
MD - Structured Finance
Commercial Real Estate Finance
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Prologis' rating to Baa1; stable outlook
No Related Data.
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