Denver-based ProLogis, the world's largest owner, manager and developer of real estate, announced that it has agreed to sell its Chinese operations and its 20-per cent interest in Japan property funds to a Singapore government-owned real estate company for $1.3 billion in cash plus liabilities as part of the transaction.

The company said it expects to record a net loss on the transaction of approximately 4 to 6 per cent of the book value of the assets sold, which include some properties still under construction, interests in joint ventures and one property fund.

In a statement ProLogis said it expects "the development pipeline as of September 30, 2008  would reduced by $1.0 billion, including $255 million in costs to complete development of the assets owned directly and within Prologis' development joint ventures in China."

The company expects to close the transaction in January 2009, pending certain conditions. Proceeds from the sale will be used to reduce debt.

ProLogis reported $1.26 billion of gross proceeds from its fourth quarter contributions included a total of 59 properties in 12 countries, representing 15.2 million square feet (msf) of space.
ProLogis had $11.6 billion in debt on its books as of the third quarter of 2008.

"In one substantial step, this transaction helps ProLogis de-lever its balance sheet, relieve near-term re-financing pressure and enhance liquidity," said Walter C. Rakowich, chief executive officer of ProLogis.

In Japan, ProLogis will sell its 20-per cent interests in the Japan funds that own 27.1 million square feet of properties, including fourth quarter 2008 contributions, to GIC RE, which already owns an 80-per cent stake.

ProLogis has a current investment of $348 million in these funds. In addition to the proceeds from this transaction, ProLogis will receive 12.6 billion yen ($140 million) from the sale of a 637,000 square-foot building in Japan from its development pipeline to GIC RE.

The sale of this facility, which is expected to close in the first quarter of 2009, will satisfy the remainder of GIC RE's equity commitment to ProLogis Japan Fund II.

ProLogis will retain the following assets in Japan (all figures as of September 30, 2008, updated for fourth quarter contributions and removing previous starts that were halted during the quarter):

• 4.5 msf of facilities completed and currently in lease up with a total
  investment of $687 million that were 43.7 percent leased;
• 4.2 msf of facilities under development with a total expected investment
  of $681 million (including a remaining funding requirement of $194
  million) that were 2.6 percent leased; and
• 64 acres of land with a carrying value of $173 million.

"Selling our China operations and our investment in the Japan funds was not an easy decision; however, this represents a major milestone in the implementation of the plan we outlined last month to strengthen the company's balance sheet in order to meet the challenges of the current environment," said chief executive Walter C Rakowich in a statement.

In China, the assets to be sold to GIC RE include (all figures as of September 30, 2008):

• 20.7 million square feet (msf) of completed properties and properties
  under development with a total expected investment of $861 million
  (including a remaining funding requirement of $223 million for
  properties under development) that were 45.5 percent leased;
• ProLogis' interest in five China joint ventures and one property
  fund, of which the company's share aggregates 4.4 msf with a total
  investment of $184 million (including a remaining funding requirement of
  $32 million for properties under development) that were 69.0 percent
  leased;   
• A 30 percent interest in SZITIC CP, a retail joint venture, with a book
  value of $53 million; and
• 713 acres of land with a carrying value of $213 million.

The transaction includes all of the company's operations in China as well as its property fund interests in Japan.

In November, ProLogis announced a series, a series of steps would be taken to cut debt and improve liquidity.

This deal accelerates that plan to provide the company with significant liquidity, the company said.

Walter C Rakowich said in November that he aims at reducing at least $2 billion in borrowings in 2009. ProLogis had $353 million in balance-sheet debt alone coming due in 2009.

"We view Asia as an important region of the world for industrial real estate and will continue to build our business there over time," added Rakowich. "In the current environment, however, we are intently focused on liquidity and risk mitigation, and the most important steps we can take are those that preserve and build value for our shareholders going forward."

ProLogis, a Fortune 500 company and a member of the S&P 500 has operations in 136 markets across North America, Europe and Asia with $40.8 billion of assets owned, managed and under development, comprising 548 million square feet (51 million square meters) in 2,898 properties as of September 30, 2008.

Following the announcement, ProLogis stock rose 94 cents, or 10.3 percent, to close at $10.10. The stock has traded at a range of $2.20 to $66.58 over the past year.