1 Changing Financial Strategy to Drive Changing Financial Strategy to Drive Growth Growth Leeds School of Business - University of Colorado Walter C. Rakowich – President and COO October 22, 2007
Dec 22, 2015
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Changing Financial Strategy to Drive Changing Financial Strategy to Drive GrowthGrowth
Leeds School of Business - University of Colorado
Walter C. Rakowich – President and COO
October 22, 2007
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Financial Structure - 1997
Market Value of Common Equity $3.0 Billion65% Premium to Book
Direct Debt$0.9 B
Preferreds$0.4 B
Book Value Common
Equity$1.8 B
$3.1 Billion Book Value of Assets Owned, Managed and Under Development
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ProLogis-European Opportunity
Opportunity:
Dominant regional distribution hubs emerging to efficiently serve unified marketplace
Major companies consolidating and reconfiguring distribution networks
Functional obsolescence of much existing stock
Growing need for state-of-the-art Pan-European distribution facilities
Strategy:
Employ a local team of nationals in each market
Control land for new development
Leverage off of established global customer relationships for growth
Develop new facilities in major distribution hubs
Estimated at the time to be a $3+ billion opportunity
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$10
$15
$20
$25
$30
Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
PLD Common Share Price PLD Annual FFO Per Share
ProLogis Stock Price
Significant decline in multiple renders common equity too expensive for growth
ProLogis Common Share Price
ProLogis Annual FFO Per Share
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ProLogis Property Fund Business
Strategy
Raise private equity primarily from institutional investors looking for long-term stable returns
Develop facilities on our balance sheet at wholesale value Create value through leasing and contribute to property funds at
retail value Co-invest profit and receive cash for wholesale value thereby
recycling capital Manage the properties in funds for fees thereby creating higher
returns on invested capital
Benefits Access a broader, less dilutive base of equity for growth Retain customer relationships Grow platform globally in a more capital-light manner which
increases return on equity
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Property Fund Example
PLD Fund
$1,000
$1,200
$1,000
$200
Development Cost
Asset Value
Return of Capital
Gross Profit
$1,200
$600 $600
$200 $400
Debt(50%)
Equity
PLD Equity(33%)
Investor Equity(67%)
-
=
Contributi
on
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Property Fund Example
Return on Equity within the Fund:
Equity Partners ProLogis TotalPercentage Ownership 67% 33% 100%
Debt $400 $200 $600Equity 400 200 600 Total Investment $800 $400 $1,200
Unleveraged Return (8.5%) $68 $34 $102Mgmt Fees (Avg 75 bps on Value) (6) (3) (9)Interest Expense (at 5%) (20) (10) (30)
$42 $21 $63Add Back Mgmt Fees 9
$30
Return on Equity 10.5% 15.0%
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ProLogis European Properties Fund I – Initial Structure
Fund equity commitments: Initial equity raise of €1.04 billion in 1999 from 19 institutional investors
ProLogis ownership: Largest owner of the Fund, 20% minimum long-term ownership
Leverage: 60% maximum
Investment criteria: Fund to purchase stabilized distribution facilities in identified target markets
Management: ProLogis to manage day-to-day operations of the Fund within the ProLogis Operating System® pursuant to 20-year management contract
Management fees: ProLogis to receive asset management fees and property management fees equal to approximately 75 bps per year on total value
ProLogis incentive return: ProLogis to receive 20% incentive return above 12% internal rate of return
Initial term/liquidity: Potential IPO in 7-10 years
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As of 6/30/07:
950 properties, 13 funds, $14.2B in assets under management
50% leverage
23% average PLD ownership
$1.5B invested by ProLogis
Fund fees projected in 2007: $98 – $104M
PLD’s portion of NOI: $140 - $145M
Superior Growth – Investment Management Business
$0.7B
$1.7B
$2.9B
$4.6B
$5.7B
$9.4B$9.9B
$12.3B
$14.2B
CAGR – 49%
1999 2000 2001 2002 2003 2004 2005 2006 2Q07
North Amercia Europe Asia
Investment Management Asset Growth
Note: All figures estimated as of year end 2007, unless noted
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ProLogis Property Funds
at 6/30/07 Year of Sq. Feet InvestmentInception (In Millions) (in $Billions)
European Properties Fund 1999 62.0 $5.2
California LLC 1999 14.2 0.7
North American Fund I 2000 9.4 0.4
North American Fund V 2002 36.1 1.5
North American Funds VI-X 2004 25.4 1.5
North American Funds XI 2004 4.3 0.3
North American Industrial Fund 2006 35.7 2.0
Japan Properties Fund I 2002 7.1 1.1
Japan Properties Fund II 2005 10.1 1.5
Totals 204.3 $14.2
Created 5 new funds in 3Q07 with additional capacity of $16.2B
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Diverse Global Capital Relationships
By Investor TypeBy Investor Location
49 Institutional Investors
26% in multiple funds
28%North America
26%Asia
44%Europe
2%Middle East
33%Pension Plans
– Gov’t
5%Investment Mgrs
10%R/E
Funds
26%Gov’t
Investment Authorities
11% Insurance Co
12%Banks
2%Pension
Plans - Corp1%
Other
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Potential to More Than Double Investment Management Business
Additional fund launches since 6/30/07 add to current capacity
Expected AUM growth of $23B - $25B in next 3 years
Accelerated growth in management fees
6/30/2007 2008 2009 2010Potential
North America Europe Asia
Investment Management Platform
$14.2B
$37B - $40B
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Unmatched Global Platform
Over 2,500 distribution facilities serving more than 4,700 customers in 20 countries
Over $29B of Total Assets
Asia 26 markets
39.7 msf
$4.4B invested in facilities and land
North America 42 markets
306.2 msf
$16.4B invested in facilities and land
Europe 37 markets
101.0 msf
$9.1B invested in facilities and land
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Financial Structure at 6/30/07
Wholly Owned Assets $15.1 B
Fund Assets $14.2 B
Development JVs $0.6 B
Fund Equity $6.6B
Direct Debt $9.6B
Direct Pfd $0.4B
Book Value Direct Equity $5.7B
Fund Debt $7.6B
Market Value of Common Equity on 10/12/07 $18.8 Billion230% Premium to Book
$29.9 Billion of Assets Owned, Managed and Under Development Sources of Funding