Further deleveraging;
Focus remains on return to investment grade
Luxembourg - 28 October 2010 - ProLogis European Properties (Euronext: PEPR), one of Europe's largest owners of modern distribution facilities, today reports results for the third quarter and nine months ended 30 September 2010.

Highlights

Generated €63.4 million of distributable cash flow over nine months
Loan-to-value ratio improved to 52.5% from 53.3% at 30 June and 55.0% at end 2009
Increase in EPRA net asset value by 2.6% to €6.31 per ordinary unit since year end 2009
As anticipated, portfolio occupancy decreased by 1.0% to 92.7% - still comfortably above the market
Significant leasing activity completed during the quarter, including lease renewals on over 250,000 square metres in France and Spain
Closed on new €50 million, three-year, unsecured revolving credit facility giving extra flexibility to meet ongoing working capital requirements
Amended terms of unsecured debt facility to permit return to paying ordinary dividends
Quarter to 30 September 2010
Nine months to 30 September 2010

EPRA[1] earnings €0.10 per ordinary unit (Q3 2009: €0.14 per ordinary unit)
§ EPRA earnings €0.31 per ordinary unit (9M 2009: €0.46 per ordinary unit)

IFRS earnings of €0.06 per ordinary unit (Q3 2009: €0.42 loss per ordinary unit)
§ IFRS earnings of €0.11 per ordinary unit (9M 2009: €1.67 loss per ordinary unit)

EPRA net asset value €6.31 per ordinary unit (Q2 2010: €6.27 per ordinary unit)
§ EPRA net asset value €6.31 per ordinary unit (2009: €6.15 per ordinary unit)

IFRS net asset value €6.04 per ordinary unit of (Q2 2010: €5.99 per ordinary unit)
§ IFRS net asset value €6.04 per ordinary unit (2009: €5.97 per ordinary unit)

35 lease transactions covering 312,000m2, compared to 23 transactions covering 217,800m2 in Q3 2009
§ 97 lease transactions covering 1,013,800m2, compared to 57 transactions covering 615,800m2 in 9M 2009


Commenting on the results, Peter Cassells, chief executive officer of PEPR, said: "We are pleased with the progress we have made on improving our liquidity profile and reducing PEPR's loan-to-value ratio. We remain firmly focused on maintaining industry-leading occupancy and deleveraging the business to ensure a return to an investment grade rating. With that in mind, we intend to continue to retain distributable cash flow for the foreseeable future.

"Since quarter end, we received approval from our unsecured bank syndicate to partially remove the restrictions on making ordinary dividend payments, reflecting the confidence our bank syndicate has in our business and the progress we have made in improving our liquidity profile.

"We are further encouraged to announce another quarter of significant leasing activity in spite of macro economic uncertainties and continued softness in occupier demand. Although there are signs of improving market fundamentals, we continue to expect a patchy economic recovery across Europe and remain cautious about rental levels in the near term.

"We have delivered financial results in line with our guidance, with EPRA earnings and distributable cash flow for the nine months at €0.31 and €0.33 per ordinary unit respectively. As anticipated, our portfolio occupancy declined slightly to 92.7% although we remain above general logistics market averages. We believe that we are very well placed to benefit from increased occupier demand as and when market conditions improve."

Market outlook

Economic forecasters predict positive real GDP growth across Europe of between 0.5 and 1.5% a year during 2010-2011. However, it may be a two-tier recovery given the wide range of projected growth rates, with Sweden, Poland and Germany projected to grow faster than other countries. Overall, it has been widely acknowledged that the rate of improvement is more modest than that experienced in previous recoveries.

World trade has rebounded more quickly than anticipated and many markets have now reached a transitional stage of the real estate cycle with leasing conditions no longer deteriorating. The majority of European markets have seen valuation and rental levels stabilise with improvement in some core locations, although rent concessions remain relatively high at between 10-20% of base rents on average.

Investment flows into Europe's core logistics property markets have continued to increase sharply during the first half of 2010 to €4.3 billion, up 12% from half year 2009, although there has been a slight slowdown in activity during the third quarter. Investor appetite for risk remains low, leading to a continued focus on prime covenant quality, long-lease length product in core locations.

Customers remain cautious over the pace and scale of the market recovery. For now, occupier demand continues to be dominated by consolidation and opportunities to increase operating efficiencies. As a result, customers are moving out of smaller, fragmented and older units into larger, more modern space, creating a widening disparity in rents and yields between primary and secondary distribution facilities.

New supply is restricted to build-to-suit projects with virtually no speculative development. The impact of these supply and demand metrics can be seen in relatively steady occupancy rates across Europe over the past year, although these are still in a wide band, ranging from 90% or more in Northern and Southern Europe to 83 to 88% in Central Europe and the UK.

Looking forward, a number of markets, including Germany and some sectors of the UK, have seen class A vacant space almost completely absorbed, providing room for more optimism on improving occupancy into 2011.

Portfolio performance

ProLogis (NYSE: PLD), PEPR's external manager, has maintained strong leasing momentum during the third quarter, with 35 lease transactions covering 312,000 square metres being completed. Two agreements, covering 12,300 square metres, were new leases in Germany and Poland. A further five leases were expansions, adding 9,300 square metres to existing customers' supply chain needs. The remaining 28 transactions, totalling 290,400 square metres, were lease renewals with customers such as Ceva, DHL, FagorBrandt and Schneider.

These transactions resulted in a weighted average rental decline of 9.7% over the expiring rental level, primarily related to leases signed in Central Europe and the inherent over-renting within the portfolio. The level of over-renting has reduced to 2.8% at 30 September 2010 from 3.4% at 30 June 2010.

There were 64 lease break options or expiries in the portfolio during the nine months to 30 September. Of these, some 64% opted to remain in place when measured by rental value, broadly in line with the 65% customer retention for the half year 2010.

There were no customer defaults during the third quarter and PEPR remains focused on monitoring customer performance to minimise future risk. Total accounts receivable from customers for Q3 2010 increased to €50.1 million, from €46.4 million at 30 June 2010 primarily due to the later UK quarter-end billing date. However, we have already received 100% of those UK invoices since quarter end. At 30 September 2010, PEPR held a €2.9 million provision for bad and doubtful debts (HY 2010: €2.7 million).

In summary, at 30 September 2010, the portfolio comprised 232 distribution facilities, covering 4.9 million square metres across 11 European countries with an estimated net market value of €2.8 billion. The portfolio risk profile remains attractive, with above market average occupancy of 92.7%, a diversified customer base, and on average 3.3 years to next lease break or 5.4 years to lease expiry. An overview of the portfolio is provided on page 22.

Guidance

PEPR maintains its guidance for 2010, with EPRA earnings and distributable cash flow expected to be between €0.40 and €0.44 per ordinary unit.

PEPR has retained distributable cash flow since December 2008 as part of the business' strategic initiatives to improve liquidity and as a condition for a debt covenant amendment on PEPR's unsecured credit facility. In October 2010, PEPR received approval from the bank syndicate on its unsecured credit facility to partially remove the restrictions on dividend payments. However, PEPR intends to continue to retain distributable cash flow for the foreseeable future in order to further deleverage the balance sheet and to ensure a return to an investment grade credit rating.

Financial results

Earnings

IFRS earnings for Q3 2010 were €14.1 million compared to an €80.6 million loss for Q3 2009, primarily due to valuation declines arising from the additional portfolio revaluation conducted in 2009 in relation to PEPR's preferred equity offering. In addition, IFRS earnings for Q3 2010 were negatively impacted by a €4.1 million decline in total revenue and a €3.7 million increase in finance expense.

EPRA earnings for ordinary unitholders, which provide a better guide to underlying business performance, decreased from €27.5 million for Q3 2009 to €18.2 million in Q3 2010. The reduction is primarily due to the €4.1 million decline in total revenue, €3.7 million of increased finance expense and €1.6 million of preferred dividend distributions.

For the nine months, IFRS earnings increased substantially to €26.0 million compared to a loss of €318.1 million for the comparable period in 2009. The majority of the difference is due to the €387.3 million higher unrealised portfolio net valuation losses incurred in 2009 as well as the €42.7 million loss on property disposals and consequential tax impacts recorded in 2009. IFRS earnings for the nine months 2010 were negatively impacted by €16.0 million lower total revenue, €2.2 million of increased operating costs and €1.5 million higher net finance expense.

EPRA earnings for ordinary unitholders for the nine months decreased to €58.6 million from €87.9 million for the comparable period in 2009, primarily due to €18.6 million lower rental income, €3.2 million of increased operating and finance expenses, a €2.0 million higher tax charge and €4.9 million of preferred dividends.