Norway’s sovereign-wealth fund, the world’s biggest, agreed to buy 50 percent of a European property portfolio from Prologis Inc. for 1.2 billion euros ($1.6 billion) for its first industrial property purchase.
The $680 billion fund will buy stakes in 195 properties in 11 European countries, including Spain, Italy, Poland, the U.K. and France, the Oslo-based investor said in a statement today. Prologis, based in San Francisco, will hold 50 percent of the venture and manage the properties.
“The agreement marks the fund’s first investment in industrial real estate and is in line with our strategy to build a high-quality portfolio that’s spread over different countries and sectors,” said Karsten Kallevig, chief investment officer for real estate at Norges Bank Investment Management, manager of the fund.
The sovereign-wealth fund is expanding into real estate and is seeking to have 5 percent of its assets invested in properties. It has bought commercial real estate in London, Paris, Frankfurt, Berlin as well in Sheffield, England. The fund last month made its first real estate investment in Switzerland, buying a Zurich office complex from Credit Suisse Group AG.
The Prologis transaction included 100 million euros in bank debt and is expected to be completed in the first quarter. The venture has an initial term of 15 years.
“It was hoped that transactions like this would have happened some time ago,” said James Sullivan, an analyst at Cowen & Co. in New York with a hold rating on Prologis. “Given that the condition in the European economy and the outlook for the Euro has been uncertain, it has been an issue in the minds of some investors that would keep them out of the stock. This transaction will to some extent alleviate those concerns.”
Prologis needs to sell as much as $8 billion of assets to pay creditors and get an investment-grade debt rating, said John Guinee, managing director of broker Stifel Nicolaus & Co.
“It is just one of many arrows in the quiver that they are liquidating,” Guinee, who has a buy recommendation on the stock, said by telephone. “They are about 44 percent levered and to get the investment-grade rating they want on their debt, they need to get it down to mid-30s.”
The Norwegian fund earlier this month said it would enter the U.S. real estate market. The fund is focusing on conservative property deals, such as large office complexes in major cities and developed malls, Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said in a Dec. 1 interview.
The properties purchased from Prologis comprise 4.5 million square meters (48 million square feet) of rentable space, the largest amount in France. Most of it used as distribution facilities by about 300 tenants, according to the statement.
Prologis this year sold about $470 million of property in the Americas. The company in July said it planned about $800 million in further sales this year.
Prologis merged with AMB Property Corp. in June 2011 in the biggest combination of U.S. real estate investment trusts.