Blackstone to pay $1.02 billion for ProLogis property

By Ilaina Jonas

NEW YORK (BestGrowthStock) – Blackstone Group (BX.N: ) is buying 180 facilities from ProLogis (PLD.N: ) for $1.02 billion, as the private equity firm snaps up real estate and the owner of warehouse and distribution properties works on its balance sheet.

Blackstone will also get the 20 percent stake in the North American Property Funds VI, VII and VIII that ProLogis owned, the companies said on Monday. Blackstone already owned the other 80 percent.

The industrial property includes facilities in Atlanta, Austin, Baltimore, Charlotte, Chicago, Cincinnati, Las Vegas, Los Angeles, Memphis, Nashville, New Jersey, Orlando, Phoenix, Portland, Reno, San Antonio, San Francisco, Tampa, Virginia and the Central Valley in California.

The portfolio also includes ProLogis’ 25 percent interest in the Hilton New Orleans Riverside, which Denver-based ProLogis inherited when it bought Catellus in 2005, and adjacent land. The $100 million for the hotel property means that Hilton Worldwide Inc, which Blackstone bought in 2007, will own the property in its entirety.

ProLogis, which was saddled with debt when the credit crisis hit, has been selling assets to strengthen its balance sheet.

The sale, which is slated to close next month, is expected to lower ProLogis’ 2010 core funds from operations (FFO) by 0.15 cents to 2 cents per share.

ProLogis lowered its FFO forecast for its full year because of the deal and a slower-than-expected recovery in demand for warehouse and distribution centers.

It now forecasts 2010 core FFO of 53 to 56 cents per share, below the average analysts’ estimate of 58 cents. ProLogis had previously forecast a range of 55 to 60 cents.

Including the Blackstone deal, ProLogis has sold roughly $1.6 billion of real estate this year. That is above its prior goal of $1.3 billion to $1.5 billion. ProLogis expects to use the money to repay debt and to fund development activity.

Blackstone has been making its way down the buffet table of U.S. commercial real estate property from distressed owners and others who need cash — buying hotels, retail property, and warehouse and distribution centers.

Blackstone said in July that the value of its real estate portfolio rose 19 percent during the second quarter.

The private equity firm made another large real estate bet earlier in October, investing in hotel chain Extended Stay America, which emerged from bankruptcy. Blackstone, alongside Paulson & Co and Centerbridge Partners, bought the hotel chain for $3.925 billion. It also has been investing in malls.

It has agreed to take a 7.6 percent stake in the two companies that will surface when General Growth Properties Inc (GGP.N: ) emerges from bankruptcy next month. It also is a joint venture partner with mall owner Glimcher Realty Trust (GRT.N: ), in which Blackstone has taken either a 60 percent or 80 percent stake in the properties.

Green Street Advisors analyst Steven Frankel said Blackstone might be paying less than he would have expected, but added that the companies did not provide enough details to properly gauge the deal.

ProLogis said the deal comes to an 8 percent first-year yield. Since yields move inversely to price, Frankel said, the yield may be higher than expected, which means the price might be lower than expected.

“From that perspective, an 8 percent cap rate probably is a little bit higher than what I was expecting.”

Rent and occupancy rates probably bottomed this quarter. However, as capital markets loosened, the prices of industrial properties are up 15 percent this year — still slower than the 30 percent rise in overall U.S. commercial real estate values, according to Green Street Advisors Commercial Property Price Index.

Shares of ProLogis fell 7 cents, or 0.6 percent, to close at $12.58 on the New York Stock Exchange.

(Additional reporting by Megan Davies; Editing by Gary Hill)

Blackstone to pay $1.02 billion for ProLogis property