ProLogis European Properties Fund II -- Moody's assigns (P)Baa3 to Prologis International Funding II S.A. proposed $300 million of backed senior unsecured notes

London, 12 October 2012 -- Moody's Investors Service has today assigned a provisional (P)Baa3 rating to the proposed c. USD300 million backed senior unsecured notes maturing in 2022, to be issued by Prologis International Funding II S.A. ("the Issuer") and guaranteed by Prologis European Properties Fund II FCP-FIS ("PEPF II, the Guarantor"). This rating is in line with PEPF II's provisional issuer rating (P)Baa3 assigned by Moody's on 17 September 2012. Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction. Upon the issuance of the notes and a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from the provisional rating.

RATINGS RATIONALE

The (P)Baa3 rating reflects that the notes will represent senior unsecured obligations of the issuer and will rank pari passu with all other unsecured and unsubordinated debts of the issuer. In addition, the notes will be fully and unconditionally guaranteed on a senior unsecured basis by the Guarantor. The notes will rank pari passu in right of payment with all of the Guarantor's current and future unsecured and unsubordinated indebtedness, including borrowings by the Guarantor under the fund's existing senior term loan and senior revolving credit facility and guarantees by the Guarantor of indebtedness of its subsidiaries. However, the notes will be effectively subordinated to any of the Guarantor's current and future indebtedness that is both secured and unsubordinated to the extent of the assets securing such indebtedness and all of the secured and unsecured indebtedness and other liabilities of its subsidiaries, other than the Issuer.

PEPF II's (P)Baa3 issuer rating is provisional upon a successful senior unsecured debt issuance in the capital markets in the near term, which will strengthen its liquidity and debt maturity profile and reduce the proportion of its debt that is secured such that the secured debt/gross assets ratio falls to around 25%. Moody's had previously indicated that while PEPF II's liquidity is supported by the fund's strong, positive cash flow generation and a pool of unencumbered assets, its forecast committed cash resources only covered committed cash outflows for the following ten months. In the rating agency's opinion this liquidity profile is weak for an investment grade issuer, as committed cash outflows should be comfortably covered for at least a year looking forward The proposed USD 300 million issuance alongside other long-term funding initiatives should adequately address this concern and reduce PEPF II's secured debt/gross assets ratio to an estimated 28% from c. 35% at 30 June 2012 and then trend towards 25% in 2013.

PEPF II's issuer rating is underpinned by the fund's (i) broadly diversified presence in the European distribution warehousing market with a high quality portfolio of assets that occupy prime locations; (ii) lower business risk profile than similarly rated peers as the fund bears no development risk; (iii) solid credit metrics as at year-end 2011 and first half 2012, with estimated effective leverage of 40.8% and 39.5% respectively, as measured by adjusted total debt/gross assets, and estimated fixed charge cover at 3.0x and 3.1x respectively, and expected to remain in excess of 2.5x in the medium term, as measured by adjusted EBITDA/fixed charges. All financial metrics are as adjusted by Moody's.

PEPF II's issuer rating is constrained by the fund's (i) high proportion of secured debt and encumbered assets, which limits its financial flexibility, although we acknowledge management's intention to move to a largely unsecured financing structure over time; and (ii) exposure to the cyclicality of the distribution warehouse property sector; (iii) sizable exposure to the CEE region, estimated at 31% by value and 30% of annual rental income as at 30 June 2012, which presents high growth opportunities but with higher volatility than the more established western European regions in which the fund operates.

Moody's also factors into the rating its cautious outlook for European logistics property over the foreseeable future. Tenant demand is related to economic growth as well as the growth in world trade, both of which are expected to remain below long-term averages in 2012 and 2013. Therefore, there is at present considerable uncertainty surrounding tenant demand. On the other hand, large consumers of distribution warehousing are seeking to consolidate into bigger, modern facilities such as those offered by PEPF II. As a result, Moody's expects that PEPF II will continue to experience downward pressure on rents in some locations, but benefit from rental growth in others, as in 2011.

The stable rating outlook assumes the fund will be able to successfully raise funding in the debt capital markets by year-end 2012, and that liquidity will otherwise remain adequate on a forward-looking basis of at least 12 months, with secured debt/gross assets falling to around 25%. Furthermore, headroom under all covenants is ample and PEPF II's performance is expected to remain in line with the rating.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on the rating could arise if effective leverage remains materially below 45% and fixed charge cover remains sustainably above 2.5x and secured debt/total assets falls to sustainably below 20%.

Negative pressure on the rating could occur from earnings deterioration such that fixed charge cover trends below 2.0x, or effective leverage rises above 50% for a sustainable period. Negative pressure on the rating could also arise if any liquidity challenges develop or are not adequately addressed or the proportion of secured debt in the capital structure is not lowered as per the fund's presented plans.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Prologis European Properties Fund II FCP-FIS was the Moody's Approach for REITs and Other Commercial Property Firms Industry Methodology published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Prologis European Properties Fund II FCP-FIS was established in Luxembourg in 2007as a fond commun de placement (FCPFIS) that invests solely in prime distribution warehousing facilities with total assets of EUR2.94 billion reported at first half 2012. The large US REIT, Prologis LP (Baa2, stable) is the fund's external manager and held 29.7% of the fund's units at 30 June 2012.

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