* Norway's wealth fund buying 50 pct stake in portfolio
* Deal almost at break-even on Prologis' PEPR purchase cost
* Norwegian fund to get warrants to acquire 6 mln shares
NEW YORK/OSLO, Dec 20 Norway's sovereign wealth fund has agreed to buy a 50 percent stake in a portfolio of European warehouses for 1.2 billion euros ($1.6 billion) from U.S.-based Prologis as it ramps up its still-small property investments.
The deal announced on Thursday for a stake in 195 properties spread across 11 European countries represents the first steps of what could be large global investments of real estate by the $685 billion Norwegian wealth fund, which has been built up from surplus oil and gas revenue.
For Prologis, the sale is the second of two large pending transactions that puts it on a path to strengthen its balance sheet and focus on the key markets that it outlined in the June 2011 merger that created the company.
San Francisco-based Prologis said the deal will allow it to remove half of its European property from its balance sheet.
The joint venture will comprise essentially all the European property on Prologis' balance sheet. About 75 percent of the properties will come from ProLogis European Properties (PEPR), which Prologis acquired earlier this year.
"This transaction is approximately almost to the dollar break-even on our cost of buying PEPR," Hamid Moghadam, co-chief executive of Prologis, told Reuters. "We've now recapitalized this with an investor that has a very long-term perspective and wants to be in this business in terms of decades."
The joint venture follows Prologis' disclosure last week that it would spin off 12 of its distribution centers in Japan into a newly created Japanese real estate investment trust.
"These two transactions really address two of the key concerns that investors have had with this company," said John Stewart, senior analyst at Green Street Advisors. "I think it's solid execution on one of the key initiatives that they have lined up for themselves. Deleveraging is point number one."
Shares of Prologis closed up 2.6 percent to $36.58 on the New York Stock Exchange, outperforming the benchmark MSCI US REIT index, which was up 1.3 percent.
As part of the deal, Norway's wealth fund will receive warrants to acquire 6 million shares of Prologis common stock based on the closing price of $35.64 per share on Wednesday, the two investors said.
Prologis will retain the remaining 50 percent stake in the portfolio and manage the units.
The venture has an initial term of 15 years, which may be extended for additional 15-year periods. The agreement allows for Prologis to reduce its ownership to 20 percent after the second anniversary of the closing.
Prologis' debt to asset value will fall to about 36 percent from its current low 40s after the deal, moving it closer to the company's goal of 30 percent, Moghadam said.
The deal is expected to close in the first quarter of 2013
The real estate portfolio includes mostly distribution facilities in countries including France, Britain, Spain, Poland, Italy, Czech Republic, Hungary, the Netherlands, Germany, Sweden and Belgium.
The wealth fund, which holds over $135,000 for each of Norway's 5 million residents, has been cautiously building its real estate portfolio and so far has focused on posh shopping and office properties in large urban centers.
At the end of the third quarter it held less than 1 percent of its assets in real estate, below a 5 percent goal, and predicted it would take years before it would reach the planned level.
The fund is forecast to grow to $1.1 trillion by 2020, indicating it could hold $55 billion in real estate by then.
It has been buying property in Europe only, but said it hoped to receive a government mandate to start buying in the United States as well.
"That's explicitly something that they have asked us to look at, but we don't have a deal because they don't have a mandate yet," Moghadam said.