AMB Property Corporation (

AMB

)

Q3 2010 Earnings Call Transcript

October 20, 2010 1:00 pm ET

Executives

Tracy Ward – VP, IR and Corporate Communications

Hamid Moghadam – Chairman and CEO

Tom Olinger – CFO

Eugene Reilly – President, Americas

Guy Jaquier – President, Europe and Asia & President, Private Capital

Analysts

Steven Frankel – Green Street Advisors

Jamie Feldman – Bank of America

John Guinee – Stifel Nicolaus

Steve Sakwa – ISI Group

Ki Bin Kim – Macquarie

Chris Caton – Morgan Stanley

Sloan Bohlen – Goldman Sachs

Michael Bilerman – Citigroup

Srikanth Nagarajan – FBR Capital Markets

James Sullivan – Cowen and Company

David Harris – Gleacher & Company

Michael Mueller – JP Morgan

Suzanne Kim – Credit Suisse

Dave Rodgers – RBC Capital Markets

George Auerbach – ISI Group

Presentation

Operator

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Previous Statements by AMB
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» AMB Property Corporation Q3 2009 Earnings Call Transcript

Good afternoon. My name is Carmen, and I will be your conference operator today. At this time I would like to welcome everyone to the AMB third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

I will now turn the call over to Tracy Ward, Vice President, Investor Relations and Corporate Communications. Ms. Ward, you may begin.

Tracy Ward

Thank you, Carmen. Good morning, everyone. Thank you for joining us this morning. Before we begin formal remarks, I would like to remind you that this call is the property of AMB Property Corporation and is being recorded. Please be aware that statements made during this call that are not historical may be deemed forward-looking statements.

Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission, including our 2009 10-K for a detailed discussion of these risks.

Acknowledging the fact that this call may be web cast for a period of time, we believe that it is important to note that today's call includes time sensitive information that may be accurate only as of today's date, October 20, 2010. The company's supplemental information package was filed earlier today, with the SEC on Form 8-K. The filing is posted on amb.com in the Investors section under Financial Information Supplemental Reports. Also included in our supplemental information package are the reconciliations from GAAP financial measures to non-GAAP financial measures.

This morning I will turn the call over to Hamid Moghadam, Chairman and CEO, who will comment on the macroeconomic environment and customer sentiment; and Tom Olinger, our Chief Financial Officer, will provide an update on capital markets activities, review our financial results and provide an update on 2010 and 2011 guidance before we open the call to your questions.

Also, in attendance with us today are Eugene Reilly, President Americas; and Guy Jaquier, President Europe, Asia and Private Capital. Hamid, will you please begin.

Hamid Moghadam

Thanks Tracy, and good morning everyone. Welcome to our third quarter earnings call. Today we will keep our opening remarks brief, as you have just heard from us last month.

Let me start by saying that overall I am very pleased with our third quarter results. We made considerable progress on our key priorities for the year, and Tom will go into details of that in a few minutes. There are three key points I would like you to keep in mind today.

First, as you know in the early part of the third quarter, we revised our guidance on the heels of the uncertainty in Europe, and a slowdown in leasing in the first half of the year. Customer sentiment has turned more positive in September, and we finished the quarter on a strong note. Second, we have significant earnings potential embedded in our business. We continue improving the utilization of our assets, restarting the value creation engines, and scaling our business.

Third, we have a clear roadmap on how to get there. Our business drivers are intact. We have an excellent global platform. Our balance sheet is strong. We have a talented team and a private capital franchise that is unique. Improvements in the operating environment and the continuing inventory bounce support our positive outlook on industrial absorption.

Let me give you some insight into the third quarter for the operating environment. Net absorption in the US turned positive at about 11 million square feet, following an unprecedented three years of rising vacancies. This is significant as a turning point, and consistent with the forecast we communicated back in mid-2009 in a highly uncertain environment. Most of our key hub and gateway markets have bottomed or are improving. Effective rents, inclusive of concessions, have stopped declining in virtually all of our markets.

We expect the tightest gateway market such as LA, South Florida, Northern New Jersey, and Hamburg to experience rent growth in the second half of 2011. Bright spots continue to be Brazil and China, where rents are already growing. The preconditions for a pickup in growth remain in place. We’re still in the midst of an inventory rebuild in the US, and we believe that this process has some lag [ph], especially when you consider that real inventories fell over 8% from the peak, and have only regained about 1.7% through the second quarter.

Third-quarter data will come out at the end of the month, and we expect that it will show continuing improvement. Customers are running too lean, as evidenced by the continued growth in air cargo, which is a very expensive way of getting out of stock items to consumer. We don’t believe this slower than normal inventory rebuild signifies a secular change in the global supply chain practices of our customers. It is simply part of a market cycle with an extended bottom, following an unprecedented financial crisis. Finally, consumer sentiment is getting better. The fourth quarter may be a watershed period. However, much of this depends on the election results and holiday sales.

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