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ProLogis Q1 2010 Earnings Call Transcript

ProLogis Q1 2010 Earnings Call Transcript

ProLogis (PLD)

Q1 2010 Earnings Conference Call

April 22, 2010 10:00 AM ET


Melissa Marsden – Managing Director, IR and Corporate Communications

Walt Rakowich - CEO

Bill Sullivan – CFO

Ted Antenucci – President and Chief Investment Officer


Ross Nussbaum – UBS

Jamie Feldman – Banc of America Merrill Lynch

Steve Sakwa – ISI Group

Sloan Bohlen – Goldman Sachs

Ki Bin Kim – Macquarie

Michael Bilerman – Citi

Brendan Maiorana – Wells Fargo

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Michael Mueller – JPMorgan

Steven Frankel – Green Street Advisors

Josh Barber – Stifel Nicolaus

George Auerbach – ISI

Shane Buckner [ph] – Wells Capital Management



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Good morning. My name is Sarah and I will be the conference facilitator today. I would like to welcome everyone to the ProLogis Q1 2010. Today’s call is being recorded. All lines are currently in a listen-only mode to prevent any background noise.

After the speakers’ presentation, there will be a question-and-answer session. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Melissa Marsden, Managing Director of Investor Relations and Corporate Communications with ProLogis. Please go ahead, ma'am.

Melissa Marsden

Good morning everyone and welcome to our first quarter 2010 conference call. By now you should all have received an email with a link to our supplemental and if not, this document is available on our website at under Investor Relations.

This morning we will hear from Walt Rakowich, CEO, to comment on the market environment and then Bill Sullivan, CFO, will cover results and guidance. Additionally, we are joined today by Ted Antenucci, President and Chief Investment Officer and Chuck Sullivan, Head of Global Operations.

Before we begin prepared remarks, I would like to quickly state that this conference call will contain forward-looking statements under federal securities laws. These statements are based on current expectations, estimates and projections about the market and the industry in which ProLogis operates as well as management’s beliefs and assumptions.

Forward-looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statements notice in our SEC filings. I would also like to add that our first quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures. In accordance with Reg G, we have provided a reconciliation to those measures.

And as we have done in the past, to give a broader range of investors and analysts an opportunity to ask their questions, we will ask you to please limit your questions to one at a time.

Walt, would you please begin?

Walt Rakowich

Thank you, Melissa and good morning everyone. This morning I will try to keep my comments brief and talk about business fundamentals and progress towards our key focus areas with the objective of leaving more time for Q&A. Bill will have more on our financial results, balance sheet and guidance for the remainder of 2010.

Overall I would say that Q1 deals a bit like Q4 last year. We hear great things about the recovery and we believe it will have a positive impact on our performance but industrial tends to lag the overall economy and we are not seeing it just yet.

Right now our business deals like the tale of two cities. On the one hand, the operating environment is still soft, although it feels like it has hit bottom. Our operational results for the quarter beared this out. Rental rates were down by about the same amount as in Q4 and the lease percentage in our total industrial operating portfolio was flat compared to Q4. This reflects a slightly more than expected drop in leasing within our investment management and core direct-owned portfolios offset by a better than expected 500 basis point increase in the lease percentage of our completed development.

Now on the other hand, values have risen, buyers are plentiful and there is rising activity and optimism in the market. In addition, there is virtually no new supply and our development business is picking up abroad very nicely. Many of our customers are talking expansion for the second half of this year, we will see. It certain feels like brighter days are ahead and if history were to repeat itself, fundamentals should improve by the third or fourth quarter as inventory levels rise in accordance with a growing global economy.

Overall our FFO per share for the quarter was about $0.01 below our expectations. As we have said in the past, annual FFO will be significantly backend weighted. We believe we will end the year in line with our original FFO guidance after adjusting for dilution from our bond offering. However, what’s important is that we continue to stay focused and execute on three basic things, all of we are making good progress on; first, converting our non-income producing assets into income producing assets; second, creating value through accretive development which helps us accomplish our first objective by monetizing land; and third, continuing to strengthen our balance sheet.

Bill will have more on the third objective, so let me cover progress on the first two. The most impactful thing we can do right now is lease space in our existing portfolio. Nine months ago, leasing in our total industrial operating portfolio, which is basically everything not under development, was 87.7%. That number, of course, was significantly weighted down by our completed developments. At the end of the first quarter, total leasing in that same portfolio was 89.2%. No doubt market conditions have been challenging but we are pleased with the progress we have made. In the future, we will reach a lease percentage in the low-to-mid 90% range. That will generate over $175 million in additional annual FFO or $0.35 per share. That's real future cash flow.

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