AMB Property Corporation (AMB)

Q2 2010 Earnings Call Transcript

July 21, 2010 1:00 pm ET


Tracy Ward – VP, IR and Corporate Communication

Hamid Moghadamn – Chairman and CEO

Tom Olinger – CFO

Eugene Reilly – President, Americas

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


Ross Nussbaum – UBS

Steve Sakwa – ISI Group

Sloan Bohlen – Goldman Sachs

Ki Bin Kim – Macquarie Capital

Chris Katen – Morgan Stanley

Michael Bilerman – Citi

Jeff Spector – Bank of America

John Guinee – Stifel Nicolaus

David Harris – Gleacher & Co.

Steven Frankel – Green Street Advisors

Michael Mueller – JPMorgan

Mitch Germain – JMP Securities

Vincent Chow – Deutsche Bank

Suzanne Kim – Credit Suisse

George Auerbach – ISI Group



Good afternoon. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the AMB second 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) we ask that you please limit yourself to one question and reenter the queue for any follow up questions.

Thank you, and I would now like to turn the conference over to Tracy Ward, vice president of Investor Relations and Corporate Communications, Ms. Ward, you may begin.

Tracy Ward

Thank you, Regina. 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 for a detailed discussion of these risks.

Acknowledging the fact that this call may be webcast for some time to come, 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, July 21 st, 2010. The company's supplemental information package was filed earlier today, with the SEC on Form 8-K. The filing is posted on our website in the Investor Relations section under Financial Information Supplemental Reports.

This morning I will turn the call over to Hamid Moghadamn Chairman and CEO who will comment on the macroeconomic environment and customer sentiment and Tom Olinger our Chief Financial Officer who will provide an overview of our markets, review our financial results and provide an update on 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, please begin.

Hamid Moghadamn

Thanks. Good morning and welcome to our second quarter earnings call. Before we discuss our results, I would like to take a few minutes sharing with you our perspective on global economy and its implications for our business. The primary indicators of our business tell us that the recovery in global trade is mostly on track.

At the most aggregate level, US GDP is almost back up to its pre-crisis level and consumptions have surpassed its previous peak. US industrial production has now recovered more than half of the 15% decline while global IP is above this previous highs. Trade volumes have improved significantly for both imports and exports. In fact for those ports that have reported their May numbers, container volumes globally have now surpassed their early 2008 peak.

This is a remarkable recovery from 35% declines that took place between July of '08 and February of '09. Similarly, aggregate global air freight volume is about 4% above its pre-recession peak, with May representing the highest level on record.

All of this points to a strong recovery in consumption and global trade and is the precursor to the restocking of inventories. The key driver of industrial absorption that we have talked about for some time. At the same time, the sovereign debt crisis in Europe concerns about the high unemployment rate in the US, slowing retail sale, and fears about a double dip have given some of our customers pause with respect to committing to new industrial space.

Most customers appear to be quite confident about their prospects for the balance of 2010, but less so about their outlook for 2011. As a result, real inventories in the US have recovered very little of their peak to trough decline of 7% experienced at the depths of the crisis, the all important inventory to sales ratio continues to be stuck around its all-time lows.

Customers are reluctant to commit the space any earlier than absolutely necessary and their real estate procurement strategy can be best described as just in time leasing designed to keep their space use perilously close to their bare minimum requirements.

The only way customers have been able to handle their recovering consumption is to switch to unconventional inventory management and transportation strategies. For example, in order to manage to leaner inventory levels, customers are now placing orders in smaller quantities. This is evidenced by an increased frequency of orders and deliveries which is neither efficient nor sustainable.

A second strategy has been the increased use of air cargo to replenish out-of-stock items. And as the ocean carriers are employing slow steaming to save on fuel costs more of our customers inventory is spending time on ships, delaying the need for warehouse space. Ironically, this too has led to increased use of the more expensive air freight product to meet service levels.

The bottom line of all of this is that less inventory is being carried in warehouses right now and more is in the transportation network which means that the rebuilding of inventories is lagging the recovering consumption. We view these substitute transportation strategies as stop-gap measures as they are added expense will eventually become cost prohibitive.

In our dialogue with customers, we have heard nothing about the secular change in inventory management strategies.

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