DCT Industrial Trust Inc (DCT)

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DCT Industrial Trust Inc. (DCT)

Q3 2008 Earnings Call Transcript

November 5, 2008, 12:00 pm ET

Executives

Sarah Knapp – Corporate Communications

Phil Hawkins – CEO

Jim Cochran – President and Chief Investment Officer

Stuart Brown – CFO

Analysts

Paul Adornato – BMO Capital Markets

Michael Mueller – J.P. Morgan

Mitch Germain – Banc of America

Cedrik LaChance – Green Street Advisors

Chris Pike – Merrill Lynch

Chris Haley – Wachovia

Presentation

Operator

Hello and welcome to the DCT Industrial 2008 third quarter earnings conference call. All participants would be in listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation.

(Operator instructions)

Now, I would like to turn the conference over to Sarah Knapp. Ms. Knapp, the floor is yours ma’am.

Sarah Knapp

Thank you. Hello everyone and thank you for joining DCT Industrial Trust third quarter 2008 conference call. Before I turn the call over to Phil Hawkins, our CEO, I would like to mention that management's remarks on today's call may include statements that are not historical facts and are considered forward-looking within the meaning of applicable securities laws, including statements regarding projections, plans or future expectations. These forward-looking statements reflect current views and expectations which are based on currently available information and management's assumptions. We assume no obligation to update these forward-looking statements and we can give no assurance that the expectations will be attained.

Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks including those set forth in our earnings release and in our Form 10-K filed with the SEC as updated by our quarterly reports on Form 10-Q. Additionally, on this conference call we may refer to certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures are available in our supplemental package which can be found in the industrial relations section of our website at www.dctindustrial.com.

Now, I'll turn the call over to Phil.

Phil Hawkins

Thanks Sarah and welcome everybody. Joining me in presenting on this call will be Jay Cochran, our Chief Investment Officer; and Stuart Brown, our Chief Financial Officer. Also in the room to answer your questions are Daryl Mechem, Head of Operations; and Matt Murphy, Head of Capital Markets.

To begin, the lack of (inaudible) understatement have certainly been interesting and hopefully something we will not have to go through again. No one could have anticipated the magnitude of changes or the stress to our financial system, the economy, or the commercial real estate markets. We have been through significant market downturns before and have not forgotten the lessons learned from those experiences.

I do believe we prepared the company well to weather the storm as well as to capitalize on the opportunities arising from it, but we would have undoubtedly done some things differently if we’ve been publicly clairvoyant a year ago. I do believe our tactics have been directionally correct.

We entered 2008 with a plan to maintain balance sheet capacity and liquidity knowing that the operating environment was likely to soften. We put the brakes on capital deployment, executed a number of dispositions at attractive cap rates especially in hindsight and put in place a new term loan which increased our liquidity at attractive rates.

From an operating perspective, we took a defensive strategy at the beginning of the year, aggressive leasing and emphasis on early renewals and a bias towards occupancy over rate. I believe the results of this approach are reflected in our third quarter operating results.

In the third quarter, we leased 3.5 million square feet of which 1.4 million square feet related to the early renewal of 2009 and 2010 expirations. Tenure attention remained very healthy at 78.6%. Occupancy of our consolidated portfolio increased slightly to 91.9% from 91.8% last quarter. Rent growth was 2.8% cash and 8.9% GAAP. All in all my view these are respectable metrics given the environment and serve as a testament to the strength of our operations team.

In terms of the leasing market going forward, we expect continued softening given the ongoing chaos in our financial system. However, leasing has not ground to a halt at this point despite the recent turmoil. We signed 750,000 square feet of leases in October which is on pace with the first two quarters of the year although behind the third quarter record number. About two-thirds of this activity was renewals and one-third new tenants.

Our pipeline of leases out for signature remained at about the same level as prior quarters although we do expect that deals in the pipeline will take longer and experience a higher casualty rate than it was normal perhaps 6 or 12 months ago. But, the point is the activity were perhaps slowing a bit has not dropped to zero. We see concessions increased in almost every market which isn’t surprising. Our operating strategy remains the same; an aggressive focus on renewals and a strong bias towards occupancy over rate in attracting in-tenants with an emphasis on credit.

Stuart will comment on guidance in some detail but I want to make a few comments as well. We are projecting FFO of $0.50 to $0.58 per share for 2009 compared to our current guidance for 2008 of $0.60 to $0.62. But believe me, we would rather be projecting increased FFO in 2009. We’ve attempted to be realistic about the current environment. Other than co-investments with our joint ventures, we have assumed no on balance sheet capital deployment in 2009.

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