DCT Industrial Trust Inc (DCT)

DCT 
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DCT Industrial Trust Inc. (DCT)

Q3 2009 Earning Call

October 30, 2009 11:00 AM ET

Executives

Sara Knapp - Corporate Communications and Investor Relations

Philip L. Hawkins - Chief Executive Officer

Stuart B. Brown - Chief Financial Officer

Daryl H. Mechem - Managing Director, West Region

Michael J. Ruen - Managing Director, East Region

Paul Adornato - BMO Capital Markets

Matthew T. Murphy - Treasurer and Senior Vice President of Finance

Analysts

Jamie Feldman - Bank of America-Merrill Lynch

Brendan Maiorana - Wells Fargo Securities, Llc

Cedrik LaChance - Green Street Advisors

Presentation

Operator

Hello and welcome to the DCT Industrial Third Quarter 2009 Earnings Conference Call. All participants will be listen-only mode for this event. (Operator Instructions). After today's presentation there will be an opportunity for you to ask question. (Operator Instructions). Please note that today's event is being recorded.

At this time I would like to turn the conference over to Ms. Knapp. Please go ahead.

Sara Knapp

Thank you, Jamie. Hello everyone. Thank you for joining DCT Industrial's third quarter 2009 conference call.

Before I turn the call over to Phil Hawkins, our CEO, I would like to mention that managements' remark on today call may include statements that are non-historical facts and are considered forward-looking within the meaning of applicable securities laws, including statements regarding projection, plans or future expectations. These forward-looking statements reflect current views and expectations, which are based on currently available information and management assumptions.

We assume no obligation to update these forward-looking statement and we can give no assurance that the expectations will be attained. Actual results may differ materially from those subscribed in the forward-looking statements and will be effected by a variety of risks, including those set forth in our earnings release and in our Form 10-K files with the SEC as updated by our quarterly reports on Form 10-Q.

Additionally on this conference call we have refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures are available on our supplemental package which can be found in the Investor Relations section of our website at dctindustrial.com. And now I'll turn the call over to Phil.

Philip L. Hawkins

Thanks, Sara and welcome everyone. Good morning. I will provide some general comments on the third quarter results, markets and the company and then Stuart Brown will provide more detail on the quarter as well as outline our 2010 guidance and related assumptions. Also participating and available to answer any questions directed their way are Daryl Mechem, Mike Ruen and Matt Murphy.

We had another decent quarter where operating results were consistent with our expectations and guidance. I look forward to the day when the operating environment will produce some positive unexpected surprises but for now I will take the lack of any big negatives.

We were very pleased with leasing results in the quarter. Leasing activity totaled 2.9 million square feet, up from last quarter's 1.9 million square feet. And our retention rate was 88.2% reflecting the completion of several large and important renewals, which we were happy to have gotten over the goal line.

Occupancy in the operating portfolio increased from 87.4% last quarter to 88.3% this quarter. Tenant credit has been among our biggest challenges in 2009. Our defaults and bankruptcies from earlier in the year continue to impact results, the pace of new tenant issues appear to be slowing quite significantly. Companies that have survived this long in these brutal economic conditions are more likely to make it longer term, given that the economy is starting to show signs of stabilization and eventual recovery.

I can tell you that the feedback we're hearing from our customers regarding their businesses has markedly improved over nine or 12 months ago. In terms of operating fundamentals we are encouraged by early signs of stabilization. Yesterday's report that GDP grew 3.5% was welcome news and while there is a debate about what normalized GDP growth will be in the absence of government stimulus, at least the economy is no longer in free fall.

Consumer and business sentiment is decidedly more positive today. Leasing proposal and lease documentation activity is up and tenants are more capable of making longer term decision about their businesses. The decline in effective rents also appears to be slowing. However, make no mistake about how competitive the leasing markets remain. At such a quick and brutal downturn a slowdown of the descent feels better. But market occupancies will likely continue to fall somewhat although at a slower rate than in the past. And for the next six months or so that will happen. I think market rents will also remain low for sometime and may even decline a bit further from here.

I am happy that stabilization appears to be underway, but I also reflect back on prior downturns where the recovery seems to take longer and proceed at slower pace than the optimists that first might hope. I believe that is likely to be the case this time and that is how we are planning our business. While the recovery could be slower and longer than some may hope, the long term prospects are very encouraging.

Rents are at least 30% below those needed to justify new construction. At the same time our industry's ability to develop new supply has been severely impaired given the weakened balance sheet of many merchant builders drastically reduced development organizations and lower risk charts of both lenders and equity sources. The lessons of this downturn will not be quickly forgotten which leads me to believe that new supply will be slow in coming online, which is very positive long-term for owners of existing distribution assets.

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