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Q3 2010 Earnings Conference Call
October 26, 2010 8:30 AM ET
Walt Rakowich – CEO
Bill Sullivan – CFO
Gary Anderson – Head, Global Operations and Investment Management
Ted Antenucci – President and Chief Investment Officer
Ross Nussbaum – UBS
Steve Sakwa – ISI Group
Sloan Bohlen – Goldman Sachs
Ki Bin Kim – Macquarie
Chris Caton – Morgan Stanley
Brendan Maiorana – Wells Fargo
Sri Nagarajan – FBR Capital Markets
John Guinee – Stifel
Steven Frankel – Green Street Advisors
Michael Bilerman – Citi
George Auerbach – ISI group
Previous Statements by PLD
» ProLogis Q2 2010 Earnings Call Transcript
» ProLogis Q1 2010 Earnings Call Transcript
» ProLogis Q4 2009 Earnings Call Transcript
» ProLogis Q3 2009 Earnings Call Transcript
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.
Good morning everyone and welcome to our third quarter 2010 conference call. By now you should all have received an email with a link to our supplemental, but if not, it is available on our website at www.prologis.com under investor relations.
This morning we’ll 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 Gary Anderson, Head of Global Operations and Investment Management.
Yesterday afternoon, we announced our intention to offer, subject to market and other conditions, 80 million of our common shares. A separate press release was issued and a preliminary prospectus was filed providing details about the proposed transaction. The proposed offering is being made only by means of the preliminary prospectus supplement and related prospectus. I would refer you to the press release and the preliminary prospectus supplement for more specifics about the offering. Because this offering is pending, we are unable to say more about it on this call.
Before we begin our prepared remarks, I would like to 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 statement notice in our SEC filings. I’d also like to add that our third quarter results press release and supplemental do contain financial measures such as FFO and EBITDA, that are non-GAAP measures; and in accordance with Reg G, we have provided reconciliation to those measures.
As we’ve done in the past, to give a broader range of investors and analysts the opportunities to ask their questions, we will ask you to please limit your questions to one at a time.
Walt, would you please begin?
Thanks, Melissa and good morning everyone. We’ve got a lot to talk about this morning, so let me get right to it.
It’s clear to us now that market conditions are improving. In Q2, we reported that net absorption had turned positive by 11 million square feet in U.S. markets. In Europe, the same positive trend occurred. In Q3, we again saw positive net absorption of 7 million square feet in the U.S. The figures aren’t in yet for Europe, but we expect the results to be on the plus side as well. It had been obvious for some time that sales growth has been outpacing inventory growth, as you would expect in the beginning of a recovery. We’re now beginning to see this trend reverse itself.
There are few important data points in our third quarter operating results that point to fundamental improvement. First, same-store NOI was a positive 0.27% and overall occupancies rose again by 24 basis points, mainly driven by occupancy increases in our direct-owned portfolio.
Our static development leasing was up by 217 basis points, slower than previous quarters, but about what we expected due to the summer months in Europe where decisions are slow to materialize. Since the end of the quarter, overall activity has picked up. And given quarter-to-date agreements and leasing activity, we still expect our static development portfolio to be about 80% leased by year end.
In addition, rental rates are becoming more encouraging. They’ve certainly flattened out in most markets. And now, in a few markets, they’re beginning to rise. For the last four quarters, our rental rate growth has been down 13.9% on average. This quarter it’s down 8.5%.
Finally, as we’ve previously mentioned, we’re seeing some markets where new space is almost completely absorbed. This is an incredibly positive sign for the markets and for our development business.
Now let me just spend a few minutes on our overall portfolio strategy. In our view, nobody in the industry owns a more geographically diverse portfolio of high-quality industrial assets than ProLogis. That’s one of the benefits of having developed hundreds of millions of square feet of new product in global markets over the last 15 years. However, we intend to pursue opportunities to optimize our portfolio and sharpen our investment focus. Our aim is to invest our capital in the highest quality assets in major logistics corridors.