ProLogis, Inc. (PLD)

PLD 
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ProLogis (PLD)

Q4 2010 Earnings Call

February 3, 2011 9:00 am ET

Executives

Melissa Marsden - Managing Director, Investor Relations and Corporate Communications

Walter C. Rakowich - Chief Executive Officer

William E. Sullivan - Chief Financial Officer

Analysts

Srikanth Nagarajan - FBR Capital Markets & Co.

Chris Caton -Morgan Stanley

Sloan Boldman - Goldman Sachs

Ki Bin Kim -Macquarie

Michael Bilerman -Citi Bank

Jamie Feldman - Bank of America

Ross Nussbaum - UBS

Brendan Maiorana - Wells Fargo Securities

John Guinee -Stifel Nicolaus

Steven Frankel - Green Street Advisors

Michael Mueller - JPMorgan

Steve Sakwa - ISI Group

Steve Benyik - Jefferies

John Vojticek -RREEF

Vincent Chao -Deutsche Bank

Presentation

Operator

Good morning. My name is Bat [ph] and I will be your conference facilitator today. I would like to welcome everyone to the ProLogis Fourth Quarter Year End 2010 Earnings Call. 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. Go ahead, ma’am.

Melissa Marsden

Thank you Bat [ph]. Good morning everyone and welcome to our fourth quarter year-end 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 Mike Curless, Managing Director of Global Investments.

As you know earlier this week we announced a merger of equals between ProLogis and AMB. A separate press release will issued and the investor presentation related conference call transfer regarding the proposed transaction were posted to both companies websites. I’d refer you to those documents and the upcoming proxy statements for more specifics about of the offering, as the focus of this call is to report fourth quarter year-end results and discuss standalone guidance for 2011.

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 fourth 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.

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

Walt, would you please begin?

Walter C. Rakowich

Thanks, Melissa, and good morning everyone. As Melissa mentioned, we did announce earlier this week that we are merging with AMB and in all fairness to Hamid and his team, Bill and I will not be commenting on that merger today.

When I look back at the goals we established at the outset of 2010, many of them seemed pretty lofty given market conditions at that time. However, I'm extremely pleased to say that by the end of the year, we were in line with or had exceeded the majority of these goals.

We exceeded the high end of our target of $1.5 billion of asset sales and contributions by close to $250 million. We raised just over $1 billion of equity, we paid off or refinanced more than $3 billion of debt, we reached 80% leased in our static completed development portfolio and we announced more than $650 million of new development globally.

As recently as a month or so ago, we thought our goal to exceed 90.75% leased in our total industrial operating portfolio by year-end was looking like a stretch too, but we saw a nice surge of activity in December bringing us to just under 91% leased, up 179 basis points from the end of 2009.

Looking at the fourth quarter, this acceleration of activity towards year-end led to significant improvement in operating fundamentals. Leasing activity increased by more than 25% over the third quarter to 34 million square feet, bringing our full-year total to over 119 million square feet, just under our peak year of 121 million square feet in 2008. The leased percentage in our total industrial portfolio increased by more than 100 basis points during the fourth quarter alone, driven in part by strong leasing in our funds and 500 basis point jump in our completed development leasing.

Rental rates on turnovers declined 10.5%, as we continue to roll over leases put in place at the peak of the market three to four years ago. However, customer retention was very strong with both our direct and our fund portfolios at over 87%.

Overall, we are feeling pretty good about what we are seeing in our markets. During Q4, customer confidence improved, especially among larger multinational companies. Also Q4 marked the third consecutive quarter of positive gross absorption in top North American logistics markets reaching 17 million square feet.

Gross absorption for the year was 40 million square feet, which was above our internal estimate. The activity we are seeing in the U.S. is also more broad-based less spotted than in previous quarters. In the fourth quarter, we signed build-to-suits with Walgreens, Bay Valley Foods, and Bed Bath & Beyond.

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