ProLogis, Inc. (PLD)

PLD 
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ProLogis (PLD)

Q1 2011 Earnings Call

April 20, 2011 10:00 am ET

Executives

Michael Curless -

Melissa Marsden - Senior Vice President of Investor Relations & Corporate Communications, Managing Director of Investor Relations & Corporate Communications and Member of Disclosure Committee

Walter Rakowich - Co- Chief Executive Officer, Trustee and Chairman of Executive Committee

William Sullivan - Chief Financial Officer and Member of Executive Committee

Analysts

Jamie Feldman - UBS

Steven Frankel - Canaccord Adams

Sloan Bohlen - Goldman Sachs Group Inc.

Ki Kim - Macquarie Research

John Guinee - Stifel, Nicolaus & Co., Inc.

David Rodgers - RBC Capital Markets, LLC

Steve Sakwa - ISI Group Inc.

Chris Canton

Ross Nussbaum - UBS Investment Bank

Michael Bilerman - Citigroup Inc

Michael Mueller - JP Morgan Chase & Co

Brendan Maiorana - Wells Fargo Securities, LLC

David Harris - Gleacher & Company, Inc.

Presentation

Operator

Good morning. My name is Amanda, and I will be your conference facilitator today. I would like to welcome everyone to the ProLogis First Quarter 2011 Earnings Call. [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. Please go ahead, ma'am.

Melissa Marsden

Thank you, Amanda. Good morning, everyone, and welcome to our First Quarter 2011 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 Gary Anderson, Global Head of Operations and Fund Management; and Mike Curless, Managing Director of Global Investments.

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 first 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.

Our prepared remarks today will be shorter than typical, and we intend to leave about the same amount of time for Q&A. But unfortunately, we do need to end today's call a few minutes before the hour. And as we've done in the past to give a broader range of investors and analysts the opportunity to ask their questions, we're going to ask you to please limit your question to one at a time.

Before I turn the call over to Walt, I'd like to add that this will mark my 50th and pending [indiscernible] to my final conference call with ProLogis. On behalf of Robin and Realty, the entire Investor Relations team of ProLogis, we'd like to say it's been a pleasure working with you over the year and we appreciate your support. Walt?

Walter Rakowich

Thanks, Melissa, and good morning, everyone. It's been an eventful quarter with a global events and merger related activities. So let me comment first on our markets and then Bill will comment further on the earnings and pending merger with AMB.

Overall, the steady recovery and industrial real estate continues. And while issues such as sovereign debt concerns, rising energy costs, military actions and the devastating earthquake in Japan, contributed to some deferrals of customer leasing and development decisions, we remain encouraged by the continued firming of market fundamentals that we're seeing.

In general, the key supply demand indicators we've been talking about for the past few quarters are still at play. Globally, we're not seeing a meaningful increase in speculative development and don't expect to see much for the foreseeable future.

In the top North American markets, we track completions with just 2.1 million square feet in the first quarter. Gross absorption in our North American markets was over 21 million square feet, compared to 17 million square feet in the fourth quarter of 2010, marking the fourth consecutive quarter of positive absorption.

And we are seeing the same trends in our international markets as well. In addition, utilization within our facilities remains high. And so we believe these indicators support the case for longer-term occupancy gains and rental rate growth as economic recovery progresses.

As for our operating portfolio, our overall lease percentage was down 30 basis points from Q4 and quarterly leasing activity was lower relative to our Q1 leasing last year. However, let me just add a little bit of color to the numbers.

First, almost every year, our occupancies fall a bit in Q1 due to the seasonal nature of the business. Second, our pool of properties is much smaller than last year, due to the sale of direct owned and fund assets in Q4.

In addition, fund explorations were at a much lower level of this year than last due to early renewals. And so these factors account for an overall lower level of leasing activity on year-over-year basis for Q1.

Lastly, we picked up an astonishing 108 basis points in the fourth quarter of 2010, which is an unusually large increase in any one quarter. I think it's important, perhaps more important, to focus on the overall leasing trend over Q3, which is still up 78 basis points.

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