ProLogis, Inc. (PLD)

PLD 
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Prologis (PLD)

Q4 2011 Earnings Call

February 08, 2012 12:00 pm ET

Executives

Tracy Ward -

Hamid R. Moghadam - Co-Chief Executive Officer, Chairman of The Board and Member of Executive Committee

William E. Sullivan - Chief Financial Officer

Michael S. Curless - Chief Investment Officer and Chairman of Investment Committee

Walter C. Rakowich - Co- Chief Executive Officer, Director and Chairman of Executive Committee

Eugene F. Reilly - Chief Executive Officer of the Americas

Thomas S. Olinger - Chief Integration Officer

Guy F. Jaquier - Chief Executive Officer of Private Capital

Analysts

Jeffrey Spector - BofA Merrill Lynch, Research Division

James C. Feldman - BofA Merrill Lynch, Research Division

Paul Morgan - Morgan Stanley, Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Ki Bin Kim - Macquarie Research

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Brendan Maiorana - Wells Fargo Securities, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division

John Stewart - Green Street Advisors, Inc., Research Division

David Rodgers - RBC Capital Markets, LLC, Research Division

George D. Auerbach - ISI Group Inc., Research Division

Presentation

Operator

Good morning. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Prologis Fourth Quarter Earnings Conference Call. [Operator Instructions] Tracy Ward, Senior Vice President of Investor Relations and Corporate Communications, you may begin your conference.

Tracy Ward

Thank you, Jessica. Good morning, everyone. Welcome to our fourth quarter 2011 conference call. The supplemental document is available on our website at prologis.com under Investor Relations. This morning, we'll hear from Hamid Moghadam, Co-CEO and Chairman, to comment on our company strategies and market environment; and then from Bill Sullivan, the CFO, who will cover results and guidance. Additionally, we are joined by Walt Rakowich, Gary Anderson, Mike Curless, Guy Jaquier, Tom Olinger and Gene Reilly.

Before we begin the prepared remarks, I'd like to quickly 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 forward-looking statement notice in our 10-K or on SEC filings.

I'd also like to state that our fourth quarter results press release and supplemental, do contain financial measures, such as FFO, EBITDA that are non-GAAP measures. And in accordance with Reg G, we have provided a reconciliation to those measures. [Operator Instructions] Hamid, will you please begin?

Hamid R. Moghadam

Good morning, everyone, and welcome to our earnings call. As you know, 2011 was a year of transformation for our company. It's rare in business that 2 leading companies from the same sector are able to combine so seamlessly. Walt and I are very pleased to report that the integration has exceeded our expectations. You may recall, at the outset of the merger, we established 4 key priorities to guide our path over the next 2 years. These priorities were: First, to align our portfolio with our investment strategy; second, to strengthen our financial position; third, to streamline our Private Capital business; and fourth, to improve the utilization of our low-yielding assets. We've made excellent progress on these 4 objectives. And I'd now like to take a few moments to review their essential highlights.

Of the 4 priorities, probably the most central to our plan is our decision to refine the combined portfolio and to align it with our investment strategy because in many ways, the other priorities flow from this one. The merger expanded our portfolio. And as you'd expect, not all of those assets were a perfect fit for the new Prologis. We performed a comprehensive review of our markets and our properties and constructed a $2.9 billion third-party disposition plan to cull the portfolio over the next 2 years. Execution of this plan is well underway.

During the second half of the year, our share of third-party dispositions of buildings and land generated more than $530 million in total proceeds. Our sale properties were located predominantly in markets we've categorized as regional or other, and had an average age of about 25 years. The disposition momentum has carried into 2012 as we've continued to see solid demand and capital available for high-quality industrial real estate acquisitions around the globe. In fact, we've closed more than 425 million of dispositions year-to-date, of which our share is $385 million. This includes the sale of a 3.5 million square foot portfolio in the U.K. that closed just this morning. This brings our share of third-party sale proceeds from the second half of the year to $915 million.

Our second priority is to further strengthen our financial position. Our sales proceeds enhance our stated objective to build one of the strongest balance sheets in the industry and to lower our overall financial risk and currency exposure. This means our assets outside the U.S. will be held in Private Capital ventures. New developments in these regions, particularly in emerging markets, will be done in conjunction with our Private Capital partners. Here, we are on track as well. During the second half of the year, our share of the contributions and sales to our core investment vehicles totaled more than $800 million. Combined with our share of third-party dispositions, we have generated more than $1.7 billion of capital for the company.

Turning to our third priority. We've made great progress in rationalizing our Private Capital business. Subsequent to year end, we purchased our partner’s interest in NA2 and brought the portfolio onto our balance sheet. We are engaged in similar discussions with our institutional partners regarding a couple of other funds, and we expect to report on our progress soon. We're also growing our Private Capital business with the formation of new funds and raising capital for our existing vehicles. Our top focus is on establishing new core investment vehicles in Japan. We began our marketing efforts for core and development ventures in November, and are confident of a midyear close. We're very encouraged by the high level of engagement of institutional investors. And the number of potential partners in various stages of due diligence has increased fourfold over last year. In short, the Private Capital team is firing on all cylinders and we believe we can meet or even exceed last year's record fundraising level of $1.8 billion.

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