ProLogis Reports First Quarter Results

DENVER, April 20, 2011 /PRNewswire/ -- ProLogis (NYSE: PLD), the leading global provider of distribution facilities, today reported funds from operations excluding gains as defined by ProLogis (core FFO) of $0.13 per diluted share for the first quarter of 2011, compared with core FFO of $0.11 per diluted share for the same period in 2010. Core FFO for the 2011 period excluded approximately $12.9 million, or $0.02 per diluted share, of charges related to merger integration, workforce reduction associated with the sale of Catellus and expected clean-up and repair costs related to the Japan earthquake and tsunami. In the first quarter of 2010, core FFO excluded net gains of $9.5 million, or $0.02 per share, and charges of $54.7 million, or $0.12 per diluted share, related to losses on early extinguishment of debt and the company's share of fund-related derivative losses. ProLogis reported a net loss of $0.08 per diluted share for the first quarter of 2011, compared with a net loss of $0.19 for the same period in 2010.

First quarter financial results were in line with the company's expectations, reflecting: the full quarter effect of the company's October 2010 equity offering; lower operating income due to property dispositions completed in the fourth quarter of 2010 and the first quarter of 2011; and lower management and development fees. These impacts were somewhat offset by lower interest expense related to significantly reduced debt levels in the current period.

Pace of Market Recovery Steady

"Globally, the gradual recovery in industrial real estate continues, with new supply in the major logistics markets still constrained and demand remaining stable," said Walter C. Rakowich, chief executive officer. "However, macroeconomic issues contributed to a slower pace of improvement in the first quarter as the market assessed the impact of continued concerns about sovereign debt issues, rising energy costs, global military actions and the devastation and loss caused by the earthquake and tsunami in Japan. While customers remain optimistic about the overall global recovery, we sensed a slightly slower pace with respect to certain leasing decisions."

The company's total industrial operating portfolio was 90.7 percent leased, down 30 basis points from the fourth quarter of 2010, principally as a result of expected lower levels of leasing velocity typical of the first calendar quarter. However, the total operating portfolio leased percentage was 147 basis points higher than in the first quarter of 2010. Same-store net operating income for the first quarter increased 1.0 percent, while rental rates on turnovers in the same-store portfolio declined 9.2 percent, an improvement over both the fourth quarter of 2010 and the year-ago period.

"Throughout our European markets, conditions continue to improve, with Germany, France and Central Europe all benefiting from the global recovery. Italy, Spain and the Benelux region remain a bit softer, while the UK is still reacting to recently implemented austerity measures," Rakowich noted. "In North America, market conditions are pointed in the right direction, with a modest increase in overall national occupancy levels in the first quarter. In Japan, the real estate market was showing some strength prior to the recent catastrophic events, and subsequently we have seen greater momentum as a result of the quality and location of our facilities."

Events in Japan

"Our colleagues in Japan worked tirelessly following the recent earthquake and tsunami, first to ensure the safety of our employees and customers and then to minimize the impact of these events on our customers' operations," said Rakowich. "Because of the superior earthquake protection engineered into our buildings and the extraordinary commitment of our people, the majority of ProLogis customers were operational within 24 to 48 hours."

Clean-up efforts continue at ProLogis Parc Iwanuma I in Sendai, the area hit hardest by the tsunami. The building suffered minimal structural damage but is in need of substantial clean up and repair due to the flooding. Total costs for clean up and repairs in our Japan portfolio is expected to be approximately $7 million, which was accrued for during the quarter.

Development-Related Activity

The company started development on four facilities in Europe during the quarter representing 1.2 million square feet, including a 457,500-square-foot facility for BMW in the United Kingdom and a 240,600-square-foot facility for a third-party logistics provider in the Czech Republic. Since quarter end, an additional build-to-suit was signed with a third-party logistics provider for a major auto manufacturer in Germany. "Inquiries in Japan have risen dramatically as companies look to rebuild their distribution networks. Discussions are underway with a number of ProLogis' global customers on how we can help them with both their short- and long-term distribution needs," said Michael S. Curless, managing director of global investments.

Development starts were $99 million for the quarter, which along with dispositions monetized a total of $31 million of land. "The number of requests for build-to-suit proposals and increasing opportunities for development in stronger target markets supports our expectation of $800 million to $1 billion of starts this year with related land monetization of $200 to $250 million. We believe that a number of third-party development decisions were slowed down in the first quarter principally due to the uncertainty caused by world events; however, the underlying requirements for high-quality distribution space have not changed. We expect to see development ramp up as the year progresses, which will contribute to our target to monetize approximately $200 million of land through third-party land sales," concluded Curless.

The company completed the sale of a majority of the Catellus retail and mixed-use assets during the quarter, generating net proceeds of $357 million. Combined with additional third-party and fund sales, total gross disposition proceeds were $409 million, representing approximately 60 percent of the mid-point of the company's 2011 full-year range of $650 to $750 million.

Anticipated Results

"We remain comfortable with our guidance for 2011 core FFO per share of $0.62 to $0.66 per share on a standalone basis," said William E. Sullivan, chief financial officer. "As we progress through the year, we expect the quarterly core FFO run rate to increase gradually reflecting occupancy gains, the impact of development completions and lower interest and G&A expenses."

Webcast and Conference Call Information

The company will host a webcast/conference call to discuss quarterly results, current market conditions and future outlook on Wednesday, April 20, 2011, at 10:00 a.m. Eastern Time. Interested parties are encouraged to access the live webcast by clicking the microphone icon located near the top of the opening page at http://ir.prologis.com. Interested parties also can participate via conference call by dialing (866) 305-2304 domestically or (660) 422-4873 internationally.

Replay Information

A replay of the conference call will be posted after 1:00 p.m. Eastern Time on Wednesday, April 20, 2011. The replay will be available until midnight Eastern Time on Thursday, May 5, 2011, and can be accessed by dialing (800) 642-1687 domestically or (706) 645-9291 internationally and entering passcode 53819903. A transcript of the call and the webcast replay, including a podcast format, will be posted when available in the "Financial Information" section of the ProLogis Investor Relations website.

About ProLogis

ProLogis is the leading global provider of distribution facilities, with more than 435 million square feet of industrial space owned and managed (40 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 3,800 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. For additional information about the company, go to www.prologis.com.

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The statements above that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which ProLogis operates, management's beliefs and assumptions made by management, they involve uncertainties that could significantly impact ProLogis' financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future – including statements relating to rent and occupancy growth, development activity and changes in sales or contribution volume of developed properties, general conditions in the geographic areas where we operate and the availability of capital in existing or new property funds – are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, (v) maintenance of real estate investment trust ("REIT") status, (vi) availability of financing and capital, (vii) changes in demand for developed properties, and (viii) those additional factors discussed in reports filed with the Securities and Exchange Commission by ProLogis under the heading "Risk Factors." ProLogis undertakes no duty to update any forward-looking statements appearing in this press release.

Notes to Section II – Financial Statements

(1)  As of March 31, 2011, we have eight land parcels and six operating properties that met the criteria as held for sale. We also have certain other non-core assets, which are part of a definitive agreement signed in December 2010 and expected to close in the second quarter of 2011, that met the criteria as held for sale.  The amounts included in Assets Held for Sale as of March 31, 2011 include real estate investment balances and the related assets and liabilities for each property.

During the three months ended March 31, 2011, we disposed of 33 non-development properties aggregating 2.2 million square feet to third parties, including 30 properties aggregating 1.2 million square feet that were included in Assets Held for Sale at December 31, 2010. During all of 2010, we disposed of land subject to ground leases and 205 properties aggregating 25.4 million square feet to third parties, 2 of which were development properties.

The operations of the properties held for sale and properties that are disposed of to third parties during a period including the aggregate net gains recognized upon their disposition, are presented as discontinued operations in our Consolidated Statements of Operations for all periods presented. The income attributable to these properties was as follows:

For purposes of our Consolidated Statements of FFO, we do not segregate discontinued operations.  In addition, we include the gains from disposition of land parcels and development properties in the calculation of FFO, including those classified as discontinued operations.

(2) In our Consolidated Statements of Operations, Rental Income includes the following (in thousands):

(3) Our General and Administrative Expenses ("G&A") included in our Statements of Operations consisted of the following (in thousands):

(4) During the first quarter of 2011, we incurred expenses in connection with the expected merger with AMB Property Corporation and a reduction in workforce associated with certain recent or expected dispositions.

(5) The following table presents the components of Interest Expense as reflected in our Consolidated Statements of Operations (in thousands):

(6) Included in this amount is a $6.9 million charge related primarily to one of our buildings in Japan that was damaged from the earthquake and related tsunami in March 2011.

(7) During the three months ended March 31, 2010, in connection with our announced initiatives to stagger and extend our debt maturities and reduce debt, we repurchased certain senior and convertible senior notes outstanding with maturities in 2012 and 2013 (we did not repurchase any debt in 2011). We utilized proceeds from borrowings under the Global Line to repurchase the senior notes. In addition, in 2010 we repaid certain secured mortgage debt in connection with the sale of a property in Japan. The activity is summarized as follows (in thousands):

SOURCE ProLogis