What is Prologis's outlook on the industrial real estate market?

Prologis believes the national industrial markets are continuing to improve, with positive trends in demand and a reversal of prior quarters of rising space availability. The company notes particular strength in large industrial property markets tied to global trade. Investor demand for industrial property has remained strong, supported by robust sales volumes and declining acquisition capitalization rates.

How is Prologis managing rental rates in its portfolio?

While overall rental rates on renewals and rollovers decreased by 0.9% in Q2 2006, this is a marked improvement from prior periods. The company attributes the decline largely to specific leases in the San Francisco Bay Area renewing at rates reflective of prior peak periods. Excluding this area, rental rates on renewals and rollovers increased by 1.9%, indicating healthier market conditions in other regions. Prologis strategically signs shorter-term leases during periods of stabilizing or decreasing rates to prepare for future growth periods.

What is Prologis's strategy for growth?

Prologis's growth strategy is multifaceted, focusing on organic growth through rent increases and high occupancy, expansion through development and redevelopment of well-located properties, strategic acquisitions and capital redeployment, global expansion into key distribution markets, and leveraging its co-investment program with private capital partners. The company emphasizes development in international markets like Mexico, Japan, and China due to the demand for modern industrial facilities.

How is Prologis financing its operations and growth?

Prologis plans to fund its working capital, acquisitions, and development activities through a combination of retained earnings and cash flow from operations, private capital from co-investment partners, proceeds from property contributions to joint ventures, borrowings under its unsecured credit facilities, other debt and equity financing, and proceeds from property divestitures. The company maintains a target debt-to-market capitalization ratio of approximately 45% or less and aims to preserve an investment-grade rating.

PLD/PLDGP 10-Q Quarterly Report Q2 FY2006

Summary

Prologis, Inc. (PLD) reported its second-quarter 2006 results, demonstrating continued improvement in the national industrial real estate market. The company experienced increased occupancy rates and a stabilization, and even slight increase in some areas, of rental rates on lease renewals and rollovers after a period of decline. This positive trend is particularly notable in key industrial property markets tied to global trade. The company is actively expanding its global footprint, with significant investments in development projects across North America and Asia, aiming to increase its international portfolio to approximately 15% of its operating base by the end of 2007. Prologis also highlighted its robust acquisition and development activity, deploying substantial capital into acquiring buildings and land for future development. The company's co-investment program with private capital investors remains a key component of its growth strategy, providing both capital for new investments and generating fees. Management expresses confidence in its liquidity and ability to fund operations, acquisitions, and dividends through a combination of operating cash flow, credit facilities, and access to capital markets, despite the REIT requirement to distribute 90% of taxable income.

Key Highlights

1Occupancy rate for the industrial operating portfolio reached 95.4% as of June 30, 2006, up from 94.7% at the end of the previous quarter.
2Rental rates on industrial renewals and rollovers saw a slight decrease of 0.9% during Q2 2006, a significant improvement from the 11.5% decline in the prior quarter and 14.6% in Q2 2005, with positive increases excluding the San Francisco Bay Area.
3The company's development pipeline has grown substantially, reaching approximately $1.1 billion in committed projects as of June 30, 2006.
4Prologis is actively pursuing global expansion, with international operating properties representing 5.6% of consolidated annualized base rent, projected to reach 15% by year-end 2007.
5Significant capital deployment during Q2 2006 included the acquisition of 27 buildings (2.5 million sq ft) for $246.8 million and commitment to four new development projects totaling 2.0 million sq ft.
6The company successfully renewed and increased its senior unsecured revolving line of credit to $550.0 million.
7Development profits, net of taxes, significantly increased to $45.7 million for the quarter, compared to $2.0 million in the prior year, driven by higher disposition and contribution volumes.

Prologis, Inc. Quarterly Report for Q2 Ended Jun 30, 2006

Summary

Key Highlights

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