ProLogis reported funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $0.21 per diluted share for the third quarter of 2009, compared with $0.59 per diluted share in the third quarter of 2008. Significant non-cash items of $0.07 per diluted share for the third quarter of 2009 included impairment of real estate properties and other assets, which were partially offset by gains from early extinguishment of debt. FFO, including significant non-cash items, was $0.14 per diluted share for the third quarter of 2009; there were no significant non-cash items reported in the same period in 2008. Also embedded in the $0.21 per diluted share of FFO, excluding significant non-cash items, was approximately $0.03 per diluted share of non-recurring charges associated with write-offs of certain corporate assets and costs associated with the company's workforce reduction.

The company reported a net loss of $0.03 per diluted share for the third quarter of 2009, compared with net earnings of $0.12 per diluted share in the third quarter of 2008.

FFO, excluding significant non-cash items, was $1.06 per diluted share for the nine months ended September 30, 2009, compared with $2.95 per diluted share in 2008. FFO, including significant non-cash items, was $1.16 per diluted share for the same period in 2009; there were no significant non-cash items reported in the nine months ended September 30, 2008. Net earnings per diluted share for the nine months ended September 30, 2009 were $1.06 per diluted share, compared with $1.57 per diluted share in the same period of 2008.

Early Signs of Stabilization in Property Market Fundamentals

"During the third quarter, we began to see signs that demonstrate industrial property market fundamentals are firming up," said Walter C. Rakowich, chief executive officer. "While there continues to be pressure on market rental rates, overall market occupancies seem to be stabilizing, with an increase in customer activity. Some supply chain reconfiguration plans that were postponed are coming off the shelf, and there is growing customer interest in new build-to-suit development in global markets where there is a lack of appropriate supply.

"Throughout ProLogis' portfolio, occupancies increased for the first time in two years," Rakowich added. ProLogis' non-development portfolio was 92.7 percent leased at the end of the third quarter, an increase of 20 basis points over 92.5 percent leased at June 30. In addition, the company's static development portfolio (in place at December 31, 2008) was 61.7 percent leased at the end of the third quarter, up from 54.1 percent at June 30, 2009 and 41.4 percent at December 31, 2008.

"While one quarter does not signal a trend, we are feeling cautiously optimistic that market occupancies have stabilized and are pleased to have already reached the lower end of our goal to be 60 to 70 percent leased in our static development portfolio by year end. As global economies continue to show signs of improvement, we believe a corresponding increase in demand, combined with virtually non-existent new supply, should support stronger market occupancies in 2010," Rakowich said.

ProLogis' same-store net operating income as adjusted (excluding same-store assets associated with the company's development portfolio) decreased 4.3 percent, primarily reflecting year-over-year occupancy declines, offset by reduced rental expenses in the same-store pool. Continued pressure on market rents led to negative rent growth of 14.7 percent for the quarter on turnover of 20.2 million square feet, or 5.2 percent, of the adjusted same-store pool.

Beginning to Reduce Land Position Through Pre-leased Development and Sales

"One of our primary goals is to reduce risk by decreasing the amount of non-income producing assets on our balance sheet," said Ted R. Antenucci, chief investment officer. "Through land sales and pre-leased developments, we have begun to monetize nearly $120 million of land year to date. The developments started in the third quarter include two in Japan for Kirin Logistics and Senko and two in Europe for LG/Hi-Logistics and a major UK retailer. These projects demonstrate our new approach to development, whereby we generate returns from our land bank, and when possible, invest our development capital alongside that of our partners and customers. Going forward, we plan to focus more on these types of build-to-suit transactions and fee development management opportunities, such as the previously announced project we are doing for The Royal Mail in the UK."

Also during the third quarter, ProLogis completed gross asset sales and property fund contributions of $241.0 million. "Earlier in the year, we outlined our expectation for a total of $1.5 - $1.7 billion of contributions and asset sales, excluding the sale of our China operations and our property fund interests in Japan," Antenucci said. "With $1.2 billion of sales and contributions completed year to date, we are comfortable with meeting this target."

De-leveraging Plan Essentially Complete

"The third quarter also was notable for the completion of the remaining major elements associated with our de-leveraging plan," said William E. Sullivan, chief financial officer. "We successfully issued $350 million of senior notes, amended and extended our global line of credit to August 2012 and completed a bondholder consent solicitation that simplifies and improves transparency related to our bond covenants. We also took advantage of the REIT rally to issue equity through our at the market equity issuance program at average pricing of $11.15 per share, generating net proceeds of $325 million on approximately 29.8 million shares sold. These actions provide us with further flexibility and the liquidity to withstand pressure from today's challenging market conditions, while positioning us to consider opportunities that may emerge as global economies recover."

Through a combination of asset sales and fund contributions, common equity issuances and repurchases of debt at a discount, the company has reduced its direct debt by over $3.0 billion since December 31, 2008, while funding nearly $600 million of costs associated with its development portfolio.