Prologis Inc (PLD) 2010 Q4 法說會逐字稿

Good afternoon.

My name is Regina and I will be your conference operator today.

At this time, I would like to welcome everyone to the AMB fourth quarter 2010 earnings conference call.

All lines have been place on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator instructions).

We ask that you please limit yourself to one question.

Thank you.

I would now like to turn the conference over to Miss Tracy Ward, Vice President of Investor Relations and Corporate Communications.

Miss Ward, you may begin your conference.

Thank you, Regina.

Good morning, everyone.

Thank you for joining us this morning.

Before we begin formal remarks, I'd like to remind you that this call is the property of AMB Property Corporation and is being recorded.

Earlier this week we announced a merger of equals between ProLogis and AMB Property Corporation.

Materials regarding the transaction are posted on both Companies' websites.

In addition the joint proxy statement will be filed soon and will contain additional information regarding the transaction.

This call will focus on our 2010 financial results as well as 2011 guidance.

Please be aware that statements made during this call that are not historical may be deemed forward-looking statements.

Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainty.

Please refer to our filings with the Securities and Exchange Commission including our 2009 10-K for a detailed discussion of these risks.

Acknowledging the fact that this call may be webcast for a period of time, we believe it's important to note that today's call includes time-sensitive information that may be accurate as of today's date, February 3, 2011.

The Company's supplemental information package was filed earlier today with SEC on form 8-K.

The filing is posted on AMB website in the Investor Relations section under Financial Information Supplemental Reports.

Also included in our supplemental information package are the reconciliations from GAAP financial measures to non-GAAP financial measures.

This morning, I'll turn the call over to Hamid Moghadam, Chairman and CEO, who will comment on our 2010 and 2011 priorities, the macroeconomic environment and customer sentiment.

And Tom Olinger, our Chief Financial Officer, who will review our financial and operating results and provide an update on 2011 guidance before we open the call to your questions.

Hamid, will you please begin?

Thanks, Tracy and good morning, everyone.

We normally also have Gene and Guy here for the Q&A session but they are not here today so it's just Tom and yours truly.

We finished our year by making excellent progress on our key priorities.

First, we improved the utilization of our assets by increasing occupancy in our core operating portfolio to 93.7%.

We leased a record 32 million square feet in 2010.

We also leased up our legacy developments to 78%.

The vacancy in this portfolio is mostly in [ten spaces] and they are primarily located in Europe and Japan.

In addition we had strong activity in our development starts in China and Brazil and we are leasing up those projects ahead of schedule.

Finally, we monetized $36 million of our land bank through the formation of new co-investment joint ventures, sales and build-to-suit projects.

Our second priority was to deploy capital profitably into a mix of acquisitions, fund investments and developments including $340 million in new acquisitions, $300 million of equity investments into our two open-end funds, $100 million of new development starts in Brazil, China and Mexico, and the purchase of an $86 million mezzanine debt position collateralized by Class A industrial portfolio.

Third, we raised over $780 million in private capital which was a record year for us.

Investors are moving from the sidelines and decision-making is loosening.

We continue to see the large global institutions in front of the curve.

In fact, 90% of the total raised during the year was from the outside the US and 70% of it was from new investors.

Importantly, investors are showing a preference for geographically-focused funds and specified portfolios.

When they are selecting a fund manager, key considerations continue to include a strong alignment of interest through co-investments, deep operating inspector expertise and strong track record across cycles.

We line up well with these requirements.

You may recall during our third quarter call we indicated that the fourth quarter would likely be an inflection point in market psychology, dependent on the outcome of the November elections and the strength of the holiday sales, both of which turned out positive from perspective of improved business confidence.

The economic recovery is gaining momentum as we expected.

Global trade and GDP are near or have surpassed their previous peaks.

Consumption accelerated from the third quarter growing at 4.4% annualized rate.

Real consumption now stands at a full percentage point above its prior peak.

Given this strong recovery, we expect the rate of growth to moderate in the coming quarters.

Real inventories were up nominally for the quarter in line with our expectations.

We believe inventories were drawn down too much by stronger than anticipated retail sales.

Real private inventories are about 5% below their previous peak, which coincidentally matches the increased vacancy rate in the US industrial market.

We expect a continued rebound in inventories in the coming quarters and expect overall GDP to grow by a little over 3.5% in 2011.

Let's turn now to the operating environment.

Positive net absorption in the US at 33 million square feet was more than 4 times greater than in the third quarter and the strongest we have seen in the last 12 quarters.

The recovery was more broad-based with around 75% of the markets in the US reflecting positive net absorption.

This was roughly a 25 point increase over the third quarter.

Effective rents, inclusive of concessions, increased in select submarkets in Southern California and south Florida and Brazil and China remain our strongest markets with high demand and strong rental growth.

Looking ahead at our top priorities for 2011, first we expect to further improve the utilization of our assets but will concentrate less on occupancy and more on pushing rents.

Second, we will continue to expand our private capital business.

After having a banner year in 2010 and with momentum on our side, we feel really good about our prospects with near term visibility in the coming months.

Investors will continue to be careful but they appear to be willing to take on more risk for potentially bigger rewards.

Deal flow should pick up and our third priority is to deploy capital globally as profitable opportunities emerge.

Remember, we have lots of ways to invest, including through acquisitions, developments, redevelopments and other investments and we can do all of this in 15 different countries and in 49 separate markets.

Today, we are seeing sellers come to the market and as such, we expect our transaction pipeline to grow in 2011.

With that, let me turn it over to Tom.

Thanks, Hamid.

I'll cover our results for the fourth quarter in 2010 and then review our 2011 guidance.

Let's start with the fourth quarter.

Core FFO as adjusted was $0.32 per share in line with our forecast.

At a high level, operations came in better than forecast but was offset by higher than expected acquisition costs.

Cash same-store NOI for the quarter was up 0.9%, driven by higher average occupancy.

This increase marks the first positive quarterly year-over-year same-store NOI growth since the fourth quarter 2008.We continued to make good leasing progress as we closed out the quarter at 93.7%, ahead of our forecast by about 50 basis points.

We commenced 7.7 million square feet of leasing in the operating portfolio, well ahead of our historic quarterly average.

Our US portfolio occupancy outperformed the national markets by 730 basis points at the end of the fourth quarter.

That's our highest spread ever and materially above our long-term average.

About 40 basis points of our occupancy gain at year-end was due to higher month-to-month leases.

Our average occupancy was 92.6%, up 90 basis points from the third quarter.

Average occupancy for the full year was 91.2%, slightly better than the midpoint of our guidance.

Rent changes on rollover decreased 11.9% on a trailing four quarter basis, or 11.6% for the fourth quarter.

We continued our strategy of keeping our rental rates short.

Our average lease duration on commencement this quarter was 3.8 years which was below our historic average.

Development leasing came in at 1.2 million square feet in the quarter, which included 680 square feet related to our static 2009 development pool.

As Hamid mentioned, we're down to relatively small number of spaces in this pool and have 1.9 million square feet remaining to stabilize the 90%.

When you get down to the last few spaces it's really a matter of finding the perfect match and operating fundamentals haven't taken shape in the submarkets of [Leon], [LaHave], [Lysvik] and Sendai, Japan where a majority of the remaining spaces reside.

We are managing the 2009 static development pool no differently than our operating portfolio therefore beginning with the first quarter we will report these assets that way.

Private capital revenue for the quarter was in line with our forecast.

G&A was higher on a run rate basis in the fourth quarter primarily due to costs related to new fund formation and taxes.

Acquisition expenses for the fourth quarter were higher than forecast by about $1.5 million principally driven by acquisitions in Europe.

Closing out 2010, core FFO as adjusted for the year came in at $1.22 per share in line with our previous guidance.

Capital deployment for the fourth quarter totaled $363 million and was $832 million for the whole year.

Let's move to capital markets activity.

As I mentioned last quarter, we took several steps to take advantage of historically low interest rates and further ladder maturities.

We executed on our plan by completing approximately $3 billion of financing transactions in the second half of the year.

As a result of this work our wholly-owned weighted average term increased to 5.2 years with a weighted average interest rate of 4.6% as of year-end.

2011 should be a pretty light year from a financing perspective as we have very little debt maturing.

Now let's move to guidance for 2011.

We are maintaining our full-year core FFO adjusted forecast of $1.30 to $1.40 per share.

As a reminder, Core FFO excludes any gain from development activity.

Additionally, this guidance excludes any impact from the proposed merger with ProLogis.

Our forecast assumes the economic recovery will continue into 2011 reaching the majority of our target markets by year end and that our US portfolio will continue to outperform the national markets.

Looking at operations, we continue to expect average occupancy to range between 92.5% and 94.5%.

As we mentioned during our last call, occupancy will drop temporarily in the first quarter as a result of the concentration and composition of the lease role.

We now forecast occupancy to drop 100 to 150 basis points in our current operating portfolio by the end of the first quarter.

However, our expectations for occupancy at the end of the first quarter have not changed.

We continue to see occupancy trend higher the rest of the year and reach 95% by the end of 2011.

We are confident about our ability to hit our year-end occupancy forecast, given we have less than 25 million square feet of expirations in 2011 and we leased 32 million square feet in 2010.

And while we expect effective net rent growth in selected markets in the back half of 2011, rent change on rollover will be negative during the year given leases rolling down from prior cyclical peaks.

Forecast same-store NOI.

We are continuing to forecast growth of 1% to 3% without the impact of FX.

We expect the embedded rent bumps in about 85% of our portfolio to offset the negative NOI impact of rent roll downs.

As a result, the majority of our occupancy gains should translate into same-store NOI growth in 2011.

On the capital deployment front, we are maintaining our full-year forecast of $1.1 billion to $1.5 billion, about one-third of which will be by the REIT.

This includes $500 million to $700 million in development starts, primarily outside of the US, and $600 million to $800 million of acquisitions, largely in Europe and the US.

For 2011, we expect operating property dispositions of about $100 million.

Our guidance does not contemplate the sale of any assets in conjunction with the formation of new private capital ventures.

For private capital in 2011, we continue to expect revenue of $38 million to $43 million, which includes deployment, reimbursements of between $7 million to $11 million and does not include any promotes.

Our net G&A forecast is unchanged at $125 million to $130 million.

This assumes we capitalize between $5 million and $7 million of development overhead.

It's important to note that FFO will not be evenly distributed between quarters in 2011.

We expect first quarter FFO to be pretty consistent with the fourth quarter of 2010 and billed by quarter thereafter in line with occupancy increases.

To wrap up, we achieved what we set out to accomplish in 2010 and we feel really good heading into 2011.

With that, let's turn to your questions.

(Operator instructions)Steven Frankel with Green Street Advisors.

What regions have you started to see the most pronounced activity?

Your competitor, ProLogis, reported numbers this morning where Europe was pretty good, but your numbers it was more flat but that does seem to be a region you guys are focusing on.

Are there recent acquisitions that you've done in Europe as well more in reference to what you were mentioning, Hamid, in the last call that you'd been able to buy short-term leases at better pricing?

Yes, actually, the actual transaction volume in Europe was more in the Europe fund and it's a combination of longer-term leases in this particular quarter.

But the general comment that I made to you is true, there are some good values out there in terms of shorter-term leases.

Although we worked on some, they didn't close in the quarter, but we continue to work on them.

Your next question comes from the line of Sri Nagarajan with FBR Capital Markets.

Just wanted to tease out the remark of the month-to-month leases and just following up on the short-term nature of the leasing activity that you're doing.

If I remember -- if I heard you right, Tom, you said that the occupancy was about -- increased by about 40 bips in the quarter because of month-to-month leases; is that right?

That is correct.

And going forward, though, I mean, again, do you -- what was the reason or the motivation behind that and going forward what do you expect to happen in 2011?

From a standpoint of month-to-month leasing?

Okay.

I think that was your question.

Yes, he's on mute probably.

Yes.

We historically run about between 2% and 3% of our portfolio is on month-to-month leasing.

There's always seasonality that typically happens in the fourth quarter where tenants need some short-term space for the holiday season.

We saw that in Q4.

It was pretty normal.

A little higher than what we have seen in 2010 because 2010 we were actually running a little lower than our normal 2% to 3% of short-term leases so it picked up to more normalized levels at the end of 2010.

We are going to see that normal seasonality where it drops in Q1 and I would suspect that we think that our short-term leases will normalize in 2011 and stay between that 2% and 3% level.

Chris Caton with Morgan Stanley.

Hi, Hamid, I wanted to pick up on the [mezz debt] investment you made.

Could you talk more about that?

Like how it originated and is this an income-oriented investment or is this -- are you taking a position in the portfolio that you may ultimately control?

It depends on what happens.

At minimum, it's an income-oriented investment and in certain circumstances it can be an equity type investment if certain things happen.

So -- but we are looking at it as a income-oriented investment initially.

The portfolio is referred to as CalWest.

We bought a mezzanine position.

It's called mezzanine B or M2 and it was in the mid-$80 million level and we bought it in a joint venture with a fund managed by Stockbridge out of San Francisco.

It had been a portfolio that we had worked on before and prior to the downturn, actually, we had looked at buying the portfolio back in -- I don't remember, '07, '08 time period so it was a portfolio that we knew very well and felt comfortable with.

So it's 100% industrial and very consistent with our strategy.

Your next question comes from the line of Suzanne Kim with Credit Suisse.

Hi.

I just want to understand your CIP.

When you -- I understand that from the accounting perspective that they are going to value your assets in the merger and I'm wondering if your CIP value is going to be mark-to-market as a result of this merger or how is that going to work?

Suzanne, you're right.

In purchase accounting, you would mark your assets and liabilities to fair value and in a purchase event.

If you're going to do, I think, our values are at or below fair value, I think that's right, meaning, I don't think there's any impairment in our portfolio at all today.

Michael Bilerman with Citi.

My question just going back to occupancy for a second and I think you've talked a little bit about trying to push rate now more so than pushing occupancy.

And I guess when I take it all together, if you had the higher month-to-month at the end of the year, call it about [1,600,000] square feet, you expect, I guess, some of that to come out in the 100 basis point to 150 basis point decline in the first quarter.

And Tom I think you mentioned, potentially getting up to 94.5%, 95% by the end of the year.

It would just seem that there would be a substantial amount of leasing that would need to be accomplished at the same time when you're trying to push rent.

And can the market really absorb that at the same time and just trying to see how you put everything together?

Michael, this is Hamid.

We think it can and frankly, I think this is less of a stretch than at the beginning of last year, I think when we were in high 80%, low 90%.

I think we were barely touching 90%, we laid out a plan to get to 93% and I remember throughout the quarterly calls we had a lot of discussion around is that realistic or not.

And we were fortunate to get to almost 94%, exceeding our expectations at the end of the year.

I think notwithstanding the drop, we think, which was totally anticipated.

We actually were very careful to lay that out given the volume of short-term leases and month-to-month.

Given where we are starting in '11, which is lower than where we ended in 2010, I'm still pretty confident that we will get to 95% including the strategy of pushing for rents in selected markets and tolerating a higher vacancy factor.

Now, this whole switch between occupancy and vacancy is not a toggle.

It depends market by market.

But the sense I was trying to give you is that our bias is turning more towards getting on offense with respect to rents and frankly, given the depressed level of rents, that's not such a hard thing to do.

Your next question comes from the line of Ki Bin Kim with Macquarie.

My questions regard around your fund investments.

For the quarter it looks like you guys invested in your open-end funds another $100 million.

Couple quick questions.

One, are you still getting those attractive double-digit yields on per invested dollar and second, how much capacity is left in 2011 and are those numbers in your guidance?

Ki Bin, this is Tom.

Our investment that we made was in October so what you saw come through Q4's results the $100 million between the two funds, we announced that as part of our Q3 call.

In our guidance, we don't have any anticipated acquisitions of additional interests in our funds in our guidance but we certainly could make that if we thought it was the right investment.

From a return standpoint, we have seen the appraisals and the stabilized cap rates in the funds continue to decline, I believe the stabilized cap rate in our US fund at the end of this quarter was 7.4%.

So they are coming down but we still believe there's an appraisal lag that's happening and the returns right now at that level, I would not call them double digit.

I call them very high single digit.

Those would be cash returns, obviously -- cash and cash returns.

Jamie Feldman with Bank of America.

Thank you.

I was hoping you could talk a little bit more about third-party equity raises.

Sounds like you had a good quarter.

Can you talk about characterizing exactly the type of investors that are teed up.

Also, how big is your pipeline behind the funds -- the capital you raised in the quarter?

And then what returns are these investors looking for?

Sure.

I would say we are raising money in two basic categories.

One is to fund our platforms in the emerging economies or in places where we don't have active platforms in place.

Examples of that last year were primarily Brazil and then secondarily, our (inaudible) fund in Mexico.

We obviously have a need in China to do the same thing, so we are working on something there, and eventually, depending on a couple of other things, we may work on something in Canada, but that would be way down the road.

So that's one category.

Then the second category is in terms of our existing vehicles that are open end funds, those are available for investment and we have really good dialogue with investors.

Those are terrific opportunities because they are fully specified.

We have a big investment in them so they're 30% or more and you can see what you're getting and you can see that the prices are really good compared to market prices in auctions that we are seeing today.

So I think we will continue to have pretty good luck on those investments going forward.

So that would be the two different categories.

In terms of return expectations, I think it's pretty consistent with what I've talked to you about before.

I think cap rates in the US for really good assets are in the low to mid 6%.

They are very -- I would say if you take all the numbers that we said around the world to make it simple, in September of last year at our Investor conference and you take the lower end of those ranges, that's about where we are now.

So we usually specify the 25 basis point, 50 basis point range for each region.

I would say now we are at the low number of that range with respect to cap rates and with respect to overall return expectations, I think those cap rates in the US translate into, call it 8% unleveraged type IRRs and with leverage they get into 10% or 11% of leveraged IRRs which is very acceptable to the investors in a world of whatever we are, 3.5% treasuries and the like.

So those are historically very widespread and attractive returns.

Sloan Bohlen with Goldman Sachs.

Hamid, just first question on the rent comment you had made.

One, I just want to try and get an idea of what amount of variability there could be in your mark-to-market rents, if you decide to push them going forward.

I know you guys have talked about the down double digit and then second, I wondered if you guys could give an update on the VAC activity and whether any of those alternative use land parcels are gathering interest?

Let me start with that.

I think some of the land that's zoned and approved for residential and apartments is getting to the point where we are going to start looking at some opportunities there.

We have the entitlements, a lot of these parcels are in place and maybe they were originally thought of as condo land and now they are apartment land, but those are beginning to get some bites.

I hope we will see something this year on some of those parcels.

Although we haven't planned on any in any of our guidance, I'm hoping we will see some.

And with respect to rent mark-to-market, my -- first of all that's a very difficult question to answer right now because I think the market is at an inflection point and depending on the week you ask people, they may feel very differently about what rents they would assign to different spaces.

But my sense is that maybe our mark-to-market is an overleasing of about 10% today if I were going to pick a number, that would be the number.

Ross Nussbaum with UBS.

Hi, guys, good afternoon here with Rob Salisbury.

Looking at your leasing statistics for the past couple of quarters and it looks like the second generation TIs and LCs have been running right around $2 a foot.

And now that you're getting together with ProLogis I was comparing it to what ProLogis has been doing and for 2010 their TIs and LCs were running at $1.14 a foot.

So let's call it, in rough terms, almost 50%.

Why do you think there's such a big discrepancy between your re-leasing costs and theirs?

Well, I'll start on that.

Our space -- I think our average spaces are a lot smaller than theirs.

So you remember, they are more of a bulk player and we have more infield properties, and I think one other way you can look at that is re-leasing costs compared to the rents achieved and those ratios should be in line.

I haven't done the math but if -- you obviously have the numbers in front of you.

If you do that, you may get into a closer difference.

John Guinee with Stifel.

Thank you.

Hamid, are you tired?

I'm raring to go.

Okay.

Typically what happens when these markets are recovering is you go from decreasing concessions first and then an ability to increase rents.

Do you perceive that working in the markets that you're discussing being able to push rents, i.e., it's really a two-step process, one is concessions down first and then, two, rental rates up second?

Yes, that's exactly how it works, John.

It -- and in fact, concessions down part has already taken place in some markets and in some of those leading markets like parts of LA and Miami, we are actually getting to the point that in addition to that we are beginning to see some nominal rental increases.

So I think I would say most markets are at the stage of concessions going away, but a few of the leading markets are in the stage of the face rents getting stronger too.

Michael Mueller with JPMorgan.

It was actually answered.

Thank you.

Great.

Suzanne Kim with Credit Suisse.

Hi, just wanted to follow up on the CIP question.

Which direction do you think it's going to go?

Do you think that you'll take a hit on the CIP or do you think you can maintain the book value, the current book value via CIP?

No, I do not think our values in purchase accounting would be reflected lower than what we have so no hit.

I'm not an accountant but we've had pretty positive margins on development completions as we have reported throughout the year.

So that tells you that with the level of impairment of land and actual costs that we have incurred, even in the depths of the downturn that we were properly impaired so I think what Tom is saying is accurate.

Plus with the moving the cap rates as well is going to drive the value higher.

Mitch Germain with JMP Securities.

Just curious in terms of your acquisition pipeline, the mix between core acquisitions and value-add acquisitions.

It depends on the day you look at it.

But I would say there are more value-added acquisitions out there.

I think the core acquisitions get very, very competitive.

There are only a few that we really find attractive with respect to replacement costs and the like.

So there are more of those out there but they are tougher deals for us to do.

We are -- the waters have more fish in them and in the value-added space than they do in the core space.

Maybe I shouldn't say they have more fish in them.

They are actually fewer fish but more attractive fish for us in those waters.

Fewer fishermen.

Yes, that's a good way.

Michael Bilerman with Citi.

Just a question in terms of activity.

Hamid, you've been extraordinarily active on the private capital side this year relative to ProLogis was really more in a maintenance mode on their fundraising, you've been extraordinarily active around the world in raising new capital and investing new capital.

You've also been pretty been active on entering new markets and setting up the development side and also, in the acquisition side.

And I'm just curious the merger agreement when you go through it has certain limits to how much you complete in a quarter and how much you can do?How much of that the deal is going to limit AMB on a stand-alone basis right now from executing on a lot of the strategic things that you've been doing over the last little while for your stockholders and so just a question on how you can accomplish both at the same time?

Michael, that's going awfully close to doing something I promised I wouldn't do which is to talk about this deal.

Let me answer the question in a general way.

Anytime you enter into anything with anyone, there are limits that you put in place so that you know where the rules are, where the boundaries are, but that doesn't mean you can't talk to people about things that you may want to do beyond that.

So really that's -- you should think about it in those terms.

We don't anticipate limiting our activities in any way but obviously we would discuss it with people if we wanted to proceed.

Steven Frankel with Green Street Advisors.

I have a couple of follow-ups regarding the private capital business.

Last year, you guys mentioned forming a European fund during 2010.

Doesn't look like that's crossed the finish line.

Can you provide us with a status update on that?

Second of all, it looks like one of the Brazilian developments has now been contributed into the fund.

Can you provide some updates on what the contribution margin is on that fund or that specific project and how that mechanism will work going forward as you form a China fund and presumably also contribute existing developments into that fund?

Good questions.

First of all, our European process is on track.

It's just taking longer.

Some of these things take longer than you would expect.

Of course, nothing is closed until it's closed.

But with that caveat in mind, we are on track and although delayed.

With respect to the Brazil contributions, we are just starting to close on some of the land parcels that we've had on the contract that we've been working on.

We are beginning to tilt-up some buildings and our deal with our private capital investor was that we would contribute those at cost.

And remember, it's not an old-style development contribution fund.

It's a build-to-core fund so our goal with our investor is to do development with them from ground up, it's a 50/50 deal, they come in at their cost, we develop together.

We will either decide to build up some of the portfolio for an eventual exit or recapitalization into a more permanent vehicle or we sell the assets on a third-party market and maybe we will do a combination of both.

So really there is no margin because it was designed not to have a margin.

China, we would take the same approach so don't expect to see any margins there.

But that's not a commentary on value creation opportunities or anything like that because I think there will be plenty of that around.

John Guinee with Stifel.

Yes, back again.

I was just looking at a couple of your assets in the development portfolio.

It looks like Hamid, 2011 expected completions, 558,000 square feet, $66 million.

About $110 or $120 a foot and also pre-stabilized developments also coming in around $120 a foot.

Where are you building -- where and what are you building for $120 a foot?

Yes, Brazil is actually pretty expensive.

So Brazil is a very expensive market to build in.

I mean, everything, land is more expensive, buildings are more expensive.

But so those numbers are not really crazy once you consider that a pretty significant portion of our development program this year is going to be in Brazil.

I mean, those numbers just to put it in context, are like $60 a foot type numbers in the US.

Jamie Feldman with Bank of America.

Reading through fourth quarter broker reports and hearing commentary on conference calls this quarter suggests that the warehouse cycle improving is pretty widespread across markets.

What are you guys seeing in terms of your portfolio at this stage of the cycle whether it's airport-centric or port-centric or general distribution markets that are (inaudible)?

Jamie, the airport business and the port business fell off the cliff because basically the global supply chain stopped in '08 and unlike any other time in my career and probably ever, so you saw a big rebound of that.

So it was a huge [V] and as we have described in our commentary, we are almost back to where we were, certainly we are back to where we were on a lot of the international markets but even in the US, we are now within 5% of the peak type of numbers and some of the airports are actually above peak given their reliance on air cargo.

So I would say those markets are coming back pretty nicely from cardiac arrest and it will take a while before that translates into occupancy and rent growth and all that, but we have been talking about what you've just referred to for some time now.

I think the -- we've been fortunate that our forecasts have actually been viewed as optimistic but pretty much right on actually as the year evolves.

Your next question comes from the line of Ki Bin Kim with Macquarie.

Just a quick follow-up.

I know you don't want to comment on the merger so I'll try to keep it general.

I know your strategy going forward is supposed to develop within the fund as opposed to your peer which wanted -- or which guided towards developing on the balance sheet which is a very different perspective on where you want to keep the developments.

Where do you see AMB going forward doing it?

Sure.

Our strategy actually is not to only develop within funds.

It's a combination and it's directionally towards developing more in funds.

So in some of the emerging markets, for example, where there is not a very liquid exit market and the industrial class is pretty new, China, Brazil and all that, the bigger opportunity as I described earlier is to create a platform, a portfolio and you may be able to get some an entity exit or premium or some scale, some market position that you can sell or recapitalize maybe worth more than just selling individual assets.

In the US, we haven't really sat down and outlined our development program for you because we haven't had much of a development program in the last two years, but our strategy would be to possibly hold a lot of our US developments that are in core markets that are right up our alley and sell off as a way of funding them some of our less strategic types of assets.

So I think what is -- what we are not doing and this is important, is the contribution model.

We actually went to our investors and asked them whether they wanted us to do the contribution business in the old way and the answer was they didn't, actually in the US so we stopped doing that way back in 2008.

Interestingly, we got a different answer in Europe.

The investors in Europe wanted the contribution model so we asked them and they said we want to keep it so we kept it.

So basically we are doing, with the exception of Europe where we are continuing to do contributions, it's basically development to holds in the emerging markets and it's developments on balance sheets funded by the sale of non-strategic assets in the US and Canada and places like that, and Mexico is a [force], obviously.

Steve Benyik with Jefferies.

I was hoping you guys could provide a little bit more color on the static development portfolio and 1.9 million square feet you guys have to lease up there just maybe talk about the markets a little bit, what's so challenging from a market dynamic perspective, the average rent per square foot and then finally how much embedded lease-off you guys have in a 2011 guidance from that portfolio?

Okay, Steve This is Tom.

To go back about 60% of the portfolio of the static portfolio of the 1.9 million would be in [Leon], [LaHave], [Lysvik] in the Netherlands and Sendai in Japan and they are all good buildings but those markets are not quite where a Paris would be, for example, not quite where Tokyo is yet, so it's just taking us a little longer.

We do expect those properties to lease up and stabilize in 2011.

I don't have offhand what those specific assets would be from an NOI perspective but I don't suspect it would necessarily be more than say $0.02, $0.03 in any one way if they didn't lease up as projected, wouldn't even be that much.

Great.

Well, thank you for your questions.

As I said at the beginning of the call, I'm really pleased with our results for the fourth quarter and actually the year and I just want to leave you with three points.

We have made great progress on our priorities and finished the year on a strong note.

We do really expect that pretty broad recovery in 2011 and I'm really excited about what I see on the horizon for the Company.

It really is a beginning of a new era for AMB and I think we've positioned ourselves really well, probably better than any time in our 27-year history.

So with that, we look forward to talking to you next quarter.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you all for participating and you may now disconnect.