Prologis Inc (PLD) 2011 Q1 法說會逐字稿

Good afternoon.

My name is Takeshia, and I will be your conference operator.

At this time, I would like to welcome everyone to the AMB Property Corporation first quarter earnings conference call.

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

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

(Operator Instructions).

Thank you.

I will now turn the call over to Ms.

Tracy Ward.

Ma'am, you may begin your conference.

Thank you.

Good morning, everyone, and thank you for joining us this morning.

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

Earlier this year, we announced a merger of equals between ProLogis and AMB.

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

In addition, the joint proxy statement has been filed and contains information about the transaction.

This call will focus on our first quarter 2011 financial results.

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 2010 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 only as of today's date, April 20, 2011.

The Company's supplemental information package was filed earlier today with the 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 reconciliations from GAAP financial measures to non-GAAP financial measures.

This morning I will turn the call over to Hamid Moghadam, Chairman and CEO, who will comment on the macroeconomic and customer sentiment, and Tom Olinger, our Chief Financial Officer will review our financial and operating results and provide an update on 2011 guidance before we open the call to your questions.

Gene Reilly, President Americas and Guy Jaquier, President Europe and Asia and Private Capital are also in attendance today.

Hamid, will you please begin?

Thanks, Tracy.

Good morning, and welcome to our first quarter earnings call.

As you will see, our financial and operating results were in line with our expectations and point to the good progress we're making on our business priorities.

Before we get started, I would like to spend a few moments on the events that took place in Japan last month.

We feel very fortunate and thankful that none of our employees or customers were injured during the earthquake and tsunami.

Our teams on the ground went above and beyond helping our customers restore their businesses, and they continue to do so.

We are pleased to report that today, all AMB buildings in Japan are online and that none of our buildings experienced any downtime with the exception of our one facility in Sendai, which was down for just under four weeks.

Now, as we review the progress we've made on our key priorities, I'd like to put them in the context of the long-term strategy we articulated at our investor forum in September.

You may recall our position then was that the market conditions and operating fundamentals would continue to improve in that our global platforms were ready to create value.

We had the resources, both talent and capital in place, and we had several irons in the fire regarding new co-investment ventures around the globe.

In effect, we were prepared to go on offense while conditions have improved and we are definitely on offense.

Following a banner year in 2010, we will raise more than $1.1 billion in private capital in the first quarter of 2011, making it a record quarter for us.

In fact, it was an AMB record for any 12-month period.

Private capital continues to be an important driver of our business and with the third party equity we raised this quarter, we have $3.2 billion of deployment capacity in our funds, which will allow us to invest in opportunities around the world.

Co-investment ventures provide us with the ability to recapitalize our existing platform and to increase our balance sheet capacity, and we forged strong strategic relationships in the process.

With new private capital vehicles established in Mexico, Brazil, Europe and China, we'll now turn our fund-raising focus to Japan where we see significantly improved development opportunities going forward.

Looking at capital deployment in the first quarter, we put more than $320 million to work.

We broke ground on developments in Beijing, Hamburg Sao Paolo and Osaka markets, in which customer demand exceeds existing supply.

In addition to creating value, these starts allow to us monetize our land bank and to recover development G&A.

After the quarter end, we acquired our partners' share of our SGP venture.

This brings our capital deployment to date to more than $0.5 billion, putting us in a position to meet our annual deployment guidance.

Now, turning to leasing activity in our portfolio, you may recall that we expected this to be a heavy quarter of leasing volume.

The teams across the globe did an excellent job and leased a record 8.9 million square feet in the operating portfolio.

This amount of leasing is the highest level for a first quarter and the second highest level for any quarter in our 27-year history.

We ended the quarter at 92.8% occupied.

This represents a 90-basis point drop from year end occupancy, but our results were materially better from the 100 to 150-basis point decline we had forecasted.

Development leasing, on the other hand, was disappointing at less than 0.5 million square feet, but Japan leasing has turned around for us and we expect to stabilize our legacy development portfolio this month.

Since the earthquake, we have signed new leases for 100% of our Sendai project.

We think that Japan may offer some of the biggest development opportunities over the next few years.

While we are disappointed with the level of development leasing this quarter, it's important to note that the remaining 1.2 million square feet represents less than 1% of our entire portfolio.

Despite some headwinds, the recovering global trade is on track, which is leading to an increase in demand for logistics space.

Global trade volumes are already above peak, and current IMF forecasts for 2011 indicate additional growth in global trade at more than 7%.

In terms of consumption, retailers are posting good results and container volumes are also above peak.

This trend is similar throughout the Americas and Asia, with Brazil and China well above their previous peaks and some markets in Europe continuing to lag.

Real inventories have recovered halfway from the trough and are still building.

With the economy and consumption above peak levels and growing, we expect inventory growth to contribute to meaningful demand for industrial real estate over the course of the year.

Now, let's look at customer sentiment which is improving in the US, flat in Europe and bullish across Asia.

Anecdotally, some of our customers are indicating that they are increasing their safety stock in response to the disruption in Japan, as well as the economic recovery in the US.

Specifically, we see an increase in inquiries in leasing velocity in Osaka and Tokyo, as there's been a flight to Class A quality distribution space as companies are rethinking their business continuity plans.

Osaka is expected to benefit from companies electing to have ancillary facilities in the region, as opposed to a single large facility in Tokyo.

Now, I would like to provide an overview of the operating environment.

Net absorption in the US was positive for the third consecutive quarter at 30 million square feet, above the historic average for a first quarter, which is typically the slowest quarter of the year.

The recovery was broad based, with about two-thirds of the national markets showing improvement over the quarter.

Notably, AMB hub and gateway markets accounted for more than 90 -- more than 70% of net absorption in the US.

Net effective rents have stabilized in nearly all markets and have been improving in some markets.

In fact, we're seeing evidence of this in South Florida, Southern California, and Germany.

Brazil and China remain our strongest markets, with high demand and strong rent growth.

In summary, I'm pleased with the significant progress we've made in the first quarter.

The team has maintained a sharp focus on our priorities.

We're excited about the capital deployment opportunities for our Company and as always, we'll be patient and disciplined in our execution.

Tom?

Thanks, Hamid.

I'll start with our results for the first quarter.

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

This excludes the recognition of development gains of $1.1 million, as well as merger costs of $3.7 million.

Leasing volume was very strong with 8.9 million square feet leased during the quarter.

Occupancy in our US portfolio significantly outperformed the national markets by 660 basis points, materially above our long-term average.

Our average occupancy was 92.4%, down 20 basis points from the fourth quarter.

Rent changes on roll-overs decreased 12.1% in the first quarter and 12.6% for the trailing four quarters.

Cash same-store NOI for the quarter was 0.2% as compared to the first quarter of 2010.

The increase was driven by a 200-basis point improvement in average same-store occupancy, offset by rent roll-downs and higher operating expenses related to a few one-time items.

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

As Hamid mentioned, we had a great quarter of capital raising.

G&A came in slightly lower than expected due to higher capitalized overhead costs resulting from the timing of development activity.

We capitalized $3.7 million of overhead in the first quarter.

I want to point out that our core FFO for the quarter excludes the $2.7 million of uninsured losses associated with the earthquake and tsunami in Japan.

The majority of the losses related to our facility in Sendai.

The loss is reflected as a component of depreciation expense, effectively reducing the basis of the properties for the damage incurred.

This is consistent with how we've historically treated uninsured losses.

To give you some perspective, this loss represents less than 0.5 percent of the gross asset value of our Japan platform.

Turning now to capital deployment, we deployed $323 million during the first quarter which included $300 million of new development starts and $23 million in acquisitions, comprised of two properties at a stabilized cap rate of 6.2%.

Subsequent to quarter end, we acquired our partner's 50% interest in the AMB SGP joint venture.

This portfolio comprises 8.2 million square feet of US industrial real estate, valued at $430 million.

And also subsequent to quarter end, we entered into a five-year extension of our AMB SGP Mexico venture.

Year to date, we have recycled over $250 million in capital in dispositions and contributions including $78 million of dispositions in the first quarter and $168 million of net assets that we contributed to our China venture subsequent to quarter end.

Let's move to our balance sheet.

It was a quiet quarter for financing as we had minimal debt maturities.

While we're getting significant interest from our banks, we're putting the extension of our $500 million global line of credit on hold, given the pending merger with ProLogis.

We continue to maintain strong liquidity and ended the quarter with $1.4 billion, consisting of $1.2 billion of availability on our lines and more than $200 million in cash.

Now let's turn to our guidance for 2011.

We're maintaining our full year core FFO as adjusted, forecast of $1.30 to $1.40 per share.

As a reminder, this guidance excludes the recognition of gains for development activities and excludes any impact from our costs associated with the proposed ProLogis merger.

Our forecast assumes that global economic recovery will continue through 2011, led by our target markets.

We expect our US portfolio to continue to outperform the national markets.

Starting with operations, we are narrowing our average occupancy range to between 93% and 94%.

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

We feel good about our ability to hit our year end occupancy forecast of 95%, given the leasing volumes we've achieved in the first quarter.

While we expect effective rent growth in select markets in 2011, rent change on rollovers will be negative during the year given leases rolling down from prior cycle peaks.

For cash same-store NOI, we are forecasting growth of 1% to 3%, without the impact of FX.

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

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

Now, let's turn to our capital deployment guidance.

We're maintaining our full year forecast of $1.1 billion to $1.5 billion, about a third of which will be in our balance sheet.

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

With the acquisition of our partner's interest in the SGP venture, we are on pace to reach this forecast.

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

Of course ,this is one measure that could move up significantly post merger.

We are also forecasting contributions of $250 million to $350 million to our various funds, which includes $168 million of China contributions I mentioned earlier.

We are not including any potential gains from these contributions in our core FFO guidance.

For private capital in 2011, we expect revenue of $36 million to $41 million, which includes deployment reimbursements of $5 million to $9 million and does not include any promotes.

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

We expect to capitalize $7 million to $9 million of development overhead.

It's important to note that quarterly FFO will not be evenly distributed for the remainder of 2011.

We continue to expect FFO to build by quarter, consistent with occupancy and capital deployment increases.

Now, briefly touching on the merger with ProLogis.

You may have heard Walt and Bill's update on their call earlier today.

The merger is proceeding as planned, and we are very busy with integration activities, and we plan to be ready to hit the ground running on day one of the new company.

We continue to expect to achieve the $80 million of gross G&A synergies on an annual run rate basis by the end of 2012 and are very excited about the combined prospects going forward.

To wrap up, we had a strong quarter, feel very good heading into the remainder of 2011.

We expect to continue to see improved asset utilization, scaling of our overhead as value creation and activities ramp up, and we will put capital to work to take advantage of deployment opportunities as they arrive.

With that, we'll open it up for questions.

(Operator Instructions).

Our first question comes from the line of Jamie Feldman.

Thank you, good afternoon.

Hamid, I was just hoping you could talk a little bit about conversations you're having with tenants about the higher costs of oil and how you think this plays through on the logistics infrastructure and people's decision-making.

I think you need a long-term level for oil prices to stay above 100 for that to really affect long-term planning of networks and all that, Jamie.

These guys look at optimizing their networks and their ideal locations all the time.

And once those input variables change the ideal configuration changes, but again, it requires some period of time to pass.

But if oil stays at a very high level, you would expect probably a larger number of warehouses and closer to major population centers.

In other words, people will sacrifice inventory levels and labor cost savings as a trade-off against lower transportation and energy costs.

And I think if that were to happen, which it's too soon for it to be happening now, it would benefit certainly the infield portion of our portfolio.

Okay, and then can you talk a little bit about your view on leverage of the combined businesses once the deal closes, where you're comfortable?

Well, I think you have heard me say that I would like this Company to have one of the best three balance sheets in the business and internally, we've talked about it being A eligible.

We've had some discussion whether we actually want to be an A-rated company or whether we want to be a solid BBB-plus.

But we've always described it as being A eligible.

Now, that will take some period of time and as opportunities arise in the short-term, we may actually go up in leverage and then go down in leverage.

But really the long-term path leverage is well down from here.

And I think that was one of the important take-aways of what we have all learned in the last couple years.

I guess what are your thoughts on getting there?

In terms of actions, obviously the strategy of the Company is to be disposing of some real estate in non-core markets, further contributions through fund formation in places where we have a lot of balance sheet capacity deployed today.

Obviously, Japan comes to mind because the two companies will have a significant presence in those markets, and that capital will be used for two purposes.

One, to build out the land bank, which is currently nonproductive and secondly, to lower leverage.

And actually, based on analysis we've done and models we have for our future, we actually delever very nicely, very quickly and maybe even a little bit too much.

So, let me leave it at that.

Tom, do you have any additional comments?

I would say on the coverage front too, the two things you'll see happening is the synergies that the merger would imply definitely boosting coverage, as well as asset utilization.

And as rent growth kicks in and development pipelines lease up, as they are significant contributors to improved coverage as well.

Your next question comes from the line of Steven Frankel with Green Street Advisors.

Thank you.

Guys, I have a couple of questions regarding the fund business.

And Hamid, I must compliment you first for having such a clean record of corporate governance at REIT and fund levels over time.

And it's really become impressive how strong your brand is in the private equity world right now.

I guess my first question is what are your thoughts on ProLogis' fund business, and how do you plan to reshape it?

Do you plan to be as accommodating to [Pepper's] limited partners as you've been with GIC for the recent SGP joint ventures?

Steve, first of all, thank you for your observations.

Secondly, my observation about the ProLogis private capital business is that it's very significant in the scale, and they have had a lot of success over time.

And the wisdom of having the public company managed by another public company and all that are things that with the benefit of some experience people may have different views about.

But I would say that those guys generally have done a good job on corporate governance.

This is a tough situation that they find themselves in.

It's probably best if I don't comment directly on that, because we're not really in the driver's seat.

We've tried to play a constructive role in the dialogue, but I think Walt and company have done a pretty good job to date, particularly in the last month or so being responsive to the questions that have arisen.

And surprising to say that I think AMB's commitment to good corporate governance is not going to change going forward in the new format.

But I do think the ProLogis guys share that view as well.

So, I don't think it's one side imposing its view on another.

I think we're both committed to that.

With respect to your contrasting SGP and Pepper, I'm not sure I would draw that comparison.

SGP was really an opportunity for our investor to harvest their investment after a 10-year period, which was the original term of the partnership.

And instead of selling it on the open market, we had to negotiate a transaction because we could.

They were well represented, they're sophisticated real estate investors, and we were representing the shareholders and we came at a good solution which -- of which you now see resulting in a closing post quarter.

Pepper's got different elements in that there's certainly an element of governance that was at least the beginning of the conversations and the dialogue and all that were governance-related.

But I think the involvement of other companies in the business have changed the character of that unfortunately a bit.

So, let's just leave it at that.

I've probably said more than I should.

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

Thanks.

Going back to Japan, have you guys looked at how much damage was caused by the earthquake in the northern region of Japan and what potential dollar value that is, and is there any chance that you could partner up with some of these land owners that might have gotten wiped out and weren't insured?

This is Guy.

I'll answer that.

We haven't done any comprehensive review of the dollar volume of damage to the general market in northern Japan.

Our own experience is we have one asset there in Sendai.

It's modern, well constructed, it survived the earthquake and the tsunami actually very well.

Obviously, if you've been watching CNN, you would see other buildings in the market did less well.

And really, that has led to an increased focus on the part of customers to come to buildings like ours, and that's really why today we're sitting there with 100% of the building leased or with lease reservation contracts.

From other users who want that type of real estate.

And as far as more ventures going forward or -- really would not comment on that at this time.

Okay, and --

Our next question comes from the line of Michael Bilerman with Citi.

Hey, good morning there.

Hamid, just as you think back to your first quarter leasing, you talked about being the highest first quarter on record, one of the highest quarters overall, and you compare and contrast that to PLD, which the first quarter leasing fell short a little bit.

I think it was a lot more tempered commentary.

How much, I guess are you sort of looking at the two?

Is it a market share issue?

Do you think that there's something different going on in the two portfolios?

And when you look at those numbers, is there eventually going to come into yours, there's still a big ramp to get to the end of the year.

Obviously the first quarter was a little bit light, partially driven by the lower leasing.

How are you putting everything together now, being able to see both sides of it in a lot more granular detail?

Okay, good questions.

I think if you look at the ProLogis performance in markets that are common with AMB, I think you will find that their performance is in line with what ours has been.

They do have a higher percentage of regional markets as opposed to global markets than we do in their portfolio, particularly in the US, and those markets are going to be somewhat lagging.

So, I think that may explain the difference in perspective.

We are in fewer, better markets.

They are in those markets plus a couple of other markets that are not as good, and that may change the outlook a little bit.

I think while this next comment of mine is not going to apply to operating statistics, I think it will probably apply to state of mind.

We are in two markets around the globe, China and Brazil, which they are not in, and those are probably our two best markets, so that makes us sound probably a little bit better than they do.

Conversely, they are much bigger than we are in Europe, and if there were one region in the world where probably things are lagging, it would have been Japan and Europe, and now I think Japan because of the unfortunate events that have happened, it's going to be actually pretty positive going forward.

So, I think it leaves Europe as a lagging area of the world.

I think maybe those differences account for a little bit change in tone, but I don't think there's anything fundamentally different between our approaches or our performance in the common markets.

Our next question comes from the line of Ross Nussbaum with UBS.

Couple questions on the SGP joint venture.

First --

Hello?

Ross, we couldn't hear your --

Ross, your line is open.

Hey, Ross?

Why don't we go to another question, then bring Ross back right after that.

Our next question comes from the line of Sloan Bohlen with Goldman Sachs.

Hey, good morning, guys.

Hamid, I was wondering maybe if you could touch on a question that was asked during the ProLogis call about marked to markets going forward as we look through the back end of this year and then into next year.

I was wondering what your view is for how much you need in terms of kind of the slack to be taken out of vacancy to see some real rent growth.

Let me get the macro comment and then turn it to Gene for the details of the portfolio.

I think the vacancy rates need to drop by 3% to 4% for us to get pricing power uniformly across all markets in the US, which is I think where your question's focused.

I think some markets were beginning to get pricing power.

I think LA is getting to that point.

South Florida is getting to that point.

Maybe New Jersey is approaching those areas.

But I think generally the market needs to gain three or four points of occupancy points.

Interestingly, we're about four points below peak inventory levels today, so I think when inventories normalize, we'll be at a point where we'll have pricing power generally.

I do expect that to occur in 2012, probably first half of 2012.

But we've had pretty extensive research that we've shared with you guys on that, and I'll just refer you to that.

Gene, do you want to make --

I don't think there's much more color I can add, other than that number is a different number in depending on which market you're looking at.

In LA you have vacancy rates that are in some cases in the 5s or even lower.

And that's a market where you need somewhat lower vacancy rates to have pricing power.

But where that's taking place in the two big areas in the US would be Airport West in Miami and a couple of submarkets in Los Angeles.

There is -- you're seeing actually pretty significant upward pressure on rents.

The other markets that I would note in Brazil, you've had significant upward pressure because of lack of supply in China as well.

Okay.

Your next question comes from the line of Ross Nussbaum with UBS.

Hey, sorry about that, Ross.

I don't know what happened.

You can hear me now, right?

Yes, we can.

Okay, sorry about that.

I've got sort of a series of questions tied together on the SGP joint venture.

Tom, if I heard you correctly, I thought you had stated a $430 million valuation.

And if I'm looking at page 18 in the supplemental correctly, it looks like the book -- gross book value was $480 million, so I wanted to try to tie those out.

And then secondarily, can you talk to the IRR over the 10-year life of that fund for your partner as well as to AMB?

And then finally, is there going to be any incentive distribution received in the second quarter from that transaction?

Ross, this is Tom.

I'll take the first question.

You're right, it's valued at $430 million, and that was the gross book value at the higher number.

The value was at $430 million, that's correct.

And Ross, I can't remember what your second question, but your third question, relative to a promote, no, there would not be a promoter.

And -- oh, the second one was the IRR.

We're really not in a position to comment on IRRs on individual ventures.

Well, put it this way.

It was positive, but it was below our expectation, but it was definitely a positive IRR.

Not one of the best performing investments or joint ventures we have.

And Ross, I want to go back to your first question.

On the $480 million, the one reason why that $480 million is a little misleading, if you're trying to go to, well, what -- is that how much we invested in it, that also includes all the TIs and leasing commissions that were incurred over that 10-year hold period that would have been amortized through the leasing revenues generated.

So, you can't look at that number and try to assess the overall profitability of that venture.

It's even more complicated than that, because if I recall, that was an early -- we formed that venture I think in the late '90s, maybe early 2000, and a lot of those assets actually came from when we were private.

So, there's been a book value change from when we went public, there was a book value when we contributed to the venture, there was capital invested.

So, I think all of that is -- makes it pretty complicated to get to where you're going.

And just to clarify that piece, would that imply there's a charge coming through in the second quarter to adjust that book value back to the valuation on the transaction?

No, not at all, Ross.

Again, because all of those TIs and LCs have been amortized over the period --

Got it, okay, thank you.

It even goes even further back than 2001 when we formed this fund because they were on our books for a long period of time.

So, that gross number is misleading from that perspective.

And in my recollection is that the IRR is single-digit, but in the high single digits, mid to high single digits, but certainly less than what we would expect, which would have been in low double-digit range for that vintage of an investment.

Your next question comes from the line of David Harris with Gleacher.

Hi, guys.

I wonder if you could just elaborate a little bit more on the circumstances in Japan.

I heard your optimism about the longer term on redevelopment.

We heard that from ProLogis this morning, and I concur with that.

But I'm just wondering in the short-term, is there not a short of slowdown in leasing volume?

And then the second point on this is, I'm just wondering if there are any spill-over effects in other markets around the world with all of these supply chain disruptions and perhaps a movement away from some large multinationals from being so dependent on adjusted time system?

Sure.

Why don't I -- this is Guy.

Why don't I start with that and then maybe if Hamid wants to follow up, he can.

WIth respect to Japan in the short term, you'll see that we're pretty well fully leased.

Short-term disruptions are not something we're concerned with, especially with the commencement of our deal in Osaka.

In the long-term, we are bullish on the economy.

Construction in Japan takes a little bit longer, so this is a project that would be delivered in the middle of next year, so it's really more of an intermediate view.

We are seeing increased trends for redundancy in the Japan market.

Also, we have to consider that these were construction costs that were locked in prior to the earthquake.

And there are various views that construction costs may be going up in the future, so this is a good chance to keep those costs locked in.

Relative to the more macro trends on safety stock, clearly everything we're reading, but not seeing yet, but reading, just like you're reading, is that there's going to be more redundancy in safety stock and people are not going to run inventories that tight.

Which is, by the way, one of the reasons, remember about eight or nine months ago people were talking about, have people discovered a new way or technology of running the economy with a lot less inventory, and we pointed out at that point that no, while we're in a secular decline in inventory to sales ratio like you've seen from us for the last 50 years, we don't think there's anything that this recession caused that is going to make you jump down to even a lower, steeper curve.

Well, this is one of those things that's going to bend the curve back up a little bit.

But in the long-term, we think the trend is down.

Less inventory per unit of GDP, but not a Quantum leap differently.

My next comment about Japan, you're going to have to forgive me on this one, but I think our enthusiasm for Japan in our statements is consciously tempered because of the respect we have to what has happened over there.

Frankly, to talk about all the great business opportunities over there, when there's so many people suffering, we just don't feel good about that.

But let me just say that the business prospects over there are actually pretty strong and leave it at that.

And then if we can play a constructive and profitable role in building back up the infrastructure of Japan, we will do so.

And let me also say that I've been just very impressed and have a lot of admiration for the way the Japanese people have taken this.

Can you imagine, God forbid, if that had happened over here in the US and the riots that would have ensued, et cetera, et cetera?

I think it just points to the dignity of that culture.

Our next question comes from the line of Michael Mueller with JPMorgan.

Hi, good afternoon.

It's Ralph Davies on with Mike.

I had a question in terms of the development starts that you guys accomplished in the first quarter, can you talk about how much of that is spec build?

And then looking forward to the remainder of your pipeline, how much of that you anticipate will be spec versus build to suit?

Ralph, it's Gene.

Let me take that.

We had a variety of projects here, which all are spec.

I think it would be helpful to describe all of them individually.

I'll start in Brazil and Guy can pick it up from there.

But in Brazil we're starting 600,000 feet, which is the second phase of our Cajamar Park project, and that's north of Sao Paolo.

This is a project you may recall.

Our first phase is 640,000 feet, and that was fully committed very early on in construction.

And frankly, the 600,000 feet we're starting has probably 2X the demand on it, and I'm very comfortable that will be leased before its finished.

And perhaps we may even start more in that particular park before year end.

That's a fully speculative product, but a tremendous amount of demand.

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

Sri, before you ask your question, let Guy finish the answer to the last question that got cut off.

Guy, go ahead.

Sure.

The other three development projects that we started this year -- or this quarter, Hausbruch 7, which is in Hamburg, Germany, again, that's a market where we're pretty much fully occupied and the market is very tight.

For those of you who are on our analyst tour, I think it was November of '09, we showed you our Hausbruch project.

This is right adjacent to it, it's a site we picked up that we can redevelop.

The other one is Beijing Capital Airport.

It's about a million square foot project, really a stone's throw from Beijing airport, right next to a transit terminal.

Again, that's a market that's very tight.

No large blocks of space, and we're seeing increasing rents.

And the third one we already talked about is in Osaka, it's a million square foot project down the road from our successful Amagasaki projects.

So the bottom line is very few of them are actual built to suits, but we're pretty confident that a bunch of them are going to get leased before completion, and we do have a couple of build to suits that we're working on that we're close on.

Let's go to your question, Sri.

Thanks, this is Evan Smith on with Sri.

I was hoping you guys could provide a little bit more color on the leasing spreads, what they averaged in just the first quarter and also in the fourth quarter.

And also if there are any few large leases or key markets that were driving the leasing spreads down in the first quarter.

This is Gene.

Let me take that.

There isn't anything I think that's noteworthy relative to individual markets driving these spreads.

In the big picture, let's take a look at where we ended the quarter and how we look at this stat going out through the year.

I think on the last call, we mentioned we expected a negative 12 plus or minus number for 2011.

We came in with this quarter, that number's actually slightly better than we expected, and I would guess at this point that for 2011, we'll come in slightly better than negative 12.

But I would remind everyone this is the last stat to turn positive.

Things are playing out pretty much the way we expected, and it will be 2012 before you see meaningful change.

At that point, we're going to begin the roll leases that were signed in 2008, 2009 where you're getting into better comps, frankly.

This is a stat that, again, it's the last to roll, it will be a bit stubborn and look to 2012 for that to begin recovering.

Okay, thank you.

Our next question comes from the line of Dave Rogers with RBC Capital Markets.

Yes, good morning, thanks for answering my question.

A question for Hamid or perhaps Gene.

More concerning to the shippers today seems to be -- than oil would seem to be the limited availability of containers out there, as well as the high utilization of full truckload carriers.

I'm wondering, with consumption outpacing inventory of late, are you having negotiations or in your discussions are the -- those tenants that are looking at additional space concerned about the ability to get inventory into the new space that they are committing to?

Is that impacting decision making in the near-term?

And do you think that if it is harder and harder to get inventories in through containers, et cetera, will we see a shift perhaps back to air which could delay the recovery to your business?

And the other way to ask that, is there anything in there that hurts the AMB model here in the near term?

Well, if I could take that.

The stores are basically getting the inventory pretty much directly because of the problems you mentioned.

And I think the sales, really at the end of last year around Christmas season were just so much stronger that a lot of the inventory coming through the ports was going directly to retail locations and bypassing the DCs because they with are just running to catch up.

And to some extent, that has continued for the reasons that you're talking about.

And by the way, if you want to add another constraint on top of all this, it's just the number of drivers that you can get to drive your trucks.

People thought the world was going to come to an end.

It relieved a lot of the constraints that were operating in our business and now with the business coming back, those same old constraints are being talked about, including capacity at ports and drivers, and now containers and all that kind of stuff.

The good news is, we're in a business where the long-term trends are 7% growth on the top line, and we'll have to deal with the constraints in the short-term.

The air cargo being the beneficiary of emergency shipments, I can't think of a company that would be better positioned to benefit from that than AMB.

As you know, air cargo is, while not a huge part of our business, it's as big a part of our business as anybody else's business.

And we are seeing that e in terms of strength, although it's moderating because I think that containers are picking up their real share.

And let me just add quickly, the only other fact that may result here is that the shortage of drivers, long haul drivers, probably on balance will benefit East Coast ports, so you see a few product coming into the West Coast and shipped -- or driven across the US.

We haven't seen that really materialize yet, but that's a trend that we expect to materialize.

Our next question comes from the line of David Harris with Gleacher

David.

-- too long to explain it to me.

Is he add-back -- or the adjustments of depreciation on your development profits, could you remind me how that's generated, because your booking development profits on assets that you -- where you're already taken depreciation?

We did, David, and if you look at our FFO definition, we spell that out.

But we had one contribution -- one sale this quarter in Q1 where the asset had stabilized probably about a year and a half ago to two years ago, and we sold that asset and we backed the accumulated depreciation out of that gain.

Now, what we've always said was if we've developed an asset, then that asset, when we sell and monetize it, would be -- would qualify for FFO.

As you know, we back it out of core FFO.

But that's our treatment.

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

This one is kind of far out, but what do you think about the expansion of the Panama Canal, and do you think you'll be entering kind of the southern east markets more so than you have now?

Well, we kind of entered Savannah for that reason back in 2006, and the thesis has not changed in any way.

We think the West Coast ports are going to be pretty busy and we think the overflow is going to go to the East Coast, including Savannah, which is the best positioned port, and we actually have a pretty significant land position in that market to benefit from that trend.

The global economic crisis put a two and a half-year interruption in that thesis, but if we think the long-term thesis is still very valid.

And Ki, it's Gene.

Just to add to that, it's really not that far away, it's 2014, that project looks to be finished on schedule.

So, it really isn't that far away, and it's just another driver that ought to help East Coast ports, and not just Savannah, but New York, New Jersey, Miami, Charleston and others.

Our next question comes from the line of Jamie Feldman with Bank of America.

Hi.

I was just hoping you could comment on your current backlog for private capital raises.

It was certainly a good quarter, but what does it look like from here?

Jamie, we're not trying to raise capital in, for any platform just now.

We'll continue -- we haven't, by the way, talked about it, but we continue to raise money in our open end funds, and that's an important part of our business.

So, we'll do a bit of that.

But really, the main focus is going to be on Japan.

That's the big platform that is on our balance sheet and actually ProLogis' balance sheet.

And that one's going to be probably an effort that will start in the back half of this year, but we don't expect it to close until 2012 at the earliest.

We don't have a whole bunch of other things that we're trying to accomplish today.

We'll give these guys a couple weekends off.

Our next question comes from the line of Michael Bilerman with Citi.

Just two quick follow-ups.

The NOI sequentially went down about 5%.

I think you had talked in your -- that's just in your supplemental package where you show sort of the adjusted NOI, cash NOI going down about 127.5 to about 121.

I think in your opening comments you talked a little bit about some OpEx items, and I got to assume the rent on roll-overs was maybe the other piece sequentially that was impacting it, but it just seemed like a big number.

And the second thing was just the FFO from unconsolidated JVs.

That went up, and it looks like the Europe fund went up substantially, even though all the cash NOIs were flat.

So I just didn't know what was driving that increase and whether that reverses in the back half of the year or not.

Sure, Michael, this is Tom.

On the NOI, we had probably about $2.5 million of one-time expenses that flowed through the consolidated NOI you're seeing, and some of that was a little bit of snow removal Midwest and East Coast.

Some of that was some real estate taxes.

Those are really one-time costs.

If you carved those out of the same-store NOI, you would see our same-store NOI go up about 1.5% this quarter so on a run rate basis that, that should be excluded.

On the JV side, there are some one-time items boosting revenue a little bit in Europe, as you pointed out, related to straight line rent.

I think that's probably about a million high on a run rate basis.

Now, when you're looking at the NAV page and looking at that NOI decrease, a couple of things to note.

One would be the Minneapolis sale that's out of those numbers, another one would be lower fund ownership during the quarter that's taking that down.

The third piece would be one-time expenses that I noted, and then the last piece would be there is an impact of rent rolldowns on NOI, probably around $2 million for the quarter, as you pointed out.

And then just specific on the unconsolidated JVs, the NOIs were flat, right?

So it's at about -- actually NOI was down, but your share of FFO went from $16 million to $21 million, so your FFO contribution went up $5 million, but your share of cash NOI actually went down by $1.5 million.

That's right, and again, the cash piece was about flat.

The biggest impact on NOI was from a straight line basis.

And the other piece would be acquisition costs on Q4, that would be pulling that number down.

Yes, exactly.

In 4Q.

Yes, sir.

Okay.

Thank you.

Your final question comes from the line of John Guinee with Stifel.

Sorry about that.

If you talk to the investment sales brokers out there, there is just a wall of private capital in excess of $100 billion for core industrial real estate, and I think you maybe had $100 million, $150 million of guidance for dispositions stateside.

What's sort of the most you could do?

What's the most aggressive disposition plan you could have?

Out of the AMB portfolio loan John, or combined portfolio?

Let me talk about AMB portfolio alone, because --

Both actually.

Yes, I kind of don't want to talk about the other side until it's closed.

But I -- AMB's portfolio is pretty well aligned with our strategy.

I think if we really pushed it, there could be $500 million to $750 million, not all on the balance sheet.

Some in funds that are probably strategically not the ideal fit for our portfolio that will be candidates for sale.

And of those, some are encumbered by secured financing and other constraints.

So I would say the range for AMB alone could be $500 million maximum in the near term, and then we have a couple of value-added conversion projects that could get accelerated.

So I don't know, maybe $600 million, $700 million in total.

And probably it would not be a bad assumption to, on a size-adjusted basis, extrapolate that to ProLogis as an approximation.

Good, thank you.

All right.

Thanks, John.

And with that, let me just thank you for all of your questions, everyone.

I'm just very proud of the way the team has been able to focus on and execute the offensive game plan given all the other activities that are going on right now and all the good stuff that we can't really discuss with you today.

So, I'm pleased with the results for the quarter.

It's really shaping up to be a great year for us.

Momentum is strong across all our business lines, and the infusion of our strategic plan is very much on track.

In closing, let me just leave you with three points.

Our financial performance reflects the excellent progress we made on our priorities.

Number two, the global economic recovery is strengthening.

And number three, the fundamentals of logistics real estate continue to improve and we expect to see an increase in demand for industrial space globally, and our Company is very well positioned to meet that demand.

Let me also share with you this has been our and my 54th earnings call as a public company.

That's a really long time, it may be my very last one with you as AMB.

I think it's safe to say that we're all very excited about the future, and we look forward to speaking with you next quarter, and we'll have lots to talk about at that point.

Thank you.

This concludes today's conference call.

You may now disconnect.