Prologis Posts Loss, Sees Market Bottoming

ProLogis reported a $23.1 million net loss in the second quarter but said demand is finally catching up with supply of distribution centers and industrial real estate.

Revenue edged up to $260.7 million from $258.5 million in the second quarter of 2009, when the Denver-based provider of industrial real estate posted net profit of $238.9 million.

Funds from operations, a key metric for industrial real estate providers such as ProLogis, declined 9 percent, excluding non-cash items.

“Economic growth forecasts have been tempered in recent weeks, and for the most part, industrial market conditions are tracking with the expectations of a more moderate pace of recovery,” said CEO Walter C. Rakowich. “Despite these indications of slower growth, we are seeing steady activity levels with modest occupancy increases in some markets and believe rental rates have bottomed in the majority of them.”

ProLogis said absorption rates for leasing of distribution centers turned positive for the first time since October 2007 in the 31 North American markets the company tracks.

“We realize that the markets are choppy and we could be in for some slow growth ahead. But I think when you look back two years from now, we’ll say that around Q2 2010, we reached an inflection point in our markets,” Rakowich told analysts.

He said virtually no new distribution center supply has been started for almost two years and “we don’t expect much for at least the next 12 to 18 months. In our view, the development market has already adjusted to the slower growth environment that we may be in.”

Rakowich said rents “may still fall some but they are so low now that it’s almost unimaginable that they will stay where they are forever. We believe that there’s upside here with some level of occupancy increases.”

At the end of the quarter, ProLogis’ industrial operating portfolio was 89.7 percent leased, up from 89.2 percent in the first quarter. Rental income rose 2.2 percent.

Competitor AMB Property reported lower second-quarter profit and now forecasts full-year results will be lower than had been expected.

-- Contact Joseph Bonney at jbonney@joc.com.