At a December press gathering in New York City, executives of ProLogis pulled no punches when describing the industrial real estate developer's near-death experience in 2008 and 2009. Using terms like "dire," "plummet," and "survival" to characterize the company's ordeal, CEO Walt Rakowich and CFO Bill Sullivan recounted how the company sank into billions of dollars of debt last fall before a new management team stepped in and pulled it out of its nosedive.
One purpose of the press conference was to detail the tactics the developer's new executive team
has used since November 2008 to relieve ProLogis of its near-fatal debt load. These included:
- Selling its China operations and property-fund
interests in Japan, and closing operations in the Middle East, India, and Brazil
- Selling some physical and financial assets, refinancing debt, and amending and extending lines of credit
- Halting speculative building starts and terminating some land-purchase agreements
- Renegotiating equity agreements with partners
- Aggressively concluding leases
- Reducing general and administrative expenses by 33 percent
Getting out of growing markets like China, Brazil, and India was a painful decision, but "sometimes you have to cut off a limb to save your life," Rakowich said. When all was said and done, the developer had cut its debt from $10.7 billion at the end of 2008 to $7.7 billion as of Sept. 30, 2009.
Although some of their competitors expect warehouse demand to remain weak in the coming year, Rakowich and Sullivan forecast some improvement in 2010 for their own company and for the market as a whole. The market for warehouses and distribution centers is not overbuilt, they contended, noting that ProLogis's U.S. properties saw a "modest increase" in occupancy rates in the third quarter.
"The supply of new [U.S. distribution facilities] is at its lowest level in 25 years due to the lack of capital," Rakowich said. "That is going to open up."
Many customers are looking at reconfiguring their logistics networks in response to rising transportation costs, although there is no clear trend yet, he said. In Europe and Asia, there is what Rakowich called a "huge movement" out of owned, obsolete facilities and into new, leased distribution centers that can accommodate automated material handling systems.
The consensus of a customer advisory board that met in late November was that retailers and wholesalers are poised to replenish depleted inventories, albeit slowly. When they do, the ProLogis execs said, they'll need a place to store all that additional stock.
Wreaths Across America
