ProLogis (PLD), a leading real estate investment trust (REIT), reported second quarter 2010 recurring fund from operations (FFO) of 15 cents per share compared with 19 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income. The second quarter 2010 recurring FFO marginally beat the Zacks Consensus Estimate by a penny.
  
ProLogis’ industrial operating portfolio (which includes completed developments) leased at quarter end marginally increased to 89.7% from 89.2% in first quarter 2010, primarily due to a 480 bps rise in leasing activities in completed development portfolio. During the quarter, the company leased 28.3 million square feet of space across the globe, which was relatively in line with the trailing four quarter average leasing of 29.4 million square feet.
  
With global economies emanating positive signs of revival, ProLogis has witnessed a growing customer interest in new build-to-suit development projects across the globe. In addition, leasing decisions that were earlier postponed due to volatility in the markets are gradually coming off the shelf.
  
During second quarter 2010, ProLogis started new developments worth $196 million, bringing the year-to-date development starts of the company to over $470 million. The company has monetized $184 million worth of land for these development activities. ProLogis expects to start $700 million to $800 million of new developments in 2010. The company also expects to monetize approximately $350 million to $400 million of land in 2010.
  
In the wholly-owned portfolio, customer retention during the quarter remained strong at 78.1%, with over 76% of the new development leases being signed with repeat customers. In the same-store portfolio, rental rates on turnovers dipped 15.7% during the quarter, resulting in a 3.4% decrease in same-store net operating income.
   
With improving property values and growing institutional demand for quality properties, ProLogis expects to generate $1.3 billion to $1.5 billion of proceeds in 2010 from sales of existing assets and contributions to funds primarily in the U.S. The company intends to utilize the proceeds to repay its debt and fund its existing development portfolio as well as development starts in 2010.
   
At quarter end, ProLogis had cash and cash equivalents of $25.1 million compared with $74.2 million in the year-earlier period. Total debt at the end of second quarter 2010 was $8.2 billion compared with $7.9 billion in the year-ago period.
 
For full year 2010, ProLogis has reiterated its earlier FFO guidance, excluding significant non-cash items, in the range of 70 cents to 78 cents per share. We maintain a Neutral recommendation on ProLogis with a Zacks #4 Rank, which translates into a short-term Sell rating and indicates that the stock is expected to under perform the overall U.S. equity market for the next 1-3 months.
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