WRAPUP 3-ProLogis, AMB first-quarter leasing rises

Wed Apr 20, 2011 2:38pm EDT

* ProLogis first-qtr core FFO 13 cts/share vs View 15 cts

* AMB first-quarter core FFO 32 cents meets View

* Both companies incurred costs from Japan damage

* ProLogis shares fall 1.5 pct; AMB shares down 1.4 pct (Adds CEO comment, details, updates stock prices)

By Ilaina Jonas

NEW YORK, April 20 (Reuters) - ProLogis (PLD.N) and AMB AMB.N, which will merge later this quarter, said the rebound in demand for warehouse and distribution space globally propelled leasing in the first quarter, although both incurred costs from damage to their properties in Japan following last month's earthquake and tsunami.

The sector is recovering from a sharp downturn in the global economies three years ago. Rents are bottoming and demand is rising, driven by the need for more modern space to hold and ship products ranging from diapers to drugs as global economies heal.

Both companies, which are owners and developers, incurred costs to cover damage to their buildings in Japan during the first quarter.

Still, Japan could provide opportunities for them to help rebuild.

"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," AMB Chief Executive Officer Hamid Moghadam said. "But let me just say that the business prospects over there are actually pretty strong and leave it at that."

Denver-based ProLogis is set to merge next month with San Francisco-based AMB to create a global company with a foothold in nearly all the world's major shipping centers.

Rakowich said concerns over sovereign debt issues, rising energy costs, global military actions and Japan slowed the rebound during the first two months of the quarter, normally the slowest for leasing. But leasing picked up again in the late March.

ProLogis incurred $7 million in damage costs related to the March 11 earthquake in Japan. AMB's tab was $2.7 million.

ProLogis CEO Walter Rakowich said he believes tenants in Japan, who include large global manufacturers and shippers, will want newer, better-engineered buildings. In fact, ProLogis uses its patented seismic isolation system technology for buildings in Japan, where he sees demand picking up in the second half of the year.

But the merger mania and enthusiasm may have outpaced the results and inflated the companies' share prices, and investors were disappointed with the tempered results.

ProLogis shares were down 1.5 percent at $15.84 and AMB shares fell 1.4 percent to $35.61 in afternoon trading.

"Overall it was a relatively solid quarter, especially when you consider the economic factors influencing not just their international operations but their flow trade into domestic buildings," said Len Rittberg, an Adelante Capital Management analyst.

The sector's recovery plodded along during the first quarter as both AMB and ProLogis saw occupancies increase, but rents, as expected, continued to fall, albeit at a slower rate. Rental increases follow occupancy improvements, but the pace depends upon the overall economy and supply of space in the particular market. Moghadam said he expects the power to raise rents will return in the second half of 2012, when vacancies fall another 3 percent to 4 percent.

ProLogis said first-quarter core funds from operations, which exclude $12.9 million in charges related to past mergers and earthquake damage in Japan, rose to $74.4 million, or 13 cents per share, from $52.3 million or 11 cents a share a year earlier. The results trailed Wall Street's forecast of 15 cents per share, according to Thomson Reuters I/B/E/S.

AMB reported first-quarter core FFO of $56.1 million, or 32 cents per share, up from $44.6 million or 29 cents per share a year before and in line with the average of analysts' forecasts.

The sector is attracting more players who want to jump in at the early stages of the recovery. Blackstone Group LP (BX.N) has entered the market and continues to expand its U.S. portfolio.

In Europe, ProLogis this month became tangled in a fight for its European spinoff ProLogis European Properties PEPR.AS.

Dutch pension group APG Algemene Pensioen Groep N.V. and Australian property manager Goodman Group (GMG.AX) offered 6 euros per share ($8.70) to raise its stake and manage the portfolio, one of the largest in Europe.

That prompted ProLogis to raise its stake in PEPR by 5 percent to 38 percent and triggered a tender offer for the rest. Rakowich knocked down speculation, saying the company is not interested in selling its stake in PEPR. ($1 = 0.6899 euro) (Reporting by Ilaina Jonas; editing by Matthew Lewis and Maureen Bavdek)

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