"While there continues to be pressure on market rental rates, overall market occupancies seem to be stabilizing, with an increase in customer activity," he said. "Some supply chain reconfiguration plans that were postponed are coming off the shelf, and there is growing customer interest in new build-to-suit development in global markets where there is a lack of appropriate supply."

Rakowich cites the 20 basis point weighted average occupancy increase in its non-development portfolio during the quarter to 92.7%—the first quarterly increase in two years--and a 748 basis-point jump in its development portfolio to 58.3%.

"While one quarter does not signal a trend, we are feeling cautiously optimistic that market occupancies have stabilized," Rakowich said. "As global economies continue to show signs of improvement, we believe a corresponding increase in demand, combined with virtually non-existent new supply, should support stronger market occupancies in 2010."

Same-store NOI fell 4.3% during the quarter while adjusted same-store rents fell 14.7%--this biggest drop this year--on turnover of 20.2 million square feet, or 5.2%, of the adjusted same-store pool. The adjustment excludes same-store assets associated with the company's development portfolio. Rakowich says the NOI decline primarily reflects year-over-year occupancy declines offset by reduced same-store rental expenses. Without the adjustment, same-store rents on turnover fell 15.3%.

One of the company's key initiatives is to monetize its land bank with as little risk as possible—land sales and build-to-suits. Year-to-date, the company has monetized $120 million of its land bank. Land deals started in the third quarter include two in Japan for Kirin Logistics and Senko, and two in Europe for LG/Hi-Logistics and a major UK retailer.

"These projects demonstrate our new approach to development, whereby we generate returns from our land bank, and when possible, invest our development capital alongside that of our partners and customers," Rakowich said. "Going forward, we plan to focus more on these types of build-to-suit transactions and fee development management opportunities," such as the previously announced project it is handling for The Royal Mail in the UK.

The company also has been a net seller of income-producing assets, having sold or contributed to funds $241 million of real estate in the third quarter. The company has completed $1.2 billion of sales and contributions year-to-date, with another $300- to $500 million planned before the end of the year.

On the deleveraging front, through a combination of asset sales and fund contributions, common equity issuances and repurchases of debt at a discount, the company has reduced its direct debt by over $3 billion since the start of the year. Its total debt load now stands at $7.7 billion.

Rakowich says the company has taken care of its debt maturities "well into 2010" and has made "substantial progress" in adjusting the debt in its property funds to account for longer expected hold period caused by the recession. Since the start of the year, it has completed over $1.6 billion of secured financings and loan extensions on behalf of its funds, of which approximately $1.2 billion was executed on in the third quarter.

Earlier this week, executives of AMB property Corp., one of ProLogis' main competitors, said they expect occupancy and rents to bottom out in the next two quarters and begin to show improvement in the second half of 2010. Company executives cited industrial's lagging relationship with the US economy, which is expected to show growth in the first half of 2010.

"Leasing and capital expenditures have been on hold as businesses focused on cutting costs and gaining efficiencies [but] decision making has resumed," AMB chief executive Hamid R. Moghadam told analysts Wednesday afternoon. "Property showings and deals in negotiation are starting to increase and our strongest customers are beginning to execute previously shelved plans. The first wave of this [resumption of activity] will fill empty leased space, followed by demand for new space. It will take at least three- to six months for the increased demand to show up as occupancies gains and revenue."

AMB's overall portfolio occupancy increased 50 basis points during the third quarter to 91%, while same-store NOI fell by 7% from the same year-earlier period due primarily to lower than average same-store occupancies and rent changes on rollovers. On a trailing four-quarter basis, the average rent change on renewals and rollovers in AMB's operating portfolio decreased 3.9%, including a 10.3% decline in the third quarter. To balance things out, AMB says it sold more than $200 million of real estate in the third quarter at an average cap rate of 6.2% for a net gain of $60 million.

ProLogis performance resulted in an $11.8-million loss for the third quarter, or $0.03 per share. In the same year-earlier period the company produced a profit of $32.2 million, or $0.12 per share. Funds from operations, a key profit measure for REITs, fell to $0.14 from $0.59 in the same year-earlier period.

AMB produced a profit of $62.8 million for the third quarter, or $0.43 per share. In the same year-earlier period it produced a profit of $23.7 million or $0.24 per share. FFO was $106.5 million, or $0.71 per share, up from $71.1 million or $0.69 per share, in the same year-earlier period, when the company had 50% fewer shares outstanding.