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NEW YORK CITY-”Nothing is off the table,” for ProLogis, according to new CEO Walter C. Rakowich, who spoke at an investor meeting Thursday morning, one day announcing the resignation of Jeffrey Schwartz along with a restructuring that includes a halt to all new development and 25% reduction in overhead.

Rakowich and CFO William Sullivan said the distribution REIT’s new leadership will be “laser-like” and focus on the task at hand, including liquidity, sourcing new capital and a delivering of the company’s balance sheet, which has $353 million of upcoming debt maturities in 2009 and another $559 million the following year.

The company said it intends to pay debts with regular cash flow or will refinance or exercise extension options. “I don’t see any issues extending the line,” said Rakowich who was ProLogis’ president and COO before replacing Schwartz.

Explaining current financial conditions at the $40-billion company — the world’s largest owner, manager and developer of distribution facilities–Rakowich said “we expanded into markets that had demand, but we expanded (too) quickly,” noting growth markets like China, Canada and Korea. “There were no controls in place,” said Rakowich adding, “we made some mistakes.”

Still, he stressed, the overall market turndown had also happened rapidly. And with that, there’s a sense of “heightened scrutiny” that was not there before. As part of ProLogis’ ‘transformational change’ the company expects to see around 20% to 25% in savings through job reductions and the overall slicing of business spending, as GlobeSt.com reported yesterday.

Specifically, the company says it will save $2.2 billion to $2.3 billion by eliminating starts and new land acquisitions. With its dividend cut, the company says it will save $290 million in cash. And, with cuts to its general and administrative costs–which means jobs–the company expects to save another $100 million. Sullivan stressed the company is trying to be as transparent as it can.

Rakowich and Sullivan said they did not believe the company would sacrifice any liquidity to feed funds. However, they stressed the company would live up to its existing commitments and obligations. Still, they were clear about their current crystal ball’s power saying that nobody could see into the future.

“We have lots of liquidity,” and “we have a variety of things to attack with a spectrum of levers,” Rakowich added.

Of the changes, Rakowich said “give us credit six months from now,” even though some of the changes will go wrong, while some will go better. He acknowledged the new team will have more details on the changes and results in the months ahead. “We’re not pushing you to trust us, I’m asking you to watch us,” he said.

Tom Mitchell, an analyst with Miller Tabak tells GlobeSt.com he thinks that ProLogis did a “pretty good job” of explaining during the investor meeting the relationship between what the company was on the hook for in their development pipeline and what was product that will go into their funds management operation. The bigger picture, he said, is that 90% of the company’s “very aggressive build up” of its development pipeline was intended to go into funds, which they were marketing very aggressively, hoping to have enough product to meet the funds’ growth targets.

“Up until July or August the company had exceeded all its expectations of how much and which kind of institutional investors would want to participate,” he says. “They had a target of $40 billion by 2010 and they were three quarters of the way there in first nine months. Part of the reason they got ahead of themselves in terms of development is they were aligning it to investor interest on the fund management side and assuming they would need more product to put into it.”

That’s exactly where Mitchell thinks the board and Schwartz came to a parting of the ways.

“My guess is he probably laid out a reasonable case to say this [current situation] is an aberration, saying investment yields on new product are going up, which means they’d be able to sell more management services to investors, which in turn meant the company should be out there continuing to maintain a reasonably large [development] pipeline, not cutting it by one-third or one half,” he says. “One good alternate theory is that with the stock price where it was and bonds selling at big discounts it may just have been a case where he really didn’t have a different opinion and he’s the general and somebody’s got to take the blame so he falls on his sword as maybe a way to restore confidence.”

At issue is the company’s ability to continue delivering product that is stabilized to the point it can be moved into the funds. Citigroup Global Markets analyst Michael Bilerman last week estimated that the company’s existing development pipeline totals $8.2 billion, of which $1.4 billion is fully leased and completed and another $1.1 billion is under construction and fully preleased. Based on the company’s stated overall occupancy in the pipeline, he estimates the remaining $5.6 billion in the pipeline is 27% preleased. The question is whether there will be enough tenant demand to stabilize the product in the pipeline in order to be able to pass it onto the funds.

If it can, Bilerman says it would drive a significant near-term cash injection for ProLogis that would put the company in a stronger position to handle debt maturities and reduce leverage, “as current fund capacity is sufficient across most regions to take out the existing pipeline even in the absence of debt,” he said. “Continued leasing progress or signs of reduced risk on the debt refi side could be a significant boon for the shares.”

Mitchell says the company’s intention is to complete the pipeline, but that could take three, four or five years if they are as selective as they need to be to avoid inking too many build-to-suit agreements with the next Circuit City or DHL. “ProLogis may not have trouble getting money but it sees others have trouble, even the bankers, and suppose their customers have trouble getting money…,” he said. “They should be thinking about buying back debt.”

GlobeSt.com reporter Brian K. Miller contributed to this report.

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