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DENVER-Shares of ProLogis were trading up early on Tuesday before dropping with the broader market. The company on Monday afternoon reported its fourth quarter results and updated the market on its debt reduction initiatives. The distribution REIT sold $1.3 billion of assets in the final three months of the year and is marketing for sale an additional 33 million square feet of assets nationwide as part of the plan, which also includes halting all previously uncommitted development starts.

Thanks to $811 million of charges in part related to a drop in the value of its real estate assets, ProLogis reported a fourth-quarter FFO loss of $645.9 million, or $2.43 per share, which compares to a gain of $211.2 million, or $0.79 per share, in the same year-earlier period. Without the one-time charges, FFO for the final three months of the year was $0.61 per share, one penny ahead of analysts’ average forecast. The company’s 2009 forecast of between $1.85 and $2.05 per share for all of 2009 also was in line with analysts’ average estimates.

“With economic weakness anticipated to persist through 2009 we are focused on our core industrial business in our existing markets,” says company CFO William Sullivan. “Our guidance reflects that focus; however, sizeable asset sales or other corporate actions could alter our expectations, which we will reflect in future guidance.”

ProLogis is trying to reduce a heavy debt load that it built up during its rapid expansion over the past few years, before the credit freeze and the ensuing economic downturn made it difficult to refinance. As part of the plan, the company said Monday that it had completed the previously announced $1.3 billion sale of its China operations and Japan property fund interests to GIC Real Estate, an investment arm of the Government of Singapore Investment Corp. The deal includes $500 million upon closing and an additional $800 million no later than the second quarter. GIC also will reimburse ProLogis for $45 million for development expenses related to the properties that have occurred since November.

ProLogis typically develops warehouse and distribution centers and then sells majority interests in the assets into funds it sponsors, which then pay the company fees to manage the property. In addition to a reduced development pipeline and property sales –- in the past four months the company has scoured $3 billion from its now $5-billion pipeline –- the company’s strategy will be a little different going forward as the company tries to weather the economic storm.

“We intend to pursue development management opportunities and projects funded by venture partners that enable us to leverage our development infrastructure and monetize land,” ProLogis chief investment officer Ted Antenucci said this week.

The company’s same-store NOI was essentially flat in the fourth quarter. Average same-store NOI for the year grew by 1.62%. The company also reported a 0.8% increase in same-store leasing, a 2.81% rent growth on turnovers, and a 5.3% vacancy rate in its direct owned, non-development portfolio, up from 95.2% at the end of 2007.

As part of its continued de-leveraging effort, ProLogis is planning on substantial asset sales in 2009. An investment summary package emailed to investors and brokers is offering 33.23 million square feet spread among 14 states and DC. Value estimates have come in at approximately $1.43 billion, which equates to about $43 per square foot.

The deadline for offers was earlier this week. With so little investment activity having been concluded recently, buyers and sellers will be watching the sales from which portfolio closely to get a sense of where the market is really at.

More than 25% of the square footage being marketed for sale is in Texas. The Atlanta and Chicago markets each hold another 10% of the square footage and approximately 7% is in Northern California. The portfolio also includes assets in Washington, DC; Baltimore, New Jersey, Pennsylvania; Las Vegas; Reno, NV; Denver; Salt Lake City; UT; and Phoenix.

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