Good morning, my name is Shana and I'll be your conference facilitator today. I would like to welcome everyone to the ProLogis third quarter 2008 financial results conference call. Today’s call is being recorded. All lines are currently in a listen-only mode to prevent any background noise. After the speakers' presentation, there will be a question-and-answer session. (Operator instructions) At this time, I’d like to turn the conference over to Ms. Melissa Marsden, Senior Vice President of Investor Relations and Corporate Communications with ProLogis. Please go ahead, ma’am.

Thank you, Shana. Good morning, everyone, and welcome to our third quarter 2008 conference call. By now, you should have all received an e-mail with the link to our supplemental, but if not, the documents are available on our Web site at www.prologis.com under Investor Relations. This morning, we’ll hear from Jeff Schwartz, CEO, his comments on the overall environment; and then Bill Sullivan, CFO, will cover liquidity and capacity. Additionally, we are joined today by Walt Rakowich, President and COO; Ted Antenucci, Chief Investment Officer; and Diane Paddison, Executive Director of Global Operations. Before we begin prepared remarks, I’d like to quickly say that this conference call will contain forward-looking statements under Federal Securities Laws. These statements are based on current expectations, estimates, and projections about the market and the industry in which ProLogis operates, as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statement notice in our 10-K. I’d also like to add that our third quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures. And in accordance with Reg G, we have provided a reconciliation to those measures. And as we’ve done in the past to allow a broader range of investors and analysts an opportunity to ask their questions, we will ask you to please limit your questions to one at a time. Jeff, would you please begin?

Yes, thank you so much, Melissa. Before we get started, I’d like to mention that we’ll be changing things up a bit on our call. Given the current climate, we thought it would be better to limit our opening remarks to Bill and myself and allow more time for your questions. So I’ll start by covering our strategy for how we plan to work our way through the extraordinary global economic events that have transpired, with Bill following providing greater detail. Needless to say, these are extraordinarily difficult times, so I won’t belabor the point by reciting the litany of recent issues in the financial markets. Suffice it to say that these events are having a profound effect on global economies, access to credit, private and public real estate pricing, and customer decision-making. So how is this affecting our business? Well, through the third quarter, industrial real estate fundamentals held up reasonably well, and our global leasing activity was slightly ahead of the level we achieved in the second quarter. We also continue to realize growth in rents and net operating income in our same store portfolio. However, customer demand has begun to moderate in recent weeks as around the globe, companies are pausing to assess how their businesses might be affected by this turmoil. Our global operating teams have done an excellent job of managing both lease expirations and the credit quality of our customers as overall market conditions have softened. Retention is at record high levels, and our overall occupancies continue to outperform market averages due to the strength of our customer relationships. And our turnover costs continue to be some of the lowest in the business. Additionally, over the past four years, we have repositioned a significant percentage of our ownership positions, both on balance sheet and…

Thanks Jeff. As Jeff stated in his remarks, given the current environment, we believe it is more prudent to focus on liquidity and preparing for the future rather than short-term earnings. As such, I do not intend to comment directly on our third quarter results, although we would be glad to answer any questions you may have therein. At the end of my remarks, I will provide some commentary on our guidance revision. In breaking from our usual routine on this conference call, I will focus the majority of my comments on the issues that we are focused on. Those are; funds-related debt maturities, on balance sheet debt, scheduled maturities and overall liquidity, our development pipeline, and funds capacity. I intend to be very detailed so bear with me. Starting with the fund-related debt maturities, there was approximately $2 billion of fund debt with 2008 maturities as of December 31, 2007. As of September 30, we had refinanced $1.8 billion of that amount and in addition, financed an additional $1.1 billion of borrowings in connection with the property fund contributions. At September 30, as newly-depicted on page 11 of the supplemental, we had an additional $386 million of debt maturing in the funds consisting of $166 million in our NA3 Fund with Lehman Brothers, $99 million in our Mexico Fund, and $121 million in our Japan Fund II. The Lehman maturity is frustrating, following their bankruptcy. However, after repeated attempts to contact appropriate people inside Lehman or their bankruptcy advisors, we finally spoke with a knowledgeable representative just yesterday, wherein he clearly indicated they are intending to sit down with us shortly to discuss an extension of the existing loan as well as hopefully agree upon a game plan for a long-term value maximization of their equity interest in this…

Thanks, Bill. This is undoubtedly the most painful period from a capital market’s perspective in any of our lifetime. However, we remain firm in our commitment to create long-term value for our public and private investors, associates, and customers. We have a well-leased portfolio of high quality properties, excellent customer and capital relationships, and the resolve to maintain and strengthen our balance sheet, to ensure that we are one of the companies that emerges from this period poised to take advantage of opportunities as they arise. Operator, we’ll now take questions.

Thank you. (Operator instructions) And we’ll take our first question from Steve Sakwa with Merrill Lynch.

Good morning. Two questions. Jeff, first of all, I guess in light of the environment here, why wouldn’t you just basically shut the entire development pipeline down now given that you’ve got $8 billion of properties and some form of stabilization period and/or lease up, which by most accounts would be at least a two-year potential delivery of supply into funds. I mean, I guess, why wouldn’t you take a more dramatic reduction in development at this point?

Steve, I’ll start that and I’ll turn that over to Ted to elaborate and we’ve both been involved in this on a global basis, Ted particularly in North America and more involved – and myself outside of the US. But effectively that’s what we’ve done. Beginning in September, we have done nothing but build to suit starts, and those are serving customer relationships that we’ve had for an extended period of time. We’ve also both put in – increased our expected investment yield or decreased our expected value upon completion to be conservative and those required that our teams, not only have things 100% pre-lease, but also increased our required margins substantially above where there were previously – to ask what they were previously – quite frankly at a minimum on those. So effectively, when you see our starts in Q4, and our expectation is in the first half of next year, there’ll be very few development starts again only pre-leased buildings as we assess the market conditions, but your point is well taken and something that we’ve already put into effect.

Okay. And then secondly, can you maybe – I mean Bill did a very good job outlining kind of the capacity of the funds given that there seems to be very little debt available. You have an ability to finish products and then complete it and sell it into funds using 100% equity or do these investors effectively require the use of leverage and therefore if leverage isn’t available, assets cannot be contributed?

Steve, this is Bill. According to our funds, we have the ability in our discretion to use 100% equity to fund any of the contributions, and so effectively take that one off the table. But there is debt available and I hope then sort of talking through our fund debt activity. We have lot of things that we’ve closed in the last five to six weeks. We’ve got a number of closings coming up in the coming weeks and we’ve got term sheets and commitments and other activities on other financings. And so I think the death of the refinancing market is slightly overstated at this point at low leverage. We are finding opportunities to finance the majority of these assets. Having said that, we can use all equity if we so choose and in certain instances, it may make sense to use all our equity and wait for the markets to settle down and then lever up.

And we’ll take our next question from Michael Mueller with JP Morgan.

Yes, hi. I was wondering, can you talk a little bit about if you’re going through the regions and talk about where you see the market cap rates today versus the yields that you have achieved on development, and maybe tie all that together ultimately to how you look at dividend coverage these days to the extent that gains shrink materially?

Mike, that was a good question. One that if we look at all the markets we’re in and went into great detail, we could be here an hour answering that question, but something we spend a great deal of time on. But I’ll start it and then just maybe – we try not to do too much of having multiple people answer the same question but this may be the rare exception where Ted and Sully jump in and add color or add on additional depth or detail to what I’ll go through. If you look at the US, we think that cap rates have moved 50 to 75 basis points already for Class A product building, which is the only products we have. Those are well-located in great markets with long-term strong demand. You hate to – when things look gloomy as they do today, it’s easy to lose sight of the fact that these are long-term great markets, but we think the cap rates have moved 50 to 75 basis points already. Is it a potential for them moving up further? Absolutely. How far, whether it’s 0 to another 50 or 75 basis points? Time will tell. You look at – that’s within the US and then obviously, cap rates are lower on the coast where we’ve repositioned a lot of our assets over the last few years in the California, the New Jerseys, et cetera. If you go to Europe, clearly the market that has had the most substantial cap rate movement or the greatest value diminution of any place we know, of any developed country I should say, has been the UK where we’ve seen cap rates move out in our magnitude by 30%. Things that were in the 5.5% and 5.25% range are now pushing…

And we’ll take our next question from Dave Rodgers with RBC Capital Markets.

Good morning. Thanks, guys. I wanted to follow up on an earlier question with respect to the equity take-out, not using any debts within the fund to take out contribution. What would you estimate the impact to be to the price? I’m guessing that there are certain underwriting hurdles within the funds separately. How would that impact PLD’s earnings, gains, or contribution prices in 2009? And then, Bill, if you could also address how much availability are on your warehouse lines of credit in total across the funds within the fund structure themselves?

Okay, let’s see. First answer to that is there’s no impact on the underwriting criteria or the valuation methodology, the contributions going to the fund. At the time of the contribution, they just – we do it with equity versus debt if that makes sense. So, on the next scenario, there’s no impact or change from that perspective. In terms of the availability under the funds, I think we have (inaudible). But I think we have $300 million available under the European line of credits today on PEP II, another $300 million under PEPR, and about $100 million under North America today. And again, in particular as it relates to PEP II, we have a fund bridge financing that’s committed to that will reduce the outstandings under that and free up some of that capacity as we move forward. We have financing schedule to close in Mexico next week that will free up capacity there as well.

Bill, you may want to hit – Mike had a question previously on dividend coverage.

I think we’re comfortable with our dividend coverage, we were thinking low 40’s. Previously what we’ve targeted is probably taking that up into the ends of the 50 to 60 range in 2009 and beyond – and to the extent. On the grand scheme of things, to the extent that our CDFS profitability were to come under some pressure, first and foremost, we view it as somewhat of a temporary phenomenon as we underwrite to the new environment in the future. And so you may see a little bit of that for a year, but that’s in line with what we’ve talked about historically.

And we feel good about our dividend and our coverage.

And we’ll take our next question from Jeff Miller with JMG Capital.

Thanks, it’s been asked and answered.

Thank you.

And we’ll take our next question from Chris Haley with Wachovia.

Good morning.

Good morning.

The stock market and bond market are implying a pretty significant value destruction over the last three to six months. And to tell you, the bond markets, some of your bonds are trading as if your credit (inaudible) is less than most of your peers, public and – I wanted to see if you could offer a little bit of opinion about where you see or what specifically you can offer regarding credit worthiness and cashbook potential either – not so much in your supplemental but in a separate presentation, you could come out and lay out 2009 and 2010 maturity, risks, stress test. I think that would be very helpful and in that context, you offered very good amounts of information about specific funds and maturities, but one of the questions just asked was how much capacity do you have in aggregate on your credit line? And if you were to assume those developments that you currently have in process in the unfunded amount, what would that do to your debt ratios, coverage ratios of that nature because most of those properties are not yet generating income above leverage cost. It would be helpful if you can offer any initial thoughts and any commentary regarding market activity.

Let’s see. Well, let’s just hope it’s possible, Chris. But let me just give you some color, look from the fund side, okay, what we’ve said is a worst-case scenario, if we have to do all equity on the contributions, we’ve given you what we believe is sort of perfect clarity to what the equity commitments are on those funds, and a large portion of our pipeline is covered by the equity in those funds, particularly through the next 12 months or so. And so we feel pretty good about that. In terms of the color on the cash flow and the availability, I think we’ll continually reassess and look at providing total clarity both in the supplementals and in our conference calls in terms of our liquidity position. I actually think we did a – took a giant leap forward today. So hopefully, some of what you may have wanted to know before the call, we answered on the call and we’ll certainly discuss that in more detail at (inaudible) and then, again, in what I hope to be a cleaner version of the supplemental in Q4. And so, in terms of overall liquidity, we stress test debt covenants and liquidity in a lot of different ways, and that’s why we say if you took CDFS contributions to zero and held the assets on our balance sheet, we’re in fine shape relative to all our debt covenants and leverage test, etc., etc. And so, that's sort of the draconian stress test and we feel real good about it. So if that provides or gives you any comfort, I hope so and we’ll certainly get into more detail as the months progress.

And we’ll take our next question from Jamie Feldman with UBS.

Thank you. As we look at the current CDFS pipeline, what percentage of that is 95% or 100% leased, basically ready for contribution?

Hang on a second please.

Yes. I have it.

Go ahead, Diane.

Currently, we have about $1.4 billion that is above 93% leased that are in different stages of being ready to contribute. Some of the assets are built to suit, so they are leased but it will be a while before they’re finished and then other assets are in China which currently we don’t have the fund to contribute those that are in the process of putting together the fund.

We look at the 93% plus leased as opposed to 100% as a metric, which is why we scrambled to get the 100% number which actually we could get, but it would take a couple of minutes. But we look at the 93% as the highest threshold in any of our funds to constitute a stabilized property and make contribution. It ranges from 90% to 93% depending on the fund, so that’s why we look at 93%.

We’ll take our next question from David Fick with Stifel Nicolaus.

Good morning. You've got today about $2.7 billion of land, of which roughly $1.1 million is US or North America, $1.3 million is Europe and another $400 million in Asia. That is roughly $600 million this year in the first three quarters. I guess the question is why and what didn’t you see about this market that you see today? Second, what is your forward land strategy? And third, what about write-offs given that you bought a lot of this stuff at the peak of the market, clearly you would build to a loss on some of this land today?

David, I’ll start that and I’ll turn it over to Ted. We’ve seen some growth in our land bank, that is, with good infrastructure into some sites that we’ve bought previously, that's a more substantial number than one might think. There is a tremendous amount of value creation which leads into your second or third sub point on potential impairments or loss of value. But a lot of this land, we went through the (inaudible) process. We go through infrastructure process. We had and still have significant margins from basis to – from our basis to market value and when we do that – so the way we look at our land bank, we have some really valuable parcels, particularly in the UK. Are they ready to develop today given the state of the market? No. Do we feel like we've still created value given the quality of our land and settlement, operations, and teams? Yes. And in the US, it is a similar situation. In Europe – or I should say in Asia, it’s close to being just in time with the exception, purchase of land and build the buildings, we have slowed that down as Steve’s comment was in the beginning. We slowed that down in Japan slightly, although we still feel great about our sites there. And in China, we've got a very strategic land positions there which allows us to continue to grow. Ted?

I wanted, first, to step back to Jamie's question real quickly. Diane hit on the part of the properties that we have that are over 93% leased which are the stabilized pool. In addition to that, there is another $1.1 billion of gross proceeds that are under development, so when you total the two together, we actually have $2.6 properties – gross proceeds for properties that are either under development or completed. But, yes, they are over 93% leased. I wanted to first clarify that. And then in terms of our overall – Jeff, you really touched on the majority of the response to David’s question. But I think we feel overall very good about our land positions and the buildings that we’re building. We are clearly in a rising cap rate environment, that concerning I look at our contributions this quarter and see a wide variety of properties in different locations around the world, some of which have still relatively high profit margins and frankly a couple of larger contributions that have zero margins. I think we’re going to see that type of mix and our geographic diversity is definitely coming into plan. I mean we’re seeing areas where there is still strength and we’re seeing areas of weakness, and when you blend it all together we are still above par. I mean our CDFS margins are still strong. We anticipate finishing out the year in the 18% range. That's the range that we’ve always talked about, 15% to 20% and even in these tough times as we see things tailing off, there are still areas that we are doing well.

We’ll take our next question from Michael Bilerman with Citi.

Good morning. I have got some (inaudible) as well. Jeff, I wanted to come back to the dividend again. You talked a little bit about how things have changed in mid-September where when you had reduced guidance, you also increased the dividend by 10% and you talked a lot about trying to maintain liquidity and having balance sheet leverage and if you just took your numbers for this year at 370, you have $2.30 of CDFS gain, so about $1.40 of FFO, $0.45 of CapEx, $0.40 of capitalized interest, another $0.10 deduction for straight-line rents, so I’m just trying to get my arms around how you think about the dividend in that context and why not try to maintain as much liquidity as possible and I’m not sure why your taxable net income is negative. (inaudible) you need to do, but just from a cash flow perspective, it would seem that if you start meaningfully lowering the CDFS portion which is a possibility next year, you will be overfunding the dividend by a significant extent.

Good question and I’m glad you asked it. The way we – one, I think if you look at the CDFS gains, that’s without allocating the appropriate share of overheads and we look at that, it is a much smaller percentage of our overall gains than the market has perceived it to be, and clearly it’s – we’re going to over the coming years reduce the percentage of our income that comes from transactional income or transactional type gains, and transition more to investment management model where it's annuities, both fees and returns as well as wholly-owned returns while maintaining our core of excellence within development, but doing in different ways. That being said, we feel as Bill said, very good about our overall dividend coverage everywhere we stress test. Looking forward, we feel good about it. We think it’s – yes. We think the right way forward in delevering and taking a stronger and stronger balance sheet throughout 2009 is by completing assets, as Ted said, there is an over $2.6 billion or at $2.6 billion of assets that are already leased and ready for contribution within our fund structures to continue leasing the remainder of the portfolio, make those contributions, significantly slow down or starts to limit those to only build to suits to again immediately contributable and provide net operating income. And by doing so, we find a way to delever the balance sheet significantly while maintaining the dividend. The other thing that we missed out in the whole analysis is as we dramatically decrease our development starts and continue to make contributions to our funds, we are lowering our interest expense very significantly. And that – once we put that into our model and do the stress testing that Sully was talking about, quite frankly we sleep better at night after we did all that. I know that I sleep a whole lot better at night and feel very comfortable.

Right. Just – look, again from the stress testing in point, one thing to be clear is we have a pretty sizable return capital incorporated into our dividend. And so we are in no way, shape, or form, at the level of taxable income that requires us to distribute anywhere near that but we’re comfortable with our dividend.

And we’ll take our next question from Lou Taylor from Deutsche Bank.

Thanks, and I’m ready to stay on the team here because I have the taste for the same question as Michael and Doug has, and I don’t quite understand them that, Bill. I mean, just going off on FFO number, XCDFS, color or so, that even if you were selling properties and cap rates are up so that you’re building liquidity, you’re maintaining the overhead because you are building and selling properties, but there’s no margin. You have the G&A. I mean, build us off from the $140 million into what the dividend coverage should be because it looks – the dividend looks just very, very high relative to a core FFO number, much less an FAD number. So just could you put the numbers behind it and give us some comfort here.

Yes, we’ll probably go through it mainly and walk through the whole map on that and also describing some of the – focus is on the stress test side of effort but coming from a stress test standpoint and in grasping of things if we divide – were not contribute properties into the property fund it is basically a gain. We become a very sizable portfolio high quality real estate with great NOI underneath it, collecting rent and managing our business and that provides substantial cash flow much like in – and under that scenario we have a substantially higher dividend pay off ratio but more in line with traditional reviews And so, again, we all constantly look at the opportunities and the issues associated with the deal with, and take those lines into account.

Operator, we’ll take two more questions.

I will take our next question from Mark Streeter with JP Morgan

Gentlemen, good afternoon, I’m on the team. I have a question, a couple of questions. Number one is really for Bill and Jeff on your strategy and how you’re managing the market’s perception of the company. It’s clearly – the credit market has lost space in the company’s credit worthiness falling up on Chris Haley’s comments. And I’m wondering, you should have waited for the conference call here to give some more disclosure on the credit side in funding and liquidity. Yet, I’ve spoken to a lot of your bondholders who are disappointed that you haven’t come out swinging earlier. And I’m wondering if you can talk a little bit about the decision for how you’re managing the perception.

Mark, like I said, if you look at the focus of our call today, if you look at the focus of the company, if you talk to any of our people around the world – whether you talked to our people in Asia and North America and Europe, everything, our entire focuses on managing our portfolio, leasing up are pipeline, which you can see the result of that with our – our pipeline reaching a 540 basis points on one quarter alone with reduction the size of the pipeline. The drastic reduction in any development starts, and again, focus only on pre-lease with strong credit. And if you look at the focus and tone of our call today, it is all focused upon managing the company, strengthening the balance sheet, reducing leverage, increasing liquidity, and being not just a survivor out of this economic/financial crisis that is going on around the world. Not just – but be the strongest survivor and be there to take advantage of opportunities when things recover. But we are solely focus on this. It’s exceptionally important, not just to the people in this room on the call today, but to every one of our associates throughout the world, and they’re all fully committed to making this very successful and very strong.

But let me comment as well, Mark. Just – on virtually every conference call that we had, and every investor presentation that we’ve done including the Merrill Lynch conference in September about the same time as our guidance revision then therein. We have focused on our liquidity and the fact that we have strong liquidity, that we have our maturities well under control that we’ve done a good job in re-financing our fund-related debt, et cetera. And whether people chose not to listen or not to pay attention and to take things to extreme, I think there was a perception that will focus on 2009 with the Global Line maturity, and we’ve said for the better part of the year that that line is extendable in 2010, we’re going to do that et cetera. The other side of it is, we ramped up pretty quickly and it’s a testament of the company in terms of its ability to ramp up for development activity, et cetera, particularly in the merging markets. On the other hand, we’ve been able to ramped down and the – if you look at our pipeline, we took it down by $400 million in one quarter. We had a 530 basis points for leasing side of that equation through a very deliberate and exerted efforts, and we’re telling everybody we have the capacity to turn this thing much quicker than people might have otherwise imagine. And so, we’re going to do a lever, and we’re pretty excited about it.

And we’ll take our last question from Mitch Jermaine [ph] with Bank of America Securities.

Hey guys. Bill, what’s the comprising you’re getting quoted from the West companies and if you can just confirmed on the current terms of the global credit line, do they stay upon extension?

Yes, we have to pay a one time fee which I think is 0.75 basis points for the extension.

Okay great.

In terms of pricing, on the various financing today, and again, you got to keep things in strive relative to any day or point in time. For example, we talked about the facility coming due in NA2 in January. We rate lock [ph] on that about two weeks ago. It’s a 6.3% coupon, 10-year interest only maturity in 58% loan-to-value. And so, it’s pretty good indication in the fine brief [ph] market today, the pricing that might have been a 120 basis points six months ago, is right now closer to 175 basis points in that market –

Which is still very good.

– but you still – you swap that to fix and you’re below six. And so, that the pricing down the secured debt – now, on the other side, in the life company market today, there are a variety of people out there and they’re saying, “Hey, 7% is my floor.” And so, certainly, that spread some gap out a little bit, but the base rent is coming down. And so, the overall pricing in the secured market is not unattractive in today’s world.

Comment.

What’s that?

Remember the comment on Japan also.

Yes, Japan made all the spreads some gap out, but we’re still in the mid-two’s, overall.

Overall.

And so, there’s a tremendous positive spread investment on the development activity there as well. The banking of communications line was a great example of the PBLC rate which is about as good as you can do in Chapman. And so, we feel pretty good about it.

Well, we’d like to thank everyone. We appreciate your time. We’re excited about what we need to accomplish and know what we need to accomplish, and fully committed and resolve to not – to surviving this economic storm but not just surviving it. Surviving it is the strongest survivor as we grow through this. Thank you all for your time.

This concludes today’s conference. A replay of this call will be available today, October 23, at 12:00 Central until November 7 at 12:00 Central. You may ask us the replay by dialing 1-888-2031112 or 719-457-820 and entering 3691428. Again, thank you for your participation on today’s call. Have a great day.