Optimistic perspective ProLogis’s president for Europe Philip Dunne tells Noella Pio Kivlehan how the company’s huge landbank and access to funds puts it in pole position for expansion post-recession
The market perception of Philip Dunne is of a decent man “who gets on with the job”, but talking to ProLogis’s president for Europe in the small Mayfair office that serves as his company’s London HQ, the overriding impression is of a man on a mission to instil optimism into a deflated market.
“I am optimistic”, says Dunne, speaking with an Irish accent softened by many years living in the UK and Europe. “But I don’t want that to be misread as saying ‘everything is fine’. Trade volume won’t grow until mid to late 2010, and it won’t be uniform. But yes, I am bullish because ProLogis is now well positioned to operate in these challenging times. It’s difficult, but the opportunities are there to be had.”
Many players in the market would understand why Dunne, who was appointed president in April, is cautious about references to the fabled “green shoots”. The recession has ripped the heart out of the shed market, with development, occupancy and investment hit hard. And ProLogis, previously a giant gobbling up sites and spitting out schemes with relish, crumbled before their eyes.
Last year, the company saw 90% wiped off its share price as it halted speculative development as part of plans to pay back £1.35bn in debts by the end of this year. However, the turnaround has begun. ProLogis’s company results for Q3, released two weeks ago, corroborate Dunne’s optimism.
In its results, issued from its global HQ in Denver, Colorado, ProLogis announced that major elements of its deleveraging plan are complete, and that significant progress has been made on its development portfolio leasing.
“We have raised over $5bn in liquidity, which came through raised equity/asset sales and contributions of assets into our funds,” says Dunne. “We have used $3bn to reduce debt, and we are well ahead of our target. We have managed to renegotiate and extend our global warehouse line for $2.25bn.
“This is tremendous progress with our balance sheet. What it means is that we can now turn our attention to growing our business and leveraging the strength we have through our landbank. Any business that has been able to execute its plans like ProLogis has is in a very strong position to take advantage of the opportunities in the market.”
He adds: “It’s flicking the switch from deleverage to growth, and through our landbank and access to capital, we will achieve that. We will be growing our portfolio and growing our development business.”
Speaking at the EG European Industrial & Distribution Summit in Amsterdam three weeks ago, Dunne told delegates that ProLogis had “a hell of a landbank”. In fact, the company has more than 1,230 acres in the UK and around 2,720 acres in the rest of Europe.
Dunne says ProLogis has “the biggest landbank in every market we exist and operate in”. He adds that this is a strength for the company because, when the market comes back fully, it will have the land on which to start developing.
When asked at the summit whether he saw a return to speculative development, Dunne replied: “Absolutely. Many developers are sitting on expensive land. The fundamentals will come back, and we have already seen that happening.” He forecast that 2012 will be the year when speculative development would return.
Back in Mayfair, Dunne qualifies his remarks, saying: “Our whole focus from now is on developing a prelet business with key existing and new target customers, and that will be the market for some time to come.
“Speculative development will come back to the markets that have no supply. But there is no market on the map that has no supply or is undersupplied, so spec build is quite some way away. Demand will be the driver.” He adds: “As long as we have the strength of the landbank we have, then we can respond to customers’ needs.”
Dunne was an agency man before joining ProLogis in 1994. He spent 14 years with Jones Lang LaSalle, reaching the position of chief operating office, EMEA, before the developer enticed him into becoming its chief operating and finance officer for Europe, and then president. “I had no desire to leave JLL. I was very happy doing what I was doing, but it was a once-in-a-lifetime opportunity.”
Key focus
One of the reasons that helped Dunne move was what he considered to be the similarities between the two companies. “ProLogis is an asset-driven business and has a similar culture to JLL. Both have market leading teams, a strong culture of leadership and are driven by results,” he says. “Common to them both is a key focus on customers. ProLogis lives and breathes that relationship with our customers.”
Customers are clearly happy, as they have started taking more space within the company’s buildings.
“Retailers are becoming more active in the UK and Germany, and while there are still tough times for all of us, we are seeing more activity than we did six months ago,” says Dunne.
“For us, the focus is on leasing our development pipeline. We were just over 40% leased at the beginning of the year, and will be more than 60% at the end of the year. For our target in Europe, we are at 55% at the end of Q3 and we will be 62+% at the end of the year.”
He adds that ProLogis has “signed 16.7m sq ft of deals so far this year across Europe, of which 2.6m sq ft is in the UK. Of the total 16.7m sq ft, 5.5m sq ft has been in our newly developed pipeline buildings, of which over 1m sq ft is in the UK”.
However, Dunne is at pains to point out that, while ProLogis’s focus has been on occupancy, it is “not at any cost. We have been concentrating on responding to occupiers’ needs relative to the market, as clearly a full building is better than an empty building, and we have given appropriate incentives to attract customers”.
As to how the world will look post-recession, Dunne believes the core demand drivers will be the same, but they will emerge differently.
“It will be different, and we are figuring out what that means,” he says. However, he adds that the company is keen on acquisitions: “There is potential for acquisition. We have equity in our PEP II fund, and there are bubbles of activity across Europe. While we haven’t yet made any acquisitions it is something that we are constantly looking at.”
One acquisition the company did not want was Brixton, which was bought by SEGRO in September. “While we are always looking at opportunities, we just didn’t feel that Brixton was a good fit for us relative to our existing UK portfolio,” says Dunne.
With Dunne’s enduring optimism there will, no doubt, be chances for many other purchases in the future.
CV: Philip Dunne
1994 Joins Jones Lang LaSalle, rising to chief operating officer EMEA
2008 Joins ProLogis as chief operating and finance officer for Europe
2009 Takes over as president for Europe from Gary Anderson, who was promoted to head of global investment management
Lifestyle He is married with two boys, aged seven and five
Twelve years of European growth
ProLogis arrived in Europe in 1997, basing its headquarters in Amsterdam. The company, which has 123.4m sq ft of distribution space in 51 markets, has since expanded into 15 countries across Northern, Southern and Central Europe.
In 2006, the developer launched an initial public offering to become the largest company ever to be listed on the Amsterdam Stock Exchange.
ProLogis’ growth in Europe has been driven by customer demand. As a result, the company has created a pan-European distribution network for some of the continent’s largest manufacturers, retailers and third-party logistics providers.
Recent deals include:
October 150,000 sq ft at Eurohub Corby let to Kenmark Group, plus a total of 227,000 sq ft let at ProLogis Park Neuenstadt in Germany
September 500,000 sq ft at ProLogis Park Kingston let to Amazon.co.uk for the Christmas period
