Photo by Stephen Collector

Jeffrey Schwartz on global distribution success
[November/December 2007]

By Lorna Pappas

CLOSE UP

AGE: 48 EDUCATION: B.A. business administration, Emory University; MBA, Harvard Business School FAMILY: Wife and four children, ages five to 21 HOBBIES: Working out, reading, spending quality time with his family FAVORITE SPORTS TEAM: Philadelphia Eagles PROFESSIONAL AND COMMUNITY ACTIVITIES: Second vice chair of NAREIT; Trustee of the non-sectarian National Jewish Hospital

Jeffrey Schwartz's skill in real estate development and finance, along with his strong interest in multiple cultures, has propelled him from partner in a small industrial real estate company to chairman and CEO of ProLogis, Inc. (NYSE: PLD).

The company is one of the world's largest global providers of distribution facilities and services with $29.9 billion of assets as of June 30 and operations in 20 countries and 105 markets across Asia, Europe and North America. That global presence has Schwartz averaging 600,000 worldwide flight miles per year.

ProLogis, a Fortune 1000 company and member of the S&P 500, retains a portfolio of more than 2,500 properties consisting of more than 446 million square feet. In 2006, the REIT saw its 13th consecutive year of dividend growth and projected a 15 percent increase in 2007. Its results for the first six months of 2007 showed a 33.9 percent increase in funds from operations (FFO) to $2.41 per diluted share, up from $1.80 in the first six months of 2006.

With continuous stable growth, impressive financial results and an unparalleled market position gaining strength each year, it's no surprise that Schwartz was named "2006 Developer of the Year" by Commercial Property News and ProLogis was ranked "Number One in Real Estate" on

Fortune magazine's 2007 list of "America's Most Admired Companies." After quite a successful year, Schwartz took time from his busy travel schedule to speak about the company's accomplishments with Portfolio.

Portfolio: What are the benefits to investing in worldwide distribution facilities?

Schwartz: Worldwide supply chains are getting very complex. Globalization drives demand for new types of distribution centers and new locations all around the world.

More than 90 percent of global trade now moves by sea. In the world's top 15 container ports, which include Hamburg, Hong Kong, Los Angeles, New York, Rotterdam and Shanghai, annual container volume has tripled in the past 11 years, further advancing supply chain length and complexity.

As consumer demand grows stronger for products suited to unique and individual preferences, a proliferation of product type has driven huge changes in distribution networks, as retailers strive to improve product availability and reduce operating costs.

These and other factors create a healthy market for an infrastructure provider like ProLogis to support the logistics facilities that provide this global trade.

Portfolio: How will the acceleration of global trade impact ProLogis?

Schwartz: Distribution properties are very stable, with almost no financial obsolescence, unlike office, residential and hotel real estate. A functional, well-designed, 30-year-old industrial warehouse will still lease for 90 percent to 95 percent of the rent that a brand new building does, with few capital expenses. This stability has led to profits of more than $640 million for ProLogis so far this year.

Massive growth in global trade translates to higher asking rents. For example, in the Port of Long Beach, our 40 million square feet of properties are 99.8 percent leased, with a 10 percent growth in rents expected over the next three years—all driven by global trade.

As global trade continues to grow—now increasing three times faster than worldwide GDP—investment in industrial warehousing and distribution facilities is promising.

Portfolio: What are the company's specific strengths in the industrial market?

Schwartz: ProLogis has a fully global operating platform in the real estate business, with the ability to serve multiple, large-scale customers on several continents. We have the leading market position in the distribution facilities segment, operating in 20 countries that account for 80 percent of the world's GDP.

The breadth and balance of ProLogis' geographic operations are among our most important strategic advantages. They help us better serve customers' needs, mitigate the effects on us of any single country's economy and drive financial performance.

Additionally, we are adamant about serving only the best customers with the highest quality credit and operating in strong, stable markets with large economies. This strategy has been very powerful from a value-creation standpoint.

Our presence in major logistics markets, our diverse sources of income, and broad customer and geographic base combine to create a stable platform from which we pursue new opportunities to build and grow our business.

Portfolio: How have the challenges in your market changed over the years?

Schwartz: Going back 14 years, there was only local competition. There were no national industrial property developers, let alone global ones. Our customers are mostly are global, so we have scaled our company to serve them.

In the last two years, capital has flowed into the real estate markets, but some people aren't associating the right premium with the risk. Institutional investors are looking at development in areas like Eastern Europe and South America and are not ascribing the appropriate currency or political risk to those investments.

Quality is changing the yield/risk ratio. This past summer, we saw a meltdown in the subprime markets, with losses due to low quality credits. ProLogis stood as a beneficiary. As I mentioned, our customers have very high credit ratings and we do business in the world's strongest markets. We continue to be disciplined in this investment approach.

Portfolio: Are there any new expansion activities on the horizon?

Schwartz: We are researching India, where we see significant, long-term opportunities. We have a small office there, but are taking our time to ensure we execute and operate in the most efficient manner possible.

When we do establish ourselves in India, we will be doing business in countries that account for more than 90 percent of the world's GDP. Thus, the majority of our subsequent growth will come from increasing our platform and market share in these countries, rather than expanding into others.

Portfolio: One of your company's missions is to create an optimal balance between shareholder value, the environment and corporate social responsibility. What is your approach to achieving this balance?

Schwartz: Three years ago, we created a sustainability initiative in the United States, an extension of a program we've had running in Europe and Japan for more than a decade.

We are an early U.S. adopter and leader in creating and implementing sustainable technology in building designs. We are the first U.S. real estate company to issue a sustainability report certified by the Global Reporting Initiative and the first to join the Chicago Climate Exchange. Additionally, we have pledged to be carbon neutral in our business operations through 2010.

We have found that more of our global customers have massive sustainability issues and desire buildings that satisfy these interests. Our newer properties now include recycled materials, energy-efficient lighting, solar and wind power, low-usage water and landscaping systems, airtight construction, and more environmentally friendly features. Sustainability is now a global endeavor for us—it's part of the fabric of the company.

Portfolio: You have been with the company since 1994, but can you discuss your career and what events brought you to your current position as chairman and CEO of ProLogis?

Schwartz: After college graduation, I spent two years on the taxation team at Arthur Anderson. After I earned my MBA, I became a junior partner in an industrial development company in Atlanta. Three years later, a partner and I established The Krauss/Schwartz Company, which we grew in six years into the largest owner and developer of industrial property in the state.

In 1994, we merged with ProLogis, after which I managed ProLogis' development business. We went public that same year, owning less than $1 billion of U.S. industrial properties. In 1996, I initiated ProLogis' international platform, starting in Mexico. Then, I moved to Europe for four years to start the business there. In 2002 we began our business in Japan, and the next year we initiated operations in China. I became CEO in January 2005 and chairman in May 2007.

Portfolio: With all your world travels, what are your favorite things here at home?

Schwartz: I am the eldest of five boys. We grew up outside of Philadelphia, in Cherry Hill, N.J. After years of traveling the U.S. and the world, I remain a diehard Philadelphia Eagles fan.

I inherited my mother's commitment to family. Today, I am dedicated to my wife, three adult children and five-year-old daughter. Since I travel so much, my favorite vacations are the ones at home.

I inherited my father's strong marketing in people skills, combining these traits with my deep interest and enjoyment of other cultures. What intellectually motivates me each morning is the opportunity to interact with various people, develop great buildings, service high-class customers and deliver a payback to ProLogis stakeholders and their communities worldwide.