Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13545
AMB PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 94-3281941
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
505 MONTGOMERY ST., SAN FRANCISCO, CALIFORNIA 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 394-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
8 1/2% SERIES A CUMULATIVE (NAME OF EXCHANGE ON WHICH REGISTERED)
REDEEMABLE PREFERRED STOCK
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common shares held by non-affiliates of the
registrant (based upon the closing sale price on the New York Stock Exchange) on
March 1, 2000 was approximately $1,621,684,040.
As of March 1, 2000, there were 85,288,716 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference the Registrant's Proxy Statement for its
Annual Meeting of Stockholders which the Registrant anticipates will be filed no
later than 120 days after the end of its fiscal year pursuant to Regulation 14A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PART I
ITEM 1. BUSINESS
GENERAL
AMB Property Corporation, a Maryland corporation, is one of the leading
owners and operators of industrial real estate nationwide. Our investment
strategy is to become a leading provider of High Throughput Distribution, or
HTD, properties located near key passenger and air cargo airports, key
interstate highways and ports in major metropolitan areas, such as Atlanta,
Chicago, Dallas/Fort Worth, Northern New Jersey, the San Francisco Bay Area and
Southern California. Within each of our markets, we focus our investments in in-
fill submarkets. In-fill submarkets are characterized by supply constraints on
the availability of land for competing projects. High Throughput Distribution
facilities are designed to serve the high-speed, high-volume freight handling
needs of today's supply chain, as opposed to functioning as long-term storage
facilities. We believe that the rapid growth of the air-freight business, the
outsourcing of supply chain management to third party logistics companies and
e-commerce are indicative of the changes that are occurring in the supply chain
and the manner in which goods are distributed. We intend to focus our investment
activities primarily on industrial properties that we believe will benefit from
these changes.
As of December 31, 1999, we owned and operated 724 industrial buildings and
9 community shopping centers, totaling approximately 66.8 million rentable
square feet, located in 24 markets nationwide. As of December 31, 1999, these
properties were 95.9% leased. As of December 31, 1999, through our subsidiary,
AMB Investment Management, we also managed 46 industrial properties and retail
centers, aggregating approximately 4.6 million rentable square feet, which were
97.4% leased, on behalf of various institutional investors. In addition, we have
invested in 36 industrial buildings, totaling approximately 4.0 million rentable
square feet, through an unconsolidated joint venture.
During 1999, we initiated a plan to dispose of substantially all of our
retail centers. In three separate transactions with BPP Retail, LLC, a
co-investment entity between Burnham Pacific and the California Public
Employees' Retirement System, we disposed of a total of 25 retail centers,
aggregating approximately 4.3 million rentable square feet, for an aggregate
price of $560.3 million. We also disposed of an additional five retail centers,
totaling approximately 1.1 million rentable square feet, during 1999. As of
December 31, 1999, we had four additional retail centers, aggregating
approximately 1.2 million rentable square feet, which were held for divestiture.
In addition, during 1999, we disposed of 15 industrial buildings,
aggregating approximately 1.2 million rentable square feet, for an aggregate
price of approximately $39.6 million. As of December 31, 1999, we had four
industrial buildings, aggregating approximately 0.3 million rentable square
feet, which were held for divestiture. Over the next few years, we currently
intend to dispose of non-strategic assets and redeploy the resulting capital
into High Throughput Distribution properties that better fit our current
investment focus.
During 1999, as part of our Institutional Alliance Program, we formed AMB
Institutional Alliance Fund I, L.P., a multi-investor fund including 14 pension
funds, foundations and endowments that co-invested with us. As of December 31,
1999, the Alliance Fund I had a total equity commitment from third party
investors totaling $150 million, which, when combined with debt financings and
our investment, creates a total committed capitalization of approximately $375
million. The Alliance Fund I's investment objectives parallel our strategy of
acquiring and developing industrial distribution facilities in major U.S. cities
near airports, ports and key interstate highways. We also formed AIG AMB
Greenfield Investment Alliance, L.L.C., a joint venture with AIG Global Real
Estate Investment Corp. Each of AMB and AIG Global Real Estate Investment Corp.
committed $50 million to the Greenfield Alliance to acquire and develop
environmentally impaired properties in major U.S. markets, with particular
emphasis on acquiring undervalued industrial properties with environmental
issues located near major airports, ports and intermodal locations.
Through our subsidiary, AMB Property, L.P., a Delaware limited partnership,
we are engaged in the acquisition, ownership, operation, management, renovation,
expansion and development of primarily industrial properties in target
industrial markets nationwide. We refer to AMB Property, L.P. as the operating
1
3
partnership. As of December 31, 1999, we owned an approximate 95.0% general
partnership interest in the operating partnership, excluding preferred units. As
the sole general partner of the operating partnership, we have the full,
exclusive and complete responsibility and discretion in the day-to-day
management and control of the operating partnership.
We are self-administered and self-managed and expect that we have qualified
and will continue to qualify as a real estate investment trust for federal
income tax purposes beginning with the year ending December 31, 1997. As a
self-administered and self-managed real estate investment trust, our own
employees perform our administrative and management functions, rather than our
relying on an outside manager for these services. The principal executive office
of AMB Property Corporation and the operating partnership is located at 505
Montgomery Street, San Francisco, California 94111, and our telephone number is
(415) 394-9000. We also maintain a regional office in Boston, Massachusetts. As
of December 31, 1999, we employed 145 individuals, 109 at our San Francisco
headquarters and 36 in our Boston office.
Unless the context otherwise requires, the terms "we," "us," "our" and
"AMB" refer to AMB Property Corporation, the operating partnership and the other
controlled subsidiaries and the references to AMB Property Corporation include
the operating partnership and the other controlled subsidiaries. The following
marks are our registered trademarks: AMB(R); Customer Alliance Program(R);
Development Alliance Partners(R); Development Alliance Program(R); Institutional
Alliance Partners(R); Management Alliance Partners(R); Management Alliance
Program(R); UPREIT Alliance Partners(R); and UPREIT Alliance Program(R). The
following are our unregistered trademarks: Broker Alliance Partners(TM); Broker
Alliance Program(TM); Customer Alliance Partners(TM); eSpace(TM); HTD(TM); High
Throughput Distribution(TM); Institutional Alliance Program(TM); iSpace(TM);
Strategic Alliance Partners(TM); and Strategic Alliance Programs(TM).
OPERATING STRATEGIES
We are a full-service real estate company with in-house expertise in
acquisitions, development and redevelopment, asset management and leasing,
finance and accounting and market research. We have long-standing relationships
with many real estate management and development firms across the country
through our Strategic Alliance Programs, which provide local property
management, leasing and development services to us on a fee basis or in
development partnerships. We believe that real estate is fundamentally a local
business and that the most effective way for a national company such as us to
operate is by forging alliances with the best available partners in each of our
markets.
STRATEGIC ALLIANCE PROGRAMS
Our Strategic Alliance Programs are designed to build value by creating
mutually beneficial relationships. We believe that our strategy of forming
strategic alliances with local and regional real estate experts improves our
operating efficiency and flexibility, strengthens customer satisfaction and
retention and provides us with growth opportunities. Additionally, our strategic
alliances with institutional investors enhance our access to private capital and
our ability to finance transactions.
Our six Strategic Alliance Programs can be grouped into two categories:
- Operating Alliances, which allow us to form relationships with local or
regional real estate experts, thereby becoming their ally rather than
their competitor; and
- Investment Alliances, which allow us to establish relationships with a
variety of capital sources.
OPERATING ALLIANCES
Broker Alliance Program: Through our Broker Alliance Program, we work
closely with top local leasing companies in each of our markets, which brokers
provide us with access to high quality customers and local market knowledge.
2
4
Customer Alliance Program: Through our Customer Alliance Program, we seek
to build long-term working relationships with major customers. We are committed
to working with our customers, particularly our larger customers with multi-site
requirements, to make their property searches as efficient as possible.
Development Alliance Program: Our strategy for the Development Alliance
Program is to form alliances with local development firms to jointly acquire,
renovate and develop properties to serve our customers' needs.
Management Alliance Program: Our strategy for the Management Alliance
Program is to develop close relationships with, and outsource property
management to, local property management firms that we believe to be among the
best in each of our markets. Our alliances with local property management firms
increase our flexibility, reduce our overhead expenses and improve our customer
service. In addition, these alliances provide us with local market information
related to customer activity and investment opportunities.
INVESTMENT ALLIANCES
Institutional Alliance Program: Our strategy for the Institutional Alliance
Program is to form alliances with institutional investors, which provide us with
access to private capital, including during those times when the public markets
are less attractive, and also provide us with a source of incremental fee income
and investment returns. This program allows our Institutional Alliance Partners
the opportunity to co-invest with us and to receive professional investment
management of their real estate assets.
UPREIT Alliance Program: Through our UPREIT Alliance Program, we issue
limited partnership units in the operating partnership to certain property
owners in exchange for properties, thus providing additional growth for the
portfolio.
NATIONAL PROPERTY COMPANY
We own properties in 24 industrial markets throughout the U.S. We believe
that our national strategy enables us to:
- increase or decrease investments in certain regions to take advantage of
the relative strengths in different real estate markets;
- retain and accommodate customers as they consolidate or expand; and
- build brand awareness as well as customer loyalty through the delivery of
consistent service and quality product.
RESEARCH-DRIVEN, SELECT MARKET FOCUS
Within each of our markets, we focus on acquiring, redeveloping and
operating industrial properties in in-fill submarkets and within close proximity
to major passenger and air cargo airports, seaports or major highway systems. As
the strength of these markets continues to grow and the demand for well-located
properties increases, we believe that we will benefit from an upward pressure on
rents resulting from the increased demand combined with the relative lack of new
available space. Our decisions regarding the deployment of capital are
experience- and research-driven, and are based on thorough qualitative and
quantitative research and analysis of local markets. We employ a dedicated
research department using proprietary analyses, databases and systems.
We intend to focus our investment activities on HTD properties located in
the six largest industrial markets in the U.S., which dominate national
warehouse distribution activities -- Atlanta, Chicago, Dallas/ Fort Worth,
Northern New Jersey, the San Francisco Bay Area and Southern California -- as
well as properties located near major passenger and air cargo airports, seaports
or convenient to major highway systems. We also invest in selected regional
distribution markets including Boston, Houston, Miami, Minneapolis, Seattle and
Baltimore/Washington, D.C. We focus on these established industrial markets
because we believe they offer large and broadly diversified customer bases that
provide greater demand for properties over market cycles than secondary markets.
The in-fill submarkets in which we invest within these markets also typically
have significant barriers to new construction, including geographic or
regulatory supply
3
5
constraints, and these markets typically benefit from an access to large labor
supplies and well-developed transportation networks. In addition, we believe
that these markets will benefit from the changes occurring in the supply chain.
DISCIPLINED INVESTMENT PROCESS
Over our 17-year history, we have established a disciplined approach to the
investment process. The investment process is subject to the overall policy
direction of our management's investment committee. The stages in the investment
process are highly integrated, with investment committee review at critical
points in the process.
Approval of each investment is the responsibility of our management's
investment committee with sponsorship from both an acquisitions officer and the
regional manager who will be responsible for managing the property. The initial
investment recommendation is thoroughly evaluated, with approval required in
order to proceed to contract and full due diligence. The terms of the
acquisition and its structure are determined as part of the initial approval and
are the responsibility of the acquisitions officer. The regional manager is
involved in providing and verifying underwriting assumptions and developing the
operating strategy. After the due diligence review and before removing
conditions to the contract, a final recommendation from our management's
investment committee is prepared by the acquisition and asset management team.
Our management's investment committee conducts a complete review of the
information developed during the due diligence process and either rejects or
gives final approval.
On an annual basis, each regional manager, with input from our research
department and the support of the acquisition officer with responsibility for
the applicable market, prepares a strategic plan for each of our significant
markets, which plan is presented to and reviewed by our investment committee.
Each strategic plan reviews the conformity of each of our properties with our
investment strategy and provides the basis for our acquisition and divestiture
strategies. We intend, over time, to strategically divest properties that do not
conform with our current investment focus.
We have also established proprietary systems and procedures to manage and
track a high volume of acquisition proposals, transactions and important market
data. This includes an on-line open issues database that provides us with
current information on the status of each transaction, highlighting the issues
that must be addressed prior to closing, and a database that includes and
compiles data on all transaction proposals and markets reviewed by us.
FINANCING STRATEGY
In order to maintain financial flexibility and facilitate the rapid
deployment of capital over market cycles, we intend to operate with a
debt-to-total market capitalization ratio of approximately 45% or less, although
our organizational documents do not limit the amount of indebtedness that we may
incur. Additionally, we intend to continue to structure our balance sheet in
order to maintain investment-grade ratings. We also intend to keep the majority
of our assets unencumbered to facilitate such ratings. As of December 31, 1999,
our debt-to-total market capitalization ratio was approximately 35.2% and our
debt-to-total book capitalization ratio was approximately 35.9%. We calculate
our debt-to-total market capitalization ratio by adding our share of
consolidated debt to our share of unconsolidated joint venture debt and dividing
by our total market capitalization, including preferred stock and preferred
units. We calculate our debt-to-total book capitalization ratio by dividing our
share of total debt by the sum of our total debt plus total equity and preferred
stock recorded at book value.
We have a $500 million unsecured revolving credit agreement with Morgan
Guaranty Trust Company of New York as agent, and a syndicate of twelve other
banks. The credit facility bears interest at a rate equal to LIBOR plus 90 to
120 basis points, depending upon our then current debt rating (currently LIBOR
plus 90 basis points). We presently plan to use available borrowings under our
unsecured credit facility for property acquisitions, developments and for
general corporate purposes. As of December 31, 1999, the available borrowings
under our unsecured credit facility were $417.0 million. See "Management's
Discussion and
4
6
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Item 14. Note 5 of Notes to Consolidated Financial
Statements" included in this report.
We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of our
properties will include cash flow from operations, borrowings under our
unsecured credit facility, other forms of secured or unsecured financing,
proceeds from equity or debt offerings by us or the operating partnership
(including issuances of units in the operating partnership or its subsidiaries)
and proceeds from divestitures of properties. Additionally, our co-investment
program will also serve as a significant source of capital for acquisitions and
developments.
AMB INVESTMENT MANAGEMENT
Prior to our initial public offering in November 1997, we provided real
estate investment advisory services to institutional investors. In connection
with our initial public offering, AMB Investment Management, Inc., a Maryland
corporation, was formed to continue our investment management business of
providing real estate investment management services on a fee basis to clients.
At that time, the operating partnership acquired all of the non-voting preferred
stock of AMB Investment Management, representing an approximate 95% economic
interest in AMB Investment Management. All of the common stock of AMB Investment
Management, representing an approximate 5% economic interest in AMB Investment
Management, is owned by our current or former executive officers and a former
executive officer of AMB Investment Management. AMB Investment Management, Inc.
conducts its operations through AMB Investment Management Limited Partnership, a
Maryland limited partnership, of which it is the sole general partner. We intend
to grow this business through our co-investment program.
We co-invest with clients of AMB Investment Management, to the extent such
clients newly commit investment capital, through partnerships, limited liability
companies or joint ventures. We currently use a co-investment formula with each
client whereby we will own at least a 20% interest in all ventures. During 1999,
we consummated two co-investments. The first was a separate account
co-investment venture, in which we own an approximate 50% interest, with total
gross book value at December 31, 1999 of approximately $159.7 million. The
second was a co-investment fund, in which we owned at December 31, 1999 an
approximate 25% interest, with total gross book value at December 31, 1999 of
approximately $98.5 million. In general, we control all significant operating
and investment decisions in our co-investment entities.
STRATEGIES FOR GROWTH
We intend to achieve our objectives of long-term sustainable growth in net
operating income, or NOI, and maximization of long-term stockholder value
principally by growth through:
- operations, resulting from rent increases, maintenance of above-average
occupancy rates and implementation of expense controls;
- continued property acquisitions and capital redeployment through
strategic divestitures of properties; and
- renovation, expansion and development of selected properties.
GROWTH THROUGH OPERATIONS
We seek to generate internal growth through rent increases on existing
space and renewal on re-tenanted space, by maintaining a high occupancy rate of
our properties and by controlling expenses by capitalizing on the economies of
owning, operating and growing a large national portfolio. As of December 31,
1999, our industrial properties and retail centers owned as of that date were
95.9% leased and 92.4% leased, respectively. During the 12 months ended December
31, 1999, we increased average base rental rates (on a cash basis) by 12.5% from
the expiring rent for that space, on leases entered into or renewed during such
period, representing 7.7 million rentable square feet. Annualized base rent
represents the monthly contractual amount under
5
7
existing leases at the end of the year, multiplied by 12. This amount excludes
expense reimbursements, rental abatements and percentage rents.
GROWTH THROUGH ACQUISITIONS AND CAPITAL REDEPLOYMENT
We believe that our significant acquisition experience, our alliance-based
operating strategy and our extensive network of property acquisition sources
will continue to provide opportunities for external growth. We believe that our
relationship with third party local property management firms through our
Management Alliance Program also will create acquisition opportunities as such
managers market properties on behalf of sellers. Our operating structure also
enables us to acquire properties through our UPREIT Alliance Program in exchange
for limited partnership units in the operating partnership, thereby enhancing
our attractiveness to owners and developers seeking to transfer properties on a
tax-deferred basis. In addition to acquisitions, we seek to redeploy capital
from non-strategic assets into properties that better fit our current investment
focus.
Between January 1, 1999 and December 31, 1999, we disposed of 29 retail
centers and 15 industrial buildings and re-invested approximately $471.9 million
(including our share of co-investments) in:
- 154 industrial buildings, aggregating approximately 8.4 million rentable
square feet; and
- $7.8 million in an unconsolidated limited partnership joint venture for
the development of an industrial property, totaling approximately 0.5
million rentable square feet upon completion.
Of the total investment during such period, we invested approximately
$235.0 million through our UPREIT Alliance Program, approximately $59.0 million
through our Institutional Alliance Program, $39.1 million through our Management
Alliance Program, and $8.9 million through our Development Alliance Program .
We are generally in various stages of negotiations for a number of
acquisitions, which may include acquisitions of individual properties, large
multi-property portfolios and other real estate companies. There can be no
assurance that we will consummate any of these acquisitions. Such acquisitions,
if we consummate them, may be material individually or in the aggregate. Sources
of capital for acquisitions may include undistributed cash flow from operations,
borrowings under the credit facility, other forms of secured or unsecured
financing, issuances of debt or equity securities by us or the operating
partnership (including issuances of units in the operating partnership or its
subsidiaries), proceeds from divestitures of properties, and assumption of debt
related to the acquired properties.
GROWTH THROUGH DEVELOPMENT
We believe that renovation and expansion of value-added properties and
development of well-located, high-quality industrial properties should continue
to provide us with attractive opportunities for increased cash flow and a higher
rate of return than we may obtain from the purchase of fully leased, renovated
properties. Value-added properties are typically characterized as properties
with available space or near-term leasing exposure, properties that are
well-located but require redevelopment or renovation, and occasionally
undeveloped land acquired in connection with another property that provides an
opportunity for development. Value-added properties require significant
management attention and/or capital investment to maximize their return. We have
developed the in-house expertise to create value through acquiring and managing
value-added properties and believe our national market presence and expertise
will enable us to continue to generate and capitalize on these opportunities.
Through our Development Alliance Program, we have established strategic
alliances with national and regional developers to enhance our development
capabilities.
The multidisciplinary backgrounds of our employees provide us with the
skills and experience to capitalize on strategic renovation, expansion and
development opportunities. Several of our officers have extensive experience in
real estate development, both with us and with national development firms. We
generally pursue development projects in joint ventures with local developers.
In this way, we leverage the development skill, access to opportunities and
capital of such developers, transferring a significant amount of the development
risk to them and eliminating the need and expense of an in-house development
staff. Under a typical joint venture agreement with a Development Alliance
Partner, we would fund 95% of the construction
6
8
costs and our partner would fund 5%. Upon completion, we generally would
purchase our partner's interest in the joint venture.
As of December 31, 1999, we had committed to invest approximately $306.4
million to develop approximately 4.3 million rentable square feet. Approximately
$257.2 million of this investment is through our Development Alliance Program.
See "Development Pipeline."
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
See: "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors that May Affect Future Financial Results"
for a complete discussion of the various risks which could adversely affect us.
7
9
ITEM 2. PROPERTIES
The properties that we owned as of December 31, 1999 are divided into two
operating divisions. We have broken down these two operating divisions into 24
identifiable markets. We have provided this breakdown for external reporting
purposes only. It reflects the key markets of interest to our stockholders and
does not reflect how we are operationally managed. See "Item 14. Note 13 of
Notes to Consolidated Financial Statements" for segment information related to
our operations.
INDUSTRIAL PROPERTIES
At December 31, 1999, we owned 724 industrial buildings aggregating
approximately 65.2 million rentable square feet, located in 24 markets
nationwide. Our industrial properties accounted for $306.0 million, or 93.9%, of
our annualized base rent derived from our properties as of December 31, 1999.
Our industrial properties were 95.9% leased to over 2,240 customers as of the
same date, the largest of which accounted for no more than 1.6% of our
annualized base rent from our industrial properties.
Property Characteristics. Our industrial properties, which consist
primarily of warehouse distribution facilities suitable for single or multiple
customers, are typically comprised of multiple buildings. The following table
identifies characteristics of our typical industrial buildings:
TYPICAL BUILDING TYPICAL RANGE
---------------- -------------
Rentable square feet.......................... 100,000 75,000 - 200,000
Clear height.................................. 24 ft 16 - 32 ft.
Building depth................................ 200 ft 120 - 300 ft.
Truck court depth............................. 110 ft 90 - 130 ft.
Loading dock & grade.......................... Dock or Dock & Grade
Parking spaces per 1,000 square feet.......... 1.0 0.5 - 2.0
Doors per 1,000 square feet................... 0.2 0.1 - 2.0
Square footage per tenant..................... 35,000 15,000 - 150,000
Office finish................................. 8% 3% - 20%
Site coverage................................. 40% 35% - 50%
Lease Terms. Our industrial properties are typically subject to lease on a
"triple net basis," defined as leases in which customers pay their proportionate
share of real estate taxes, insurance and operating costs, or subject to leases
on a "modified gross basis," defined as leases in which customers pay expenses
over certain threshold levels. Lease terms typically range from three to ten
years, with an average of seven years, excluding renewal options. The majority
of the industrial leases do not include renewal options.
Overview of Major Target Markets. Our industrial properties are located
near key passenger and air cargo airports, key interstate highways and ports in
major metropolitan areas, such as Atlanta, Chicago, Dallas/Fort Worth, Northern
New Jersey, the San Francisco Bay Area and Southern California. We believe our
industrial properties' strategic location, transportation network and
infrastructure, and large consumer and manufacturing bases support strong demand
for industrial space. According to statistics published by CB Richard
Ellis/Torto Wheaton Research, the national hub markets listed above are six of
the nation's eight largest warehouse markets and, as of December 31, 1999,
comprised 42% of the warehouse inventory of the 47 industrial markets tracked by
them. According to statistics published by Regional Financial Associates, as of
December 31, 1999, the combined population of these markets was approximately
44.2 million, and the amount of per capita warehouse space was 19.0% above the
average for those 47 industrial markets.
Within these metropolitan areas, our industrial properties are concentrated
in in-fill locations (which are characterized by limited new construction
opportunities due to high population densities and low levels of available land
that could be developed into competitive industrial or retail properties) within
established, relatively large submarkets (markets within a metropolitan area in
which the competitive environment for one or more property types is largely
dependent upon the supply of such property type in such market rather than the
supply of such property type in other portions of such metropolitan area) which
we believe should provide a higher rate of occupancy and rent growth than
properties located elsewhere. These in-fill locations are
8
10
typically near major passenger and air cargo facilities, seaports or convenient
to major highways and rail lines, and are proximate to a diverse labor pool.
There is typically broad demand for industrial space in these centrally located
submarkets due to a diverse mix of industries and types of industrial uses,
including warehouse distribution, light assembly and manufacturing. We generally
avoid locations at the periphery of metropolitan areas where there are fewer
supply constraints. Small metropolitan areas or cities without a heavy
concentration of warehouse activity typically have few, if any,
supply-constrained locations (those areas typified by significant population
densities, a limited number of existing industrial customers and a low
availability of land which could be developed into competitive space for
additional industrial customers).
INDUSTRIAL PROPERTY SUMMARY
As of December 31, 1999, the 724 industrial buildings were diversified
across 24 markets nationwide. The average age of our industrial properties is 12
years (since the property was built or substantially renovated), which we
believe should result in lower operating costs over the long term. The following
table represents properties in which we own a fee simple interest or a
controlling interest (consolidated), and excludes properties in which we only
own a non-controlling interest (unconsolidated).
PERCENTAGE PERCENTAGE
TOTAL OF TOTAL ANNUALIZED OF TOTAL
NUMBER OF RENTABLE RENTABLE PERCENTAGE BASE RENT ANNUALIZED NUMBER
INDUSTRIAL PROPERTIES BUILDINGS SQUARE FEET SQUARE FEET LEASED (000'S)(1) BASE RENT OF LEASES
--------------------- --------- ----------- ----------- ---------- ---------- ---------- ---------
HUB MARKETS:
Atlanta....................... 45 4,318,509 6.6% 95.3% $ 18,083 5.9% 149
Chicago....................... 81 7,397,815 11.3% 94.6% 28,096 9.2% 168
Dallas/Ft. Worth.............. 62 5,328,753 8.2% 95.0% 19,320 6.3% 174
Northern New Jersey........... 19 4,025,575 6.2% 94.2% 18,291 6.0% 37
San Francisco Bay Area........ 118 7,547,866 11.6% 97.4% 56,108 18.3% 325
Southern California........... 85 6,711,564 10.3% 97.4% 29,362 9.6% 184
--- ---------- ----- ----- -------- ----- -----
Subtotal/Weighted Average... 410 35,330,082 54.2% 95.8% 169,260 55.3% 1,037
OTHER MARKETS:
Austin........................ 6 735,240 1.1% 100.0% 5,054 1.7% 22
Baltimore/Washington D.C...... 59 4,075,570 6.3% 95.3% 24,463 8.0% 287
Boston........................ 39 4,549,181 7.0% 99.0% 19,506 6.4% 61
Charlotte..................... 12 831,974 1.3% 94.1% 3,735 1.2% 30
Cincinnati.................... 6 811,774 1.3% 94.9% 2,541 0.9% 10
Columbus...................... 2 465,433 0.7% 100.0% 1,363 0.5% 2
Denver........................ 2 63,080 0.1% 88.3% 263 0.1% 16
Houston....................... 22 1,951,787 3.0% 88.2% 6,272 2.0% 109
Memphis....................... 19 2,259,162 3.5% 93.7% 9,231 3.0% 58
Miami......................... 31 2,703,635 4.1% 98.4% 16,683 5.5% 123
Minneapolis................... 42 4,442,700 6.8% 97.6% 17,460 5.7% 206
New Orleans................... 5 411,689 0.6% 100.0% 1,906 0.6% 50
Orlando....................... 18 1,678,910 2.6% 94.9% 6,242 2.0% 78
Portland...................... 5 676,104 1.0% 100.0% 2,863 0.9% 10
Sacramento.................... 1 182,437 0.3% 100.0% 725 0.2% 1
San Diego..................... 5 276,167 0.4% 77.3% 1,643 0.5% 14
Seattle....................... 37 3,483,298 5.3% 98.8% 16,154 5.3% 127
Wilmington.................... 3 266,141 0.4% 54.0% 636 0.2% 4
--- ---------- ----- ----- -------- ----- -----
Subtotal/Weighted Average... 314 29,864,282 45.8% 96.1% 136,740 44.7% 1,208
--- ---------- ----- ----- -------- ----- -----
Total/Weighted
Average............... 724 65,194,364 100.0% 95.9% $306,000 100.0% 2,245
=== ========== ===== ===== ======== ===== =====
ANNUALIZED
BASE RENT
PER LEASED
INDUSTRIAL PROPERTIES SQUARE FOOT
--------------------- -----------
HUB MARKETS:
Atlanta....................... $4.40
Chicago....................... 4.02
Dallas/Ft. Worth.............. 3.82
Northern New Jersey........... 4.82
San Francisco Bay Area........ 7.63
Southern California........... 4.49
-----
Subtotal/Weighted Average... 5.00
OTHER MARKETS:
Austin........................ 6.87
Baltimore/Washington D.C...... 6.30
Boston........................ 4.33
Charlotte..................... 4.77
Cincinnati.................... 3.30
Columbus...................... 2.93
Denver........................ 4.72
Houston....................... 3.64
Memphis....................... 4.36
Miami......................... 6.27
Minneapolis................... 4.03
New Orleans................... 4.63
Orlando....................... 3.92
Portland...................... 4.23
Sacramento.................... 3.97
San Diego..................... 7.69
Seattle....................... 4.69
Wilmington.................... 4.43
-----
Subtotal/Weighted Average... 4.77
-----
Total/Weighted
Average............... $4.89
=====
- ---------------
(1) Annualized base rent represents the monthly contractual amount under
existing leases at December 31, 1999, multiplied by 12. This amount excludes
expense reimbursements and rental abatements.
9
11
INDUSTRIAL PROPERTY CUSTOMER INFORMATION
Largest Industrial Property Customers. Our 25 largest industrial property
customers by annualized base rent are set forth in the table below.
PERCENTAGE OF PERCENTAGE OF
NUMBER AGGREGATE AGGREGATE ANNUALIZED AGGREGATE
OF RENTABLE LEASED BASE RENT ANNUALIZED
INDUSTRIAL CUSTOMER NAME(1) PROPERTIES SQUARE FEET SQUARE FEET(2) (000S) BASE RENT(3)
--------------------------- ---------- ----------- -------------- ---------- -------------
Webvan Group, Inc..................... 3 991,598 1.5% $ 4,825 1.6%
Challenge Air Cargo................... 2 277,673 0.4% 2,562 0.8%
Norwest Mortgage, Inc................. 1 202,920 0.3% 2,461 0.8%
International Paper Company........... 4 446,422 0.7% 2,317 0.8%
Air Express International............. 2 265,996 0.4% 1,957 0.6%
Rite Aid.............................. 2 524,840 0.8% 1,779 0.6%
Exel Logistics........................ 2 471,296 0.7% 1,737 0.6%
Dell USA, L.P......................... 1 285,000 0.4% 1,700 0.6%
Home Depot USA, Inc................... 3 476,026 0.7% 1,697 0.6%
Sequus Pharmaceuticals................ 1 129,449 0.2% 1,687 0.6%
Federal Express Corporation........... 3 198,735 0.3% 1,658 0.5%
Sage Enterprises...................... 3 245,289 0.4% 1,652 0.5%
C&S Wholesale Grocers, Inc............ 1 167,812 0.3% 1,634 0.5%
Acer America.......................... 2 271,487 0.4% 1,612 0.5%
Office Depot.......................... 3 402,298 0.6% 1,567 0.5%
AM Cosmetics.......................... 1 326,500 0.5% 1,501 0.5%
Wakefern Food Corporation............. 1 419,900 0.6% 1,491 0.5%
Boise Cascade Corporation............. 2 400,655 0.6% 1,478 0.5%
Bradlees Stores, Inc.................. 1 600,000 0.9% 1,453 0.5%
Boeing Company........................ 2 207,345 0.3% 1,413 0.5%
United States Postal Service.......... 2 433,359 0.7% 1,372 0.4%
Eagle Hardware & Garden, Inc.......... 1 304,801 0.5% 1,310 0.4%
Cosmair, Inc.......................... 1 303,843 0.5% 1,291 0.4%
Fujitsu America....................... 2 179,628 0.3% 1,271 0.4%
Schmalbach-Lubeca..................... 2 339,104 0.5% 1,265 0.4%
--------- ---- ------- ----
Total/Weighted Average...... 8,871,976 13.6% $44,690 14.6%
========= ==== ======= ====
- ---------------
(1) Customer(s) may be a subsidiary of or an entity affiliated with the named
customer.
(2) Computed as aggregate rentable square feet divided by the aggregate leased
square feet of our industrial properties.
(3) Computed as annualized base rent divided by the aggregate annualized base
rent of our industrial properties.
10
12
INDUSTRIAL PROPERTY LEASE EXPIRATIONS
The following table summarizes the lease expirations for our industrial
properties for leases in place as of December 31, 1999, without giving effect to
the exercise of renewal options or termination rights, if any, at or prior to
the scheduled expirations.
ANNUALIZED
RENTABLE PERCENTAGE ANNUALIZED RENT OF PERCENTAGE OF
SQUARE OF TOTAL RENT OF EXPIRING ANNUALIZED
NUMBER OF FOOTAGE OF RENTABLE EXPIRING LEASES RENT OF
LEASES EXPIRING SQUARE LEASES PER SQUARE EXPIRING
YEAR OF LEASE EXPIRATION(5) EXPIRING LEASES FOOTAGE(4) (000S)(2) FOOT(3) LEASES(2)
--------------------------- --------- ---------- ---------- ---------- ---------- -------------
2000(4)........................ 567 10,080,536 16.1% $ 48,926 $4.85 14.5%
2001........................... 483 10,234,133 16.3% 54,996 5.37 16.3%
2002........................... 480 11,653,935 18.6% 61,013 5.24 18.1%
2003........................... 277 8,962,349 14.3% 47,785 5.33 14.2%
2004........................... 245 8,673,811 13.8% 50,034 5.77 14.8%
2005........................... 70 3,373,938 5.4% 18,611 5.52 5.5%
2006........................... 41 2,040,777 3.3% 12,375 6.06 3.7%
2007........................... 19 1,910,431 3.0% 10,471 5.48 3.1%
2008........................... 21 1,523,820 2.4% 10,560 6.93 3.1%
2009........................... 30 2,639,741 4.2% 14,624 5.54 4.3%
Thereafter..................... 17 1,552,025 2.5%_ 7,590 4.89 2.3%
----- ---------- ----- --------- ----- -----
Total/Weighted
Average............ 2,250 62,645,496 100.0% $ 336,985 $5.38 100.0%
===== ========== ===== ========= ===== =====
- ---------------
(1) Schedule includes executed leases that commence after December 31, 1999.
Schedule excludes leases expiring prior to January 1, 2000.
(2) Calculated as monthly rent at expiration multiplied by 12.
(3) Rent per square foot is calculated by dividing the annualized base rent of
expiring leases by the square footage expiring in any given year.
(4) Includes leases encompassing 488,800 square feet which are on a
month-to-month basis.
(5) Represents percentage of total square footage of expiring leases.
RETAIL PROPERTIES
At December 31, 1999, we owned 9 retail centers aggregating approximately
1.6 million rentable square feet, 5 of which are grocer-anchored. Our retail
properties accounted for $20.0 million, or 6.1%, of annualized base rent derived
from our properties as of December 31, 1999. Our retail properties were 92.4%
leased to over 240 customers, the largest of which accounted for 5.3% of
annualized base rent from our retail properties as of such date. Our retail
properties have an average age of six years since built, expanded or renovated.
During 1999, we initiated a plan to dispose of substantially all of our
retail centers. In three separate transactions with BPP Retail, LLC, we disposed
of a total of 25 retail centers, aggregating approximately 4.3 million rentable
square feet, for an aggregate price of $560.3 million. We also disposed of an
additional five retail centers, totaling approximately 1.1 million rentable
square feet, during 1999. As of December 31, 1999, we had four additional retail
centers, aggregating approximately 1.2 million rentable square feet, which were
held for divestiture.
11
13
RETAIL PROPERTY SUMMARY
Rentable square footage occupied by anchor customers accounted for 61.9% of
the aggregate square footage of our retail properties as of December 31, 1999.
Annualized base rent as of such date for our 25 largest customers was
approximately $10.2 million, representing approximately 51.1% of annualized base
rent for all of our retail properties. Annualized base rent for the remaining
retail customers was approximately $9.8 million as of the same date,
representing approximately 48.9% of the annualized base rent for all of our
retail properties. The following table sets forth, on a market basis, the
rentable square footage leased to anchor customers and non-anchor customers as
of December 31, 1999, and represents properties in which we own a fee simple
interest or a controlling interest (consolidated), and excludes properties in
which we only own a non-controlling interest (unconsolidated).
LEASED AVERAGE
ANCHOR TOTAL BASE RENT
RENTABLE RENTABLE PERCENTAGE ANNUALIZED NUMBER PER SQUARE
RETAIL PROPERTIES SQUARE FEET SQUARE FEET LEASED BASE RENT(1) OF LEASES FOOT(2)
----------------- ----------- ----------- ---------- ------------ --------- ----------
Around Lenox.................... 60,632 120,891 77.0% $ 1,540 13 $16.55
Howard & Western S.C. .......... 26,421 76,870 49.2% 515 5 13.63
Kendall Mall(3)(6).............. 194,550 299,582 97.2% 4,174 46 14.34
Manhattan Village S.C.(3)(6).... 225,791 424,112 99.2% 7,016 99 16.68
Mazzeo Drive.................... 88,420 88,420 100.0% 717 1 8.11
Northridge Plaza(3)(4).......... 124,650 182,049 90.9% 1,347 18 8.14
Palm Aire(3)(4)(6).............. 59,203 118,301 83.2% 1,071 22 10.88
Springs Gate(3)(5).............. n/a n/a n/a n/a n/a n/a
The Plaza at Delray(3)(6)....... 237,517 331,846 97.2% 3,642 43 11.29
--------- --------- ----- ------- --- ------
Total/Weighted
Average............. 1,017,184 1,642,071 92.4% $20,022 247 $13.19
========= ========= ===== ======= === ======
- ---------------
(1) Annualized base rent means the monthly contractual amount under existing
leases at December 31, 1999, multiplied by 12. This amount excludes expense
reimbursements, rental abatements and percentage rents.
(2) Calculated as total Annualized Base Rent divided by total rentable square
feet actually leased as of December 31, 1999.
(3) We hold an interest in this property through a joint venture interest in a
limited partnership.
(4) This property is being redeveloped. All calculations are based on rentable
square feet existing as of December 31,1999.
(5) This property consists of land held for future development.
(6) This property is being held for divestiture as of December 31, 1999.
12
14
OPERATING AND LEASING STATISTICS
TOTAL PORTFOLIO SUMMARY
The following table summarizes key operating and leasing statistics for all
of our properties as of and for the year ended December 31, 1999.
INDUSTRIAL RETAIL TOTAL
----------- ---------- -----------
Square feet owned at December 31, 1999(1).... 65,194,364 1,642,071 66,836,435
Occupancy percentage at December 31, 1999.... 95.9% 92.4% 95.9%
Lease expirations as percentage of annual
base rent (next 12 months)................. 14.5% 14.1% 14.5%
Weighted average lease term.................. 6 years 14 years 7 years
Tenant retention:
-- Year.................................... 72.0% 40.8% 72.0%
-- Trailing average (1/01/97 to
12/31/99)............................... 72.4% 84.0% 72.8%
Rent increases on renewals and rollovers:
-- Year.................................... 12.9% 6.8% 12.5%
Same store cash basis net operating income
growth(2)(3):
-- Year.................................... 5.9% 5.5% 5.9%
Second generation tenant improvements and
leasing commissions per sq. ft.:
-- Year:
Renewals................................ $ 1.22 $ 1.26 $ 1.22
Re-tenanted............................. 2.74 2.55 2.74
----------- ---------- -----------
Weighted average................... $ 1.64 $ 1.37 $ 1.64
=========== ========== ===========
-- Trailing average (1/01/97 to
12/31/99)............................... $ 1.41 $ 3.72 $ 1.50
=========== ========== ===========
Recurring capex(4)
-- Year.................................... $ 26,466 $ 823 $ 27,289
=========== ========== ===========
- ---------------
(1) In addition to owned square feet, we manage, through its subsidiary, AMB
Investment Management, 3.7 million, 0.7 million, and 0.1 million additional
square feet of industrial, retail, and other properties, respectively. We
also have an investment in 4.0 million square feet of Industrial Properties
through our investment in an unconsolidated joint venture.
(2) Consists of industrial buildings and retail centers aggregating 35.1 million
and 0.7 million square feet, respectively, that have been owned by us since
January 1, 1998, and excludes development properties prior to stabilization.
See "Item 14. Note 15 of Notes to Consolidated Financial Statements" for
total property net operating income by segment.
(3) Net operating income, or NOI, consists of rental revenues, including
reimbursements and excluding straight-line rents, less property level
operating expenses.
(4) Includes leasing costs and building improvements.
13
15
SAME STORE SUMMARY
The following table summarizes key operating and leasing statistics for our
same store properties as of and for the year ended December 31, 1999. For an
explanation of our same store properties, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
INDUSTRIAL RETAIL(1) TOTAL
---------- --------- ----------
Square feet in same store pool................... 35,128,748 723,694 35,852,442
Occupancy percentage at December 31, 1999........ 96.2% 98.4% 96.2%
Tenant retention:
-- Year........................................ 69.2% 5.9% 69.1%
Rent increases on renewals and rollovers:
-- Year........................................ 12.8% 6.8% 12.7%
Cash basis net operating income growth(2)
-- Year:
Revenues.................................... 4.3% 5.9% 4.3%
Expenses.................................... (0.6)% 6.8% 0.0%
NOI....................................... 5.9% 5.5% 5.9%
- ---------------
(1) Adjusted to remove the effects of divested properties.
(2) Net operating income, or NOI, consists of rental revenues, including
reimbursements and excluding straight-line rents, less property level
operating expenses.
HISTORICAL OCCUPANCY RATES, AVERAGE BASE RENTS, RENT INCREASES AND TENANT
RETENTION RATES
The following table sets forth weighted average occupancy rates and average
base rents based on square feet leased of our industrial properties and retail
centers as of and for the periods presented. The following table also sets forth
information relating to tenant retention rates and average rent increases (cash
basis) on renewal and re-tenanted space for our industrial properties and retail
properties for the periods presented.
INDUSTRIAL RETAIL TOTAL
---------- ------ -----
OCCUPANCY RATES:
1997................................................... 95.7% 96.1% 95.8%
1998................................................... 96.0% 94.6% 95.8%
1999................................................... 95.9% 92.4% 95.9%
AVERAGE BASE RENT(1):
1997................................................... $4.26 $11.98 n/a
1998................................................... $4.55 $11.98 n/a
1999................................................... $4.89 $13.19 n/a
RENTAL INCREASES:
1997................................................... 13.0% 10.1% 11.0%
1998................................................... 14.6% 13.3% 14.3%
1999................................................... 12.9% 6.8% 12.5%
TENANT RETENTION RATES:
1997................................................... 69.5% 87.8% 70.3%
1998................................................... 74.8% 84.1% 75.4%
1999................................................... 72.0% 40.8% 72.0%
- ---------------
(1) Average base rent per square foot represents the total annualized
contractual base rental revenue for the period divided by the average
occupied square feet leased for the period.
14
16
RECURRING TENANT IMPROVEMENTS AND LEASING COMMISSIONS PER SQUARE FOOT LEASED
The table below summarizes for our industrial properties and retail
properties, separately, the recurring tenant improvements and leasing
commissions per square feet leased for the periods presented. The recurring
tenant improvements and leasing commissions represent costs incurred to lease
space after the initial lease term of the initial customer, excluding costs
incurred to relocate customers as part of a re-tenanting strategy. The tenant
improvements and leasing commissions set forth below are not necessarily
indicative of future tenant improvements and leasing commissions.
YEAR ENDED DECEMBER 31,
----------------------- WEIGHTED
1997 1998 1999 AVERAGE
----- ----- ----- --------
INDUSTRIAL PROPERTIES:
Expenditures per renewed square foot leased..... $1.05 $0.92 $1.22 $1.07
Expenditures per re-tenanted square foot
leased....................................... 1.62 2.08 2.74 2.22
----- ----- ----- -----
Weighted average................................ $1.30 $1.10 $1.64 $1.39
===== ===== ===== =====
RETAIL PROPERTIES:
Expenditures per renewed square foot leased..... $4.25 $1.34 $1.26 $2.26
Expenditures per re-tenanted square foot
leased....................................... 7.92 9.99 2.55 7.66
----- ----- ----- -----
Weighted average................................ $6.41 $2.64 $1.37 $4.01
===== ===== ===== =====
TOTAL PROPERTIES:
Expenditures per renewed square foot leased..... $1.23 $0.95 $1.22 $1.11
Expenditures per re-tenanted square foot
leased....................................... 2.23 2.47 2.74 2.48
----- ----- ----- -----
Weighted average................................ $1.68 $1.18 $1.64 $1.50
===== ===== ===== =====
15
17
DEVELOPMENT PIPELINE
The following table sets forth the properties owned by us as of December
31, 1999 which were undergoing renovation, expansion or new development. No
assurance can be given that any of such projects will be completed on schedule
or within budgeted amounts.
INDUSTRIAL DEVELOPMENT PROJECTED DELIVERIES
(DOLLARS IN THOUSANDS)
ESTIMATED ESTIMATED ESTIMATED
DEVELOPMENT ALLIANCE STABILIZATION SQUARE FEET AT TOTAL
PROJECT LOCATION PARTNER(TM) DATE(1) COMPLETION INVESTMENT(2)
------- -------- -------------------- ------------- -------------- -------------
2000 DELIVERIES
1. Suwanee Creek (phase I)........ Atlanta, GA Seefried Properties January 2000 249,000 $ 8,500
2. North Great SW Industrial
Park........................... Dallas, TX Trammell Crow March 2000 215,000 10,500
Company
3. Hempstead Highway (phase I).... Houston, TX Cypress Realty May 2000 292,000 11,500
4. Northwest Crossing (phase I)... Houston, TX Trammell Crow June 2000 178,000 6,900
Company
5. Orlando Central Park (phase
I)............................. Orlando, FL Trammell Crow July 2000 306,000 12,100
Company
6. Suwanee Creek (phase II)....... Atlanta, GA Seefried Properties July 2000 241,000 8,000
7. South River Park (phase II).... Cranbury, NH Trammell Crow August 2000 281,000 13,300
Company
8. Cabot Business Park (phase
I)............................. Mansfield, MA National Development September 2000 98,000 8,900
of NE
9. Cabot Business Park (phase
II)............................ Mansfield, MA National Development December 2000 186,000 9,600
of NE
--------- --------
Total 2000 Deliveries.......... 2,046,000 89,300(5)
2001 DELIVERIES
10. DFWII/Air Cargo................ Dallas/Fort Trammell Crow February 2001 189,000 17,600
Worth, TX Company
11. Pico Rivera (phase I).......... Pico Rivera, CA Majestic Realty February 2001 520,000 24,300
12. LA Media Tech Center (phase
I)............................. Los Angeles, CA Legacy Partners April 2001 399,000 40,200
13. Pier I(6)...................... San Francisco, CA None June 2001 152,000 40,600
14. Port Northwest Industrial Park
(phase I)...................... Houston, TX Dienna Nelson September 2001 364,200 12,400
Augustine
15. Portland Air Cargo............. Portland, OR Trammell Crow December 2001 159,500 11,800
Company
--------- --------
Total 2001 Deliveries.......... 1,783,700 146,900(5)
--------- --------
Total Scheduled
Deliveries(3).................. 3,829,700(4) $236,200(3)
========= ========
- ---------------
(1) Estimated stabilization date represents management's current estimate of
when capital improvements for repositioning, development, and redevelopment
programs will have been completed and in effect for a period of time
sufficient to achieve market occupancy.
(2) Represents total estimated cost of renovation, expansion or development,
including initial acquisition costs, debt and equity carry, and partner
earnouts. The estimates are based on our current estimates and forecasts and
are therefore subject to change.
(3) Excludes 305 acres of land and other acquisition costs totaling
approximately $32.0 million which represents future phases of current
projects which have not been committed to, or for which final project
planning has not been completed, and other land inventory.
(4) Of such space, 24.9% was leased as of December 31, 1999.
(5) As of December 31, 1999, amounts funded to date for deliveries in 2000 and
2001 are approximately $64.4 million and $49.2 million, respectively.
(6) This project represents a redevelopment of an industrial warehouse into
office space. We will locate our corporate headquarters in approximately
one-third of the space.
16
18
RETAIL DEVELOPMENT PROJECTED DELIVERIES
(DOLLARS IN THOUSANDS)
DEVELOPMENT ESTIMATED ESTIMATED ESTIMATED
ALLIANCE STABILIZATION SQUARE FEET AT TOTAL
PROJECT(1) LOCATION PARTNER(TM) DATE(2) COMPLETION INVESTMENT(3)
---------- -------- ----------- ------------- -------------- -------------
2000 DELIVERIES
1. Around Lenox............. Atlanta, GA Alpine Partners August 2000 121,000 $24,100
2001 DELIVERIES
2. Howard & Western......... Chicago, IL None January 2001 89,000 8,600
3. Northridge............... Fort Lauderdale, FL Lefmark April 2001 259,000 37,500
------- -------
Total 2001
Deliveries.......... 348,000 46,100
------- -------
Total Scheduled
Deliveries(4)....... 469,000(5) $70,200(6)
======= =======
- ---------------
(1) Excludes one project that is held for divestiture.
(2) Estimated stabilization date represents management's current estimate of
when capital improvements for repositioning, development, and redevelopment
program will have been completed and in effect for a period of time
sufficient to achieve market occupancy.
(3) Represents total estimated cost of renovation, expansion or development,
including initial acquisition costs, debt and equity carry, and partner
earnouts. The estimates are based on our current estimates and forecasts and
are therefore subject to change.
(4) Excludes 39 acres of land and other acquisition costs totaling approximately
$14.9 million which represents further phases of current projects which have
not been committed to, or for which final project planning has not been
completed, and other land inventory.
(5) Of such space, 76% was leased as of December 31, 1999.
(6) As of December 31, 1999, approximately $50.9 million has been funded.
PROPERTIES HELD THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND
PARTNERSHIPS
Consolidated:
As of December 31, 1999, we held interests in 21 joint ventures, limited
liability companies and partnerships with certain unaffiliated third parties
through which 27 properties were held that are consolidated in our consolidated
financial statements. Pursuant to the existing agreements with respect to each
joint venture, we hold a greater than 50% interest in 16 of the joint ventures,
a 50% interest in one joint venture, and less than 50% interest in the another
joint venture. In certain cases such agreements provide that we are a limited
partner or that the other party to the joint venture is principally responsible
for day-to-day management of the property (though in all such cases, we have
approval rights with respect to significant decisions involving the underlying
properties). Under the agreements governing the joint ventures, we and the other
party to the joint venture may be required to make additional capital
contributions, and subject to certain limitations, the joint ventures may incur
additional debt. Such agreements also impose certain restrictions on the
transfer of joint venture interests by us or the other party to the joint
venture, and provide certain rights to us and/or the other party to the joint
venture to sell its interest to the joint venture or to the other venturer on
terms specified in the agreement. All of the joint ventures terminate in 2024 or
later, but may end earlier if a joint venture ceases to hold any interest in or
have any obligations relating to the property held by the joint venture.
17
19
The following table sets forth certain information regarding our properties
owned through consolidated joint ventures as of December 31, 1999.
INDUSTRIAL CONSOLIDATED JOINT VENTURES
(DOLLARS IN THOUSANDS)
JV PARTNERS'
JV PARTNERS' SHARE OF
GROSS BOOK SHARE FUNDS FROM
PROPERTIES SQUARE FEET VALUE(1) DEBT OF DEBT OPERATIONS
---------- ----------- ---------- -------- ------------ ------------
SEPARATE ACCOUNT CO-INVESTORS(2)
1. Corporate Park/Hickory Hill............ 858,322 $ 27,627 $ 16,400 $ 8,200 50%
2. Garland Industrial..................... 1,018,637 34,279 19,600 9,800 50%
3. Jamesburg.............................. 821,712 47,540 23,500 11,750 50%
4. Minnetonka Industrial.................. 515,915 28,447 12,669 6,167 50%
5. South Point Business Park.............. 343,536 21,788 10,725 5,363 50%
--------- -------- -------- --------
Subtotal.......................... 3,558,122 159,681 82,894 41,280
ALLIANCE FUND I(3)
6. Concord Industrial Portfolio........... 246,087 15,744 -- -- 75%
7. Diablo Industrial Park................. 312,255 14,328 -- -- 75%
8. Gateway Corporate Center............... 430,603 43,229 -- -- 75%
9. Gateway North.......................... 266,476 25,189 -- -- 75%
--------- -------- -------- --------
Subtotal.......................... 1,255,421 98,490 80,000(8) 64,000(8)
DEVELOPMENT ALLIANCE JOINT VENTURES(4)(5)
10. LA Media Tech Center(6)................ 399,000 35,258 4,651 2,365 51%
11. Cabot Business Park (phase I and II)... 284,000 10,634 -- -- 10%
12. DFW II/Air Cargo....................... 189,000 5,996 -- -- 5%
13. Portland Air Cargo(7).................. 159,500 -- -- -- 5%
14. North Great SW Industrial Park......... 215,000 9,366 -- -- 5%
15. Northwest Crossing Distribution
Center................................... 178,000 6,371 -- -- 5%
16. Orlando Central Park (phase I)......... 306,000 11,614 -- -- 5%
17. South River Park (phase I and II)...... 626,000 24,640 -- -- 5%
--------- -------- -------- --------
Subtotal.......................... 2,356,500 103,879 4,651 2,365
OTHER JOINT VENTURES
18. Nippon Express......................... 148,941 6,361 -- -- 27%
19. Metric Center.......................... 397,440 44,390 -- -- 13%
20. Chancellor............................. 201,600 6,456 2,860 283 10%
--------- -------- -------- --------
Subtotal.......................... 747,981 57,207 2,860 283
--------- -------- -------- --------
Total............................. 7,918,024 $419,257 $170,405 $107,928
========= ======== ======== ========
- ---------------
(1) Represents the book value of the property (before accumulated depreciation)
owned by the joint venture entity and excludes net other assets.
(2) These properties are owned by a single co-investment joint venture partner
that is a client of AMB Investment Management.
(3) Represents a property held by the Alliance Fund I which is co-invested with
a private institutional real estate investment trust.
(4) Represents estimated square feet at completion of development project.
(5) Excludes projected building square footage on 86.4 acres of land
representing future phases of current projects which have not been committed
to, or for which final planning has not been completed.
(6) Represents a development project with a Development Alliance Partner in
which a separate account co-investor also has an interest. The Development
Alliance Partner's share of funds from operations is 2%.
(7) Represents our investment in a ground leased property.
(8) Represents a credit facility held by the Alliance Fund I. Our projected
ownership upon final closing of the Alliance Fund I is currently estimated
to be 20%.
18
20
RETAIL CONSOLIDATED JOINT VENTURES
(DOLLARS IN THOUSANDS)
GROSS BOOK JV PARTNERS' JV PARTNERS'
PROPERTIES SQUARE FEET VALUE(1) DEBT SHARE OF DEBT SHARE OF FFO
---------- ----------- ---------- ------- ------------- ------------
DEVELOPMENT ALLIANCE JOINT VENTURES(2)
1. Around Lenox.......................... 120,000 $ 19,585 $17,489 $ 1,027 10%
2. Northridge Plaza...................... 259,000 25,525 -- -- 0%
3. Palm Aire(3).......................... 133,000 17,325 7,139 1,021 0%
4. Springs Gate.......................... --(4) 14,906 -- -- 0%
--------- -------- ------- -------
Subtotal......................... 512,000 77,341 24,628 2,048
OTHER JOINT VENTURES
5. Kendall Mall.......................... 299,582 36,260 24,330 10,055 29%
6. Manhattan Village..................... 424,112 83,463 -- -- 10%
7. Plaza Delray.......................... 331,846 36,010 22,814 4,528 2%
--------- -------- ------- -------
Subtotal......................... 1,055,540 157,733 47,144 14,583
--------- -------- ------- -------
Total............................ 1,567,540 $233,074 $71,772 $16,631
========= ======== ======= =======
- ---------------
(1) Represents the book value of the property (before accumulated depreciation)
owned by the joint venture entity and excludes net other assets.
(2) Represents estimated square feet at completion of development project.
(3) Included as part of retail properties held for divestiture.
(4) Represents 39 acres of land for future phases of current projects which have
not been committed to, or for which final project planning has not been
completed.
We account for all of the above investments on a consolidated basis for
financial reporting purposes because of our ability to exercise control over
significant aspects of the investment as well as our significant economic
interest in the investments. See "Item 14. Note 2 of the Notes to Consolidated
Financial Statements."
Unconsolidated:
As of December 31, 1999, we held interests in two equity investment joint
ventures that are unconsolidated in our financial statements. The management and
control over significant aspects of these investments are with the third party
joint venture partner.
UNCONSOLIDATED JOINT VENTURES
(DOLLARS IN THOUSANDS)
AMB'S AMB'S AMB'S
TOTAL TOTAL OWNERSHIP SHARE OF
PROPERTIES MARKET SQUARE FEET INVESTMENT PERCENTAGE DEBT
---------- ------ ----------- ---------- ---------- --------
OPERATING JOINT VENTURES
1. Elk Grove Du Page.................. Chicago 4,046,721 $58,602 56.1% $18,754
DEVELOPMENT ALLIANCE JOINT VENTURES(1)
2. Pico Rivera........................ Southern California 520,000 7,789 50.0% 3,986
--------- ------- -------
Total......................... 4,566,721 $66,391 $22,740
========= ======= =======
- ---------------
(1) Represents estimated square feet at completion of development project.
19
21
SECURED DEBT
As of December 31, 1999, the operating partnership had $696.9 million of
indebtedness secured by deeds of trust on 17 properties. As of December 31,
1999, the total gross investment value of those properties secured by debt was
$1.4 billion. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Item 14. Note
5 of Notes to Consolidated Financial Statements" included in this report. We
believe that as of December 31, 1999, the value of the properties securing the
respective obligations in each case exceeded the principal amount of the
outstanding obligations.
ITEM 3. LEGAL PROCEEDINGS
Neither we nor any of the properties is subject to any material litigation.
To our knowledge, there is no material litigation threatened against any of
them, other than routine litigation arising in the ordinary course of business,
which we generally expect to be covered by liability insurance, or to have an
immaterial effect on our financial results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock began trading on the New York Stock Exchange on November
21, 1997, under the symbol "AMB." As of March 1, 2000, there were approximately
235 holders of record of our common stock (excluding shares held through The
Depository Trust Company, as nominee). Set forth below are the high and low
sales prices per share of our common stock, as reported on the NYSE composite
tape, and the distribution per share paid by us during the period from November
26, 1997 through December 31, 1999.
YEAR HIGH LOW DISTRIBUTION
---- ---- --- ------------
1997
4th Quarter (from 11/21/97).............................. $25 1/8 $22 1/4 $0.1340
1998
1st Quarter.............................................. 24 15/16 23 3/8 0.3425
2nd Quarter.............................................. 25 22 3/8 0.3425
3rd Quarter.............................................. 25 13/16 22 11/16 0.3425
4th Quarter.............................................. 25 20 15/16 0.3425
1999
1st Quarter.............................................. 22 15/16 20 1/2 0.3500
2nd Quarter.............................................. 23 1/2 20 9/16 0.3500
3rd Quarter.............................................. 23 20 0.3500
4th Quarter.............................................. 21 1/8 18 1/8 0.3500
20
22
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
SELECTED COMPANY AND PREDECESSOR FINANCIAL AND OTHER DATA
The following table sets forth selected consolidated historical financial
and other data for AMB Property Corporation and our predecessor on an historical
basis for the years ended December 31, 1995, 1996, 1997, 1998 and 1999. Prior to
November 26, 1997 (the date of our initial public offering), our predecessor
provided real estate investment management services to institutional investors.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
COMPANY
------------------------------------------------------
PREDECESSOR(1) HISTORICAL(2) PRO FORMA(3)
----------------- ------------- ------------
1995 1996 1997 1997 1998 1999
------- ------- ------------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
OPERATING DATA:
Total revenues................................ $17,865 $23,991 $ 56,062 $ 284,674 $ 358,887 $ 448,183
Income from operations before minority
interests................................... 3,296 7,140 18,885 103,903 123,750 158,851
Net income available to common stockholders... 3,262 7,003 18,228 99,508 108,954 167,603
Net income common per share:
Basic(4).................................... 0.64 1.38 1.39 1.16 1.27 1.94
Diluted(4).................................. 0.64 1.38 1.38 1.15 1.26 1.94
Dividends per common share.................... 0.13 1.37 1.37 1.40
Dividends per preferred share(5).............. -- -- 0.99 2.13
OTHER DATA:
EBITDA(6)..................................... $ 195,218 $ 252,353 $ 318,319
Funds from Operations(7)...................... 147,409 170,407 191,147
Cash flows provided by (used in):
Operating activities........................ 131,621 177,180 190,391
Investing activities........................ (607,768) (793,366) 63,732
Financing activities........................ 553,199 604,202 (240,721)
BALANCE SHEET DATA:
Investments in real estate at cost............ $ -- $ -- $2,442,999 $3,369,060 $3,249,452
Total assets.................................. 4,948 7,085 2,506,255 3,562,885 3,621,550
Total consolidated debt(8).................... -- -- 685,652 1,368,196 1,270,037
AMB's share of total debt..................... -- -- 672,945 1,348,107 1,168,218
Stockholders' equity.......................... 4,241 6,300 1,668,030 1,765,360 1,829,259
- ---------------
(1) Represents our predecessor's historical financial and other data for the
years ended December 31, 1995 and 1996. Our predecessor operated as an
investment manager prior to November 26, 1997.
(2) The historical 1997 results represent our predecessor's historical financial
and other data for the period January 1, 1997 through November 25, 1997. The
financial and other data of AMB Property Corporation and the properties
acquired in our formation transactions have been included from November 26,
1997 to December 31, 1997.
(3) Pro forma 1997 financial and other data has been prepared as if our
formation transactions, our initial public offering (as described in "Item
14. Note 1 of Notes to Consolidated Financial Statements") and certain
property acquisitions and divestitures in 1997 had occurred on January 1,
1997.
(4) Basic and diluted net income per share equals the pro forma net income
divided by 85,874,513 and 86,156,556 shares, respectively, for 1997, and net
income available to common stockholders divided by 85,876,383 and 86,235,176
shares, respectively, for 1998, and 86,271,862 and 86,347,487, respectively,
for 1999.
(5) Dividends for the period commencing on July 27, 1998, the date of the Series
A Preferred Stock issuance.
(6) EBITDA is computed as income from operations before divestiture of
properties and minority interests plus interest expense, income taxes,
depreciation and amortization. We believe that in addition to cash flows and
net income, EBITDA is a useful financial performance measure for assessing
the operating performance of an equity real estate investment trust because,
together with net income and cash flows, EBITDA provides investors with an
additional basis to evaluate the ability of a real estate investment trust
to incur and service debt and to fund acquisitions and other capital
expenditures. Includes an adjustment to reflect our pro rata share of EBITDA
in unconsolidated joint ventures. EBITDA is not a measurement of operating
performance calculated in accordance with U.S. generally accepted accounting
principles and should not be considered as a substitute for operating
income, net income, cash flows from operations or other statement of
operations or cash flow data prepared in accordance with U.S. generally
accepted accounting principles. EBITDA may not be indicative of our
historical operating results nor be predictive of potential future results.
While EBITDA is frequently used as a measure of operations and the ability
to meet debt service requirements, it is not necessarily comparable to other
similarly titled captions of other real estate investment trusts.
(7) Funds from Operations, or FFO, is defined as income from operations before
minority interests, gains or losses from sale of real estate and
extraordinary losses plus real estate depreciation and adjustment to derive
our pro rata share of the funds from operations of unconsolidated joint
ventures, less minority interests' pro rata share of the funds from
operations of consolidated joint ventures and perpetual preferred stock
dividends. In accordance with the National Association of Real Estate
Investment Trust ("NAREIT") White Paper on funds from operations, we include
the effects of straight-line rents in funds from operations. We believe that
funds from operations is an appropriate measure of performance for an equity
real estate investment trust. While funds from operations is a relevant and
widely used measure of operating performance of real estate investment
trusts, it does not represent cash flow from operations or net income as
defined by U.S. generally accepted accounting principles, and it should not
be considered as an alternative to these indicators in evaluating liquidity
or operating performance. Further, funds from operations as disclosed by
other real estate investment trusts may not be comparable.
(8) Secured debt includes unamortized debt premiums of approximately $18,286,
$15,217 and $10,106 as of December 31, 1997, 1998 and 1999, respectively.
See "Item 14. Notes 2 and 6 of Notes to Consolidated Financial Statements."
21
23
SELECTED PROPERTY FINANCIAL AND OTHER DATA
For comparative purposes, the table that follows provides selected
historical financial and other data of our properties. The historical results of
the properties for 1997 include the results achieved by us for the period from
November 26, 1997 to December 31, 1997 and the results achieved by the prior
owners of the properties for the period from January 1, 1997 to November 25,
1997. The historical results of operations of the properties for periods prior
to November 26, 1997 include properties that were managed by our predecessor and
exclude the results of four properties that were contributed to us in our
formation transactions that were not previously managed by our predecessor. See
"Item 14. Note 1 of Notes to Consolidated Financial Statements" for a
description of our formation transactions. In addition, the historical results
of operations include the results of properties acquired after November 26,
1997, from the date of acquisition of such properties to December 31, 1997.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
COMPANY
------------------------------------------------------
PROPERTIES COMBINED(1) HISTORICAL(2) PRO FORMA(3)
----------------------- ------------- ------------
1995 1996 1997 1997 1998 1999
---------- ---------- ------------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
OPERATING DATA:
Rental revenues.................... $ 106,180 $ 166,415 $ 233,856 $282,665 $ 354,658 $ 439,658
BALANCE SHEET DATA:
Investment in real estate at
cost............................. 1,018,681 1,616,091 2,442,999 3,369,060 3,249,452
Secured debt(4).................... 254,067 522,634 535,652 734,196 707,037
PROPERTY DATA:
Industrial Properties
Property net operating
income(5)...................... 137,955 187,218 269,339
Total rentable square footage at
end of period.................. 21,598 29,609 37,329 56,611 65,194
Occupancy rate at end of
period......................... 97.3% 97.2% 95.7% 96.0% 95.9%
Retail Properties
Property net operating
income(5)...................... 64,716 79,025 62,396
Total rentable square footage at
end of period.................. 3,299 5,282 6,216 6,985 1,642
Occupancy rate at end of
period......................... 92.4% 92.4% 96.1% 94.6% 92.4%
- ---------------
(1) Represents the properties' combined historical financial and other data for
the years ended December 31, 1995 and 1996. The historical results of
operations of the properties for periods prior to November 26, 1997 include
properties that were managed by our predecessor and exclude the results of
four properties that were contributed to us in our formation transactions
that were not previously managed by our predecessor. See "Item 14. Note 1 of
Notes to Consolidated Financial Statements" for a description of our
formation transactions.
(2) The historical results of the properties for 1997 include our results for
the period from November 26, 1997 (acquisition date) to December 31, 1997
and the results achieved by the prior owners of the properties for the
period from January 1, 1997 to November 25, 1997.
(3) The pro forma financial and other data has been prepared as if our formation
transactions, our initial public offering (see "Item 14. Note 1 of Notes to
Consolidated Financial Statements"), and certain 1997 property acquisitions
and divestitures had occurred on January 1, 1997.
(4) Secured debt as of December 31, 1997, 1998 and 1999 includes unamortized
debt premiums of approximately $18,286, $15,217 and $10,106, respectively.
See "Item 14. Notes 2 and 6 of Notes to Consolidated Financial Statements."
(5) Property net operating income is defined as rental revenue, including
reimbursements and straight-line rents, less property level operating
expenses and excluding depreciation, amortization and interest expense.
Internal asset management costs totaling $7,659 for 1998 have been
reclassified from property operating expenses to general and administrative
expenses to conform with current year presentation. See "Item 14. Note 15 of
Notes to Consolidated Financial Statements."
22
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of our consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward-looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of
these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, our failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, our failure to divest of properties we have
contracted to sell or to timely reinvest proceeds from any such divestitures,
risks and uncertainties affecting property development and construction
(including construction delays, cost overruns, our inability to obtain necessary
permits and public opposition to these activities), our failure to qualify and
maintain our status as a real estate investment trust under the Internal Revenue
Code of 1986, environmental uncertainties, risks related to natural disasters,
financial market fluctuations, changes in real estate and zoning laws and
increases in real property tax rates. Our success also depends upon economic
trends generally, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed in
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors that May Affect Future Financial
Results" in this report. We caution you not to place undue reliance on
forward-looking statements, which reflect our analysis only and speak only as of
the date of this report or the dates indicated in the statements.
GENERAL
We commenced operations as a fully integrated real estate company in
connection with the completion of our initial public offering on November 26,
1997, and elected to be taxed as a real estate investment trust under Sections
856 through 860 of the Internal Revenue Code of 1986 with our initial tax return
for the year ended December 31, 1997. AMB Property Corporation and the operating
partnership were formed shortly before the consummation of the initial public
offering. See "Item 14. Note 1 of Notes to Consolidated Financial Statements"
for a discussion of our formation transactions and initial public offering.
RESULTS OF OPERATIONS
The analysis below shows changes in our results of operations for the years
ended December 31, 1999, 1998 and 1997, which include changes attributable to
acquisitions, divestitures and development activity, and the changes resulting
from properties that we owned during both the current and prior year reporting
periods, excluding development properties prior to being stabilized (generally
defined as 95.0% leased). We refer to these properties as the "same store
properties". For the comparison between the years ended December 31, 1999 and
1998, and the years ended December 31, 1998 and 1997, the same store properties
consist of properties aggregating approximately 35.9 and 31.1 million square
feet, respectively. The properties acquired in 1998 consisted of 230 buildings,
aggregating approximately 19.2 million square feet, and the 1999 acquisitions
consisted of 154 buildings, aggregating approximately 8.4 million square feet.
In 1999, property divestitures consisted of 30 retail centers and 15 industrial
buildings, aggregating approximately 6.6 million square feet. There were no
property divestitures in 1998. The historical results of operations of the
properties for the period prior to November 26, 1997 (the commencement of
operations as a fully integrated real estate company) include properties that
were managed by our predecessor, an investment manager, and exclude the
23
25
results of four properties that were contributed to us in our formation
transactions that our predecessor did not previously manage. Our future
financial condition and results of operations, including rental revenues, may be
impacted by the acquisitions of additional properties. Our future revenues and
expenses may vary materially from their historical rates.
YEARS ENDED DECEMBER 31, 1999 AND 1998 (DOLLARS IN MILLIONS)
RENTAL REVENUES 1999 1998 $ CHANGE % CHANGE
--------------- ------ ------ -------- --------
Same store................................... $212.9 $206.1 $ 6.8 3.3%
1998 acquisitions............................ 117.8 55.9 61.9 110.7%
1999 acquisitions............................ 35.4 -- 35.4 --
Developments................................. 33.0 28.4 4.6 16.2%
Divestitures................................. 40.6 64.3 (23.7) (36.9)%
------ ------ ------ -----
Total.............................. $439.7 $354.7 $ 85.0 24.0%
====== ====== ====== =====
Rental revenues, including straight-line rents, tenant reimbursements and
other property related income, increased by $85.0 million, or 24.0%, for the
year ended December 31, 1999 to $439.7 million as compared with the same period
in 1998. Approximately $6.8 million, or 8.0%, of this increase was attributable
to same store properties. The growth in rental revenues in same store properties
resulted primarily from the incremental effect of rental rate increases, changes
in occupancy rates and reimbursement of expenses, offset by a decrease in
straight-line rents. During the year ended December 31, 1999, the increase in
base rents (cash basis) for same store properties was 12.7% on 6.8 million
square feet leased.
INVESTMENT MANAGEMENT AND OTHER INCOME 1999 1998 $ CHANGE % CHANGE
-------------------------------------- ---- ---- -------- --------
Equity earnings in unconsolidated joint
ventures....................................... $4.7 $2.7 $2.0 74.1%
Investment management income..................... 1.0 0.1 0.9 900.0%
Other............................................ 2.8 1.4 1.4 100.0%
---- ---- ---- -----
Total.................................. $8.5 $4.2 $4.3 102.4%
==== ==== ==== =====
Other revenues, including equity in earnings of unconsolidated joint
ventures, investment management income, and interest income, totaled $8.5
million for the year ended December 31, 1999 as compared to $4.2 million for the
year ended December 31, 1998. The $4.3 million increase was primarily
attributable to the earnings from our equity investment in our unconsolidated
joint ventures, acquisition fees related to the Alliance Fund I and an increase
in interest income as a result of higher cash balances.
PROPERTY OPERATING EXPENSES 1999 1998 $ CHANGE % CHANGE
--------------------------- ------ ----- -------- --------
Rental expenses............................... $ 51.7 $40.2 $11.5 28.6%
Real estate taxes............................. 56.2 48.2 8.0 16.6%
------ ----- ----- -----
Property operating expenses................. $107.9 $88.4 $19.5 22.1%
====== ===== ===== =====
Same store.................................... $ 50.2 $50.1 $ 0.1 0.2%
1998 acquisitions............................. 27.3 12.6 14.7 116.7%
1999 acquisitions............................. 9.3 -- 9.3 --
Developments.................................. 9.5 7.9 1.6 20.3%
Divestitures.................................. 11.6 17.8 (6.2) (34.8)%
------ ----- ----- -----
Total............................... $107.9 $88.4 $19.5 22.1%
====== ===== ===== =====
Property operating expenses increased by $19.5 million, or 22.1%, for the
year ended December 31, 1999, to $107.9 million, as compared with the same
period in 1998. Internal asset management costs of $7.7 million for 1998 have
been reclassified to general and administrative expenses to conform with current
year presentation. Same store properties' operating expenses increased by $0.1
million for the year ended December 31, 1999. The change in same store
properties' operating expenses primarily relates to increases in
24
26
same store properties' real estate taxes of approximately $1.0 million for the
year ended December 31, 1999, offset by decreases in same store properties'
insurance of $0.9 million.
OTHER EXPENSES 1999 1998 $ CHANGE % CHANGE
-------------- ------ ------ -------- --------
General and administrative expense........... $ 25.2 $ 19.6 $ 5.6 28.6%
Interest expense............................. 88.7 69.7 19.0 27.3%
Depreciation expense......................... 67.5 57.4 10.1 17.6%
------ ------ ----- ----
Total.............................. $181.4 $146.7 $34.7 23.7%
====== ====== ===== ====
General and administrative expense increased by $5.6 million, or 28.6%, for
the year ended December 31, 1999, to $25.2 million, as compared with the same
period in 1998. Internal asset management costs of $7.7 million for 1998 have
been reclassified from property operating expenses to general and administrative
expenses to conform with the current year presentation. The increase was
primarily attributable to additional staffing that resulted from the growth in
our portfolio, with the remainder of the increase due to the change in our
accounting policy for capitalizing internal acquisition costs. Effective during
the second quarter of 1998, we changed our policy to expense all internal
acquisition costs in accordance with EITF 97-11. The increase in interest
expense was primarily due to higher interest rates and a full year of interest
expense in 1999 attributable to the $400.0 million unsecured senior debt
securities and the increase in depreciation was due to the growth in our real
estate acquisitions in 1998 and 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997 (DOLLARS IN MILLIONS)
RENTAL REVENUES 1998 1997 $ CHANGE % CHANGE
--------------- ------ ------ -------- --------
Same store................................... $211.2 $201.6 $ 9.6 4.8%
Acquisitions and development................. 143.5 81.1 62.4 76.9%
------ ------ ----- ----
Total.............................. $354.7 $282.7 $72.0 25.5%
====== ====== ===== ====
Rental revenues, including straight-line rents, tenant reimbursements and
other property related income, increased by $72.0 million, or 25.5%, for the
year ended December 31, 1998. Approximately $9.6 million, or 13.3%, of this
increase, was attributable to same store properties with the remaining $62.4
million primarily attributable to properties acquired in 1998 and properties
under development. The growth in rental revenues in same store properties
resulted primarily from the incremental effect of rental rate increases and
changes in occupancy and reimbursement of expenses. During the year ended
December 31, 1998, the increase in average base rents (cash basis) was 14.3% on
7.7 million square feet leased.
PROPERTY OPERATING EXPENSES 1998 1997 $ CHANGE % CHANGE
--------------------------- ----- ----- -------- --------
Same store..................................... $54.4 $55.1 $(0.7) (1.3)%
Acquisitions and development................... 34.0 26.4 7.6 28.8%
----- ----- ----- ----
Total................................ $88.4 $81.5 $ 6.9 8.5%
===== ===== ===== ====
Property operating expenses increased by $6.9 million, or 8.5%, for the
year ended December 31, 1998, to $88.4 million, as compared to the same period
in 1997. Internal asset management costs of $7.7 million for 1998 have been
reclassified to general and administrative expenses to conform with current year
presentation. Same store properties' operating expenses decreased by $0.7
million for the year ended December 31, 1998, while operating expenses
attributable to properties acquired in 1998 and properties under development
amounted to $7.6 million. The change in same store properties' operating
expenses relates to increases in same store properties real estate taxes of
approximately $1.0 million, offset by decreases in other property operating
expenses, including insurance expenses and property management fees of
approximately $1.7 million.
GENERAL AND ADMINISTRATIVE EXPENSES 1998 1997 $ CHANGE % CHANGE
----------------------------------- ----- ----- -------- --------
General and administrative expenses............ $19.6 $19.4 $0.2 1.0%
===== ===== ==== ===
Our general and administrative expenses increased by $0.2 million for the
year ended December 31, 1998, after reclassifying internal asset management
costs of $7.7 million for 1998 from property operating expenses
25
27
to general and administrative expenses, as compared to our predecessor's
investment management expenses of $19.4 million for the period from January 1,
1997 to November 25, 1997. Investment management expenses of our predecessor
consisted primarily of salaries and other general and administrative expenses.
The decrease is primarily attributable to the change in our operations from an
investment manager to a fully integrated real estate company and the formation
of AMB Investment Management.
LIQUIDITY AND CAPITAL RESOURCES
We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of our
properties will include cash flow from operations, borrowings under our
unsecured credit facility, other forms of secured and unsecured financing,
proceeds from equity or debt offerings by us or the operating partnership
(including issuances of limited partnership units in the operating partnership
or its subsidiaries) and net proceeds from divestiture of properties. We
presently believe that our sources of working capital and our ability to access
private and public debt and equity capital are adequate for us to continue to
meet liquidity requirements for the foreseeable future.
Capital Resources
Property Divestitures. On March 9, 1999, we signed three separate
definitive agreements with BPP Retail, LLC, a co-investment entity between
Burnham Pacific and the California Public Employees' Retirement System, pursuant
to which, if fully consummated, BPP Retail would have acquired up to 28 of our
retail shopping centers, totaling approximately 5.1 million square feet, for an
aggregate price of $663.4 million. The sale of three of the properties was
subject to the consent of one of our joint venture partners, which did not
consent to the sale of these properties. As a result, the price with respect to
the 25 remaining properties, totaling approximately 4.3 million square feet, was
approximately $560.3 million. We intend to dispose of the remaining three
properties or our interests in the joint ventures through which we hold such
properties. We are including these properties in properties held for divestiture
in our financial statements.
Pursuant to the agreements, BPP Retail acquired the 25 retail centers in
three separate transactions. Pursuant to the closing of the first transaction,
which occurred on June 15, 1999, BPP Retail acquired nine retail shopping
centers, totaling approximately 1.4 million square feet, for an aggregate price
of approximately $207.4 million. We used the proceeds from the first transaction
to repay secured debt related to the properties divested, to partially repay
amounts outstanding under our unsecured credit facility, to pay transactions
expenses, to acquire certain properties and for general corporate purposes. This
divestiture resulted in an approximate net gain of $10.3 million, which is net
of extraordinary loss consisting of prepayment penalties with an offset for the
write-off of debt premiums related to the indebtedness extinguished. On August
4, 1999, the second transaction with BPP Retail closed. Pursuant to the closing
of the second transaction, BPP Retail acquired 12 of our retail shopping
centers, totaling approximately 2.0 million square feet, for an aggregate price
of approximately $245.8 million. We used the proceeds from the second
transaction to repay secured debt related to the properties divested, to
partially repay amounts outstanding under our unsecured credit facility, to pay
transaction expenses, to acquire certain properties and for general corporate
purposes. This divestiture resulted in an approximate net gain of $20.2 million,
which is net of extraordinary loss consisting of prepayment penalties with an
offset for the write-off of debt premiums related to the indebtedness
extinguished. On December 1, 1999, the third transaction with BPP Retail closed.
BPP Retail acquired the remaining four retail centers, totaling approximately
0.9 million square feet, for an aggregate price of approximately $107.2 million.
We used the proceeds from the third divestiture to partially repay amounts
outstanding under our unsecured credit facility, to pay transaction expenses,
for potential acquisitions and for general corporate purposes. This divestiture
resulted in an approximate gain of $9.1 million.
In addition, we entered into a definitive agreement, subject to a financing
condition, with Burnham Pacific, pursuant to which, if fully consummated,
Burnham Pacific would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for an aggregate price of
approximately $284.4 million. On June 30, 1999, this agreement was terminated
pursuant to its terms as a result of Burnham Pacific's decision not to waive the
financing condition.
26
28
In connection with the BPP Retail transactions, we have granted the
California Public Employees' Retirement System an option to purchase up to
2,000,000 shares of our common stock for an exercise price of $25.00 per share
that may be exercised on or before March 31, 2000. We have registered the
2,000,000 shares of common stock issuable upon exercise of the option.
In the fourth quarter of 1999, we disposed of three of the retail
properties that were initially under contract with Burnham Pacific to an
institutional investor for whom AMB Investment Management provides asset
management services. The properties aggregated approximately 0.4 million square
feet and were sold for an aggregate price of approximately $96.3 million. In
addition, we disposed of another of these properties, aggregating approximately
0.6 million square feet, to an unaffiliated third party for an aggregate price
of approximately $58.1 million. The divestitures of these four properties
resulted in an approximate net gain of $14.9 million, which is net of
extraordinary gain consisting of write-offs of debt premiums with an offset for
prepayment penalties related to the indebtedness extinguished. We currently
intend to dispose of one of the remaining two retail properties or our interest
in the joint venture which holds such property.
In addition, during 1999, we disposed of 15 industrial buildings and one
other retail center, aggregating approximately 1.3 million square feet, for an
aggregate price of approximately $49.4 million. These divestitures resulted in
an aggregate approximate net loss of $3.4 million.
As of December 31, 1999, the net carrying values of the industrial
properties and retail centers held for divestiture were $12.8 million and $168.5
million, respectively. Certain of the properties held for divestiture are
subject to indebtedness, which totaled $54.3 million as of December 31, 1999.
These divestitures are subject to negotiation of acceptable terms and other
customary conditions. We intend to use the proceeds from these transactions to
pay expenses incurred in connection with the divestitures, to repay the secured
debt related to the properties divested, to partially repay amounts outstanding
under our unsecured credit facility, for potential acquisitions and for general
corporate purposes. There can be no assurance that we will dispose of any of the
properties held for divestiture in a timely manner.
Credit Facilities. We have a $500 million unsecured revolving credit
agreement with Morgan Guaranty Trust Company of New York, as agent, and a
syndicate of twelve other banks. The credit facility has a term of three years
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points (currently 15 basis points) of the undrawn
funds based on our credit rating. We use the credit facility principally for
acquisitions and for general working capital requirements. Borrowings under the
credit facility bear interest at LIBOR plus 90 to 120 basis points (currently
LIBOR plus 90 basis points), depending on our debt rating at the time of the
borrowings. As of December 31, 1999, the outstanding balance on the credit
facility was $83.0 million and bore interest at a weighted average interest rate
of 6.7%. Monthly debt service payments on the credit facility are interest only.
The credit facility matures in November 2000. At December 31, 1999, the
remaining amount available under the credit facility was approximately $417.0
million.
In addition, we have $80.0 million of unsecured debt held through our
investment in the Alliance Fund I. The debt is secured by the unfunded capital
commitments of the investors in the Alliance REIT I, a limited partner in the
Alliance Fund I. The debt bears interest of LIBOR plus 87.5 basis points and
matures in April 2001. As of December 31, 1999, the loan bore interest at 6.7%
(based on 30-day LIBOR of 5.8%).
Debt and Equity Activities. On May 5, 1999, AMB Property II, L.P., one of
our subsidiaries, issued and sold 1,595,337 7.75% Series D Cumulative Redeemable
Preferred Limited Partnership Units at a price of $50.00 per unit in a private
placement. Distributions are cumulative from the date of original issuance and
are payable quarterly in arrears at a rate per unit equal to $3.875 per annum.
The Series D Preferred Units are redeemable by AMB Property II, L.P. on or after
May 5, 2004, subject to certain conditions, for cash at a redemption price equal
to $50.00 per unit, plus accumulated and unpaid distributions thereon, if any,
to the redemption date. The Series D Preferred Units are exchangeable, at
specified times and subject to certain conditions, on a one-for-one basis, for
shares of AMB's Series D Preferred Stock. AMB Property II, L.P. used the net
proceeds of approximately $77.8 million to make a loan to the operating
partnership in the amount of approximately $20.1 million and to purchase an
unconsolidated joint venture interest for a price of approximately $57.7 million
from the operating partnership. The loan was repaid in full on August 31, 1999.
27
29
The operating partnership used the funds to repay borrowings under our unsecured
credit facility and for general corporate purposes.
On August 31, 1999, AMB Property II, L.P. issued and sold 220,440 7.75%
Series E Cumulative Redeemable Preferred Limited Partnership Units at a price of
$50.00 per unit in a private placement. Distributions are cumulative from the
date of original issuance and are payable quarterly in arrears at a rate per
unit equal to $3.875 per annum. The Series E Preferred Units are redeemable by
AMB Property II, L.P. on or after August 31, 2004, subject to certain
conditions, for cash at a redemption price equal to $50.00 per unit, plus
accumulated and unpaid distributions thereon, if any, to the redemption date.
The Series E Preferred Units are exchangeable, at specified times and subject to
certain conditions, on a one-for-one basis, for shares of AMB's Series E
Preferred Stock. AMB Property II, L.P. used the gross proceeds of approximately
$11.0 million to pay placement fees, for transaction expenses and to repay
approximately $10.8 million in loans made to it by the operating partnership.
The operating partnership used the funds to pay approximately $10.0 million in
partial repayment of amounts outstanding under our unsecured credit facility and
for general corporate purposes.
On February 9, 1999, the operating partnership issued an aggregate of 1,034
limited partnership units with an aggregate value of approximately $0.02 million
to two corporations and twelve individuals. On April 30, 1999, the operating
partnership issued an aggregate of 390,633 limited partnership units with an
aggregate value of approximately $9.4 million to two corporations and twelve
individuals. On May 21, 1999, the operating partnership issued 18,638 limited
partnership units with a value of approximately $0.5 million to a limited
liability company. On May 26, 1999, the operating partnership issued 212,766
limited partnership units with a value of approximately $5.0 million to a
limited liability company. On September 30, 1999, the operating partnership
issued an aggregate of 3,642 limited partnership units with an aggregate value
of $0.09 million to five partnerships. All of these limited partnership units
were issued in partial consideration for the acquisition of properties.
Holders of limited partnership units may redeem part or all of their
limited partnership units for cash, or at our election, exchange their limited
partnership units for shares of our common stock on a one-for-one basis. The
issuance of limited partnership units in connection with the acquisitions
discussed above constituted private placements of securities which were exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) of the Securities Act and Rule 506 of Regulation D.
During 1999, 31,109 limited partnership units were redeemed for cash and
535,753 limited partnership units were redeemed for shares of our common stock.
During the fourth quarter of 1999, our Board of Directors approved a stock
repurchase program for the repurchase of up to $50.0 million worth of our common
stock. During 1999, we repurchased a total of 1,443,600 shares of our common
stock in the open market, for an aggregate purchase price of $27.3 million
(including commissions). The average price per share was $18.913. In January
2000, our Board of Directors approved an increase in the stock repurchase
program, thereby authorizing the repurchase of an aggregate of up to $100.0
million worth of our common stock. Our stock repurchase program will expire on
the second anniversary of the first purchase made thereunder.
At the time of our initial public offering, 4,237,750 shares of common
stock, known as performance shares, were placed in escrow by certain of our
investors, which were subject to advisory agreements with our predecessor that
included incentive fee provisions. On January 7, 2000, 2,771,824 shares of
common stock were released from escrow to these investors and 1,465,926 shares
of common stock were returned to us and cancelled. Inasmuch as the cancelled
shares of common stock represent indirect interests in the operating partnership
that were reallocated from us (thereby decreasing the number of shares of common
stock outstanding) to other unitholders (thereby increasing the number of
limited partnership units owned by partners other than us), the total number of
outstanding partnership units did not change as a result of this reallocation.
This reallocation did not change the amount of fully diluted shares of common
stock and limited partnership units outstanding.
28
30
Market Capitalization. As of December 31, 1999, the aggregate principal
amount of our secured debt was $696.9 million, excluding unamortized debt
premiums of $10.1 million. The secured debt bears interest at rates varying from
4.0% to 10.4% per annum (with a weighted average of 7.8%) and final maturity
dates ranging from May 2000 to April 2014. All of the secured debt bears
interest at fixed rates, except for two loans with an aggregate principal amount
of $10.4 million at December 31, 1999, which bear interest at variable rates. As
of December 31, 1999, the estimated fair value of the secured debt was
approximately $684.0 million.
In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, we presently intend to operate with
a total debt-to-total market capitalization ratio of approximately 45% or less.
Additionally, we presently intend to continue to structure our balance sheet in
order to maintain an investment grade rating on our senior unsecured debt.
The tables below summarize our debt maturities and capitalization as of
December 31, 1999 (in thousands, except share amounts and percentages).
DEBT
- ------------------------------------------------------------------------------------------------------
ALLIANCE FUND I UNSECURED UNSECURED
SECURED UNSECURED SENIOR DEBT CREDIT TOTAL
DEBT DEBT SECURITIES FACILITY DEBT
-------- --------------- ----------- --------- ----------
2000........................... $ 45,128 $ -- $ -- $83,000 $ 128,128
2001........................... 38,218 80,000 -- -- 118,218
2002........................... 56,037 -- -- -- 56,037
2003........................... 75,394 -- -- -- 75,394
2004........................... 91,042 -- -- -- 91,042
2005........................... 70,131 -- 100,000 -- 170,131
2006........................... 134,330 -- -- -- 134,330
2007........................... 48,143 -- -- -- 48,143
2008........................... 127,747 -- 175,000 -- 302,747
2009........................... 1,811 -- -- -- 1,811
Thereafter..................... 8,950 -- 125,000 -- 133,950
-------- -------- -------- ------- ----------
Subtotal..................... 696,931 80,000 400,000 83,000 1,259,931
Unamortized premiums......... 10,106 -- -- -- 10,106
-------- -------- -------- ------- ----------
Total consolidated
debt............... 707,037 80,000 400,000 83,000 1,270,037
Our share of unconsolidated
joint venture debt........... 22,740 -- -- -- 22,740
-------- -------- -------- ------- ----------
Total debt........... 729,777 80,000 400,000 83,000 1,292,777
Joint venture partners' share
of consolidated joint venture
debt......................... (60,559) (64,000) -- -- (124,559)
-------- -------- -------- ------- ----------
Our share of total debt... $669,218 $ 16,000 $400,000 $83,000 $1,168,218
======== ======== ======== ======= ==========
Weighed average interest
rate......................... 7.8%(1) 6.7% 7.2% 6.7% 7.5%
Weighed average maturity (in
years)....................... 5.9(1) 1.3 10.9 0.9 6.8
(1) Does not include unconsolidated joint venture debt. The weighted average
interest and maturity for the two unconsolidated joint venture debts were
6.9% and 6.2 years, respectively.
MARKET EQUITY
- --------------------------------------------------------------------------------------
SHARES/UNITS
SECURITY OUTSTANDING MARKET PRICE MARKET VALUE
-------- ------------ ------------ ------------
Common stock.............................. 85,133,041 $19.94 $1,697,340
Common limited partnership units.......... 4,507,689 19.94 89,872
---------- ----------
Total........................... 89,640,730 $1,787,212
========== ==========
29
31
PREFERRED STOCK AND UNITS
- --------------------------------------------------------------------------------
DIVIDEND LIQUIDATION REDEMPTION
SECURITY RATE PREFERENCE PROVISIONS
-------- -------- ----------- -------------
Series A preferred stock.............. 8.50% $100,000 July 2003
Series B preferred units.............. 8.63% 65,000 November 2003
Series C preferred units.............. 8.75% 110,000 November 2003
Series D preferred units.............. 7.75% 79,767 May 2004
Series E preferred units.............. 7.75% 11,022 August 2004
---- --------
Weighted Average/Total.............. 8.41% $365,789
==== ========
CAPITALIZATION RATIOS
- ------------------------------------------------------------------
Total debt-to-total market capitalization................... 37.5%
Our share of total debt-to-total market capitalization...... 35.2%
Total debt plus preferred-to-total market capitalization.... 48.1%
Our share of total debt plus preferred-to-total market
capitalization............................................ 46.2%
Our share of total debt-to-total book capitalization........ 35.9%
Liquidity
As of December 31, 1999, we had approximately $137.0 million in cash and
cash equivalents and $417.0 million of additional available borrowings under our
unsecured credit facility. We intend to use cash flow from operations,
borrowings under our unsecured credit facility, other forms of secured and
unsecured financing, proceeds from future debt or equity offerings by us or the
operating partnership (including issuances of limited partnership units by the
operating partnership or its subsidiaries) and proceeds from divestitures of
properties to fund acquisitions, development activities and capital expenditures
and to provide for general working capital requirements.
On March 5, 1999, we declared a quarterly cash dividend of $0.35 per share
on our common stock and the operating partnership declared a quarterly cash
distribution of $0.35 per limited partnership unit, for the quarter ended March
31, 1999, payable on April 15, 1999, to stockholders and unitholders of record
as of March 31, 1999. On March 5, 1999, we declared a cash dividend of $0.5313
per share on our Series A Preferred Stock, and the operating partnership
declared a cash distribution of $0.5313 per unit on its Series A Preferred
Units, for the three month-period ended April 14, 1999, payable on April 15,
1999, to stockholders and unitholders of record as of March 31, 1999. On March
5, 1999, the operating partnership declared a cash distribution of $1.0781 per
unit on its Series B Preferred Units, for the three-month period ended April 14,
1999, payable on April 15, 1999, to unitholders of record as of March 31, 1999.
On March 5, 1999, AMB Property II, L.P. declared a cash distribution of $1.0938
per unit on its Series C Preferred Units, for the three-month period ended April
14, 1999, payable on April 15, 1999, to unitholders of record as of March 31,
1999.
On June 4, 1999, we declared a quarterly cash dividend of $0.35 per share
on our common stock and the operating partnership declared a quarterly cash
distribution of $0.35 per limited partnership unit, for the quarter ended June
30, 1999, payable on July 15, 1999, to stockholders and unitholders of record as
of July 6, 1999. On June 4, 1999, we declared a cash dividend of $0.5313 per
share on our Series A Preferred Stock, and the operating partnership declared a
cash distribution of $0.5313 per unit on its Series A Preferred Units, for the
three month-period ended July 14, 1999, payable on July 15, 1999, to
stockholders and unitholders of record as of July 6, 1999. On June 4, 1999, the
operating partnership declared a cash distribution of $1.0781 per unit on its
Series B Preferred Units, for the three-month period ended July 14, 1999,
payable on July 15, 1999, to unitholders of record as of July 6, 1999. On June
4, 1999, AMB Property II, L.P. declared a cash distribution of $1.0938 per unit
on its Series C Preferred Units, for the three-month period ended October 14,
1999, payable on October 15, 1999, to unitholders of record as of October 5,
1999. On June 4, 1999, AMB Property II, L.P. declared a cash distribution of
$0.5382 per unit on its Series D Preferred Units, for the period from May 5,
1999 to June 24, 1999, payable on June 25, 1999, to unitholders of record as of
June 15, 1999.
30
32
On September 10, 1999, we declared a quarterly cash dividend of $0.35 per
share on our common stock and the operating partnership declared a quarterly
cash distribution of $0.35 per limited partnership unit, for the quarter ended
September 30, 1999, payable on October 15, 1999, to stockholders and unitholders
of record as of October 5, 1999. On September 10, 1999, we declared a cash
dividend of $0.5313 per share on our Series A Preferred Stock, and the operating
partnership declared a cash distribution of $0.5313 per unit on its Series A
Preferred Units, for the three month-period ended October 14, 1999, payable on
October 15, 1999, to stockholders and unitholders of record as of October 5,
1999. On September 10, 1999, the operating partnership declared a cash
distribution of $1.0781 per unit on its Series B Preferred Units, for the
three-month period ended October 14, 1999, payable on October 15, 1999, to
unitholders of record as of October 5, 1999. On September 10, 1999, AMB Property
II, L.P. declared a cash distribution of $1.0938 and $0.9688 per unit on its
Series C Preferred Units and Series D Preferred Units, respectively, for the
three-month periods ended October 14, 1999 and September 24, 1999, respectively,
payable on October 15, 1999 and September 25, 1999, respectively, to unitholders
of record as of October 5, 1999 and September 15, 1999, respectively. On
September 10, 1999, AMB Property II, L.P. declared a cash distribution of
$0.3264 per unit on its Series E Preferred Units, for the period from August 31,
1999 to October 14, 1999, payable on October 15, 1999, to unitholders of record
as of October 5, 1999.
On December 10, 1999, we declared a quarterly cash dividend of $0.35 per
share on our common stock and the operating partnership declared a quarterly
cash distribution of $0.35 per limited partnership unit, for the quarter ended
December 31, 1999, payable on December 28, 1999, to stockholders and unitholders
of record as of December 17, 1999. On December 10, 1999, we declared a cash
dividend of $0.5313 per share on our Series A Preferred Stock, and the operating
partnership declared a cash distribution of $0.5313 per unit on its Series A
Preferred Units, for the three month-period ended January 14, 2000, payable on
January 17, 2000, to stockholders and unitholders of record as of January 5,
2000. On December 10, 1999, the operating partnership declared a cash
distribution of $1.0781 per unit on its Series B Preferred Units, for the
three-month period ended January 14, 2000, payable on January 17, 2000, to
unitholders of record as of January 5, 2000. On December 10, 1999, AMB Property
II, L.P. declared a cash distribution of $1.0938, $0.9688 and $0.9688 per unit
on its Series C Preferred Units, Series D Preferred Units and Series E Preferred
Units, respectively, for the three-month periods ended January 14, 2000,
December 24, 1999 and January 14, 2000, respectively, payable on January 17,
2000, December 27, 1999 and January 17, 2000, respectively, to unitholders of
record as of January 5, 2000, December 15, 1999 and January 5, 2000,
respectively.
On February 29, 2000, we declared a quarterly cash dividend of $0.37 per
share of common stock and the operating partnership declared a quarterly cash
distribution of $0.37 per limited partnership unit, for the quarter ending March
31, 2000, payable on April 17, 2000, to stockholders and unitholders of record
as of April 5, 2000. On February 29, 2000, we declared a cash dividend of
$0.5313 per share of our Series A Preferred Stock, and the operating partnership
declared a cash distribution of $0.5313 per unit on its Series A Preferred
Units, for the three-month period ending April 14, 2000, payable on April 17,
2000, to stockholders and unitholders of record as of April 5, 2000. On February
29, 2000, the operating partnership declared a cash distribution of $1.0781 per
unit on its Series B Preferred Units, for the three month period ending April
14, 2000, payable on April 17, 2000, to unitholders of record as of April 5,
2000. On February 29, 2000, AMB Property II, L.P. declared a cash distribution
of $1.0938, $0.9688 and $0.9688 per unit on its Series C Preferred Units, Series
D Preferred Units and Series E Preferred Units, respectively, for the three
month periods ending April 14, March 24, and April 14, 2000, respectively,
payable on April 17, March 25, and April 17, 2000, respectively, to unitholders
of record as of April 5, March 15, and April 5, 2000.
The anticipated size of our distributions, using only cash from operations,
will not allow us to retire all of our debt as it comes due. Therefore, we
intend to also repay maturing debt with net proceeds from future debt
financings, equity financings and/or property divestitures. However, we may not
be able to obtain future financings on favorable terms or at all.
Capital Commitments
In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of December 31, 1999, our development pipeline included 18
projects representing a total estimated investment of $306.4 mil-
31
33
lion upon completion. Of this total, approximately $164.5 million had been
funded as of December 31, 1999, approximately $141.9 million is estimated to be
required to complete projects under construction as of December 31, 1999, and
the remainder represents estimated investments in either projects where
construction has not yet begun or future phases of projects under construction.
We presently expect to fund these expenditures with cash flow from operations,
borrowings under our unsecured credit facility, debt or equity issuances and net
proceeds from property divestitures. Other than these capital items, we have no
material capital commitments.
During the period from January 1, 1999 to December 31, 1999, we invested
$471.9 million in 154 industrial buildings, aggregating approximately 8.4
million square feet. We funded these acquisitions and development projects
through proceeds from the divestiture of properties, borrowings under our
unsecured credit facility, limited partnership unit issuances, cash and debt
assumption.
YEAR 2000 COMPLIANCE
We conducted a comprehensive company-wide test of our financial and
non-financial systems to ensure that our systems would adequately handle the
year 2000 issues. We also surveyed our property managers to determine if our
HVAC, security, lighting and other building systems at our properties were year
2000 compliant. As a result of our efforts, we experienced no significant
problems with any of our financial or non-financial systems, nor did any of the
systems at our properties malfunction, at the turn of the century. In addition,
we have not experienced any significant year 2000 issues with respect to our
third party suppliers. We will continue to monitor our systems and those at our
properties for potential imbedded year 2000 problems. The costs incurred by us
in connection with our year 2000 compliance program have been, and are expected
to remain, immaterial to our financial position, results of operations and cash
flows.
FUNDS FROM OPERATIONS
We believe that Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, is an appropriate measure of
performance for an equity real estate investment trust. While funds from
operations is a relevant and widely used measure of operating performance of
real estate investment trusts, it does not represent cash flow from operations
or net income as defined by U.S. generally accepted accounting principles, and
it should not be considered as an alternative to those indicators in evaluating
liquidity or operating performance. Further, funds from operations as disclosed
by other real estate investment trusts may not be comparable.
The following table reflects the calculation of our funds from operations
for the fiscal years ended December 31, 1997, 1998 and 1999 (dollars in
thousands, except share and per share data). The 1997 funds from operations was
prepared on a pro forma basis (giving effect to the completion of our formation
32
34
transactions, our initial public offering and certain 1997 property acquisitions
and divestitures as if they had occurred on January 1, 1997).
1997 1998 1999
----------- ----------- -----------
Income from operations before minority
interests................................. $ 103,903 $ 123,750 $ 158,851
Real estate depreciation and amortization:
Total depreciation and amortization....... 45,886 57,464 67,505
Furniture, fixtures and equipment
depreciation and ground lease
amortization........................... (173) (463) (1,002)
FFO attributable to minority
interests(1)(2)........................... (2,207) (5,899) (8,182)
Adjustments to derive FFO in unconsolidated
joint ventures(3):
Our share of net income................... -- (1,750) (4,701)
Our share of FFO.......................... -- 2,739 6,677
Series A preferred stock dividends.......... -- (3,639) (8,500)
Series B, C, D, & E preferred unit
distributions............................. -- (1,795) (19,501)
----------- ----------- -----------
FFO(1)...................................... $ 147,409 $ 170,407 $ 191,147
=========== =========== ===========
FFO per common share and unit:
Basic.................................. $ 1.67 $ 1.90 $ 2.11
=========== =========== ===========
Diluted................................ $ 1.66 $ 1.90 $ 2.10
=========== =========== ===========
Weighted average shares and units:
Basic.................................. 88,416,676 89,493,394 90,792,310
=========== =========== ===========
Diluted(4)............................. 88,698,719 89,852,187 90,867,934
=========== =========== ===========
- ---------------
(1) Funds from Operations, or FFO, is defined as income from operations before
minority interests, gains or losses from sale of real estate and
extraordinary losses plus real estate depreciation and adjustment to derive
our pro rata share of the funds from operations of unconsolidated joint
ventures, less minority interests' pro rata share of the funds from
operations of consolidated joint ventures and perpetual preferred stock
dividends. In accordance with the NAREIT White Paper on funds from
operations, we include the effects of straight-line rents in funds from
operations. Further, we do not adjust funds from operations to eliminate the
effects of non-recurring charges.
(2) Represents funds from operations attributable to minority interests in
consolidated joint ventures for the periods presented, which has been
computed as minority interests' share of net income before disposal of
properties plus minority interests' share of real estate-related
depreciation and amortization of the consolidated joint ventures for such
periods. These minority interests are not convertible into shares of common
stock.
(3) Represents our pro rata share of funds from operations in unconsolidated
joint ventures for the periods presented, which has been computed as our
share of net income plus our share of real estate-related depreciation and
amortization of the unconsolidated joint venture for such periods.
(4) Includes the dilutive effect of stock options.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
Our operations involve various risks that could have adverse consequences
to us. These risks include, among others:
GENERAL REAL ESTATE RISKS
THERE ARE FACTORS OUTSIDE OF OUR CONTROL THAT AFFECT THE PERFORMANCE AND VALUE
OF OUR PROPERTIES
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection with the properties. If our
properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, our ability to pay
distributions to our stockholders could be adversely affected. Income from, and
the value of, our properties may be adversely affected by the general economic
climate, local conditions such as oversupply of
33
35
industrial space or a reduction in demand for industrial space, the
attractiveness of our properties to potential customers, competition from other
properties, our ability to provide adequate maintenance and insurance and an
increase in operating costs. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of compliance with
regulations, the potential for liability under applicable laws (including
changes in tax laws), interest rate levels and the availability of financing.
Our income would be adversely affected if a significant number of customers were
unable to pay rent or if we were unable to rent our industrial space on
favorable terms. Certain significant expenditures associated with an investment
in real estate (such as mortgage payments, real estate taxes and maintenance
costs) generally do not decline when circumstances cause a reduction in income
from the property.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE
We are subject to the risks that leases may not be renewed, space may not
be relet, or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of approximately 32.4% of the leased square footage of our properties as of
December 31, 1999 will expire on or prior to December 31, 2001, with leases on
16.1% of the leased square footage of our properties as of December 31, 1999
expiring during the 12 months ending December 31, 2000. In addition, numerous
properties compete with our properties in attracting customers to lease space,
particularly with respect to retail centers. The number of competitive
commercial properties in a particular area could have a material adverse effect
on our ability to lease space in our properties and on the rents that we are
able to charge. Our financial condition, results of operations, cash flow and
our ability to pay distributions on, and the market price of, our stock could be
adversely affected if we are unable to promptly relet or renew the leases for
all or a substantial portion of expiring leases, if the rental rates upon
renewal or reletting is significantly lower than expected, or if our reserves
for these purposes prove inadequate.
REAL ESTATE INVESTMENTS ARE ILLIQUID
Because real estate investments are relatively illiquid, our ability to
vary our portfolio promptly in response to economic or other conditions is
limited. The limitations in the Internal Revenue Code and related regulations on
a real estate investment trust holding property for sale may affect our ability
to sell properties without adversely affecting distributions to our
stockholders. The relative illiquidity of our holdings, Internal Revenue Code
prohibitions and related regulations could impede our ability to respond to
adverse changes in the performance of our investments and could adversely affect
our financial condition, results of operations, cash flow and our ability to pay
distributions on, and the market price of, our stock.
A SIGNIFICANT NUMBER OF OUR PROPERTIES ARE LOCATED IN CALIFORNIA
Our properties located in California as of December 31, 1999 represented
approximately 22.7% of the aggregate square footage of our properties as of
December 31, 1999 and approximately 29.1% of our annualized base rent.
Annualized base rent means the monthly contractual amount under existing leases
at December 31, 1999, multiplied by 12. This amount excludes expense
reimbursements and rental abatements. Our revenue from, and the value of, our
properties located in California may be affected by a number of factors,
including local real estate conditions (such as oversupply of or reduced demand
for commercial properties) and the local economic climate. Business layoffs,
downsizing, industry slowdowns, changing demographics and other factors may
adversely impact the local economic climate. A downturn in either the California
economy or in California real estate conditions could adversely affect our
financial condition, results of operations, cash flow and our ability to pay
distributions on, and the market price of, our stock. Certain of our properties
are also subject to possible loss from seismic activity. During 1999, we sold 10
of the 11 retail centers that we owned in California, eight of which were sold
to BPP Retail and two to an institutional investor for whom AMB Investment
Management provides asset management services. Accordingly, as of December 31,
1999, 22.7% of our properties based on aggregate square footage and 29.1% of our
properties based on annualized base rent were located in California.
34
36
OUR PROPERTIES ARE CURRENTLY CONCENTRATED IN THE INDUSTRIAL SECTOR
Our properties are currently concentrated predominantly in the industrial
real estate sector. Our concentration in a certain property type may expose us
to the risk of economic downturns in this sector to a greater extent than if our
portfolio also included other property types. As a result of such concentration,
economic downturns in the industrial real estate sector could have an adverse
effect on our financial condition, results of operations, cash flow and ability
to pay distributions on, and the market price of, our stock.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE
We carry comprehensive liability, fire, extended coverage and rental loss
insurance covering all of our properties, with policy specifications and insured
limits which we believe are adequate and appropriate under the circumstances
given relative risk of loss, the cost of such coverage and industry practice.
There are, however, certain losses that are not generally insured because it is
not economically feasible to insure against them, including losses due to riots
or acts of war. Certain losses such as losses due to floods or seismic activity
may be insured subject to certain limitations including large deductibles or
co-payments and policy limits. If an uninsured loss or a loss in excess of
insured limits occurs with respect to one or more of our properties, we could
lose the capital we invested in the properties, as well as the anticipated
future revenue from the properties and, in the case of debt which is with
recourse to us, we would remain obligated for any mortgage debt or other
financial obligations related to the properties. Moreover, as the general
partner of the operating partnership, we will generally be liable for all of the
operating partnership's unsatisfied obligations other than non-recourse
obligations. Any such liability could adversely affect our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our stock.
A number of our properties are located in areas that are known to be
subject to earthquake activity, including California where, as of December 31,
1999, 209 industrial buildings aggregating 14.7 million rentable square feet
(representing 22.0% of our properties based on aggregate square footage and
26.9% based on annualized base rent) and 1 retail center aggregating 0.4 million
rentable square feet (representing 0.6% of our properties based on aggregate
square footage and 2.2% based on annualized base rent) are located. We carry
replacement cost earthquake insurance on all of our properties located in areas
historically subject to seismic activity, subject to coverage limitations and
deductibles which we believe are commercially reasonable. This insurance
coverage also applies to the properties managed by AMB Investment Management,
with a single aggregate policy limit and deductible applicable to those
properties and our properties. The operating partnership owns 100% of the
non-voting preferred stock of AMB Investment Management. Through an annual
analysis prepared by outside consultants, we evaluate our earthquake insurance
coverage in light of current industry practice and determine the appropriate
amount of earthquake insurance to carry. We may incur material losses in excess
of insurance proceeds and we may not be able to continue to obtain insurance at
commercially reasonable rates.
WE ARE SUBJECT TO RISKS AND LIABILITIES IN CONNECTION WITH PROPERTIES OWNED
THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND PARTNERSHIPS
As of December 31, 1999, we had ownership interests in 21 joint ventures,
limited liability companies or partnerships with third parties, as well as
interests in two unconsolidated entities. As of December 31, 1999, we owned 27
(excluding the two unconsolidated joint ventures) of our properties through
these entities. We may make additional investments through these ventures in the
future and presently plan to do so with clients of AMB Investment Management and
certain Development Alliance Partners, who share certain approval rights over
major decisions. Partnership, limited liability company or joint venture
investments may involve risks such as the following:
- our partners, co-members or joint venturers might become bankrupt (in
which event we and any other remaining general partners, members or joint
venturers would generally remain liable for the liabilities of the
partnership, limited liability company or joint venture);
- our partners, co-members or joint venturers might at any time have
economic or other business interests or goals which are inconsistent with
our business interests or goals;
35
37
- our partners, co-members or joint venturers may be in a position to take
action contrary to our instructions, requests, policies or objectives,
including our current policy with respect to maintaining our
qualification as a real estate investment trust; and
- agreements governing joint ventures, limited liability companies and
partnerships often contain restrictions on the transfer of a joint
venturer's, member's or partner's interest or "buy-sell" or other
provisions which may result in a purchase or sale of the interest at a
disadvantageous time or on disadvantageous terms.
We will, however, generally seek to maintain sufficient control of our
partnerships, limited liability companies and joint ventures to permit us to
achieve our business objectives. Our organizational documents do not limit the
amount of available funds that we may invest in partnerships, limited liability
companies or joint ventures. The occurrence of one or more of the events
described above could have an adverse effect on our financial condition, results
of operations, cash flow and ability to pay distributions on, and the market
price of, our stock.
WE MAY BE UNABLE TO CONSUMMATE ACQUISITIONS ON ADVANTAGEOUS TERMS
We intend to continue to acquire primarily industrial properties.
Acquisitions of properties entail risks that investments will fail to perform in
accordance with expectations. Estimates of the costs of improvements necessary
for us to bring an acquired property up to market standards may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment. Further, we anticipate significant competition for
attractive investment opportunities from other major real estate investors with
significant capital including both publicly traded real estate investment trusts
and private institutional investment funds. We expect that future acquisitions
will be financed through a combination of borrowings under our unsecured credit
facility, proceeds from equity or debt offerings by us or the operating
partnership (including issuances of limited partnership units by the operating
partnership or its subsidiaries), and proceeds from property divestitures, which
could have an adverse effect on our cash flow. We may not be able to acquire
additional properties. Our inability to finance any future acquisitions on
favorable terms or the failure of acquisitions to conform with our expectations
or investment criteria, or our failure to timely reinvest the proceeds from
property divestitures could adversely affect our financial condition, results of
operations, cash flow and ability to pay distributions on, and the market price
of, our stock.
WE MAY BE UNABLE TO COMPLETE RENOVATION AND DEVELOPMENT ON ADVANTAGEOUS TERMS
The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks. These risks
include the following:
- we may not be able to obtain financing on favorable terms for development
projects and we may not complete construction on schedule or within
budget, resulting in increased debt service expense and construction
costs and delays in leasing such properties and generating cash flow;
- we may not be able to obtain, or we may experience delays in obtaining,
all necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations;
- new or renovated properties may perform below anticipated levels,
producing cash flow below budgeted amounts;
- substantial renovation as well as new development activities, regardless
of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention which could divert
management's time from our day-to-day operations; and
- activities that we finance through construction loans involve the risk
that, upon completion of construction, we may not be able to obtain
permanent financing or we may not be able to obtain permanent financing
on advantageous terms.
These risks could have an adverse effect on our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our stock.
36
38
WE MAY BE UNABLE TO COMPLETE DIVESTITURES ON ADVANTAGEOUS TERMS
We intend to dispose of properties from time to time that do not conform
with our current investment strategy or that we have otherwise determined should
be divested, including, as of December 31, 1999, four retail centers,
aggregating approximately 1.2 million square feet, and four industrial buildings
aggregating approximately 0.3 million square feet, which are held for
divestiture. Our ability to dispose of properties on advantageous terms is
dependent upon factors beyond our control, including competition from other
owners (including other real estate investment trusts) that are attempting to
dispose of industrial and retail properties and the availability of financing on
attractive terms for potential buyers of our properties. Our inability to
dispose of properties on favorable terms and/or our inability to redeploy the
proceeds of property divestitures in accordance with our investment strategy
could adversely our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our stock.
DEBT FINANCING
WE COULD INCUR MORE DEBT
We operate with a policy of incurring debt, either directly or through our
subsidiaries, only if upon such incurrence our debt-to-total market
capitalization ratio would be approximately 45% or less. The aggregate amount of
indebtedness that we may incur under our policy varies directly with the
valuation of our capital stock and the number of shares of capital stock
outstanding. Accordingly, we would be able to incur additional indebtedness
under our policy as a result of increases in the market price per share of our
common stock or other outstanding classes of capital stock, and future issuance
of shares of our capital stock. In spite of this policy, our organizational
documents do not contain any limitation on the amount of indebtedness that we
may incur. Accordingly, our board of directors could alter or eliminate this
policy. If we change this policy, we could become more highly leveraged,
resulting in an increase in debt service that could adversely affect our
financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our stock.
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
We are subject to risks normally associated with debt financing, including
the risks that cash flow will be insufficient to make distributions to our
stockholders, that we will be unable to refinance existing indebtedness on our
properties (which in all cases will not have been fully amortized at maturity)
and that the terms of refinancing will not be as favorable as the terms of
existing indebtedness.
As of December 31, 1999, we had total debt outstanding of approximately
$1.3 billion including:
- approximately $696.9 million of secured indebtedness (excluding
unamortized debt premiums) with an average maturity of six years and a
weighted average interest rate of 7.8%;
- approximately $80.0 million outstanding under the unsecured credit
facility related to the Alliance Fund I, with a maturity date of April
2001 and a weighted average interest rate of 6.7%;
- approximately $83.0 million outstanding under our unsecured $500.0
million credit facility with a maturity date of November 2000 and a
weighted average interest rate of 6.7%; and
- $400.0 million aggregate principal amount of unsecured senior debt
securities with maturities in June 2008, 2015 and 2018 and a weighted
average interest rate of 7.2%.
With the proceeds from the first, second and third transactions with BPP
Retail, we repaid approximately $50.7 million of secured indebtedness relating
to the properties divested and made payments under our unsecured credit facility
in the amount of approximately $225.0 million.
We are a guarantor of the operating partnership's obligations with respect
to the senior debt securities referenced above. If we are unable to refinance or
extend principal payments due at maturity or pay them with proceeds of other
capital transactions, we expect that our cash flow will not be sufficient in all
years to pay distributions to our stockholders and to repay all such maturing
debt. Furthermore, if prevailing interest rates
37
39
or other factors at the time of refinancing (such as the reluctance of lenders
to make commercial real estate loans) result in higher interest rates upon
refinancing, the interest expense relating to that refinanced indebtedness would
increase. This increased interest expense would adversely affect our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our stock. In addition, if we mortgage one or more of
our properties to secure payment of indebtedness and we are unable to meet
mortgage payments, the property could be foreclosed upon or transferred to the
mortgagee with a consequent loss of income and asset value. A foreclosure on one
or more of our properties could adversely affect our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our stock.
RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW
As of December 31, 1999, we had $83.0 million and $80.0 million outstanding
under our unsecured credit facility and the unsecured credit facility related to
the Alliance Fund I, respectively. In addition, we may incur other variable rate
indebtedness in the future. Increases in interest rates on this indebtedness
could increase our interest expense, which would adversely affect our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our stock. Accordingly, we may in the future engage in
transactions to limit our exposure to rising interest rates.
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
In order to qualify as a real estate investment trust under the Internal
Revenue Code, we are required each year to distribute to our stockholders at
least 95% of our real estate investment trust taxable income (determined without
regard to the dividends-paid deduction and by excluding any net capital gain).
Because of this distribution requirement, we may not be able to fund all future
capital needs, including capital needs in connection with acquisitions, from
cash retained from operations. As a result, to fund capital needs, we rely on
third-party sources of capital, which we may not be able to obtain on favorable
terms or at all. Our access to third-party sources of capital depends upon a
number of factors, including general market conditions and the market's
perception of our growth potential and our current and potential future earnings
and cash distributions and the market price of the shares of our capital stock.
Additional debt financing may substantially increase our leverage.
WE COULD DEFAULT ON CROSS-COLLATERALIZED AND CROSS-DEFAULTED DEBT
As of December 31, 1999, we had 16 non-recourse secured loans which are
cross-collateralized by 17 properties. As of December 31, 1999, we had $196.5
million (not including unamortized debt premium) outstanding on these loans. If
we default on any of these loans, we will be required to repay the aggregate of
all indebtedness, together with applicable prepayment charges, to avoid
foreclosure on all the cross-collateralized properties within the applicable
pool. Foreclosure on our properties, or our inability to refinance our loans on
favorable terms, could adversely impact our financial condition, results of
operations, cash flow and ability to pay distributions on, and the market price
of, our stock. In addition, our credit facilities and the senior debt securities
of the operating partnership contain certain cross-default provisions which are
triggered in the event that our other material indebtedness is in default. These
cross-default provisions may require us to repay or restructure the credit
facilities and the senior debt securities in addition to any mortgage or other
debt which is in default, which could adversely affect our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our stock.
CONTINGENT OR UNKNOWN LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
Our predecessors have been in existence for varying lengths of time up to
17 years. At the time of our formation we acquired the assets of these entities
subject to all of their potential existing liabilities. There may be current
liabilities or future liabilities arising from prior activities that we are not
aware of and therefore are not disclosed in this report. We assumed these
liabilities as the surviving entity in the various merger and contribution
transactions that occurred at the time of our formation. Existing liabilities
for indebtedness generally were taken into account in connection with the
allocation of the operating partnership's limited
38
40
partnership units and/or shares of our common stock in the formation
transactions, but no other liabilities were taken into account for these
purposes. We do not have recourse against our predecessors or any of their
respective stockholders or partners or against any individual account investors
with respect to any unknown liabilities. Unknown liabilities might include the
following:
- liabilities for clean-up or remediation of undisclosed environmental
conditions;
- claims of customers, vendors or other persons dealing with our
predecessors prior to the formation transactions that had not been
asserted prior to the formation transactions;
- accrued but unpaid liabilities incurred in the ordinary course of
business;
- tax liabilities; and
- claims for indemnification by the officers and directors of our
predecessors and others indemnified by these entities.
Certain customers may claim that the formation transactions gave rise to a
right to purchase the premises that they occupy. We do not believe any such
claims would be material. See "-- Government Regulations -- We Could Encounter
Costly Environmental Problems" below regarding the possibility of undisclosed
environmental conditions potentially affecting the value of our properties.
Undisclosed material liabilities in connection with the acquisition of
properties, entities and interests in properties or entities could adversely
affect our financial condition, results of operations, cash flow and ability to
pay distributions on, and the market price of, our stock.
CONFLICTS OF INTEREST
SOME OF OUR EXECUTIVE OFFICERS ARE INVOLVED IN OTHER REAL ESTATE ACTIVITIES AND
INVESTMENTS
Some of our executive officers own interests in real estate-related
businesses and investments. These interests include minority ownership of
Institutional Housing Partners, a residential housing finance company, and
ownership of AMB Development, Inc. and AMB Development, L.P., developers which
own property that we believe is not suitable for ownership by us. AMB
Development, Inc. and AMB Development, L.P. have agreed not to initiate any new
development projects following our initial public offering in November 1997.
These entities have also agreed that they will not make any further investments
in industrial or retail properties other than those currently under development
at the time of our initial public offering. AMB Institutional Housing Partners,
AMB Development, Inc. and AMB Development, L.P. continue to use the name "AMB"
pursuant to royalty-free license arrangements. The continued involvement in
other real estate-related activities by some of our executive officers and
directors could divert management's attention from our day-to-day operations.
Most of our executive officers have entered into non-competition agreements with
us pursuant to which they have agreed not to engage in any activities, directly
or indirectly, in respect of commercial real estate, and not to make any
investment in respect of industrial real estate, other than through ownership of
not more than 5% of the outstanding shares of a public company engaged in such
activities or through the existing investments referred to in this report. State
law may limit our ability to enforce these agreements.
We could also, in the future, subject to the unanimous approval of the
disinterested members of the board of directors with respect to such
transaction, acquire property from executive officers, enter into leases with
executive officers, and/or engage in other related activities in which the
interests pursued by the executive officers may not be in the best interests of
our stockholders.
CERTAIN OF OUR EXECUTIVE OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST
WITH US IN CONNECTION WITH OTHER PROPERTIES THAT THEY OWN OR CONTROL
As of December 31, 1999, AMB Development, L.P. owns interests in 11 retail
development projects in the U.S., 10 of which consist of a single free-standing
Walgreens drugstore and one of which consists of a free-standing Walgreens
drugstore, a ground lease to McDonald's and a 14,000 square foot retail center.
In addition, Messrs. Abbey, Moghadam and Burke, each a founder and director, own
less than 1% interests in
39
41
two partnerships which own office buildings in various markets; these interests
have negligible value. Luis A. Belmonte, an executive officer, owns less than a
10% interest, representing an estimated value of $75,000, in a limited
partnership which owns an office building located in Oakland, California.
In addition, several of our executive officers individually own:
- less than 1% interests in the stocks of certain publicly-traded real
estate investment trusts;
- certain interests in and rights to developed and undeveloped real
property located outside the United States; and
- certain other de minimis holdings in equity securities of real estate
companies.
Thomas W. Tusher, a member of our board of directors, is a limited partner
in a partnership in which Messrs. Abbey, Moghadam and Burke are general partners
and which owns a 75% interest in an office building. Mr. Tusher owns a 20%
interest in the partnership, valued as of December 31, 1999 at approximately
$1.2 million. Messrs. Abbey, Moghadam and Burke each have an approximately 26.7%
interest in the partnership, each valued as of December 31, 1999 at
approximately $1.6 million.
We believe that the properties and activities set forth above generally do
not directly compete with any of our properties. However, it is possible that a
property in which an executive officer or director, or an affiliate of an
executive officer or director, has an interest may compete with us in the future
if we were to invest in a property similar in type and in close proximity to
that property. In addition, the continued involvement by our executive officers
and directors in these properties could divert management's attention from our
day-to-day operations. Our policy prohibits us from acquiring any properties
from our executive officers or their affiliates without the approval of the
disinterested members of our board of directors with respect to that
transaction.
OUR ROLE AS GENERAL PARTNER OF THE OPERATING PARTNERSHIP MAY CONFLICT WITH THE
INTERESTS OF STOCKHOLDERS
As the general partner of the operating partnership, we have fiduciary
obligations to the operating partnership's limited partners, the discharge of
which may conflict with the interests of our stockholders. In addition, those
persons holding limited partnership units will have the right to vote as a class
on certain amendments to the partnership agreement of the operating partnership
and individually to approve certain amendments that would adversely affect their
rights. The limited partners may exercise these voting rights in a manner that
conflicts with the interests of our stockholders. In addition, under the terms
of the operating partnership's partnership agreement, holders of limited
partnership units will have certain approval rights with respect to certain
transactions that affect all stockholders but which they may not exercise in a
manner which reflects the interests of all stockholders.
OUR DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT STOCKHOLDERS COULD ACT IN A
MANNER THAT IS NOT IN THE BEST INTEREST OF ALL STOCKHOLDERS
As of March 10, 2000, our three largest stockholders, Cohen & Steers
Capital Management, Inc. (with respect to various client accounts for which
Cohen & Steers Capital Management, Inc. serves as investment advisor), Southern
Company Services, Inc. and Capital Research and Management Company (with respect
to various client accounts for which Capital Research and Management Company
serves as investment advisor) beneficially owned approximately 16.9% of our
outstanding common stock. In addition, our executive officers and directors
beneficially owned approximately 5.8% of our outstanding common stock as of
March 10, 2000, and will have influence on our management and operation and, as
stockholders, will have influence on the outcome of any matters submitted to a
vote of our stockholders. This influence might be exercised in a manner that is
inconsistent with the interests of other stockholders. Although there is no
understanding or arrangement for these directors, officers and stockholders and
their affiliates to act in concert, these parties would be in a position to
exercise significant influence over our affairs if they choose to do so.
40
42
WE COULD SUFFER LOSSES IF WE FAIL TO ENFORCE THE TERMS OF CERTAIN AGREEMENTS
As holders of shares of our common stock and performance units, certain of
our directors and officers could have a conflict of interest with respect to
their obligations as directors and officers to vigorously enforce the terms of
certain of the agreements relating to our formation transactions. The potential
failure to enforce the material terms of those agreements could result in a
monetary loss to us, which loss could have a material adverse effect on our
financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our stock.
WE COULD INVEST IN REAL ESTATE MORTGAGES
We may invest in mortgages, and may do so as a strategy for ultimately
acquiring the underlying property. In general, investments in mortgages include
the risks that borrowers may not be able to make debt service payments or pay
principal when due, that the value of the mortgaged property may be less than
the principal amount of the mortgage note secured by the property and that
interest rates payable on the mortgages may be lower than our cost of funds to
acquire these mortgages. In any of these events, our funds from operations and
our ability to make distributions on, and the market price of, our stock could
be adversely affected. Funds from operations means income (loss) from operations
before disposal of real estate properties, minority interests and extraordinary
items plus depreciation and amortization, excluding depreciation of furniture,
fixtures and equipment less funds from operations attributable to minority
interests in consolidated joint ventures which are not convertible into shares
of common stock.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to our properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act, places of public accommodation
must meet certain federal requirements related to access and use by disabled
persons. Compliance with the Americans with Disabilities Act might require us to
remove structural barriers to handicapped access in certain public areas where
such removal is "readily achievable." If we fail to comply with the Americans
with Disabilities Act, we might be required to pay fines to the government or
damages to private litigants. The impact of application of the Americans with
Disabilities Act to our properties, including the extent and timing of required
renovations, is uncertain. If we are required to make unanticipated expenditures
to comply with the Americans with Disabilities Act, our cash flow and the
amounts available for distributions to our stockholders may be adversely
affected.
WE COULD ENCOUNTER COSTLY ENVIRONMENTAL PROBLEMS
Federal, state and local laws and regulations relating to the protection of
the environment impose liability on a current or previous owner or operator of
real estate for contamination resulting from the presence or discharge of
hazardous or toxic substances or petroleum products at the property. A current
or previous owner may be required to investigate and clean up contamination at
or migrating from a site. These laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of or caused
the presence of the contaminants. Even if more than one person may have been
responsible for the contamination, each person covered by the environmental laws
may be held responsible for all of the clean-up costs incurred. In addition,
third parties may sue the owner or operator of a site for damages based on
personal injury, property damage and/or other costs, including investigation and
clean-up costs, resulting from environmental contamination present at or
emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they adequately inform
or train those who may come into contact with asbestos and that they undertake
special precautions, including removal or other abatement in the event that
asbestos is disturbed during renovation or
41
43
demolition of a building. These laws may impose fines and penalties on building
owners or operators for failure to comply with these requirements and may allow
third parties to seek recovery from owners or operators for personal injury
associated with exposure to asbestos fibers. Some of our properties may contain
asbestos-containing building materials.
Some of our properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these properties contain, or may have
contained, underground storage tanks for the storage of petroleum products and
other hazardous or toxic substances. These operations create a potential for the
release of petroleum products or other hazardous or toxic substances. Some of
our properties are adjacent to or near other properties that have contained or
currently contain underground storage tanks used to store petroleum products or
other hazardous or toxic substances. In addition, certain of our properties are
on, or are adjacent to or near other properties upon which others, including
former owners or tenants of the properties, have engaged or may in the future
engage in activities that may release petroleum products or other hazardous or
toxic substances. From time to time, we may acquire properties, or interests in
properties, with known adverse environmental conditions where we believe that
the environmental liabilities associated with these conditions are quantifiable
and the acquisition will yield a superior risk-adjusted return. In connection
with certain of the divested properties, we have agreed to remain responsible
for, and to bear the cost of, remediating or monitoring certain environmental
conditions on the properties.
All of our properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. We may perform additional Phase II
testing if recommended by the independent environmental consultant. Phase II
testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for asbestos-containing building
materials, and any other testing that the consultant considers prudent in order
to test for the presence of hazardous materials. Some of the environmental
assessments of our properties do not contain a comprehensive review of the past
uses of the properties and/or the surrounding properties.
We have formed a limited liability company with AIG Global Real Estate
Investment Corp. to acquire, develop, manage and operate environmentally
impaired properties in target markets nationwide. The operating partnership is
the managing member of this venture. Each of AIG and the operating partnership
has committed $50 million to this venture. This venture currently intends to
invest primarily in industrial properties located near major airports, ports and
in-fill areas with known and quantifiable environmental issues, as well as, to a
more limited extent, well-located, value-added retail properties. Environmental
issues for each property are evaluated and quantified prior to acquisition.
Phase I environmental assessments are performed on the property; Phase II
testing is completed, if necessary, to supplement existing environmental data on
the property; and detailed remedial cost estimates are prepared by independent
third party engineers. Our and AIG Global Real Estate Investment Corp.'s risk
management teams then review the various environmental reports and determine
whether the property is appropriate for acquisition. The costs of environmental
investigation, clean-up and monitoring are underwritten into the cost of the
acquisition and appropriate environmental insurance is obtained for the
property.
None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole, and we are
not aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware or
that known environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, future laws, ordinances or
regulations may impose material environmental liability and the current
environmental condition of our properties may be affected by tenants, by the
condition
42
44
of land, by operations in the vicinity of the properties (such as releases from
underground storage tanks), or by third parties unrelated to us. If the costs of
compliance with environmental laws and regulations now existing or adopted in
the future exceed our budgets for these items, our financial condition, results
of operations, cash flow and ability to pay distributions on, and the market
price of, our stock could be adversely affected.
OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED IF WE FAIL TO COMPLY WITH
OTHER REGULATIONS
Our properties are also subject to various federal, state and local
regulatory requirements such as state and local fire and life safety
requirements. If we fail to comply with these requirements, we might incur fines
by governmental authorities or be required to pay awards of damages to private
litigants. We believe that our properties are currently in substantial
compliance with all such regulatory requirements. However, these requirements
may change or new requirements may be imposed which could require significant
unanticipated expenditures by us. Any such unanticipated expenditures could have
an adverse effect on our financial condition, results of operations, cash flow
and ability to pay distributions on, and the market price of, our stock.
FEDERAL INCOME TAX RISKS
OUR FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST WOULD HAVE SERIOUS
ADVERSE CONSEQUENCES TO STOCKHOLDERS
We elected to be taxed as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code commencing with our taxable year ended
December 31, 1997. We currently intend to operate so as to qualify as a real
estate investment trust under the Internal Revenue Code and believe that our
current organization and method of operation comply with the rules and
regulations promulgated under the Internal Revenue Code to enable us to continue
to qualify as a real estate investment trust. However, it is possible that we
have been organized or have operated in a manner which would not allow us to
qualify as a real estate investment trust, or that our future operations could
cause us to fail to qualify. Qualification as a real estate investment trust
requires us to satisfy numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex Internal Revenue Code
provisions for which there are only limited judicial and administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within our control. For example, in order to qualify
as a real estate investment trust, at least 95% of our gross income in any year
must be derived from qualifying sources, we must pay dividends to stockholders
aggregating annually at least 95% of its real estate investment trust taxable
income (determined without regard to the dividends paid deduction and by
excluding capital gains) and we must satisfy specified asset tests on a
quarterly basis. These provisions and the applicable treasury regulations are
more complicated in our case because we hold our assets in partnership form.
Legislation, new regulations, administrative interpretations or court decisions
could significantly change the tax laws with respect to qualification as a real
estate investment trust or the federal income tax consequences of such
qualification. However, we are not aware of any pending tax legislation that
would adversely affect our ability to operate as a real estate investment trust.
In connection with recent property acquisitions, we acquired partnership
interests and may have inadvertently acquired the voting securities of shell
corporations in violation of the 10% asset test at March 31, 1999. However,
while no assurance can be given, based on the advice of counsel in the relevant
jurisdiction and other factors, we do not believe that we have in fact violated
this test or that we would lose our status as a real estate investment trust as
a result of this matter. If the value of our investments in early-stage
companies (as discussed below), either individually or in the aggregate,
appreciate significantly, it may adversely affect our ability to continue to
qualify as a real estate investment trust, unless we are able to restructure or
dispose of our holdings on a timely basis.
If we fail to qualify as a real estate investment trust in any taxable
year, we will be subject to federal income tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Unless we are entitled to relief under certain statutory provisions, we would be
disqualified from treatment as a real estate investment trust for the four
taxable years following the year during which we lost qualification. If we lose
our real estate investment trust status, our net earnings available for
investment or
43
45
distribution to stockholders would be significantly reduced for each of the
years involved. In addition, we would no longer be required to make
distributions to stockholders.
WE MAY INVEST IN HIGHLY SPECULATIVE EARLY-STAGE COMPANIES IN WHICH WE MAY LOSE
OUR ENTIRE INVESTMENT OR WHICH MAY JEOPARDIZE OUR STATUS AS A REAL ESTATE
INVESTMENT TRUST
From time to time, we may invest in early-stage companies that we believe
will enhance our understanding of changes occurring in the movement of goods,
which may, in turn, sharpen our real estate investment focus, create real estate
provider relationships with growth companies and provide the potential for
significant returns on invested capital. We currently expect that each of these
investments will generally be in the amount of $10.0 million or less. As a
result, we believe that the amounts of our investments in early-stage companies
are immaterial, both individually and in the aggregate. However, these
investments are highly speculative and it is possible that we may lose our
entire investment in an early-stage company. We believe that our investments in
these companies have been structured so that we currently qualify as a real
estate investment trust under the Internal Revenue Code. However, if the value
of these investments, either individually or in the aggregate, appreciate
significantly, it may adversely affect our ability to continue to qualify as a
real estate investment trust, unless we are able to restructure or dispose of
our holdings on a timely basis. To date, we have invested approximately $14.0
million in early-stage companies. One of these investments, in an initial amount
of $5.0 million, has appreciated to a market value in excess of $35.0 million at
December 31, 1999, if it were freely tradable. See "-- Our Failure to Qualify as
a Real Estate Investment Trust Would Have Serious Adverse Consequences to
Stockholders."
WE PAY SOME TAXES
Even if we qualify as a real estate investment trust, we will be subject to
certain state and local taxes on our income and property. In addition, the net
taxable income, if any, from the activities conducted through AMB Investment
Management, Inc. and Headlands Realty Corporation (which we discuss below under
"-- AMB Investment Management, Inc. and Headlands Realty Corporation") will be
subject to federal and state income tax.
CERTAIN PROPERTY TRANSFERS MAY GENERATE PROHIBITED TRANSACTION INCOME
From time to time, we may transfer or otherwise dispose of some of our
properties. Under the Internal Revenue Code, any gain resulting from transfers
of properties that are held as inventory or primarily for sale to customers in
the ordinary course of business is treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Since we acquire properties
for investment purposes, we believe that any transfer or disposal of property by
us would not be deemed by the Internal Revenue Service to be a prohibited
transaction with any resulting gain allocable to us being subject to a 100%
penalty tax. However, whether property is held for investment purposes is a
question of fact that depends on all the facts and circumstances surrounding the
particular transaction and the Internal Revenue Service may contend that certain
transfers or disposals of properties by us are prohibited transactions. While we
believe that the Internal Revenue Service would not prevail in any such dispute,
any adverse finding by the Internal Revenue Service that a transfer or
disposition of property constituted a prohibited transaction would subject us to
a 100% penalty tax on any gain allocable to us from the prohibited transaction.
In addition, any income from a prohibited transaction may adversely affect our
ability to satisfy the income tests for qualifications as a real estate
investment trust for federal income tax purposes.
WE ARE DEPENDENT ON OUR KEY PERSONNEL
We depend on the efforts of our executive officers. While we believe that
we could find suitable replacements for these key personnel, the loss of their
services or the limitation of their availability could adversely affect our
financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our stock. We do not have employment
agreements with any of our executive officers.
44
46
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our business has grown rapidly and continues to grow through property
acquisitions. If we fail to effectively manage our growth, our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our stock could be adversely affected.
AMB INVESTMENT MANAGEMENT, INC. AND HEADLANDS REALTY CORPORATION
WE DO NOT CONTROL THE ACTIVITIES OF AMB INVESTMENT MANAGEMENT, INC. AND
HEADLANDS REALTY CORPORATION
The operating partnership owns 100% of the non-voting preferred stock of
AMB Investment Management, Inc. and Headlands Realty Corporation (representing
approximately 95% of the economic interest in each entity). Certain of AMB's
current and former executive officers and a former executive officer of AMB
Investment Management, Inc. own all of the outstanding voting common stock of
AMB Investment Management, Inc. (representing approximately 5% of the economic
interest in AMB Investment Management, Inc.). Certain of our current and former
executive officers and a director of Headlands Realty Corporation own all of the
outstanding voting common stock of Headlands Realty Corporation (representing
approximately 5% of the economic interest in Headlands Realty Corporation). The
ownership structure of AMB Investment Management, Inc. and Headlands Realty
Corporation permits us to share in the income of those corporations while
allowing us to maintain our status as a real estate investment trust. We receive
substantially all of the economic benefit of the businesses carried on by AMB
Investment Management, Inc. and Headlands Realty Corporation through the
operating partnership's right to receive dividends. However, we are not able to
elect the directors or officers of AMB Investment Management, Inc. and Headlands
Realty Corporation and, as a result, we do not have the ability to influence
their operation or to require that their boards of directors declare and pay
cash dividends on the non-voting stock of AMB Investment Management, Inc. and
Headlands Realty Corporation held by the operating partnership. The boards of
directors and management of AMB Investment Management, Inc. and Headlands Realty
Corporation might implement business policies or decisions that would not have
been implemented by persons controlled by us and that may be adverse to the
interests of our stockholders or that may adversely impact our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our stock. In addition, AMB Investment Management, Inc.
and Headlands Realty Corporation are subject to tax on their income, reducing
their cash available for distribution to the operating partnership.
AMB INVESTMENT MANAGEMENT, INC. MAY NOT BE ABLE TO GENERATE SUFFICIENT FEES
Fees earned by AMB Investment Management, Inc. depend on various factors
affecting the ability to attract and retain investment management clients and
the overall returns achieved on managed assets. These factors are beyond our
control. AMB Investment Management, Inc.'s failure to attract investment
management clients or achieve sufficient overall returns on managed assets could
reduce its ability to make distributions on the stock owned by the operating
partnership and could also limit co-investment opportunities to the operating
partnership. This would limit the operating partnership's ability to generate
rental revenues from such co-investments and use the co-investment program as a
source to finance property acquisitions and leverage acquisition opportunities.
OWNERSHIP OF OUR STOCK
LIMITATIONS IN OUR CHARTER AND BYLAWS COULD PREVENT A CHANGE IN CONTROL
Certain provisions of our charter and bylaws may delay, defer or prevent a
change in control or other transaction that could provide the holders of our
common stock with the opportunity to realize a premium over the then-prevailing
market price for the common stock. To maintain our qualification as a real
estate investment trust for federal income tax purposes, not more than 50% in
value of our outstanding stock may be owned, actually or constructively, by five
or fewer individuals (as defined in the Internal Revenue Code to include certain
entities) during the last half of a taxable year after the first taxable year
for which a real estate investment trust election is made. Furthermore, after
the first taxable year for which a real estate investment trust election is
made, our common stock must be held by a minimum of 100 persons for at least 335
days of a
45
47
12-month taxable year (or a proportionate part of a short tax year). In
addition, if we, or an owner of 10% or more of our stock, actually or
constructively owns 10% or more of one of our tenants (or a tenant of any
partnership in which we are a partner), the rent received by us (either directly
or through any such partnership) from that tenant will not be qualifying income
for purposes of the real estate investment trust gross income tests of the
Internal Revenue Code. To facilitate maintenance of our qualification as a real
estate investment trust for federal income tax purposes, we will prohibit the
ownership, actually or by virtue of the constructive ownership provisions of the
Internal Revenue Code, by any single person of more than 9.8% (by value or
number of shares, whichever is more restrictive) of the issued and outstanding
shares of our common stock and more than 9.8% (by value or number of shares,
whichever is more restrictive) of the issued and outstanding shares of our
Series A Preferred Stock, and we will also prohibit the ownership, actually or
constructively, of any shares of our Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock by any
single person so that no such person, taking into account all of our stock so
owned by such person, may own in excess of 9.8% of our issued and outstanding
capital stock. We refer to this limitation as the "ownership limit." Shares
acquired or held in violation of the ownership limit will be transferred to a
trust for the benefit of a designated charitable beneficiary. Any person who
acquires shares in violation of the ownership limit will not be entitled to any
distributions on the shares or be entitled to vote the shares or receive any
proceeds from the subsequent sale of the shares in excess of the lesser of the
price paid for the shares or the amount realized from the sale. A transfer of
shares in violation of the above limits may be void under certain circumstances.
The ownership limit may have the effect of delaying, deferring or preventing a
change in control and, therefore, could adversely affect our stockholders'
ability to realize a premium over the then-prevailing market price for the
shares of our common stock in connection with such transaction.
Our charter authorizes us to issue additional shares of common stock and
Series A Preferred Stock and to issue Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and one or
more other series or classes of preferred stock and to establish the
preferences, rights and other terms of any series or class of preferred stock
that we issue. Although our board of directors has no intention to do so at the
present time, it could establish a series or class of preferred stock that could
delay, defer or prevent a transaction or a change in control that might involve
a premium price for the common stock or otherwise be in the best interests of
our stockholders.
Our charter and bylaws and Maryland law also contain other provisions that
may delay, defer or prevent a transaction, including a change in control, that
might involve payment of a premium price for the common stock or otherwise be in
the best interests of our stockholders. Those provisions include the following:
- the provision in the charter that directors may be removed only for cause
and only upon a two-thirds vote of stockholders, together with bylaw
provisions authorizing the board of directors to fill vacant
directorships;
- the provision in the charter requiring a two-thirds vote of stockholders
for any amendment of the charter;
- the requirement in the bylaws that the request of the holders of 50% or
more of our common stock is necessary for stockholders to call a special
meeting;
- the requirement of Maryland law that stockholders may only take action by
written consent with the unanimous approval of all stockholders entitled
to vote on the matter in question; and
- the requirement in the bylaws of advance notice by stockholders for the
nomination of directors or proposal of business to be considered at a
meeting of stockholders.
These provisions may impede various actions by stockholders without
approval of our board of directors, which in turn may delay, defer or prevent a
transaction involving a change of control.
46
48
WE COULD CHANGE OUR INVESTMENT AND FINANCING POLICIES WITHOUT A VOTE OF
STOCKHOLDERS
Subject to our current investment policy to maintain our qualification as a
real estate investment trust (unless a change is approved by our board of
directors under certain circumstances), our board of directors will determine
our investment and financing policies, our growth strategy and our debt,
capitalization, distribution and operating policies. Although the board of
directors has no present intention to revise or amend these strategies and
policies, the board of directors may do so at any time without a vote of
stockholders. Accordingly, stockholders will have no control over changes in our
strategies and policies (other than through the election of directors), and any
such changes may not serve the interests of all stockholders and could adversely
affect our financial condition or results of operations, including our ability
to distribute cash to stockholders.
IF WE ISSUE ADDITIONAL SECURITIES, THE INVESTMENT OF EXISTING STOCKHOLDERS WILL
BE DILUTED
We have authority to issue shares of common stock or other equity or debt
securities in exchange for property or otherwise. Similarly, we may cause the
operating partnership to issue additional limited partnership units in exchange
for property or otherwise. Existing stockholders will have no preemptive right
to acquire any additional securities issued by us or the operating partnership
and any issuance of additional equity securities could result in dilution of an
existing stockholder's investment.
THE LARGE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK
We cannot predict the effect, if any, that future sales of shares of our
common stock, or the availability of shares of our common stock for future sale,
will have on its market price. Sales of a substantial number of shares of our
common stock in the public market (or upon exchange of limited partnership units
in the operating partnership) or the perception that such sales (or exchanges)
might occur could adversely affect the market price of our common stock.
All shares of common stock issuable upon the redemption of limited
partnership units in the operating partnership will be deemed to be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be transferred unless registered under the Securities Act or an exemption from
registration is available, including any exemption from registration provided
under Rule 144. In general, upon satisfaction of certain conditions, Rule 144
permits the holder to sell certain amounts of restricted securities one year
following the date of acquisition of the restricted securities from us and,
after two years, permits unlimited sales by persons unaffiliated with us. On
November 26, 1998, 74,710,153 shares of common stock issued in our formation
transactions became eligible for sale pursuant to Rule 144, subject to the
volume limitations and other conditions imposed by Rule 144, and, on November
26, 1999, these shares became eligible for sale pursuant to Rule 144(k).
Commencing generally on the first anniversary of the date of acquisition of
common limited partnership units (or such other date agreed to by the operating
partnership and the holders of the units), the operating partnership may redeem
common limited partnership units at the request of the holders for cash (based
on the fair market value of an equivalent number of shares of common stock at
the time of redemption) or, at our option, exchange the common limited
partnership units for an equal number of shares of our common stock, subject to
certain antidilution adjustments. The operating partnership had issued an
outstanding 4,507,689 common limited partnership units as of December 31, 1999.
As of December 31, 1999, we had reserved 8,776,280 shares of common stock for
issuance under our Stock Option and Incentive Plan (not including shares that we
have already issued) and, as of December 31, 1999, we had granted to certain
directors, officers and employees options to purchase 4,509,561 shares of common
stock (excluding forfeitures and 25,000 shares that we have issued pursuant to
the exercise of options). As of December 31, 1999, we had granted 148,720
restricted shares of common stock, 1,633 of which have been forfeited. In
addition, we may issue additional shares of common stock and the operating
partnership may issue additional limited partnership units in connection with
the acquisition of properties. In connection with the issuance of common limited
partnership units to other transferors of properties, and in connection with the
issuance of the performance units, we have agreed to file registration
statements covering the issuance of shares of common stock upon the exchange of
the common limited partnership units. We have also filed a registration
statement
47
49
with respect to the shares of common stock issuable under our Stock Option and
Incentive Plan. These registration statements and registration rights generally
allow shares of common stock covered thereby, including shares of common stock
issuable upon exchange of limited partnership units, including performance
units, or the exercise of options or restricted shares of common stock, to be
transferred or resold without restriction under the Securities Act. We may also
agree to provide registration rights to any other person who may become an owner
of the operating partnership's limited partnership units.
Future sales of the shares of common stock described above could adversely
affect the market price of our common stock. The existence of the operating
partnership's limited partnership units, options and shares of common stock
reserved for issuance upon exchange of limited partnership units, and the
exercise of options and registration rights referred to above, also may
adversely affect the terms upon which we are able to obtain additional capital
through the sale of equity securities.
VARIOUS MARKET CONDITIONS AFFECT THE PRICE OF OUR STOCK
As with other publicly-traded equity securities, the market price of our
stock will depend upon various market conditions, which may change from time to
time. Among the market conditions that may affect the market price of our stock
are the following:
- the extent of investor interest in us;
- the general reputation of real estate investment trusts and the
attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate-based
companies);
- our financial performance; and
- general stock and bond market conditions, including changes in interest
rates on fixed income securities which may lead prospective purchasers of
our stock to demand a higher annual yield from future distributions. Such
an increase in the required yield from distributions may adversely affect
the market price of our stock.
Other factors such as governmental regulatory action and changes in tax
laws could also have a significant impact on the future market price of our
stock.
EARNINGS AND CASH DISTRIBUTIONS, ASSET VALUE AND MARKET INTEREST RATES AFFECT
THE PRICE OF OUR STOCK
The market value of the equity securities of a real estate investment trust
generally is based primarily upon the market's perception of the real estate
investment trust's growth potential and its current and potential future
earnings and cash distributions, and is based secondarily upon the real estate
market value of the underlying assets. For that reason, shares of our stock may
trade at prices that are higher or lower than the net asset value per share. To
the extent we retain operating cash flow for investment purposes, working
capital reserves or other purposes, these retained funds, while increasing the
value of our underlying assets, may not correspondingly increase the market
price of our stock. Our failure to meet the market's expectation with regard to
future earnings and cash distributions likely would adversely affect the market
price of our stock. Another factor that may influence the price of our stock
will be the distribution yield on the stock (as a percentage of the price of the
stock) relative to market interest rates. An increase in market interest rates
might lead prospective purchasers of our stock to expect a higher distribution
yield, which would adversely affect the market price of the stock. If the market
price of our stock declines significantly, we might breach certain covenants
with respect to debt obligations, which might adversely affect our liquidity and
ability to make future acquisitions and our ability to pay distributions to our
stockholders.
ITEM 7A. QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk includes the rising interest rates in
connection with the Company's unsecured credit facility, the unsecured debt of
the Alliance Fund I and other variable rate borrowings and our ability to incur
more debt without stockholder approval, thereby increasing our debt service
obligations, which
48
50
could adversely affect our cash flows. See "Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capital Resources -- Market Capitalization."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules, and Reports of Form
8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION,
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 10, Item 11, Item 12 and Item 13 will be
contained in a definitive proxy statement for our Annual Meeting of Stockholders
which we anticipate will be filed no later than 120 days after the end of our
fiscal year pursuant to Regulation 14A and accordingly these items have been
omitted in accordance with General Instruction G(3) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES:
The following consolidated financial information is included as a separate
section of this report on Form 10-K.
PAGE
----
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999.............. F-5
Notes to Consolidated Financial Statements.................. F-6
Schedule III -- Real Estate and Accumulated Depreciation.... S-1
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
49
51
(a)(3) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Statement on
Form S-11 (No. 333-35915)).
3.2 Certificate of Correction of the Registrant's Articles
Supplementary establishing and fixing the rights and
preferences of the 8 1/2% Series A Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
3.3 Articles Supplementary establishing and fixing the rights
and preferences of the 8 5/8% Series B Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.1 of
the Registrant's Current Report on Form 8-K filed on January
7, 1999).
3.4 Articles Supplementary establishing and fixing the rights
and preferences of the 8.75% Series C Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.2 of
the Registrant's Current Report on Form 8-K filed on January
7, 1999).
3.5 Articles Supplementary establishing and fixing the rights
and preferences of the 7.75% Series D Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.1 of
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
3.6 Articles Supplementary establishing and fixing the rights
and preferences of the 7.75% Series E Cumulative Preferred
Stock (incorporated by reference to Exhibit 3.1 of the
Registrant's Current Report on Form 8-K filed on September
14, 1999).
3.7 First Amended and Restated Bylaws of the Registrant
(incorporated by reference to Exhibit 3.5 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).
4.1 Form of Certificate for Common Stock of the Registrant
(incorporated by reference to Exhibit 3.3 of the
Registrant's Registration Statement on Form S-11 (No.
333-35915)).
4.2 Form of Certificate for the Registrant's 8 1/2% Series A
Cumulative Redeemable Preferred Stock (incorporated by
reference to Exhibit 3.4 of the Registrant's Registration
Statement on Form S-11 (No. 333-58107)).
4.3 Indenture dated as of June 30, 1998 by and among AMB
Property, L.P., the Registrant and State Street Bank and
Trust Company of California, N.A., as trustee (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 First Supplemental Indenture dated as of June 30, 1998 by
and among AMB Property, L.P., the Registrant and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement Form S-11 (No.
333-49163)).
4.5 Second Supplemental Indenture dated as of June 30, 1998 by
and among AMB Property, L.P., the Registrant and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-11 (No.
333-49163)).
4.6 Third Supplemental Indenture dated as of June 30, 1998 by
and among AMB Property, L.P., the Registrant and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-11 (No.
333-49163)).
4.7 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Registrant's Registration Statement on Form S-11
(No. 333-49163)).
50
52
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.8 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Registrant's Registration Statement on Form S-11
(No. 333-49163)).
4.9 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Registrant's Registration Statement on
Form S-11 (No. 333-49163)).
10.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P. (incorporated by reference to Exhibit
99.1 of the Registrant's Registration Statement of Form S-3
(No. 333-68291)).
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein (incorporated by reference to
Exhibit 10.2 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
10.3 Second Amended and Restated Credit Agreement, dated November
26, 1997 (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1998).
10.4 Amendment to Second Amended and Restated Revolving Credit
Agreement made as of May 29, 1998 (incorporated by reference
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.5 Second Amendment to Second Amended and Restated Revolving
Credit Agreement made as of September 30, 1998 (incorporated
by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998).
10.6 Form of Change in Control and Noncompetition Agreement
between the Registrant and Executive Officers (incorporated
by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998).
10.7 The First Amended and Restated 1997 Stock Option and
Incentive Plan of the Registrant (incorporated by reference
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.8 The First Amendment to the First Amended Restated Stock
Option and Incentive Plan of the Registrant (incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.9 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on June 15, 1999 (incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
10.10 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on August 4, 1999 (incorporated by
reference to Exhibit 10.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
10.11 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on December 1, 1999 (incorporated
by reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
10.12 Dividend Reinvestment and Direct Purchase Plan, dated July
9, 1999 (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Report Form 10-Q for the
quarter ended June 30, 1999).
51
53
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.13 Second Amended and Restated 1997 Stock Option and Incentive
Plan (incorporated by reference to Exhibit 10.5 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.14 Registration Rights Agreement, dated August 31, 1999
(incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on September
14, 1999).
10.15 Fifth Amended and Restated Agreement of Limited Partnership
of AMB Property II, L.P., dated August 31, 1999
(incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K filed on September
14, 1999).
10.16 Credit Agreement, dated as of September 27, 1999, by and
among AMB Institutional Alliance Fund I, L.P., AMB
Institutional Alliance REIT I, Inc., the Lenders and Issuing
Bank party thereto, BT Realty Resources, Inc. and The Chase
Manhattan Bank. (incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Report Form 10-Q for
the quarter ended September 30, 1999).
10.17 Third Amendment to Second Amended and Restated Revolving
Credit Agreement made as of March 22, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included in Part IV of this Form 10-K).
27.1 Financial Data Schedule -- AMB Property Corporation.
(b) REPORTS ON FORM 8-K:
- The Registrant filed a Current Report on Form 8-K on October 15, 1999,
regarding the acquisition of certain properties during 1999.
- The Registrant filed Amendment No. 1 to Current Report on Form 8-K on
November 16, 1999, regarding the acquisition of certain properties during
1999.
- The Registrant filed a Current Report on Form 10-K on December 14, 1999,
regarding the closing of the third transaction with BPP Retail, LLC.
(c) EXHIBITS:
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES:
See Item 14(a)(1) and (2) above.
52
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 22, 2000.
AMB PROPERTY CORPORATION
By: /s/ HAMID R. MOGHADAM
------------------------------------
Hamid R. Moghadam
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of AMB Property Corporation, hereby severally constitute Hamid R.
Moghadam, W. Blake Baird, David S. Fries and Michael A. Coke, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, the
Form 10-K filed herewith and any and all amendments to said Form 10-K, and
generally to do all such things in our names and in our capacities as officers
and directors to enable AMB Property Corporation to comply with the provisions
of the Securities Exchange Act of 1934, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Form 10-K and any
and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ HAMID R. MOGHADAM Chairman of the Board and Chief March 22, 2000
- ------------------------------------- Executive Officer
Hamid R. Moghadam (Principal Executive Officer)
/s/ W. BLAKE BAIRD President March 22, 2000
- -------------------------------------
W. Blake Baird
/s/ DOUGLAS D. ABBEY Director March 22, 2000
- -------------------------------------
Douglas D. Abbey
/s/ T. ROBERT BURKE Director March 22, 2000
- -------------------------------------
T. Robert Burke
/s/ DANIEL H. CASE III Director March 22, 2000
- -------------------------------------
Daniel H. Case III
/s/ ROBERT H. EDELSTEIN, PH.D. Director March 22, 2000
- -------------------------------------
Robert H. Edelstein, Ph.D.
/s/ LYNN M. SEDWAY Director March 22, 2000
- -------------------------------------
Lynn M. Sedway
/s/ JEFFREY L. SKELTON, PH.D. Director March 22, 2000
- -------------------------------------
Jeffrey L. Skelton, Ph.D.
Director March 22, 2000
- -------------------------------------
Thomas W. Tusher
/s/ CARYL B. WELBORN, ESQ. Director March 22, 2000
- -------------------------------------
Caryl B. Welborn, Esq.
/s/ MICHAEL A. COKE Chief Financial Officer and Managing March 22, 2000
- ------------------------------------- Director (Principal Financial and
Michael A. Coke Accounting Officer)
53
55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMB Property Corporation:
We have audited the accompanying consolidated balance sheets of AMB
Property Corporation, a Maryland corporation, and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AMB Property Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 18, 2000
F-1
56
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
1998 1999
---------- ----------
Investments in real estate:
Land and improvements..................................... $ 740,680 $ 714,916
Buildings and improvements................................ 2,445,104 2,349,221
Construction in progress.................................. 183,276 185,315
---------- ----------
Total investments in properties................... 3,369,060 3,249,452
Accumulated depreciation and amortization................. (58,404) (103,558)
---------- ----------
Net investments in properties.......................... 3,310,656 3,145,894
Investment in unconsolidated joint ventures................. 57,655 66,357
Properties held for divestiture, net........................ 115,050 181,201
---------- ----------
Net investments in real estate......................... 3,483,361 3,393,452
Cash and cash equivalents................................... 19,910 33,312
Restricted cash and cash equivalents........................ 5,227 103,707
Other assets................................................ 54,387 91,079
---------- ----------
Total assets...................................... $3,562,885 $3,621,550
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Secured debt.............................................. $ 734,196 $ 707,037
Alliance Fund I unsecured debt............................ -- 80,000
Unsecured senior debt securities.......................... 400,000 400,000
Unsecured credit facility................................. 234,000 83,000
---------- ----------
Total debt........................................ 1,368,196 1,270,037
Other liabilities........................................... 104,305 89,371
---------- ----------
Total liabilities................................. 1,472,501 1,359,408
Commitments and contingencies (note 13).....................
Minority interests.......................................... 325,024 432,883
Stockholders' equity:
Series A preferred stock, cumulative, redeemable, $0.01
par value, 100,000,000 shares authorized, 4,000,000
issued and outstanding,
$100,000 liquidation preference........................ 96,100 96,100
Common stock, $0.01 par value, 500,000,000 shares
authorized,
85,917,520 and 85,133,041 issued and outstanding,
respectively........................................... 859 851
Additional paid-in capital................................ 1,668,401 1,656,226
Retained earnings......................................... -- 47,089
Accumulated other comprehensive income.................... -- 28,993
---------- ----------
Total stockholders' equity........................ 1,765,360 1,829,259
---------- ----------
Total liabilities and stockholders' equity........ $3,562,885 $3,621,550
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
57
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1997 1998 1999
----------- ----------- -----------
REVENUES
Rental revenues................................... $ 26,465 $ 354,658 $ 439,658
Investment management and other income............ 29,597 4,229 8,525
----------- ----------- -----------
Total revenues............................ 56,062 358,887 448,183
OPERATING EXPENSES
Property operating expenses....................... 5,312 40,197 51,739
Real estate taxes................................. 3,587 48,218 56,184
General and administrative........................ 1,197 19,588 25,223
Interest, including amortization.................. 3,528 69,670 88,681
Depreciation and amortization..................... 4,195 57,464 67,505
Investment management expenses.................... 19,358 -- --
----------- ----------- -----------
Total operating expenses.................. 37,177 235,137 289,332
----------- ----------- -----------
Income from operations before minority
interests.................................... 18,885 123,750 158,851
Minority interests' share of net income........... (657) (11,157) (34,011)
----------- ----------- -----------
Net income before gain from divestiture of real
estate....................................... 18,228 112,593 124,840
Gain from divestiture of real estate.............. -- -- 53,753
----------- ----------- -----------
Net income before extraordinary items.......... 18,228 112,593 178,593
Extraordinary items............................... -- -- (2,490)
----------- ----------- -----------
Net income..................................... 18,228 112,593 176,103
Series A preferred stock dividends................ -- (3,639) (8,500)
----------- ----------- -----------
Net income available to common stockholders.... $ 18,228 $ 108,954 $ 167,603
=========== =========== ===========
BASIC INCOME PER COMMON SHARE
Before extraordinary items........................ $ 1.39 $ 1.27 $ 1.97
Extraordinary items............................... -- -- (0.03)
----------- ----------- -----------
Net income available to common stockholders.... $ 1.39 $ 1.27 $ 1.94
=========== =========== ===========
DILUTED INCOME PER COMMON SHARE
Before extraordinary items........................ $ 1.38 $ 1.26 $ 1.97
Extraordinary items............................... -- -- (0.03)
----------- ----------- -----------
Net income available to common stockholders.... $ 1.38 $ 1.26 $ 1.94
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic............................................. 13,140,218 85,876,383 86,271,862
=========== =========== ===========
Diluted........................................... 13,168,036 86,235,176 86,347,487
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
58
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
1997 1998 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 18,228 $ 112,593 $ 176,103
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 4,195 57,464 67,505
Straight-line rents....................................... (901) (10,921) (10,847)
Amortization of debt premiums and financing costs......... (266) (2,730) (3,009)
Minority interests' share of net income................... 657 11,157 34,011
Gain on divestiture of real estate........................ -- -- (53,753)
Non-cash portion of extraordinary items................... -- -- (6,058)
Equity in (earnings) loss of AMB Investment Management.... (61) 313 875
Equity in earnings of unconsolidated joint ventures....... -- (1,730) (4,701)
Changes in assets and liabilities:
Other assets............................................ (11,873) (9,377) 5,199
Other liabilities....................................... 2,301 20,411 (14,934)
--------- --------- ---------
Net cash provided by operating activities.......... 12,280 177,180 190,391
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash and cash equivalents.............. (8,074) 2,847 (98,480)
Cash paid for property acquisitions......................... -- (564,304) (399,891)
Additions to land, building, development costs and other
first generation improvements............................. (232,807) (125,180) (152,643)
Additions to second generation building improvements and
lease costs............................................... -- (12,733) (27,289)
Acquisition of interest in unconsolidated joint ventures.... -- (67,376) (7,789)
Distributions received from unconsolidated joint ventures... -- 11,451 3,787
Net proceeds from divestiture of real estate................ -- -- 746,037
Reduction of payable to affiliates in connection with
Formation Transactions.................................... -- (38,071) --
--------- --------- ---------
Net cash (used in) provided by investing
activities....................................... (240,881) (793,366) 63,732
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................... 317,009 -- 732
Borrowings on unsecured credit facility..................... 150,000 745,000 327,000
Borrowings on Alliance Fund I unsecured debt................ -- -- 80,000
Borrowings on secured debt.................................. 850 58,725 36,174
Payments on unsecured credit facility....................... (182,000) (661,000) (478,000)
Payments on secured debt.................................... (516) (79,380) (117,463)
Payment of financing fees................................... (900) (7,704) (242)
Net proceeds from issuance of senior debt securities........ -- 399,166 --
Net proceeds from issuance of Series A preferred stock...... -- 96,100 --
Net proceeds from issuance of Series B & C preferred
units..................................................... -- 167,993 --
Net proceeds from issuance of Series D & E preferred
units..................................................... -- -- 88,476
Contributions from investors of the Alliance Fund I......... -- -- 14,611
Dividends paid to common stockholders and preferred
stockholders.............................................. (11,506) (88,236) (160,566)
Dividends paid to Predecessor stockholders.................. (16,404) -- --
Distributions to minority interests, including preferred
units..................................................... -- (26,462) (31,443)
Principal payment of notes receivable from stockholders of
Predecessor............................................... 869 -- --
--------- --------- ---------
Net cash provided by (used in) financing
activities....................................... 257,402 604,202 (240,721)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 28,801 (11,984) 13,402
Cash and cash equivalents at beginning of period............ 3,093 31,894 19,910
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 31,894 $ 19,910 $ 33,312
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
59
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
------------------- NOTES ACCUMULATED
SERIES A NUMBER ADDITIONAL RECEIVABLE OTHER
PREFERRED OF PAID-IN RETAINED FROM COMPREHENSIVE
STOCK SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS INCOME TOTAL
--------- ---------- ------ ---------- --------- ------------ ------------- ----------
AMB PROPERTY CORPORATION
Balance at December 31,
1996...................... $ -- 5,181,450 $1,349 $ 1,298 $ 4,522 $(869) $ -- $ 6,300
Net income................ -- -- -- -- 18,228 -- -- 18,228
Dividends declared and
paid to Predecessor
stockholders............ -- -- (990) (1,298) (14,116) -- -- (16,404)
Principal payment of notes
receivable from
stockholders............ -- -- -- -- -- 869 -- 869
Exchange of Predecessor
shares for shares of AMB
Property Corporation,
net..................... -- (434,834) (312) 312 -- -- -- --
Issuance of common stock
for properties.......... -- 65,022,185 651 1,369,740 -- -- -- 1,370,391
Issuance of common stock,
net of IPO costs of
$38,068................. -- 16,100,000 161 299,871 -- -- -- 300,032
Issuance of restricted
stock................... -- 5,712 -- 120 -- -- -- 120
Distributions paid to AMB
Property Corporation
stockholders............ -- -- -- (2,872) (8,634) -- -- (11,506)
------- ---------- ------ ---------- --------- ----- ------- ----------
Balance at December 31,
1997...................... -- 85,874,513 859 1,667,171 -- -- -- 1,668,030
Net income................ 3,639 -- -- -- 108,954 -- -- 112,593
Issuance of preferred
stock, net of offering
costs................... 96,100 -- -- -- -- -- -- 96,100
Issuance of restricted
stock................... -- 43,007 -- 930 -- -- -- 930
Reallocation of limited
partners' interests in
Operating Partnership... -- -- -- 7,215 -- -- -- 7,215
Dividends................. (3,639) -- -- (6,915) (108,954) -- -- (119,508)
------- ---------- ------ ---------- --------- ----- ------- ----------
Balance at December 31,
1998...................... 96,100 85,917,520 859 1,668,401 -- -- -- 1,765,360
Comprehensive income:
Net income.............. 8,500 -- -- -- 167,603 -- --
Unrealized gain on
securities............ -- -- -- -- -- -- 28,993
Total comprehensive
income............. 205,096
Issuance of restricted
stock, net.............. -- 98,368 1 2,214 -- -- -- 2,215
Retirement of common
stock................... -- (1,443,600) (14) (27,286) -- -- -- (27,300)
Exercise of stock
options................. -- 25,000 -- 526 -- -- -- 526
Conversion of Operating
Partnership units....... -- 535,753 5 11,048 -- -- -- 11,053
Deferred compensation..... -- -- -- (3,080) -- -- -- (3,080)
Deferred compensation
amortization............ -- -- -- 952 -- -- -- 952
Reallocation of limited
partners' interests in
Operating Partnership... -- -- -- 3,451 -- -- -- 3,451
Dividends................. (8,500) -- -- -- (120,514) -- -- (129,014)
------- ---------- ------ ---------- --------- ----- ------- ----------
Balance at December 31,
1999...................... $96,100 85,133,041 $ 851 $1,656,226 $ 47,089 $ -- $28,993 $1,829,259
======= ========== ====== ========== ========= ===== ======= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
60
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
1. ORGANIZATION AND FORMATION OF COMPANY
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "IPO") on November 26, 1997. The
Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with its taxable year ended December 31, 1997, and believes
its current organization and method of operation will enable it to maintain its
status as a REIT. The Company, through its controlling interest in its
subsidiary, AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of primarily industrial properties in
target industrial markets nationwide. Unless the context otherwise requires, the
"Company" means AMB Property Corporation, the Operating Partnership and its
other controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the IPO. AMB Institutional Realty Advisors, Inc., a California
corporation and registered investment advisor (the "Predecessor"), formed AMB
Property Corporation, a wholly owned subsidiary, and merged with and into the
Company (the "Merger") in exchange for 4,746,616 shares of the Company's Common
Stock, $0.01 par value per share (the "Common Stock"). In addition, the Company
and the Operating Partnership acquired, through a series of mergers and other
transactions, 31.8 million rentable square feet of industrial property and 6.3
million rentable square feet of retail property in exchange for 65,022,185
shares of the Company's Common Stock, 2,542,163 limited partner interests ("LP
Units") in the Operating Partnership, the assumption of debt and, to a limited
extent, cash. The net assets of the Predecessor and the properties acquired with
Common Stock were contributed to the Operating Partnership in exchange for
69,768,801 LP Units. The purchase method of accounting was applied to the
acquisition of the properties. Collectively, the Merger and the other formation
transactions described above are referred to as the "Formation Transactions."
On November 26, 1997, the Company completed its IPO of 16,100,000 shares of
the Common Stock, for $21.00 per share, resulting in gross offering proceeds of
approximately $338,100. The net proceeds of approximately $300,032 were used to
repay indebtedness, to purchase interests from certain investors who elected not
to receive Common Stock or LP Units in connection with the Formation
Transactions, to fund property acquisitions and for general corporate working
capital requirements.
As of December 31, 1999, the Company owned an approximate 95.0% general
partner interest in the Operating Partnership, excluding preferred units. The
remaining 5.0% limited partner interest is owned by non-affiliated investors.
For local law purposes, certain properties are owned through limited
partnerships and limited liability companies. The ownership of such properties
through such entities does not materially affect the Company's overall ownership
of the interests in the properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the day-to-day management and control of the Operating
Partnership. Net operating results of the Operating Partnership are allocated
after preferred unit distributions based on the respective partners' ownership
interest.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership holds 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain current and former executive officers of the Company and a
former executive officer of AMB Investment Management collectively hold 100% of
AMB Investment Management's voting common stock (representing a 5% economic
interest therein). AMB Investment Management was formed to succeed the
Predecessor's investment management business of providing real estate investment
management services on a fee basis to clients. The Operating Partnership also
owns 100% of the non-voting preferred stock of Headlands Realty Corporation, a
Maryland corporation (representing a 95% economic interest therein). Certain
executive officers of the Company and a director of Headlands Realty Corporation
collectively own
F-6
61
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
100% of the voting common stock of Headlands Realty Corporation (representing a
5% economic interest therein). Headlands Realty Corporation primarily invests in
properties and interests in entities that engage in the management, leasing and
development of properties and similar activities. The Operating Partnership
accounts for its investment in AMB Investment Management and Headlands Realty
Corporation using the equity method of accounting.
As of December 31, 1999, the Company owned 724 industrial buildings and 9
retail centers located in 24 markets throughout the United States. As of
December 31, 1999, the industrial properties, principally warehouse distribution
buildings, encompassed approximately 65.2 million rentable square feet and were
95.9% leased to over 2,240 tenants. As of December 31, 1999, the retail centers,
principally grocer-anchored community shopping centers, encompassed
approximately 1.6 million rentable square feet and were 92.4% leased to over 240
tenants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Generally Accepted Accounting Principles
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles using the accrual method of
accounting. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the financial
position, results of operations and cash flows of the Company, its wholly owned
qualified REIT subsidiaries, the Operating Partnership and 21 joint ventures
(the "Joint Ventures"), through which 27 properties are held and in which the
Company has a controlling interest. Third party equity interests in the
Operating Partnership and the Joint Ventures are reflected as minority interests
in the consolidated financial statements. The Company also has two non-
controlling limited partnership interests of 56.1% and 50.0% in two separate
unconsolidated real estate joint ventures, which are accounted for under the
equity method. All significant intercompany amounts have been eliminated.
Basis of Presentation
The consolidated financial statements for 1998 and 1999 represent the
results of operations of the Company for the years ended December 31, 1998 and
1999. The consolidated financial statements for 1997 include the results of
operations of the Company, including property operations for the period from
November 26, 1997 (the commencement of operations as a fully integrated real
estate company) to December 31, 1997 and the results of the Company's
Predecessor, an investment manager, for the period from January 1, 1997 to
November 25, 1997.
Investments in Real Estate
Investments in real estate are stated at the lower of depreciated cost or
net realizable value. Net realizable value for financial reporting purposes is
reviewed for impairment on a property-by-property basis whenever events or
changes in circumstances indicate that the carrying amount of a property may not
be recoverable. Impairment is recognized when estimated expected future cash
flows (undiscounted and without
F-7
62
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
interest charges) are less than the carrying amount of the property. To the
extent an impairment has occurred, the excess of the carrying amount of the
property over its estimated fair value is charged to income.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the investments. The estimated lives and
depreciation and amortization expenses are as follows:
DEPRECIATION AND
AMORTIZATION EXPENSES
----------------------------
ESTIMATED LIVES 1997 1998 1999
------------------------- ------ ------- -------
Land improvements..................... 40 $ -- $ -- $ --
Building costs........................ 40 4,012 54,417 54,668
Building improvements:
Roof/HVAC/parking lots.............. 10 18 346 1,106
Plumbing/signage.................... 7 2 26 144
Painting and other.................. 5 18 668 2,546
Tenant improvements................... Term of the related lease 1 782 4,091
Lease commissions..................... Term of the related lease 102 761 3,902
------ ------- -------
Total real estate depreciation... 4,153 57,000 66,457
Other amortization.................... Various 42 464 1,048
------ ------- -------
Total depreciation and
amortization................... $4,195 $57,464 $67,505
====== ======= =======
The cost of buildings and improvements includes the purchase price of the
property or interest in property, legal fees and acquisition costs, and
interest, property taxes, partner earnouts, and other costs incurred during the
period of construction. Project costs directly associated with the development
and construction of a real estate project are capitalized as construction in
progress.
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic useful
life of assets are capitalized.
Cash and Cash Equivalents
Cash and cash equivalents include cash held in financial institutions and
other highly liquid short-term investments with original maturities of three
months or less.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents include cash held in escrow in
connection with property purchases, Section 1031 exchange funds and capital
improvements.
Deferred Financing Costs
Costs incurred in connection with financing are capitalized and amortized
to interest expense on a straight-line basis over the term of the related loan.
As of December 31, 1998 and 1999, deferred financing fees were $7,318 and
$6,659, respectively, net of accumulated amortization of $772 and $2,187,
respectively. Such amounts are included in Other Assets on the Consolidated
Balance Sheets.
Investments in Equity Securities
In 1999, the Company adopted SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In accordance with SFAS No. 115,
certain of the Company's marketable equity securities are considered
available-for-sale investments and are carried at market value in Other Assets
on the Consolidated
F-8
63
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
Balance Sheets, with the difference between cost and market value recorded as a
component of Accumulated Other Comprehensive Income in Stockholders' Equity. The
adoption of SFAS No. 115 had no impact on prior year financial statements.
Debt Premiums
In connection with the Formation Transactions, the Company assumed certain
secured debt with an aggregate principal value of $517,031 and an estimated fair
value of $535,613. The difference between the principal value and the fair value
was recorded as a debt premium. The debt premium is being amortized into
interest expense over the term of the related debt instrument using the
effective interest method. As of December 31, 1998 and 1999, the unamortized
debt premium was $15,217 and $10,106, respectively.
Minority Interests
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties in 21 joint ventures, through which 27 properties are held, that are
consolidated for financial reporting purposes. Such investments are consolidated
because (i) the Company owns a majority interest or (ii) the Company exercises
significant control through the ability to control major operating decisions
such as approval of budgets, selection of property managers and changes in
financing.
On September 24, 1999 and December 22, 1999, AMB Institutional Alliance
REIT I, Inc. (the "Alliance REIT") issued and sold shares of its capital stock
to fourteen third party investors. The Alliance REIT has elected to be taxed as
a REIT under the Code, commencing with its tax year ending December 31, 1999.
The Alliance REIT acquired a limited partnership interest in AMB Institutional
Alliance Fund I, L.P. (the "Alliance Fund I"), which is engaged in the
acquisition, ownership, operation, management, renovation, expansion and
development of primarily industrial buildings in target industrial markets
nationwide. The Operating Partnership is the managing general partner of the
Alliance Fund I and, together with an affiliate of the Company, owns
approximately 25.0% of the partnership interests in the Alliance Fund I. Upon
final closing, it is currently expected that the Operating Partnership, together
with an affiliate of the Company, will own 20% of the Alliance Fund I. The
Company consolidates the Alliance Fund I for financial reporting purposes
because the Operating Partnership is the sole managing general partner of the
Alliance Fund I and, as a result, controls all of its major operating decisions.
The following table distinguishes the minority interest ownership held by
certain joint venture partners, separate account co-investors, the Alliance Fund
I, the limited partners in the Operating Partnership, the Series B Preferred
Unit holders' interest in the Operating Partnership, the Series C Preferred Unit
holders' interest in an indirect subsidiary of the Company, the Series D
Preferred Unit holders' interest in an indirect
F-9
64
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
subsidiary of the Company and the Series E Preferred Unit holders' interest in
an indirect subsidiary of the Company as of and for the year ended December 31,
1999.
MINORITY INTEREST
MINORITY INTEREST SHARE OF NET INCOME
EQUITY AS OF FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- -------------------
Joint venture partners............................ $ 18,868 $ 1,871
Separate account co-investors..................... 51,143 3,461
Alliance Fund I................................... 14,259 389
Limited partners in the Operating Partnership..... 91,972 8,789
Series B preferred units (liquidation preference
of
$65,000)........................................ 62,318 5,608
Series C preferred units (liquidation preference
of
$110,000)....................................... 105,847 9,624
Series D preferred units (liquidation preference
of
$79,767)........................................ 77,688 3,949
Series E preferred units (liquidation preference
of
$11,022)........................................ 10,788 320
-------- -------
Total................................... $432,883 $34,011
======== =======
Revenues
The Company, as a lessor, retains substantially all of the benefits and
risks of ownership of the properties and accounts for its leases as operating
leases. Rental income is recognized on a straight-line basis over the term of
the leases.
Reimbursements from tenants for real estate taxes and other recoverable
operating expenses are recognized as revenue in the period the applicable
expenses are incurred. Differences between estimated and actual amounts are
recognized in the subsequent year.
Investment Management and Other Income
Investment management income consists primarily of professional fees
generated from the Predecessor's real estate investment management services for
periods prior to the Formation Transactions and the Company's equity in the
earnings of AMB Investment Management and the unconsolidated joint ventures for
periods subsequent to the Formation Transactions. Other income consists
primarily of interest income on cash and cash equivalents.
Investment Management Expenses
Investment management expenses represent the operating expenses of the
Predecessor for periods prior to November 26, 1997 and consist of salaries and
benefits and other management related expenses.
Comprehensive Income
In 1999, the Company adopted SFAS No. 130, Reporting Comprehensive Income.
This statement establishes rules for the reporting of comprehensive income and
its components. Comprehensive income consists of net income and unrealized gains
on certain investments in equity securities and is presented in the Consolidated
Statements of Stockholders' Equity.
F-10
65
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
Reclassifications
Certain items in the consolidated financial statements for prior periods
have been reclassified to conform with current classifications with no effect on
results of operations. General and administrative expenses on the Consolidated
Statements of Operations include internal asset management costs of $7,659 and
$9,908 for the twelve-month periods ended December 31, 1998 and 1999,
respectively. Prior to the third quarter of 1999, such costs were classified as
property operating expenses.
3. TRANSACTIONS WITH AFFILIATES
As discussed in Note 1, the Operating Partnership formed AMB Investment
Management for the purpose of carrying on the operations of the Predecessor. The
Company and AMB Investment Management have an agreement that allows for the
sharing of certain costs and employees. Additionally, the Company provides AMB
Investment Management with certain acquisition-related services.
The Company and AMB Investment Management share common office space under
lease obligations of an affiliate of the Predecessor. Such lease obligations are
charged to the Company and AMB Investment Management at cost. For the years
ended December 31, 1997, 1998 and 1999, the Company paid approximately $700,
$1,160 and $1,324, respectively, for occupancy costs related to the lease
obligations of the affiliate.
4. PROPERTY DIVESTITURES AND PROPERTIES HELD FOR DIVESTITURE
Property Divestitures. On March 9, 1999, the Operating Partnership signed
three separate definitive agreements with BPP Retail, LLC ("BPP Retail"), a
co-investment entity between Burnham Pacific ("BPP") and the California Public
Employees' Retirement System ("CalPERS"), pursuant to which, if fully
consummated, BPP Retail would have acquired up to 28 retail shopping centers,
totaling approximately 5.1 million square feet, for an aggregate price of
$663,400. The sale of three of the properties was subject to the consent of one
of the Company's joint venture partners, which did not consent to the sale of
these properties. As a result, the price with respect to the 25 remaining
properties, totaling approximately 4.3 million square feet, was approximately
$560,300. The Company intends to dispose of the remaining three properties or
its interests in the joint ventures through which it holds such properties. The
Company has included these properties in properties held for divestiture in its
financial statements.
Pursuant to the agreements, BPP Retail acquired the 25 retail centers in
three separate transactions. Pursuant to the closing of the first transaction,
which occurred on June 15, 1999, BPP Retail acquired nine retail shopping
centers, totaling approximately 1.4 million square feet, for an aggregate price
of approximately $207,400. The Company used the proceeds from the first
transaction to repay secured debt related to the properties divested, to
partially repay amounts outstanding under the Company's unsecured credit
facility, to pay transaction expenses, to acquire certain properties and for
general corporate purposes. This divestiture resulted in an approximate net gain
of $10,300, which is net of extraordinary loss consisting of prepayment
penalties with an offset for the write-off of debt premiums related to the
indebtedness extinguished. On August 4, 1999, the second transaction with BPP
Retail closed. Pursuant to the closing of the second transaction, BPP Retail
acquired 12 of the Company's retail shopping centers, totaling approximately 2.0
million square feet, for an aggregate price of approximately $245,800. The
Company used the proceeds from the second transaction to repay secured debt
related to the properties divested, to partially repay amounts outstanding under
the Company's unsecured credit facility, to pay transaction expenses, to acquire
certain properties and for general corporate purposes. This divestiture resulted
in an approximate net gain of $20,200, which is net of extraordinary loss
consisting of prepayment penalties with an offset for the write-off of debt
premiums related to the indebtedness extinguished. On December 1, 1999, the
third transaction with BPP Retail closed. BPP Retail acquired the remaining four
retail centers, totaling approximately 0.9 million square
F-11
66
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
feet, for an aggregate price of approximately $107,193. The Company used the
proceeds from the third divestiture to partially repay amounts outstanding under
the Company's unsecured credit facility, to pay transaction expenses, for
potential acquisitions and for general corporate purposes. This divestiture
resulted in an approximate gain of $9,087.
In addition, the Operating Partnership entered into a definitive agreement,
subject to a financing condition, with BPP, pursuant to which, if fully
consummated, BPP would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for an aggregate price of
approximately $284,400. On June 30, 1999, this agreement was terminated pursuant
to its terms as a result of BPP's decision not to waive the financing condition.
In connection with the BPP Retail transactions, the Company has granted
CalPERS an option to purchase up to 2,000,000 shares of the Company's Common
Stock for an exercise price of $25.00 per share that CalPERS may exercise on or
before March 31, 2000. The Company has registered the 2,000,000 shares of Common
Stock issuable upon exercise of the option.
In the fourth quarter of 1999, the Company disposed of three of the retail
properties that were originally under contract with BPP to an institutional
investor for whom AMB Investment Management provides asset management services.
The properties aggregated approximately 0.4 million square feet and were sold
for an aggregate price of approximately $96,290. In addition, the Company
disposed of another of these properties, aggregating approximately 0.6 million
square feet, to an unaffiliated third party for an aggregate price of
approximately $58,062. The divestiture of these four properties resulted in an
approximate net gain of $14,938, which is net of extraordinary gain consisting
of write-offs of debt premiums with an offset for prepayment penalties related
to the indebtedness extinguished. The Company currently intends to dispose of
one of the remaining two retail properties or its interest in the joint venture
which holds such property.
In addition, during 1999, the Company disposed of 15 industrial buildings
and one other retail center, aggregating approximately 1.3 million square feet,
for an aggregate price of approximately $49,403. These divestitures resulted in
an aggregate approximate net loss of $3,385.
Properties Held for Divestiture. As of December 31, 1999, the properties
held for divestiture consisted of four retail centers and four industrial
buildings, with an aggregate net carrying value of $181,201. The net carrying
values of the retail centers and industrial properties held for divestiture were
$168,451 and $12,750, respectively, as of December 31, 1999. Certain of the
properties held for divestiture are subject to indebtedness, which totaled
$54,283 as of December 31, 1999. The divestitures of the properties are subject
to negotiation of acceptable terms and other customary conditions.
The following summarizes the condensed results of operations of the
properties held for divestiture for the years ended December 31, 1998 and 1999:
PROPERTIES HELD FOR DIVESTITURE
-------------------------------------------------------
INDUSTRIAL RETAIL TOTAL
--------------- ----------------- -----------------
1998 1999 1998 1999 1998 1999
------ ------ ------- ------- ------- -------
Income..................................... $1,283 $1,442 $21,462 $23,170 $22,745 $24,612
Property operating expenses................ 213 261 6,838 7,338 7,051 7,599
------ ------ ------- ------- ------- -------
Net operating income..................... $1,070 $1,181 $14,624 $15,832 $15,694 $17,013
====== ====== ======= ======= ======= =======
F-12
67
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
5. REAL ESTATE ACQUISITION AND DEVELOPMENT ACTIVITY
During 1999, the Company acquired $471,905 in operating properties,
consisting of 154 industrial buildings, aggregating approximately 8.4 million
square feet. The Company also initiated eight new development projects,
aggregating approximately 1.7 million square feet, with a total estimated cost
of $130,900 upon completion. Seven development projects, aggregating
approximately 1.7 million square feet, were completed during the year, at a
total aggregate cost of $68,900. As of December 31, 1999, the Company had 18
projects, aggregating approximately 4.3 million square feet, in its development
pipeline, with a total estimated cost of $306,400 upon completion. The Company
funded these acquisitions and development projects through proceeds from the
divestitures of properties, borrowings under the unsecured credit facility, LP
Unit issuances, cash and debt assumption.
6. DEBT
As of December 31, 1998 and 1999, debt consisted of the following:
1998 1999
---------- ----------
Secured debt, varying coupon interest rates from 4.0% to
10.4%, due May 2000 to April 2014......................... $ 718,979 $ 696,931
Alliance Fund I unsecured debt, variable interest at LIBOR
plus 87.5 basis points (6.7% at December 31, 1999), due
April 2001................................................ -- 80,000
Unsecured senior debt securities, weighted average interest
rate of 7.2%, due June 2008, 2015 and 2018................ 400,000 400,000
Unsecured credit facility, variable interest at LIBOR plus
90 to 120 basis points (6.7% at December 31, 1999), due
November 2000............................................. 234,000 83,000
---------- ----------
Subtotal............................................... 1,352,979 1,259,931
Unamortized debt premiums.............................. 15,217 10,106
---------- ----------
Total consolidated debt........................... $1,368,196 $1,270,037
========== ==========
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain properties. As of
December 31, 1998 and 1999, the total gross investment value of those properties
secured by debt was $1,458,652 and $1,385,476, respectively. All of the secured
debt bears interest at fixed rates, except for two loans with an aggregate
principal amount of $9,155 and $10,442 at December 31, 1998 and 1999,
respectively, which bear interest at variable rates. The secured debt has
various financial and non-financial covenants. Additionally, certain of the
secured debt is cross-collateralized. As of December 31, 1999, the estimated
fair value of the secured debt was approximately $684,000.
The unsecured debt of the Alliance Fund I represents a loan secured by the
unfunded capital commitments of the third party investors in the Alliance REIT.
See Note 2 for a discussion of the Alliance REIT and the Alliance Fund I.
Interest on the senior debt securities is payable semiannually in each June
and December, commencing December 1998. The 2015 notes are putable and callable
in June 2005. The senior debt securities are subject to various financial and
non-financial covenants.
The Company has a $500,000 unsecured revolving credit agreement with Morgan
Guaranty Trust Company of New York, as agent, and a syndicate of twelve other
banks. The credit facility has an original term of three years and is subject to
a fee that accrues on the daily average undrawn funds, which varies between 15
and 25 basis points of the undrawn funds based on the Company's credit rating.
The credit facility has various financial and non-financial covenants.
F-13
68
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
Capitalized interest related to construction projects for the year ended
December 31, 1998 was $7,192 and for the year ended December 31, 1999 was
$10,872.
The scheduled maturities of the Company's total debt, excluding unamortized
debt premiums, as of December 31, 1999, are as follows:
UNSECURED
SECURED ALLIANCE FUND I SENIOR DEBT UNSECURED
DEBT UNSECURED DEBT SECURITIES CREDIT FACILITY TOTAL DEBT
-------- --------------- --------------- --------------- ----------
2000...................... $ 45,128 $ -- $ -- $83,000 $ 128,128
2001...................... 38,218 80,000 -- -- 118,218
2002...................... 56,037 -- -- -- 56,037
2003...................... 75,394 -- -- -- 75,394
2004...................... 91,042 -- -- -- 91,042
2005...................... 70,131 -- 100,000 -- 170,131
2006...................... 134,330 -- -- -- 134,330
2007...................... 48,143 -- -- -- 48,143
2008...................... 127,747 -- 175,000 -- 302,747
2009...................... 1,811 -- -- -- 1,811
Thereafter................ 8,950 -- 125,000 -- 133,950
-------- ------- -------- ------- ----------
Subtotal........ $696,931 $80,000 $400,000 $83,000 $1,259,931
======== ======= ======== ======= ==========
7. LEASING ACTIVITY
Future minimum rental income due under noncancelable leases with tenants in
effect at December 31, 1999 is as follows:
2000..................................................... $ 335,508
2001..................................................... 289,289
2002..................................................... 232,604
2003..................................................... 176,902
2004..................................................... 128,513
Thereafter............................................... 382,119
----------
$1,544,935
==========
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to
$5,267 for the period from November 26, 1997 to December 31, 1997, and $68,071
and $81,055 for the years ended December 31, 1998 and 1999, respectively. These
amounts are included as rental income and operating expenses in the accompanying
Consolidated Statements of Operations. Certain of the leases also provide for
the payment of additional rent based on a percentage of the tenant's revenues.
For the period from November 26, 1997 to December 31, 1997 and for the years
ended December 31, 1998 and 1999, the Company recognized percentage rent
revenues of $185, $1,870 and $1,997, respectively. Some leases contain options
to renew. No individual tenant accounts for greater than 1.5% of rental
revenues.
8. INCOME TAXES
The Company elected to be taxed as a REIT under the Code, commencing with
its taxable year ended December 31, 1997. To qualify as a REIT, the Company must
meet a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its taxable income
F-14
69
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
to its stockholders. It is management's current intention to adhere to these
requirements and maintain the Company's REIT status. As a REIT, the Company
generally will not be subject to corporate level federal income tax on net
income it distributes currently to its stockholders. As such, no provision for
federal income taxes has been included in the accompanying consolidated
financial statements. If the Company fails to qualify as a REIT in any taxable
year, it will be subject to federal income taxes at regular corporate rates
(including any applicable alternative minimum tax) and may not be able to
qualify as a REIT for four subsequent taxable years. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property and to federal income and excise
taxes on its undistributed taxable income. For the years ended December 31,
1997, 1998 and 1999, none of the dividends paid to common stockholders
represented a return of capital for income tax purposes. In addition, for the
year ended December 31, 1999, the Company elected to distribute all of its
taxable capital gain. Approximately 18.5% of the dividends paid or payable,
represents a dividend taxable as a long-term capital gain and approximately 6.9%
represents a dividend taxable as an Unrecaptured Section 1250 Gain.
Prior to the Merger, the Predecessor conducted its business as an S
corporation and was not subject to federal income taxes under Subchapter S of
the Internal Revenue Code. Under this election, federal income taxes were paid
by the stockholders of the Predecessor.
The following reconciles net income available to common stockholders to
taxable income available to common stockholders for the years ended December 31,
1997, 1998 and 1999:
1997 1998 1999
------- -------- --------
Net income available to common stockholders......... $18,228 $108,954 $167,603
Add: Book depreciation and amortization........... 4,195 57,464 67,505
Less: Tax depreciation and amortization........... (5,515) (51,620) (69,264)
Book/tax difference on gain on divestiture
of real
estate.................................. -- -- (15,471)
Other book/tax differences, net(1)............. (5,948) (20,778) (12,722)
------- -------- --------
Taxable income available to common stockholders..... $10,960 $ 94,020 $137,651
======= ======== ========
- ---------------
(1) Primarily represents difference in timing of recognition of rent and debt
premium amortization.
9. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company has a 56.1% and a 50.0% non-controlling limited partnership
interest in two separate unconsolidated equity investment joint ventures, which
were purchased in June 1998 and September 1999, respectively. The unconsolidated
joint ventures own an aggregate of 36 industrial buildings, totaling
approximately 4.0 million square feet. For the years ended December 31, 1998 and
1999, the Company's share of net operating income was $1,818 and $7,983,
respectively, and, as of December 31, 1998 and 1999, the Company's share of the
unconsolidated joint ventures debt was $20,186 and $22,740, respectively, with a
weighted average interest rate of 6.9% and a weighted average maturity of 6.2
years.
10. STOCKHOLDERS' EQUITY
On February 9, 1999, the Operating Partnership issued an aggregate of 1,034
LP Units with an aggregate value of approximately $25 to two corporations and
twelve individuals. On April 30, 1999, the Operating Partnership issued an
aggregate of 390,633 LP Units with an aggregate value of approximately $9,377 to
two corporations and twelve individuals. On May 21, 1999, the Operating
Partnership issued 18,638 LP Units with a value of approximately $451 to a
limited liability company. On May 26, 1999, the Operating Partnership issued
212,766 LP Units with a value of approximately $5,000 to a limited liability
company. On
F-15
70
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
September 30, 1999, the Operating Partnership issued an aggregate of 3,642 LP
Units with an aggregate value of $86 to five partnerships. All of these LP Units
were issued in partial consideration for the acquisition of properties.
Holders of LP Units may redeem part or all of their LP Units for cash, or
at the election of the Company, exchange their LP Units for shares of the
Company's common stock on a one-for-one basis. The issuance of LP Units in
connection with the acquisitions discussed above constituted private placements
of securities which were exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act and Rule 506 of
Regulation D.
During 1999, 31,109 LP Units were redeemed for cash and 535,753 LP Units
were redeemed for shares of the Company's Common Stock.
During the fourth quarter of 1999, the Company's Board of Directors
approved a stock repurchase program for the repurchase of up to $50,000 worth of
its Common Stock. During 1999, the Company repurchased a total of 1,443,600
shares of its Common Stock in the open market, for an aggregate purchase price
of $27,300 (including commissions). The average price per share was $18.913. In
January 2000, the Company's Board of Directors approved an increase in the stock
repurchase program, thereby authorizing the repurchase of an aggregate of up to
$100,000 worth of its Common Stock. The Company's stock repurchase program will
expire on the second anniversary of the first purchase made thereunder.
At the time of the Company's IPO, 4,237,750 shares of Common Stock, known
as Performance Shares, were placed in escrow by certain investors of the
Company, which were subject to advisory agreements with the Company's
Predecessor that included incentive fee provisions. On January 7, 2000,
2,771,824 shares of Common Stock were released from escrow to these investors
and 1,465,926 shares of Common Stock were returned to the Company and cancelled.
Inasmuch as the cancelled shares of Common Stock represent indirect interests in
the Operating Partnership that were reallocated from the Company (thereby
decreasing the number of shares of Common Stock outstanding) to other
unitholders (thereby increasing the number of LP Units owned by partners other
than the Company), the total number of outstanding partnership units did not
change as a result of this reallocation. This reallocation did not change the
amount of fully diluted shares of Common Stock and LP Units outstanding.
On March 5, 1999, the Company declared a quarterly cash dividend of $0.35
per share on Common Stock and the Operating Partnership declared a quarterly
cash distribution of $0.35 per LP Unit, for the quarter ended March 31, 1999,
payable on April 15, 1999, to stockholders and unitholders of record as of March
31, 1999. On March 5, 1999, the Company declared a cash dividend of $0.5313 per
share on its Series A Preferred Stock, and the Operating Partnership declared a
cash distribution of $0.5313 per unit on its Series A Preferred Units, for the
three month period ended April 14, 1999, payable on April 15, 1999, to
stockholders and unitholders of record as of March 31, 1999. On March 5, 1999,
the Operating Partnership declared a cash distribution of $1.0781 per unit on
its Series B Preferred Units, for the three month period ended April 14, 1999,
payable on April 15, 1999, to unitholders of record as of March 31, 1999. On
March 5, 1999, AMB Property II, L.P. declared a cash distribution of $1.0938 per
unit on its Series C Preferred Units, for the three month period ended April 14,
1999, payable on April 15, 1999, to unitholders of record as of March 31, 1999.
On June 4, 1999, the Company declared a quarterly cash dividend of $0.35
per share on Common Stock and the Operating Partnership declared a quarterly
cash distribution of $0.35 per LP Unit, for the quarter ended June 30, 1999,
payable on July 15, 1999, to stockholders and unitholders of record as of July
6, 1999. On June 4, 1999, the Company declared a cash dividend of $0.5313 per
share on its Series A Preferred Stock, and the Operating Partnership declared a
cash distribution of $0.5313 per unit on its Series A Preferred Units, for the
three month period ended July 14, 1999, payable on July 15, 1999, to
stockholders and unitholders of
F-16
71
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
record as of July 6, 1999. On June 4, 1999, the Operating Partnership declared a
cash distribution of $1.0781 per unit on its Series B Preferred Units, for the
three month period ended July 14, 1999, payable on July 15, 1999, to unitholders
of record as of July 6, 1999. On June 4, 1999, AMB Property II, L.P. declared a
cash distribution of $1.0938 per unit on its Series C Preferred Units, for the
three month period ended October 14, 1999, payable on October 15, 1999, to
unitholders of record as of October 5, 1999. On June 4, 1999, AMB Property II,
L.P. declared a cash distribution of $0.5382 per unit on its Series D Preferred
Units, for the period from May 5, 1999 to June 24, 1999, payable on June 25,
1999, to unitholders of record as of June 15, 1999.
On September 10, 1999, the Company declared a quarterly cash dividend of
$0.35 per share on Common Stock and the Operating Partnership declared a
quarterly cash distribution of $0.35 per LP Unit, for the quarter ended
September 30, 1999, payable on October 15, 1999, to stockholders and unitholders
of record as of October 5, 1999. On September 10, 1999, the Company declared a
cash dividend of $0.5313 per share on its Series A Preferred Stock, and the
Operating Partnership declared a cash distribution of $0.5313 per unit on its
Series A Preferred Units, for the three month period ended October 14, 1999,
payable on October 15, 1999, to stockholders and unitholders of record as of
October 5, 1999. On September 10, 1999, the Operating Partnership declared a
cash distribution of $1.0781 per unit on its Series B Preferred Units, for the
three month period ended October 14, 1999, payable on October 15, 1999, to
unitholders of record as of October 5, 1999. On September 10, 1999, AMB Property
II, L.P. declared a cash distribution of $1.0938 and $0.9688 per unit on its
Series C Preferred Units and Series D Preferred Units, respectively, for the
three month periods ended October 14, 1999 and September 24, 1999, respectively,
payable on October 15, 1999 and September 25, 1999, respectively, to unitholders
of record as of October 5, 1999 and September 15, 1999, respectively. On
September 10, 1999, AMB Property II, L.P. declared a cash distribution of
$0.3264 per unit on its Series E Preferred Units, for the period from August 31,
1999 to October 14, 1999, payable on October 15, 1999, to unitholders of record
as of October 5, 1999.
On December 10, 1999, the Company declared a quarterly cash dividend of
$0.35 per share on Common Stock and the Operating Partnership declared a
quarterly cash distribution of $0.35 per LP Unit, for the quarter ended December
31, 1999, payable on December 28, 1999, to stockholders and unitholders of
record as of December 17, 1999. On December 10, 1999, the Company declared a
cash dividend of $0.5313 per share on its Series A Preferred Stock, and the
Operating Partnership declared a cash distribution of $0.5313 per unit on its
Series A Preferred Units, for the three month period ended January 14, 2000,
payable on January 17, 2000, to stockholders and unitholders of record as of
January 5, 2000. On December 10, 1999, the Operating Partnership declared a cash
distribution of $1.0781 per unit on its Series B Preferred Units, for the three
month period ended January 14, 2000, payable on January 17, 2000, to unitholders
of record as of January 5, 2000. On December 10, 1999, AMB Property II, L.P.
declared a cash distribution of $1.0938, $0.9688 and $0.9688 per unit on its
Series C Preferred Units, Series D Preferred Units and Series E Preferred Units,
respectively, for the three month periods ended January 14, 2000, December 24,
1999 and January 14, 2000, respectively, payable on January 17, 2000, December
27, 1999 and January 17, 2000, respectively, to unitholders of record as of
January 5, 2000, December 15, 1999 and January 5, 2000, respectively.
11. STOCK INCENTIVE PLAN, 401(K) PLAN AND DEFERRED COMPENSATION PLAN
Stock Incentive Plan
In November 1997, the Company established a Stock Option and Incentive Plan
(the "Stock Incentive Plan") for the purpose of attracting and retaining
eligible officers, directors and employees. The Stock Incentive Plan was amended
on March 5, 1999 to increase the number of shares reserved for issuance
thereunder and to amend various other provisions, including removal of
provisions permitting the repricing of options granted under the Stock Incentive
Plan. The Company's stockholders approved the amendments to the Stock Incentive
Plan on May 7, 1999. The Company has reserved for issuance an aggregate of
8,950,000
F-17
72
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
shares of Common Stock under the Stock Incentive Plan. As of December 31, 1999,
the Company had 4,509,561 non-qualified options outstanding to certain
directors, officers and employees. Each option is exchangeable for one share of
the Company's Common Stock and has a weighted average exercise price equal to
$21.44. Each option's exercise price is equal to the Company's market price at
the date of grant. The options had an original ten-year term and vest pro rata
in annual installments over a three or four-year period from the date of grant.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for the Stock Incentive
Plan. Opinion No. 25 measures compensation cost using the intrinsic value based
method of accounting. Under this method, compensation cost is the excess, if
any, of the quoted market price of the stock at the date of grant over the
amount an employee must pay to acquire the stock. As of December 31, 1999,
$1,340 has been recognized as compensation expense for the Stock Incentive Plan.
As permitted by SFAS 123, Accounting Stock-based Compensation, the Company
has not changed the method of accounting for stock options but has provided the
additional required disclosures. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS No.
123, the Company's pro forma net income available to common stockholders would
have been reduced by $1,767 and $3,166 and pro forma basic and diluted earnings
per share would have been reduced to $1.25 and $1.24, and $1.92 and $1.92,
respectively, for the years ended December 31, 1998 and 1999. The impact on pro
forma net income and earnings per share for 1997 was not material.
The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997, 1998 and 1999, respectively: dividend yield of 6.5%, 6.3%
and 7.2%, expected volatility of 18.8%, 23.1% and 18.5%, risk-free interest rate
of 5.9%, 4.9% and 5.4%, and expected lives of 10 years for each year.
Following is a summary of the option activity for the years ended December
31, 1997, 1998 and 1999:
WEIGHTED REMAINING
SHARES UNDER AVERAGE CONTRACTUAL
OPTION (000S) EXERCISE PRICE LIFE
------------- -------------- -----------
Outstanding, 11/26/97................................ -- -- --
Granted.............................................. 3,154 $21.00 10 years
Exercised............................................ -- -- --
Forfeited............................................ (10) -- --
------ ------ ----------
Outstanding, 12/31/97................................ 3,144 21.00 10 years
Granted.............................................. 1,508 21.69 10 years
Exercised............................................ -- -- --
Forfeited............................................ (268) -- --
------ ------ ----------
Outstanding, 12/31/98................................ 4,384 21.40 9.4 years
Granted.............................................. 451 22.24 10.0 years
Exercised............................................ (25) -- --
Forfeited............................................ (300) -- --
------ ------ ----------
Outstanding, 12/31/99................................ 4,510 $21.44 9.4 years
====== ====== ==========
Options exercisable at year-end...................... 1,832 $21.05
====== ======
Fair value of options granted during the year........ $ 1.88
======
F-18
73
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
In 1997, under the Stock Incentive Plan, the Company sold 5,712 restricted
shares of its Common Stock to certain independent directors for $0.01 per share
in cash. In 1998 and 1999, under the Stock Incentive Plan the Company issued
43,007 and 100,000 restricted shares, respectively, to certain officers of the
Company as part of the Performance Pay Program and in connection with employment
with the Company. As of December 31, 1999, 1,633 shares of restricted stock have
been forfeited. The outstanding restricted shares are subject to a repurchase
right held by the Company, which lapses over a period of three to five years.
The repurchase right lapses fully on January 1, 2002 for shares issued in 1997
and 1998, and lapses fully on January 20, 2004 for those shares issued in 1999.
401(k) Plan
In November 1997, the Company established a Section 401(k)
Savings/Retirement Plan (the "Section 401(k) Plan"), which is a continuation of
the Section 401(k) plan of the Predecessor, to cover eligible employees of the
Company and any designated affiliate. During 1999, the Section 401(k) Plan
permitted eligible employees of the Company to defer up to 10% of their annual
compensation, subject to certain limitations imposed by the Code. Beginning in
2000, eligible employees may defer up to 20% of their annual compensation,
subject to certain limitations imposed by the Code. The employees' elective
deferrals are immediately vested and non-forfeitable upon contribution to the
Section 401(k) Plan. During 1999, the Company matched the employee contributions
to the Section 401(k) Plan in an amount equal to 50% of the first 3.5% of annual
compensation deferred by each employee. Beginning in 2000, the Company intends
to match the employee contributions to the Section 401(k) Plan in an amount
equal to 50% of the first 5.5% of annual compensation deferred by each employee
and may also make discretionary contributions to the Section 401(k) Plan. As of
December 31, 1998 and 1999, the Company's accrual for 401(k) matches was $153
and $180, respectively. Such amounts were included in Other Liabilities on the
Consolidated Balanced Sheets.
Deferred Compensation Plan
Effective September 1, 1999, the Company established a Non-Qualified
Deferred Compensation Plan for officers of the Company and certain of its
affiliates. The plan enables participants to defer income up to 25% of annual
base pay and up to 100% of annual bonuses on a pre-tax basis. The Company may
make discretionary matching contributions to participant accounts at any time.
The Company made no such discretionary matching contributions in 1999. The
participants' elective deferrals and any matching contributions are immediately
100% vested. As of December 31, 1999, the total amount of compensation deferred
by was $159.
12. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
----------- --------- --------
Cash paid for interest.......................... $ 2,509 $ 68,209 $ 89,627
Non-cash transactions:
Acquisitions of properties.................... $ 2,438,634 $ 901,284 $471,905
Assumption of debt............................ (717,613) (221,017) (57,480)
Cash acquired................................. (43,978) -- --
Other assumed assets and liabilities.......... (13,862) -- --
Minority interests' contribution, including
units issued............................... (64,358) (115,963) (14,534)
Shares issued................................. (1,370,391) -- --
----------- --------- --------
Net cash paid, net of cash acquired............. $ 228,432 $ 564,304 $399,891
=========== ========= ========
F-19
74
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
13. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, from time to time, the Company is
involved in legal actions relating to the ownership and operations of its
properties. In management's opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to have a materially
adverse effect on the consolidated financial position, results of operations or
cash flows of the Company.
Environmental Matters
The Company follows the policy of monitoring its properties for the
presence of hazardous or toxic substances. The Company is not aware of any
environmental liability with respect to the properties that would have a
material adverse effect on the Company's business, assets or results of
operations; however, there can be no assurance that such a material
environmental liability does not exist. The existence of any such material
environmental liability would have an adverse effect on the Company's results of
operations and cash flow.
General Uninsured Losses
The Company carries comprehensive liability, fire, flood, environmental,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles that the Company believes are adequate and appropriate under the
circumstances given the relative risk of loss, the cost of such coverage and
industry practice. There are, however, certain types of extraordinary losses
that may be either uninsurable or not economically insurable. Certain of the
properties are located in areas that are subject to earthquake activity;
therefore, the Company has obtained limited earthquake insurance on those
properties. Should an uninsured loss occur, the Company could lose its
investment in, and anticipated profits and cash flows from, a property.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1998 and 1999 are as follows:
QUARTER
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1998 YEAR
1998 ----------- ----------- ------------ ----------- -----------
Revenues........................ $ 75,785 $ 85,014 $ 94,061 $ 104,027 $ 358,887
Income from operations before
minority interests............ 29,188 30,382 31,802 32,378 123,750
Minority interests' share of net
income........................ (1,282) (2,404) (2,930) (4,541) (11,157)
----------- ----------- ----------- ----------- -----------
Net income.................... 27,906 27,978 28,872 27,837 112,593
Preferred stock dividends....... -- -- (1,514) (2,125) (3,639)
----------- ----------- ----------- ----------- -----------
Net income available to common
stockholders............... $ 27,906 $ 27,978 $ 27,358 $ 25,712 $ 108,954
=========== =========== =========== =========== ===========
NET INCOME PER COMMON SHARE(1)
Basic......................... $ 0.33 $ 0.33 $ 0.32 $ 0.30 $ 1.27
=========== =========== =========== =========== ===========
Diluted....................... $ 0.32 $ 0.32 $ 0.32 $ 0.30 $ 1.26
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic......................... 85,874,513 85,874,513 85,874,513 85,881,992 85,876,383
=========== =========== =========== =========== ===========
Diluted....................... 86,284,736 86,222,175 86,251,857 86,181,937 86,235,176
=========== =========== =========== =========== ===========
F-20
75
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
QUARTER
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1999 YEAR
1999 ----------- ----------- ------------ ----------- -----------
Revenues........................ $ 109,572 $ 115,377 $ 111,784 $ 111,450 $ 448,183
Income from operations before
minority interests............ 34,575 41,446 42,055 40,775 158,851
Minority interests' share of net
income........................ (6,561) (8,145) (9,661) (9,644) (34,011)
----------- ----------- ----------- ----------- -----------
Net income before gain from
divestiture of real
estate..................... 28,014 33,301 32,394 31,131 124,840
Gain from divestiture of real
estate........................ -- 11,525 21,532 20,696 53,753
Extraordinary items............. -- (1,509) (1,347) 366 (2,490)
----------- ----------- ----------- ----------- -----------
Net income.................... 28,014 43,317 52,579 52,193 176,103
Preferred stock dividends....... (2,125) (2,125) (2,125) (2,125) (8,500)
----------- ----------- ----------- ----------- -----------
Net income available to common
stockholders............... $ 25,889 $ 41,192 $ 50,454 $ 50,068 $ 167,603
=========== =========== =========== =========== ===========
BASIC INCOME PER COMMON SHARE(1)
Before extraordinary items.... $ 0.30 $ 0.50 $ 0.60 $ 0.58 $ 1.97
Extraordinary items........... -- (0.02) (0.02) -- (0.03)
----------- ----------- ----------- ----------- -----------
Net income available to
common stockholders...... $ 0.30 $ 0.48 $ 0.58 $ 0.58 $ 1.94
=========== =========== =========== =========== ===========
DILUTED INCOME PER COMMON
SHARE(1)
Before extraordinary items.... $ 0.30 $ 0.50 $ 0.60 $ 0.58 $ 1.97
Extraordinary items........... -- (0.02) (0.02) -- (0.03)
----------- ----------- ----------- ----------- -----------
Net income available to
common stockholders...... $ 0.30 $ 0.48 $ 0.58 $ 0.58 $ 1.94
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic......................... 86,001,104 86,286,613 86,536,918 86,262,815 86,271,862
=========== =========== =========== =========== ===========
Diluted....................... 86,020,680 86,468,820 86,637,633 86,262,815 86,347,487
=========== =========== =========== =========== ===========
- ---------------
(1) The sum of quarterly financial data may vary from the annual data due to
rounding.
F-21
76
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
15. SEGMENT INFORMATION
The Company has two reportable segments: industrial properties and retail
properties. The industrial properties consist primarily of warehouse
distribution facilities suitable for single or multiple tenants and are
typically comprised of multiple buildings which are leased to tenants engaged in
various types of businesses. The retail properties are generally leased to one
or more anchor tenants, such as grocery and drug stores, and various retail
businesses. The Company evaluates performance based upon property net operating
income of the combined properties in each segment. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. Significant information used by the Company for the
reportable segments for the years ended December 31, 1997, 1998 and 1999 are as
follows:
INDUSTRIAL RETAIL TOTAL
PROPERTIES PROPERTIES PROPERTIES
---------- ---------- ----------
Rental revenues:(1)
1997.......................................... $ 16,898 $ 9,567 $ 26,465
1998.......................................... 248,134 106,524 354,658
1999.......................................... 352,861 86,797 439,658
Property net operating income:(2)
1997.......................................... 11,056 6,510 17,566
1998.......................................... 187,218 79,025 266,243
1999.......................................... 269,339 62,396 331,735
Gross additions to investment in properties:(3)
1997.......................................... 686,821 140,087 826,908
1998.......................................... 916,503 9,558 926,061
1999.......................................... 820,656 29,173 849,829
Investment in properties:(4)
1997.......................................... 1,639,321 803,678 2,442,999
1998.......................................... 2,574,940 794,120 3,369,060
1999.......................................... 3,177,283 72,169 3,249,452
- ---------------
(1) Includes straight-line rents of $1,407, $10,921 and $10,848 for years ended
December 31, 1997, 1998 and 1999, respectively.
(2) Property net operating income is defined as rental revenues, including
reimbursements and straight-line rents, less property level operating
expenses and excluding depreciation, amortization and interest expense.
(3) Represents cost incurred during the year for land, building, building
improvements, tenant improvements, leasing costs and other related real
estate costs. Amounts are before divestiture of properties of $814,825 for
the year ended December 31, 1999. There were no property divestitures in
1997 or 1998.
(4) Excludes net properties held for divestiture of $0, $115,050 and $181,201 as
of December 31, 1997, 1998 and 1999, respectively.
F-22
77
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
The Company uses property net operating income as an operating performance
measure. The following is a reconciliation between total reportable segment
revenue and property net operating income to consolidated revenues and net
income:
1997 1998 1999
------- -------- --------
REVENUES
Total rental revenues for reportable segments............... $26,465 $354,658 $439,658
Investment management and other income...................... 29,597 4,229 8,525
------- -------- --------
Total consolidated revenues............................ $56,062 $358,887 $448,183
======= ======== ========
NET INCOME
Property net operating income for reportable segments....... $17,566 $266,243 $331,735
Investment management and other income...................... 29,597 4,229 8,525
Less:
General and administrative................................ 1,197 19,588 25,223
Interest expense.......................................... 3,528 69,670 88,681
Depreciation and amortization............................. 4,195 57,464 67,505
Investment management expenses............................ 19,358 -- --
Minority interests........................................ 657 11,157 34,011
------- -------- --------
Net income before gain from divestiture of real
estate............................................... 18,228 112,593 124,840
Gain from divestiture of real estate........................ -- -- 53,753
Extraordinary items......................................... -- -- (2,490)
------- -------- --------
Net income............................................. $18,228 $112,593 $176,103
======= ======== ========
16. NEW ACCOUNTING PRONOUNCEMENT
On June 15, 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
Statement No. 133 may become effective for the Operating Partnership
beginning with the 2001 fiscal year and may not be applied retroactively.
Management does not expect the impact of Statement No. 133 to be material to the
financial statements. However, the Statement could increase volatility in
earnings and other comprehensive income.
17. SUBSEQUENT EVENTS (UNAUDITED)
On February 29, 2000, the Company declared a quarterly cash dividend of
$0.37 per share of Common Stock and the Operating Partnership declared a
quarterly cash distribution of $0.37 per LP Unit, for the quarter ending March
31, 2000, payable on April 17, 2000, to stockholders and unitholders of record
as of April 5, 2000. On February 29, 2000, the Company declared a cash dividend
of $0.5313 per share of its Series A Preferred Stock, and the Operating
Partnership declared a cash distribution of $0.5313 per unit on its Series A
Preferred Units, for the three month period ending April 14, 2000, payable on
April 17, 2000, to stockholders and unitholders of record as of April 5, 2000.
On February 29, 2000, the Operating Partnership
F-23
78
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND UNIT AMOUNTS, AND PROPERTY
STATISTICS)
declared a cash distribution of $1.0781 per unit on its Series B Preferred
Units, for the three month period ending April 14, 2000, payable on April 17,
2000, to unitholders of record as of April 5, 2000. On February 29, 2000, AMB
Property II, L.P. declared a cash distribution of $1.0938, $0.9688 and $0.9688
per unit on its Series C Preferred Units, Series D Preferred Units and Series E
Preferred Units, respectively, for the three month periods ending April 14,
March 24, and April 14, 2000, respectively, payable on April 17, March 25, and
April 17, 2000, respectively, to unitholders of record as of April 5, March 15,
and April 5, 2000.
F-24
79
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)
INITIAL COST TO COMPANY COSTS
----------------------- CAPITALIZED
NO. OF ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY BLDGS./ CTRS. LOCATION TYPE (1) LAND IMPROVEMENTS ACQUISITION
-------- ------------- -------- ---- ------------ -------- ------------ -------------
Acer Distribution Center........... 1 CA IND $ -- $ 3,146 $ 9,479 $ 500
Activity Distribution Center....... 4 CA IND 5,148 3,736 11,248 155
Addison Technology Center.......... 1 TX IND -- 899 2,696 166
Alsip Industrial................... 1 IL IND -- 1,200 3,744 100
Alvarado Business Center........... 10 CA IND -- 7,906 23,757 1,723
AMB O'Hare Rosemont................ 14 IL IND -- 2,717 8,995 411
Amwiler-Gwinnett Industrial
Portfolio......................... 9 GA IND 13,590 6,641 19,964 1,075
Anaheim Industrial................. 1 CA IND -- 1,457 4,341 313
Ardenwood Corporate Park........... 4 CA IND 9,756 7,321 22,002 (280)
Artesia Industrial Portfolio....... 27 CA IND 53,927 23,860 71,620 3,505
Atlanta South...................... 9 GA IND -- 8,047 24,180 790
Beacon Industrial Park............. 8 FL IND 17,522 10,466 31,437 4,935
Belden Avenue...................... 3 IL IND -- 5,019 15,186 187
Beltway Distribution............... 1 VA IND -- 4,800 15,159 --
Bensenville........................ 13 IL IND 40,307 20,799 62,438 3,212
Blue Lagoon........................ 2 FL IND 11,457 4,945 14,875 75
Bonnie Lane Industrial............. 2 IL IND -- 884 2,732 --
Boston Industrial Portfolio........ 20 MA IND 21,032 28,518 85,799 5,883
Braemar Business Center............ 2 MA IND -- 1,422 4,613 447
Brightseat Road.................... 1 MD IND -- 1,557 4,841 359
Britannia Business Park............ 2 FL IND -- 3,199 9,637 258
Broward Business Park.............. 5 FL IND -- 1,886 5,659 245
Broward Turnpike Center............ 1 FL IND -- 682 2,046 29
Burnsville Business Center......... 1 MN IND -- 932 2,796 115
Cabot Business Park................ 17 MA IND -- 17,231 51,726 2,121
Carson Industrial.................. 12 CA IND -- 4,231 10,418 2,477
Cascade............................ 4 OR IND -- 2,825 7,860 1,710
Chancellor......................... 1 FL IND 2,839 1,587 4,802 66
Chancellor Square.................. 3 FL IND 16,150 7,575 22,721 1,134
Chemway Industrial Portfolio....... 5 NC IND -- 2,875 8,625 388
Chicago Industrial................. 2 IL IND 3,143 1,574 4,761 342
GROSS AMOUNT CARRIED AT 12/31/99
------------------------------------- YEAR OF
BUILDING & TOTAL ACCUMULATED CONSTRUCTION/ DEPRECIABLE
PROPERTY LAND IMPROVEMENTS COSTS(2)(3) DEPRECIATION ACQUISITION LIFE (YEARS)
-------- -------- ------------ ----------- ------------ ------------- ------------
Acer Distribution Center........... $ 3,146 $ 9,979 $ 13,125 $ 444 1997 5-40
Activity Distribution Center....... 3,736 11,404 15,140 512 1997 5-40
Addison Technology Center.......... 899 2,862 3,761 127 1998 5-40
Alsip Industrial................... 1,200 3,844 5,044 170 1998 5-40
Alvarado Business Center........... 7,906 25,480 33,386 1,128 1997 5-40
AMB O'Hare Rosemont................ 2,717 9,406 12,123 410 1999 5-40
Amwiler-Gwinnett Industrial
Portfolio......................... 6,641 21,039 27,680 936 1997 5-40
Anaheim Industrial................. 1,457 4,654 6,111 207 1997 5-40
Ardenwood Corporate Park........... 7,321 21,722 29,043 982 1997 5-40
Artesia Industrial Portfolio....... 23,860 75,125 98,985 3,345 1997 5-40
Atlanta South...................... 8,047 24,970 33,016 1,116 1997 5-40
Beacon Industrial Park............. 10,466 36,372 46,838 1,583 1997 5-40
Belden Avenue...................... 5,019 15,373 20,392 689 1997 5-40
Beltway Distribution............... 4,800 15,159 19,959 675 1999 5-40
Bensenville........................ 20,831 65,618 86,449 2,922 1997 5-40
Blue Lagoon........................ 4,945 14,949 19,894 672 1997 5-40
Bonnie Lane Industrial............. 884 2,732 3,615 122 1999 5-40
Boston Industrial Portfolio........ 28,518 91,682 120,200 4,062 1998 5-40
Braemar Business Center............ 1,422 5,059 6,482 219 1998 5-40
Brightseat Road.................... 1,557 5,200 6,757 228 1997 5-40
Britannia Business Park............ 3,199 9,895 13,095 443 1997 5-40
Broward Business Park.............. 1,886 5,904 7,790 263 1998 5-40
Broward Turnpike Center............ 682 2,076 2,758 93 1998 5-40
Burnsville Business Center......... 932 2,912 3,844 130 1998 5-40
Cabot Business Park................ 17,231 53,847 71,078 2,402 1998 5-40
Carson Industrial.................. 4,231 12,896 17,127 579 1999 5-40
Cascade............................ 2,825 9,570 12,396 419 1998 5-40
Chancellor......................... 1,587 4,868 6,456 218 1997 5-40
Chancellor Square.................. 7,575 23,854 31,429 1,062 1998 5-40
Chemway Industrial Portfolio....... 2,875 9,013 11,888 402 1998 5-40
Chicago Industrial................. 1,574 5,103 6,676 226 1997 5-40
S-1
80
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)
INITIAL COST TO COMPANY COSTS
----------------------- CAPITALIZED
NO. OF ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY BLDGS./ CTRS. LOCATION TYPE (1) LAND IMPROVEMENTS ACQUISITION
-------- ------------- -------- ---- ------------ -------- ------------ -------------
Circle Freeway..................... 1 OH IND -- 530 1,591 241
Columbia Business Center........... 9 MD IND 4,594 3,856 11,736 247
Concord Industrial Portfolio....... 10 CA IND -- 3,719 11,647 272
Corporate Park/Hickory Hill........ 7 TN IND 16,400 6,789 20,366 472
Corporate Square................... 6 MN IND -- 4,024 12,113 396
Corridor........................... 1 MD IND 2,486 996 3,019 18
Crysen Industrial.................. 1 DC IND 3,303 1,425 4,275 650
D/FW Int'l Air Cargo............... 1 TX IND -- -- 19,683 --
Deerfield Commerce Center.......... 3 FL IND -- 711 2,133 37
Diablo Industrial Park............. 16 CA IND -- 3,449 10,730 15
Dixie Highway...................... 2 KY IND -- 1,700 5,149 94
Dock's Corner...................... 1 NJ IND -- 2,050 6,190 49,046
Dock's Corner II................... 1 NJ IND -- 2,272 6,917 338
Dowe Industrial Center............. 2 CA IND -- 2,665 8,034 52
East Valley Warehouse.............. 1 WA IND -- 6,813 20,511 646
East Walnut Drive.................. 1 CA IND -- 964 2,918 28
Edenvale Business Center........... 1 MN IND 1,467 919 2,411 554
Elk Grove Village Industrial....... 11 IL IND -- 7,713 23,179 748
Elmwood Business Park.............. 5 LA IND -- 4,163 12,488 399
Empire Drive....................... 1 KY IND -- 1,590 4,815 244
Executive Drive.................... 1 IL IND -- 1,399 4,236 321
Fairway Drive Industrial........... 3 CA IND -- 3,219 9,677 5,604
Fontana Industrial................. 2 CA IND -- 2,197 6,653 2,357
Garland Industrial................. 20 TX IND 19,600 8,161 24,484 1,634
Gateway Commerce................... 5 MD IND 15,579 4,083 12,336 424
Gateway Corporate Center........... 9 WA IND -- 10,369 32,201 (75)
Gateway North...................... 6 WA IND -- 6,124 18,941 7
Glen Ellyn Road.................... 1 IL IND -- 850 2,549 266
Greater Dallas Industrial
Portfolio......................... 8 TX IND -- 10,425 31,451 3,899
Greater Houston Portfolio.......... 14 TX IND -- 6,197 18,592 1,141
GROSS AMOUNT CARRIED AT 12/31/99
------------------------------------- YEAR OF
BUILDING & TOTAL COSTS ACCUMULATED CONSTRUCTION/ DEPRECIABLE
PROPERTY LAND IMPROVEMENTS (2)(3) DEPRECIATION ACQUISITION LIFE (YEARS)
-------- -------- ------------ ----------- ------------ ------------- ------------
Circle Freeway..................... 530 1,832 2,363 80 1998 5-40
Columbia Business Center........... 3,856 11,983 15,839 535 1999 5-40
Concord Industrial Portfolio....... 3,719 11,919 15,637 528 1999 5-40
Corporate Park/Hickory Hill........ 6,789 20,838 27,627 934 1998 5-40
Corporate Square................... 4,024 12,509 16,534 559 1997 5-40
Corridor........................... 996 3,037 4,033 136 1999 5-40
Crysen Industrial.................. 1,425 4,925 6,350 215 1998 5-40
D/FW Int'l Air Cargo............... -- 19,683 19,683 665 1999 5-40
Deerfield Commerce Center.......... 711 2,170 2,880 97 1998 5-40
Diablo Industrial Park............. 3,449 10,745 14,194 480 1999 5-40
Dixie Highway...................... 1,700 5,243 6,943 235 1997 5-40
Dock's Corner...................... 5,125 52,161 57,286 1,936 1997 5-40
Dock's Corner II................... 2,272 7,255 9,527 322 1997 5-40
Dowe Industrial Center............. 2,665 8,086 10,751 363 1997 5-40
East Valley Warehouse.............. 6,813 21,157 27,970 945 1999 5-40
East Walnut Drive.................. 964 2,947 3,910 132 1997 5-40
Edenvale Business Center........... 919 2,966 3,884 131 1998 5-40
Elk Grove Village Industrial....... 7,713 23,927 31,640 1,069 1997 5-40
Elmwood Business Park.............. 4,163 12,887 17,049 576 1998 5-40
Empire Drive....................... 1,590 5,059 6,649 225 1997 5-40
Executive Drive.................... 1,399 4,557 5,956 201 1997 5-40
Fairway Drive Industrial........... 3,219 15,282 18,500 625 1999 5-40
Fontana Industrial................. 2,197 9,009 11,206 379 1997 5-40
Garland Industrial................. 8,161 26,118 34,279 1,159 1998 5-40
Gateway Commerce................... 4,083 12,760 16,844 569 1999 5-40
Gateway Corporate Center........... 10,369 32,126 42,496 1,436 1999 5-40
Gateway North...................... 6,124 18,948 25,072 847 1999 5-40
Glen Ellyn Road.................... 850 2,815 3,665 124 1998 5-40
Greater Dallas Industrial
Portfolio......................... 9,995 35,781 45,775 1,547 1997 5-40
Greater Houston Portfolio.......... 6,197 19,733 25,930 876 1998 5-40
S-2
81
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)
INITIAL COST TO COMPANY COSTS
----------------------- CAPITALIZED
NO. OF ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY BLDGS./ CTRS. LOCATION TYPE (1) LAND IMPROVEMENTS ACQUISITION
-------- ------------- -------- ---- ------------ -------- ------------ -------------
Greenwood Industrial............... 3 MD IND -- 4,729 14,188 771
Harvest Business Park.............. 3 WA IND -- 2,371 7,153 293
Hewlett-Packard Distribution....... 1 CA IND 3,276 1,668 5,043 41
Hintz Road......................... 1 IL IND -- 420 1,259 38
Holton Drive....................... 1 KY IND -- 2,633 7,899 140
Houston Service Center............. 3 TX IND -- 3,800 11,401 1,166
Industrial Drive................... 1 OH IND -- 1,743 5,230 181
Interchange........................ 2 TN IND 7,288 3,523 10,570 344
International Multifoods........... 1 CA IND -- 1,613 4,879 97
Itasca Industrial Portfolio........ 6 IL IND -- 6,416 19,289 1,854
Jamesburg.......................... 3 NJ IND 23,500 11,700 35,101 740
Janitrol........................... 1 OH IND -- 1,797 5,390 241
Junction Industrial Park........... 4 CA IND -- 7,875 23,975 233
Kent Centre........................ 4 WA IND -- 3,042 9,165 619
Kingsport Industrial Park.......... 7 WA IND 17,071 7,919 23,798 (162)
L.A. County Industrial Portfolio... 6 CA IND -- 9,671 29,082 630
Lake Michigan Industrial
Portfolio......................... 2 IL IND -- 2,886 8,699 113
Laurelwood......................... 2 CA IND -- 2,750 8,538 113
Lincoln Industrial Center.......... 1 TX IND -- 671 2,052 188
Linden Industrial.................. 1 NJ IND -- 900 2,753 --
Linder Skokie...................... 1 IL IND -- 2,938 8,854 873
Lisle Industrial................... 1 IL IND -- 2,290 6,911 42
Locke Drive........................ 1 MA IND -- 1,074 3,227 66
Lonestar........................... 7 TX IND 17,000 7,129 21,428 318
Los Nietos......................... 4 CA IND -- 2,518 7,624 --
Mahwah Corporate Center............ 7 NJ IND -- 10,421 31,263 775
Meadow Lane........................ 1 NJ IND -- 838 2,594 --
MBC Industrial..................... 4 CA IND 12,377 5,892 17,716 84
Marietta Industrial................ 3 GA IND -- 1,830 5,489 280
Meadowridge........................ 3 MD IND -- 3,716 11,147 121
Melrose Park....................... 1 IL IND -- 2,936 9,190 39
GROSS AMOUNT CARRIED AT 12/31/99
------------------------------------- YEAR OF
BUILDING & TOTAL COSTS ACCUMULATED CONSTRUCTION/ DEPRECIABLE
PROPERTY LAND IMPROVEMENTS (2)(3) DEPRECIATION ACQUISITION LIFE (YEARS)
-------- -------- ------------ ----------- ------------ ------------- ------------
Greenwood Industrial............... 4,729 14,959 19,688 665 1998 5-40
Harvest Business Park.............. 2,371 7,446 9,817 332 1997 5-40
Hewlett-Packard Distribution....... 1,668 5,084 6,752 228 1997 5-40
Hintz Road......................... 420 1,297 1,716 58 1998 5-40
Holton Drive....................... 2,633 8,039 10,672 361 1997 5-40
Houston Service Center............. 3,800 12,567 16,367 553 1998 5-40
Industrial Drive................... 1,743 5,410 7,153 242 1997 5-40
Interchange........................ 3,523 10,914 14,437 488 1998 5-40
International Multifoods........... 1,613 4,976 6,589 223 1997 5-40
Itasca Industrial Portfolio........ 6,416 21,143 27,560 931 1997 5-40
Jamesburg.......................... 11,700 35,841 47,541 1,607 1998 5-40
Janitrol........................... 1,797 5,631 7,427 251 1997 5-40
Junction Industrial Park........... 7,875 24,208 32,083 1,084 1999 5-40
Kent Centre........................ 3,042 9,784 12,826 433 1997 5-40
Kingsport Industrial Park.......... 7,919 23,636 31,556 1,066 1997 5-40
L.A. County Industrial Portfolio... 9,671 29,712 39,383 1,331 1997 5-40
Lake Michigan Industrial
Portfolio......................... 2,886 8,811 11,697 395 1997 5-40
Laurelwood......................... 2,750 8,651 11,401 385 1997 5-40
Lincoln Industrial Center.......... 671 2,240 2,910 98 1997 5-40
Linden Industrial.................. 900 2,753 3,653 123 1999 5-40
Linder Skokie...................... 2,938 9,727 12,665 428 1997 5-40
Lisle Industrial................... 2,290 6,952 9,243 312 1997 5-40
Locke Drive........................ 1,074 3,293 4,366 148 1998 5-40
Lonestar........................... 7,129 21,745 28,875 976 1997 5-40
Los Nietos......................... 2,518 7,624 10,141 343 1999 5-40
Mahwah Corporate Center............ 10,421 32,038 42,459 1,435 1998 5-40
Meadow Lane........................ 838 2,594 3,432 116 1999 5-40
MBC Industrial..................... 5,892 17,800 23,692 801 1997 5-40
Marietta Industrial................ 1,830 5,770 7,599 257 1998 5-40
Meadowridge........................ 3,716 11,268 14,984 506 1998 5-40
Melrose Park....................... 2,936 9,229 12,166 411 1997 5-40
S-3
82
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)
INITIAL COST TO COMPANY COSTS
----------------------- CAPITALIZED
NO. OF ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY BLDGS./ CTRS. LOCATION TYPE (1) LAND IMPROVEMENTS ACQUISITION
-------- ------------- -------- ---- ------------ -------- ------------ -------------
Mendota Heights.................... 1 MN IND 668 1,367 4,565 1,799
Metric Center...................... 6 TX IND -- 10,968 32,944 479
Miami Airport Business Center...... 6 FL IND -- 6,400 19,634 105
Minnetonka......................... 10 MN IND 12,334 6,794 20,380 1,241
Milmont Page....................... 3 CA IND -- 3,201 9,642 304
Minneapolis Distribution
Portfolio......................... 5 MN IND -- 6,227 18,692 992
Minneapolis Industrial Portfolio
IV................................ 4 MN IND 7,955 4,938 14,854 742
Minneapolis Industrial V........... 7 MN IND 6,512 4,426 13,317 647
Mittel Drive....................... 2 IL IND -- 646 1,938 83
Moffett Park R&D Portfolio......... 14 CA IND -- 14,807 44,462 3,527
Murray Hill........................ 2 NJ IND -- 1,670 2,568 2,632
NDP -- Los Angeles................. 6 CA IND 10,550 5,948 17,844 504
NDP -- Seattle..................... 4 WA IND -- 3,888 11,663 272
Norcross/Brookhollow Portfolio..... 4 GA IND -- 3,721 11,180 396
North GSW Industrial Park.......... 1 TX IND -- -- 1,388 --
Northpointe Commerce............... 2 CA IND -- 1,773 5,358 85
Northwest Distribution Center...... 3 WA IND -- 3,533 10,751 565
O'Hare Industrial Portfolio........ 15 IL IND -- 7,357 22,112 1,075
Oakland Ridge Industrial Center.... 12 MD IND 7,407 5,571 16,933 1,077
Orlando Central Park............... n/a FL IND -- -- 1,218 --
Pacific Business Center............ 2 CA IND 9,521 5,417 16,291 281
Pacific Service Center............. 1 GA IND -- 504 1,511 322
Pardee Drive....................... 1 CA IND -- 619 1,924 1
Parkway Business Center............ 1 MN IND -- 475 1,425 377
Patuxent........................... 2 MD IND -- 1,696 5,127 118
Peachtree North East Business
Center............................ 3 GA IND -- 2,197 6,592 922
Peninsula Business Center III...... 1 VA IND -- 992 2,976 65
Penn James Office Warehouse........ 2 MN IND -- 1,991 6,013 605
Pennsy Drive....................... 1 MD IND -- 657 2,011 12,600
Pioneer Alburtis................... 5 CA IND -- 2,355 7,163 --
Porete Avenue Warehouse............ 1 NJ IND 9,567 4,067 12,202 1,523
GROSS AMOUNT CARRIED AT 12/31/99
------------------------------------- YEAR OF
BUILDING & TOTAL ACCUMULATED CONSTRUCTION/ DEPRECIABLE
PROPERTY LAND IMPROVEMENTS COSTS(2)(3) DEPRECIATION ACQUISITION LIFE (YEARS)
-------- -------- ------------ ----------- ------------ ------------- ------------
Mendota Heights.................... 1,367 6,364 7,731 261 1998 5-40
Metric Center...................... 10,968 33,422 44,390 1,500 1997 5-40
Miami Airport Business Center...... 6,400 19,739 26,139 883 1999 5-40
Minnetonka......................... 6,794 21,622 28,415 960 1998 5-40
Milmont Page....................... 3,201 9,946 13,147 444 1997 5-40
Minneapolis Distribution
Portfolio......................... 6,227 19,684 25,911 876 1997 5-40
Minneapolis Industrial Portfolio
IV................................ 4,938 15,595 20,533 694 1997 5-40
Minneapolis Industrial V........... 4,426 13,964 18,389 621 1997 5-40
Mittel Drive....................... 646 2,021 2,667 90 1998 5-40
Moffett Park R&D Portfolio......... 14,805 47,992 62,796 2,122 1997 5-40
Murray Hill........................ 1,670 5,199 6,869 232 1999 5-40
NDP -- Los Angeles................. 5,948 18,348 24,296 821 1998 5-40
NDP -- Seattle..................... 3,888 11,935 15,822 535 1998 5-40
Norcross/Brookhollow Portfolio..... 3,721 11,576 15,297 517 1997 5-40
North GSW Industrial Park.......... -- 1,388 1,388 47 1999 5-40
Northpointe Commerce............... 1,773 5,443 7,216 244 1997 5-40
Northwest Distribution Center...... 3,533 11,316 14,849 502 1997 5-40
O'Hare Industrial Portfolio........ 7,357 23,187 30,545 1,032 1997 5-40
Oakland Ridge Industrial Center.... 5,571 18,009 23,581 797 1999 5-40
Orlando Central Park............... -- 1,218 1,218 41 1999 5-40
Pacific Business Center............ 5,417 16,572 21,990 743 1997 5-40
Pacific Service Center............. 504 1,833 2,337 79 1998 5-40
Pardee Drive....................... 619 1,925 2,544 86 1999 5-40
Parkway Business Center............ 475 1,802 2,277 77 1998 5-40
Patuxent........................... 1,696 5,246 6,941 235 1997 5-40
Peachtree North East Business
Center............................ 2,197 7,513 9,711 328 1998 5-40
Peninsula Business Center III...... 992 3,041 4,033 136 1998 5-40
Penn James Office Warehouse........ 1,991 6,617 8,608 291 1997 5-40
Pennsy Drive....................... 2,857 12,411 15,268 516 1997 5-40
Pioneer Alburtis................... 2,355 7,163 9,518 322 1999 5-40
Porete Avenue Warehouse............ 4,067 13,725 17,793 601 1998 5-40
S-4
83
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)
INITIAL COST TO COMPANY COSTS
----------------------- CAPITALIZED
NO. OF ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY BLDGS./ CTRS. LOCATION TYPE (1) LAND IMPROVEMENTS ACQUISITION
-------- ------------- -------- ---- ------------ -------- ------------ -------------
Presidents Drive Distribution
Center............................. 6 -- 3,687 11,307 1,019
Preston Court...................... 1 MD IND -- 2,313 7,192 288
Production Drive................... 1 KY IND -- 425 1,286 273
Rivers Corporate Center............ 4 MD IND -- 2,838 8,648 294
Round Lake Business Center......... 1 MN IND -- 875 2,625 330
Sabal III.......................... 1 FL IND -- 1,211 3,634 69
Sand Lake Service Center........... 6 FL IND -- -- -- 744
Santa Barbara Court................ 1 MD IND -- 1,617 5,029 398
Scripps Sorrento................... 1 CA IND -- 1,110 3,330 32
Shawnee Industrial................. 1 GA IND -- 2,481 7,531 2,019
Silicon Valley R&D Portfolio....... 5 CA IND -- 8,024 24,205 (260)
South Bay Industrial............... 8 CA IND 18,970 14,992 45,016 981
South Point Business Park.......... 7 NC IND 10,725 5,371 16,113 303
South River Park................... 1 NJ IND -- 1,122 12,404 0
Southfield/KDRC Industrial
Portfolio......................... 13 GA IND -- 11,827 35,730 1,039
Stadium Business Park.............. 9 CA IND 4,680 3,768 11,345 330
Stapleton Square................... 2 CO IND -- 526 1,577 157
Sunrise Industrial................. 4 FL IND 17,240 6,266 18,798 278
Suwannee Creek..................... n/a GA IND -- -- 1,660 0
Sylvan............................. 1 GA IND -- 1,946 5,905 0
Systematics........................ 1 CA IND -- 911 2,773 40
Technology I....................... 2 MD IND -- 1,657 5,049 46
Technology II...................... 9 MD IND 13,433 10,206 3,761 27,025
Texas Industrial Portfolio......... 23 TX IND -- 10,806 32,499 2,234
The Rotunda........................ 2 MD IND 13,184 4,400 17,736 665
Torrance Commerce Center........... 6 CA IND -- 2,046 6,136 218
Twin Cities........................ 2 MN IND -- 4,873 14,638 1,042
Two South Middlesex................ 1 NJ IND -- 2,247 6,781 47
Valwood............................ 2 TX IND 3,882 1,983 5,989 609
Viscount........................... 1 FL IND -- 984 3,016 143
Weigman Road....................... 1 CA IND -- 1,563 4,688 166
GROSS AMOUNT CARRIED AT 12/31/99
------------------------------------- YEAR OF
BUILDING & TOTAL ACCUMULATED CONSTRUCTION/ DEPRECIABLE
PROPERTY LAND IMPROVEMENTS COSTS(2)(3) DEPRECIATION ACQUISITION LIFE (YEARS)
-------- -------- ------------ ----------- ------------ ------------- ------------
Presidents Drive Distribution
Center............................. 3,687 12,326 16,013 541 1997 5-40
Preston Court...................... 2,313 7,480 9,793 331 1997 5-40
Production Drive................... 425 1,559 1,984 67 1997 5-40
Rivers Corporate Center............ 2,838 8,941 11,779 398 1999 5-40
Round Lake Business Center......... 875 2,955 3,830 129 1998 5-40
Sabal III.......................... 1,211 3,703 4,914 166 1998 5-40
Sand Lake Service Center........... -- 744 744 25 1998 5-40
Santa Barbara Court................ 1,617 5,427 7,044 238 1997 5-40
Scripps Sorrento................... 1,110 3,363 4,473 151 1998 5-40
Shawnee Industrial................. 2,481 9,551 12,032 407 1999 5-40
Silicon Valley R&D Portfolio....... 8,024 23,945 31,970 1,080 1997 5-40
South Bay Industrial............... 14,992 45,998 60,990 2,061 1997 5-40
South Point Business Park.......... 5,371 16,415 21,786 736 1998 5-40
South River Park................... 1,122 12,404 13,526 457 1999 5-40
Southfield/KDRC Industrial
Portfolio......................... 11,827 36,768 48,595 1,642 1999 5-40
Stadium Business Park.............. 3,768 11,675 15,443 522 1997 5-40
Stapleton Square................... 526 1,734 2,260 76 1998 5-40
Sunrise Industrial................. 6,266 19,075 25,341 856 1998 5-40
Suwannee Creek..................... -- 1,660 1,660 56 1999 5-40
Sylvan............................. 1,946 5,905 7,851 265 1999 5-40
Systematics........................ 911 2,813 3,724 126 1997 5-40
Technology I....................... 1,657 5,095 6,752 228 1999 5-40
Technology II...................... 10,206 30,786 40,993 1,385 1999 5-40
Texas Industrial Portfolio......... 10,806 34,733 45,539 1,539 1997 5-40
The Rotunda........................ 4,400 18,401 22,802 771 1999 5-40
Torrance Commerce Center........... 2,046 6,354 8,400 284 1998 5-40
Twin Cities........................ 4,873 15,680 20,553 695 1997 5-40
Two South Middlesex................ 2,247 6,828 9,075 307 1997 5-40
Valwood............................ 1,983 6,598 8,581 290 1997 5-40
Viscount........................... 984 3,159 4,143 140 1997 5-40
Weigman Road....................... 1,563 4,855 6,417 217 1997 5-40
S-5
84
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)
INITIAL COST TO COMPANY COSTS
----------------------- CAPITALIZED
NO. OF ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY BLDGS./ CTRS. LOCATION TYPE (1) LAND IMPROVEMENTS ACQUISITION
-------- ------------- -------- ---- ------------ -------- ------------ -------------
West North Carrier................. 1 TX IND 3,143 1,375 4,165 128
Williams & Bouroughs............... 4 CA IND -- 294 6,981 2,048
Willmingham Drive.................. 1 GA IND -- 314 981 --
Willow Park Industrial Portfolio... 21 CA IND 30,902 25,590 76,771 3,947
Willowlake Industrial Park......... 10 TN IND 30,129 11,997 35,990 5,581
Wilmington Ave..................... 2 CA IND -- 3,849 11,605 644
Wilsonville........................ 1 OR IND -- 3,407 13,493 53
Windsor Court...................... 1 IL IND -- 766 2,338 41
Wood Dale.......................... 3 IL IND -- 1,885 5,724 --
Yosemite Drive..................... 1 CA IND -- 2,350 7,051 249
Zanker/Charcot Industrial.......... 5 CA IND -- 5,282 15,887 479
Around Lenox....................... 1 GA RET 10,273 3,462 13,848 848
Howard and Western................. 1 IL RET -- 700 2,983 --
Mazzeo............................. 1 MA RET 3,868 1,477 4,432 34
--- -------- -------- ---------- --------
Total....................... 725 $563,757 $708,043 $2,155,421 $200,673
=== ======== ======== ========== ========
GROSS AMOUNT CARRIED AT 12/31/99
------------------------------------- YEAR OF
BUILDING & ACCUMULATED CONSTRUCTION/ DEPRECIABLE
PROPERTY LAND IMPROVEMENTS TOTAL COSTS DEPRECIATION ACQUISITION LIFE (YEARS)
-------- -------- ------------ ----------- ------------ ------------- ------------
West North Carrier................. 1,375 4,292 5,667 192 1997 5-40
Williams & Bouroughs............... 2,294 7,030 9,323 315 1999 5-40
Willmingham Drive.................. 314 981 1,295 44 1999 5-40
Willow Park Industrial Portfolio... 25,590 80,718 106,309 3,593 1998 5-40
Willowlake Industrial Park......... 11,997 41,571 53,568 1,810 1998 5-40
Wilmington Ave..................... 3,849 12,249 16,097 544 1999 5-40
Wilsonville........................ 3,407 13,546 16,953 573 1998 5-40
Windsor Court...................... 766 2,379 3,145 106 1997 5-40
Wood Dale.......................... 1,885 5,724 7,609 257 1999 5-40
Yosemite Drive..................... 2,350 7,300 9,650 326 1997 5-40
Zanker/Charcot Industrial.......... 5,282 16,367 21,649 732 1997 5-40
Around Lenox....................... 3,462 14,696 18,158 614 1998 5-40
Howard and Western................. 700 2,983 3,684 125 1999 5-40
Mazzeo............................. 1,477 4,466 5,943 201 1998 5-40
-------- ---------- ---------- --------
Total....................... $714,916 $2,349,221 $3,064,137 $103,558
======== ========== ========== ========
S-6
85
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(IN THOUSANDS)
- ---------------
(1) As of December 31, 1999, properties with a net book value of $140,792,
served as collateral for outstanding indebtedness under a secured debt
facility of $73,000.
(2) Reconciliation of total cost to Consolidated Balance Sheet caption at
December 31, 1999:
Total per Schedule III(4)................................... $3,064,137
Construction in process(5).................................. 185,315
----------
Total investments in properties................... $3,249,452
==========
(3) As of December 31, 1999, the aggregate cost for federal income tax purposes
of investments in real estate was approximately $2,877,017.
(4) A summary of activity for real estate and accumulated depreciation for the
year ended December 31, 1999, is as follows:
Investment in Real Estate:
Balance at beginning of year.............................. $3,185,783
Acquisition of properties(6).............................. 471,905
Improvements.............................................. 216,766
Acquisition of properties under
development/redevelopment.............................. 190,612
Divestiture of properties................................. (814,825)
Adjustment for properties held for divestiture............ (186,104)
----------
Balance at end of year.................................... $3,064,137
==========
Accumulated Depreciation:
Balance at beginning of year.............................. $ 58,404
Depreciation expense...................................... 66,457
Adjustment for properties divested........................ (20,264)
Adjustment for properties held for divestiture............ (1,039)
----------
Balance at end of year.................................... $ 103,558
==========
(5) Includes $164,500 of fundings for projects under development and $8,676 of
leasing and other costs related to leases starting subsequent to December
31, 1999.
(6) Excludes $7,789 investment in unconsolidated joint venture.
S-7
86
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Statement on
Form S-11 (No. 333-35915)).
3.2 Certificate of Correction of the Registrant's Articles
Supplementary establishing and fixing the rights and
preferences of the 8 1/2% Series A Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
3.3 Articles Supplementary establishing and fixing the rights
and preferences of the 8 5/8% Series B Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.1 of
the Registrant's Current Report on Form 8-K filed on January
7, 1999).
3.4 Articles Supplementary establishing and fixing the rights
and preferences of the 8.75% Series C Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.2 of
the Registrant's Current Report on Form 8-K filed on January
7, 1999).
3.5 Articles Supplementary establishing and fixing the rights
and preferences of the 7.75% Series D Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.1 of
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
3.6 Articles Supplementary establishing and fixing the rights
and preferences of the 7.75% Series E Cumulative Preferred
Stock (incorporated by reference to Exhibit 3.1 of the
Registrant's Current Report on Form 8-K filed on September
14, 1999).
3.7 First Amended and Restated Bylaws of the Registrant
(incorporated by reference to Exhibit 3.5 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).
4.1 Form of Certificate for Common Stock of the Registrant
(incorporated by reference to Exhibit 3.3 of the
Registrant's Registration Statement on Form S-11 (No.
333-35915)).
4.2 Form of Certificate for the Registrant's 8 1/2% Series A
Cumulative Redeemable Preferred Stock (incorporated by
reference to Exhibit 3.4 of the Registrant's Registration
Statement on Form S-11 (No. 333-58107)).
4.3 Indenture dated as of June 30, 1998 by and among AMB
Property, L.P., the Registrant and State Street Bank and
Trust Company of California, N.A., as trustee (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 First Supplemental Indenture dated as of June 30, 1998 by
and among AMB Property, L.P., the Registrant and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement Form S-11 (No.
333-49163)).
4.5 Second Supplemental Indenture dated as of June 30, 1998 by
and among AMB Property, L.P., the Registrant and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-11 (No.
333-49163)).
4.6 Third Supplemental Indenture dated as of June 30, 1998 by
and among AMB Property, L.P., the Registrant and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-11 (No.
333-49163)).
4.7 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Registrant's Registration Statement on Form S-11
(No. 333-49163)).
4.8 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Registrant's Registration Statement on Form S-11
(No. 333-49163)).
87
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.9 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Registrant's Registration Statement on
Form S-11 (No. 333-49163)).
10.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P. (incorporated by reference to Exhibit
99.1 of the Registrant's Registration Statement of Form S-3
(No. 333-68291)).
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein (incorporated by reference to
Exhibit 10.2 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
10.3 Second Amended and Restated Credit Agreement, dated November
26, 1997 (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1998).
10.4 Amendment to Second Amended and Restated Revolving Credit
Agreement made as of May 29, 1998 (incorporated by reference
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.5 Second Amendment to Second Amended and Restated Revolving
Credit Agreement made as of September 30, 1998 (incorporated
by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998).
10.6 Form of Change in Control and Noncompetition Agreement
between the Registrant and Executive Officers (incorporated
by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998).
10.7 The First Amended and Restated 1997 Stock Option and
Incentive Plan of the Registrant (incorporated by reference
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.8 The First Amendment to the First Amended Restated Stock
Option and Incentive Plan of the Registrant (incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.9 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on June 15, 1999 (incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
10.10 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on August 4, 1999 (incorporated by
reference to Exhibit 10.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
10.11 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on December 1, 1999 (incorporated
by reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
10.12 Dividend Reinvestment and Direct Purchase Plan, dated July
9, 1999 (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Report Form 10-Q for the
quarter ended June 30, 1999).
10.13 Second Amended and Restated 1997 Stock Option and Incentive
Plan (incorporated by reference to Exhibit 10.5 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.14 Registration Rights Agreement, dated August 31, 1999
(incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on September
14, 1999).
88
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.15 Fifth Amended and Restated Agreement of Limited Partnership
of AMB Property II, L.P., dated August 31, 1999
(incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K filed on September
14, 1999).
10.16 Credit Agreement, dated as of September 27, 1999, by and
among AMB Institutional Alliance Fund I, L.P., AMB
Institutional Alliance REIT I, Inc., the Lenders and Issuing
Bank party thereto, BT Realty Resources, Inc. and The Chase
Manhattan Bank. (incorporated by reference to Exhibit 10.3
of the Registrant's Quarterly Report on Report Form 10-Q for
the quarter ended September 30, 1999).
10.17 Third Amendment to Second Amended and Restated Revolving
Credit Agreement made as of March 22, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included in Part IV of this Form 10-K).
27.1 Financial Data Schedule -- AMB Property Corporation.