Attached files
| file | filename |
|---|---|
| EX-31.2 - EX-31.2 - Prologis, Inc. | f54449exv31w2.htm |
| EX-32.1 - EX-32.1 - Prologis, Inc. | f54449exv32w1.htm |
| EX-31.1 - EX-31.1 - Prologis, Inc. | f54449exv31w1.htm |
| EX-32.2 - EX-32.2 - Prologis, Inc. | f54449exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Washington, DC 20549
Form 10-Q
| (Mark One) | ||
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2010 | ||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission File Number:
001-13545
(AMB Property Corporation)
001-14245 (AMB Property, L.P.)
001-14245 (AMB Property, L.P.)
AMB Property
Corporation
AMB Property, L.P.
(Exact Name of Registrant as
Specified in Its Charter)
|
Maryland (AMB Property Corporation) Delaware (AMB Property, L.P.) |
94-3281941 94-3285362 |
|
|
(State or Other Jurisdiction
of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
|
Pier 1, Bay 1, San Francisco, California (Address of Principal Executive Offices) |
94111 (Zip Code) |
(415) 394-9000
(Registrant’s Telephone
Number, Including Area Code)
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.
| AMB Property Corporation | Yes þ No o | |||
|
AMB Property, L.P.
|
Yes þ No o |
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
AMB Property Corporation:
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
AMB Property, L.P.:
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
|
AMB Property Corporation
|
Yes o No þ | |||
|
AMB Property, L.P.
|
Yes o No þ |
As of April 28, 2010, there were 168,169,734 shares of
AMB Property Corporation’s common stock, $0.01 par
value per share, outstanding.
Table of Contents
EXPLANATORY
NOTE
This report combines the quarterly reports on
Form 10-Q
for the period ended March 31, 2010 of AMB Property
Corporation and AMB Property, L.P. Unless stated otherwise or
the context otherwise requires: references to “AMB Property
Corporation”, the “Parent Company” or the
“parent company” mean AMB Property Corporation, a
Maryland corporation, and its controlled subsidiaries; and
references to “AMB Property, L.P.”, the
“Operating Partnership” or the “operating
partnership” mean AMB Property, L.P., a Delaware limited
partnership, and its controlled subsidiaries. The terms
“the Company” and “the company” mean the
parent company, the operating partnership and their controlled
subsidiaries on a consolidated basis. In addition, references to
the company, the parent company or the operating partnership
could mean the entity itself or one or a number of their
controlled subsidiaries.
The parent company is a real estate investment trust and the
general partner of the operating partnership. As of
March 31, 2010, the parent company owned an approximate
97.8% general partnership interest in the operating partnership,
excluding preferred units. The remaining approximate 2.2% common
limited partnership interests are owned by non-affiliated
investors and certain current and former directors and officers
of the parent company. As of March 31, 2010, the parent
company owned all of the preferred limited partnership units of
the operating partnership. As the sole general partner of the
operating partnership, the parent company has the full,
exclusive and complete responsibility for the operating
partnership’s
day-to-day
management and control.
The company believes combining the quarterly reports on
Form 10-Q
of the parent company and the operating partnership into this
single report results in the following benefits:
| • | enhancing investors’ understanding of the parent company and the operating partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; | |
| • | eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the company’s disclosure applies to both the parent company and the operating partnership; and | |
| • | creating time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
Management operates the parent company and the operating
partnership as one enterprise. The management of the parent
company consists of the same members as the management of the
operating partnership. These members are officers of the parent
company and employees of the operating partnership.
There are few differences between the parent company and the
operating partnership, which are reflected in the disclosure in
this report. The company believes it is important to understand
the differences between the parent company and the operating
partnership in the context of how the parent company and the
operating partnership operate as an interrelated consolidated
company. The parent company is a real estate investment trust,
whose only material asset is its ownership of partnership
interests of the operating partnership. As a result, the parent
company does not conduct business itself, other than acting as
the sole general partner of the operating partnership, issuing
public equity from time to time and guaranteeing certain debt of
the operating partnership. The parent company itself does not
hold any indebtedness but guarantees some of the secured and
unsecured debt of the operating partnership, as disclosed in
this report. The operating partnership holds substantially all
the assets of the company and holds the ownership interests in
the company’s joint ventures. The operating partnership
conducts the operations of the business and is structured as a
partnership with no publicly traded equity. Except for net
proceeds from public equity issuances by the parent company,
which are contributed to the operating partnership in exchange
for partnership units, the operating partnership generates the
capital required by the company’s business through the
operating partnership’s operations, by the operating
partnership’s direct or indirect incurrence of indebtedness
or through the issuance of partnership units of the operating
partnership or its subsidiaries.
Noncontrolling interests and stockholders’ equity and
partners’ capital are the main areas of difference between
the consolidated financial statements of the parent company and
those of the operating partnership. The common limited
partnership interests in the operating partnership are accounted
for as partners’ capital in the operating
partnership’s financial statements and as noncontrolling
interests in the parent company’s financial statements. The
noncontrolling interests in the operating partnership’s
financial statements include the interests of
Table of Contents
joint venture partners, and preferred limited partnership
unitholders and common limited partnership unitholders of AMB
Property II, L.P., a subsidiary of the operating partnership.
The noncontrolling interests in the parent company’s
financial statements include the same noncontrolling interests
at the operating partnership level and limited partnership
unitholders of the operating partnership. The differences
between stockholders’ equity and partners’ capital
result from the differences in the equity issued at the parent
company and operating partnership levels.
To help investors understand the significant differences between
the parent company and the operating partnership, this report
presents the following separate sections for each of the parent
company and the operating partnership:
| • | consolidated financial statements; | |
| • | the following notes to the consolidated financial statements: |
| • | Debt; | |
| • | Noncontrolling Interests; and | |
| • | Stockholders’ Equity of the Parent Company/Partners’ Capital of the Operating Partnership; and |
| • | Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
This report also includes separate Item 4. Controls and
Procedures sections and separate Exhibit 31 and
32 certifications for each of the parent company and the
operating partnership in order to establish that the Chief
Executive Officer and the Chief Financial Officer of each entity
have made the requisite certifications and that the parent
company and operating partnership are compliant with
Rule 13a-15
or
Rule 15d-15
of the Securities Exchange Act of 1934 and 18 U.S.C.
§ 1350.
In order to highlight the differences between the parent company
and the operating partnership, the separate sections in this
report for the parent company and the operating partnership
specifically refer to the parent company and the operating
partnership. In the sections that combine disclosure of the
parent company and the operating partnership, this report refers
to actions or holdings as being actions or holdings of the
company. Although the operating partnership is generally the
entity that directly or indirectly enters into contracts and
joint ventures and holds assets and debt, reference to the
company is appropriate because the business is one enterprise
and the parent company operates the business through the
operating partnership.
As general partner with control of the operating partnership,
the parent company consolidates the operating partnership for
financial reporting purposes, and the parent company does not
have significant assets other than its investment in the
operating partnership. Therefore, the assets and liabilities of
the parent company and the operating partnership are the same on
their respective financial statements. The separate discussions
of the parent company and the operating partnership in this
report should be read in conjunction with each other to
understand the results of the company on a consolidated basis
and how management operates the company.
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
INDEX
Table of Contents
PART I
| Item 1. | Financial Statements of AMB Property Corporation |
AMB
PROPERTY CORPORATION
As of March 31, 2010 and
December 31, 2009
|
March 31, |
December 31, |
|||||||
| 2010 | 2009 | |||||||
| (Unaudited, Dollars in thousands) | ||||||||
|
ASSETS
|
||||||||
|
Investments in real estate:
|
||||||||
|
Land
|
$ | 1,365,305 | $ | 1,317,461 | ||||
|
Land held for development
|
598,440 | 591,489 | ||||||
|
Buildings and improvements
|
4,624,494 | 4,439,313 | ||||||
|
Construction in progress
|
192,704 | 360,397 | ||||||
|
Total investments in properties
|
6,780,943 | 6,708,660 | ||||||
|
Accumulated depreciation and amortization
|
(1,156,998 | ) | (1,113,808 | ) | ||||
|
Net investments in properties
|
5,623,945 | 5,594,852 | ||||||
|
Investments in unconsolidated joint ventures
|
606,838 | 462,130 | ||||||
|
Properties held for sale or contribution, net
|
147,838 | 214,426 | ||||||
|
Net investments in real estate
|
6,378,621 | 6,271,408 | ||||||
|
Cash and cash equivalents
|
153,389 | 187,169 | ||||||
|
Restricted cash
|
21,949 | 18,908 | ||||||
|
Accounts receivable, net of allowance for doubtful accounts of
$11,466 and $11,715, respectively
|
142,393 | 155,958 | ||||||
|
Deferred financing costs, net
|
22,354 | 24,883 | ||||||
|
Other assets
|
190,765 | 183,632 | ||||||
|
Total assets
|
$ | 6,909,471 | $ | 6,841,958 | ||||
| LIABILITIES AND EQUITY | ||||||||
|
Liabilities:
|
||||||||
|
Debt:
|
||||||||
|
Secured debt
|
$ | 963,893 | $ | 1,096,554 | ||||
|
Unsecured senior debt
|
1,155,945 | 1,155,529 | ||||||
|
Unsecured credit facilities
|
715,998 | 477,630 | ||||||
|
Other debt
|
477,884 | 482,883 | ||||||
|
Total debt
|
3,313,720 | 3,212,596 | ||||||
|
Security deposits
|
52,263 | 53,283 | ||||||
|
Dividends payable
|
46,234 | 46,041 | ||||||
|
Accounts payable and other liabilities
|
246,159 | 238,718 | ||||||
|
Total liabilities
|
3,658,376 | 3,550,638 | ||||||
|
Commitments and contingencies (Note 14)
|
||||||||
|
Equity:
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Series L preferred stock, cumulative, redeemable,
$.01 par value, 2,300,000 shares authorized and
2,000,000 issued and outstanding, $50,000 liquidation preference
|
48,017 | 48,017 | ||||||
|
Series M preferred stock, cumulative, redeemable,
$.01 par value, 2,300,000 shares authorized and
2,300,000 issued and outstanding, $57,500 liquidation preference
|
55,187 | 55,187 | ||||||
|
Series O preferred stock, cumulative, redeemable,
$.01 par value, 3,000,000 shares authorized and
3,000,000 issued and outstanding, $75,000 liquidation preference
|
72,127 | 72,127 | ||||||
|
Series P preferred stock, cumulative, redeemable,
$.01 par value, 2,000,000 shares authorized and
2,000,000 issued and outstanding, $50,000 liquidation preference
|
48,081 | 48,081 | ||||||
|
Common stock, $.01 par value, 500,000,000 shares
authorized, 149,945,215 and 149,258,376 issued and outstanding,
respectively
|
1,496 | 1,489 | ||||||
|
Additional paid-in capital
|
2,705,104 | 2,740,307 | ||||||
|
Retained deficit
|
(33,111 | ) | (29,008 | ) | ||||
|
Accumulated other comprehensive income
|
2,709 | 3,816 | ||||||
|
Total stockholders’ equity
|
2,899,610 | 2,940,016 | ||||||
|
Noncontrolling interests:
|
||||||||
|
Joint venture partners
|
291,283 | 289,909 | ||||||
|
Limited partnership unitholders
|
60,202 | 61,395 | ||||||
|
Total noncontrolling interests
|
351,485 | 351,304 | ||||||
|
Total equity
|
3,251,095 | 3,291,320 | ||||||
|
Total liabilities and equity
|
$ | 6,909,471 | $ | 6,841,958 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
1
Table of Contents
AMB
PROPERTY CORPORATION
For the Three Months Ended March 31, 2010
and 2009
| 2010 | 2009 | |||||||
|
(Unaudited, Dollars in thousands, except share and |
||||||||
| per share amounts) | ||||||||
|
REVENUES
|
||||||||
|
Rental revenues
|
$ | 150,507 | $ | 151,724 | ||||
|
Private capital revenues
|
7,445 | 11,695 | ||||||
|
Total revenues
|
157,952 | 163,419 | ||||||
|
COSTS AND EXPENSES
|
||||||||
|
Property operating costs
|
(28,859 | ) | (30,046 | ) | ||||
|
Real estate taxes
|
(20,850 | ) | (19,342 | ) | ||||
|
Depreciation and amortization
|
(48,634 | ) | (42,125 | ) | ||||
|
General and administrative
|
(31,951 | ) | (31,313 | ) | ||||
|
Restructuring charges
|
(2,973 | ) | — | |||||
|
Fund costs
|
(314 | ) | (261 | ) | ||||
|
Real estate impairment losses
|
— | (175,887 | ) | |||||
|
Other (expenses) income
|
(1,191 | ) | 662 | |||||
|
Total costs and expenses
|
(134,772 | ) | (298,312 | ) | ||||
|
OTHER INCOME AND EXPENSES
|
||||||||
|
Development profits, net of taxes
|
4,803 | 33,286 | ||||||
|
Equity in earnings (losses) of unconsolidated joint ventures, net
|
3,875 | (34 | ) | |||||
|
Other income (expenses)
|
289 | (7,069 | ) | |||||
|
Interest expense, including amortization
|
(32,613 | ) | (32,799 | ) | ||||
|
Total other income and expenses, net
|
(23,646 | ) | (6,616 | ) | ||||
|
Loss from continuing operations
|
(466 | ) | (141,509 | ) | ||||
|
Discontinued operations:
|
||||||||
|
Loss attributable to discontinued operations
|
(154 | ) | (461 | ) | ||||
|
Gains from sale of real estate interests, net of taxes
|
— | 18,946 | ||||||
|
Total discontinued operations
|
(154 | ) | 18,485 | |||||
|
Net loss
|
(620 | ) | (123,024 | ) | ||||
|
Noncontrolling interests’ share of net (income) loss:
|
||||||||
|
Joint venture partners’ share of net loss
|
375 | 1,846 | ||||||
|
Joint venture partners’ and limited partnership
unitholders’ share of development profits
|
(106 | ) | (1,108 | ) | ||||
|
Preferred unitholders
|
— | (1,432 | ) | |||||
|
Limited partnership unitholders
|
200 | 5,320 | ||||||
|
Total noncontrolling interests’ share of net loss
|
469 | 4,626 | ||||||
|
Net loss atrributable to AMB Property Corporation
|
(151 | ) | (118,398 | ) | ||||
|
Preferred stock dividends
|
(3,952 | ) | (3,952 | ) | ||||
|
Allocation to participating securities
|
(344 | ) | (258 | ) | ||||
|
Net loss available to common stockholders
|
$ | (4,447 | ) | $ | (122,608 | ) | ||
|
Basic loss per common share attributable to common
stockholders
|
||||||||
|
Loss from continuing operations (after preferred stock dividends)
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common stockholders
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
|
Diluted loss per common share attributable to common
stockholders
|
||||||||
|
Loss from continuing operations (after preferred stock dividends)
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common stockholders
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
||||||||
|
Basic
|
148,666,418 | 98,915,587 | ||||||
|
Diluted
|
148,666,418 | 98,915,587 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
2
Table of Contents
AMB
PROPERTY CORPORATION
CONSOLIDATED STATEMENT OF EQUITY
For the Three Months Ended March 31, 2010
(Unaudited, Dollars in thousands)
CONSOLIDATED STATEMENT OF EQUITY
For the Three Months Ended March 31, 2010
(Unaudited, Dollars in thousands)
|
Accumulated |
||||||||||||||||||||||||||||||||
| Common Stock |
Additional |
Other |
||||||||||||||||||||||||||||||
|
Preferred |
Number |
Paid-in |
Retained |
Comprehensive |
Noncontrolling |
|||||||||||||||||||||||||||
| Stock | of Shares | Amount | Capital | Deficit | Income (Loss) | Interests | Total | |||||||||||||||||||||||||
|
Balance as of December 31, 2009
|
$ | 223,412 | 149,258,376 | $ | 1,489 | $ | 2,740,307 | $ | (29,008 | ) | $ | 3,816 | $ | 351,304 | $ | 3,291,320 | ||||||||||||||||
|
Net income (loss)
|
3,952 | — | — | — | (4,103 | ) | — | (469 | ) | |||||||||||||||||||||||
|
Unrealized gain on securities and derivatives
|
— | — | — | — | — | (1,700 | ) | — | ||||||||||||||||||||||||
|
Currency translation adjustment
|
— | — | — | — | — | 593 | — | |||||||||||||||||||||||||
|
Total comprehensive loss
|
(1,727 | ) | ||||||||||||||||||||||||||||||
|
Contributions
|
— | — | — | — | — | — | 3,769 | 3,769 | ||||||||||||||||||||||||
|
Distributions and allocations
|
— | — | — | — | — | — | (2,173 | ) | (2,173 | ) | ||||||||||||||||||||||
|
Stock-based compensation amortization and issuance of restricted
stock, net
|
— | 606,945 | 6 | 6,806 | — | — | — | 6,812 | ||||||||||||||||||||||||
|
Exercise of stock options
|
— | 79,894 | 1 | 1,547 | — | — | — | 1,548 | ||||||||||||||||||||||||
|
Forfeiture of restricted stock
|
— | — | — | (1,671 | ) | — | — | — | (1,671 | ) | ||||||||||||||||||||||
|
Dividends ($0.28 per share)
|
(3,952 | ) | — | — | (41,885 | ) | — | — | (946 | ) | (46,783 | ) | ||||||||||||||||||||
|
Balance as of March 31, 2010
|
$ | 223,412 | 149,945,215 | $ | 1,496 | $ | 2,705,104 | $ | (33,111 | ) | $ | 2,709 | $ | 351,485 | $ | 3,251,095 | ||||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
3
Table of Contents
AMB
PROPERTY CORPORATION
For the Three Months Ended March 31, 2010
and 2009
| 2010 | 2009 | |||||||
| (Unaudited, Dollars in thousands) | ||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$ | (620 | ) | $ | (123,024 | ) | ||
|
Adjustments to net loss:
|
||||||||
|
Straight-line rents and amortization of lease intangibles
|
(4,289 | ) | (3,392 | ) | ||||
|
Depreciation and amortization
|
48,634 | 42,125 | ||||||
|
Real estate impairment losses
|
— | 175,887 | ||||||
|
Foreign exchange losses
|
2,837 | 2,291 | ||||||
|
Stock-based compensation amortization
|
6,812 | 7,304 | ||||||
|
Equity in earnings of unconsolidated joint ventures
|
(3,875 | ) | 34 | |||||
|
Operating distributions received from unconsolidated joint
ventures
|
5,316 | 2,952 | ||||||
|
Development profits, net of taxes
|
(4,803 | ) | (33,286 | ) | ||||
|
Debt premiums, discounts and finance cost amortization, net
|
3,341 | 3,092 | ||||||
|
Discontinued operations:
|
||||||||
|
Depreciation and amortization
|
26 | 1,334 | ||||||
|
Real estate impairment losses
|
— | 5,966 | ||||||
|
Gains from sale of real estate interests, net of taxes
|
— | (18,946 | ) | |||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable and other assets
|
(1,369 | ) | 4,577 | |||||
|
Accounts payable and other liabilities
|
18,055 | (5,089 | ) | |||||
|
Net cash provided by operating activities
|
70,065 | 61,825 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Change in restricted cash
|
(3,085 | ) | (3,311 | ) | ||||
|
Cash paid for property acquisitions
|
(160 | ) | — | |||||
|
Additions to land, buildings, development costs, building
improvements and lease costs
|
(53,361 | ) | (142,819 | ) | ||||
|
Net proceeds from divestiture of real estate and securities
|
22,408 | 173,426 | ||||||
|
Additions to interests in unconsolidated joint ventures
|
(153,211 | ) | (5,060 | ) | ||||
|
Purchase of noncontrolling interest
|
— | (8,968 | ) | |||||
|
Capital distributions received from unconsolidated joint ventures
|
— | 1,977 | ||||||
|
Repayments from affiliates
|
4,157 | — | ||||||
|
Net cash (used in) provided by investing activities
|
(183,252 | ) | 15,245 | |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Issuance of common stock, net
|
— | 552,501 | ||||||
|
Proceeds from stock option exercises
|
1,548 | — | ||||||
|
Borrowings on secured debt
|
4,903 | 14,010 | ||||||
|
Payments on secured debt
|
(134,070 | ) | (8,070 | ) | ||||
|
Borrowings on other debt
|
4,300 | — | ||||||
|
Payments on other debt
|
(4,183 | ) | (212 | ) | ||||
|
Borrowings on unsecured credit facilities
|
308,252 | 200,210 | ||||||
|
Payments on unsecured credit facilities
|
(67,443 | ) | (698,242 | ) | ||||
|
Payment of financing fees
|
(431 | ) | (2,365 | ) | ||||
|
Payments on senior debt
|
— | (100,000 | ) | |||||
|
Contributions from joint venture partners
|
3,509 | 2,606 | ||||||
|
Dividends paid to common and preferred stockholders
|
(45,644 | ) | (2,475 | ) | ||||
|
Distributions to noncontrolling interests, including preferred
units
|
(3,361 | ) | (3,595 | ) | ||||
|
Net cash provided by (used in) financing activities
|
67,380 | (45,632 | ) | |||||
|
Net effect of exchange rate changes on cash
|
12,027 | 7,629 | ||||||
|
Net (decrease) increase in cash and cash equivalents
|
(33,780 | ) | 39,067 | |||||
|
Cash and cash equivalents at beginning of period
|
187,169 | 223,936 | ||||||
|
Cash and cash equivalents at end of period
|
$ | 153,389 | $ | 263,003 | ||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
|
Cash paid for interest, net of capitalized interest
|
$ | 15,994 | $ | 24,798 | ||||
|
Non-cash transactions:
|
||||||||
|
Contribution of properties to unconsolidated joint ventures, net
|
$ | — | $ | 8,879 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
4
Table of Contents
AMB
PROPERTY, L.P.
As of March 31, 2010 and
December 31, 2009
|
March 31, |
December 31, |
|||||||
| 2010 | 2009 | |||||||
| (Unaudited, Dollars in thousands) | ||||||||
|
ASSETS
|
||||||||
|
Investments in real estate:
|
||||||||
|
Land
|
$ | 1,365,305 | $ | 1,317,461 | ||||
|
Land held for development
|
598,440 | 591,489 | ||||||
|
Buildings and improvements
|
4,624,494 | 4,439,313 | ||||||
|
Construction in progress
|
192,704 | 360,397 | ||||||
|
Total investments in properties
|
6,780,943 | 6,708,660 | ||||||
|
Accumulated depreciation and amortization
|
(1,156,998 | ) | (1,113,808 | ) | ||||
|
Net investments in properties
|
5,623,945 | 5,594,852 | ||||||
|
Investments in unconsolidated joint ventures
|
606,838 | 462,130 | ||||||
|
Properties held for sale or contribution, net
|
147,838 | 214,426 | ||||||
|
Net investments in real estate
|
6,378,621 | 6,271,408 | ||||||
|
Cash and cash equivalents
|
153,389 | 187,169 | ||||||
|
Restricted cash
|
21,949 | 18,908 | ||||||
|
Accounts receivable, net of allowance for doubtful accounts of
$11,466 and $11,715, respectively
|
142,393 | 155,958 | ||||||
|
Deferred financing costs, net
|
22,354 | 24,883 | ||||||
|
Other assets
|
190,765 | 183,632 | ||||||
|
Total assets
|
$ | 6,909,471 | $ | 6,841,958 | ||||
| LIABILITIES AND CAPITAL | ||||||||
|
Liabilities:
|
||||||||
|
Debt:
|
||||||||
|
Secured debt
|
$ | 963,893 | $ | 1,096,554 | ||||
|
Unsecured senior debt
|
1,155,945 | 1,155,529 | ||||||
|
Unsecured credit facilities
|
715,998 | 477,630 | ||||||
|
Other debt
|
477,884 | 482,883 | ||||||
|
Total debt
|
3,313,720 | 3,212,596 | ||||||
|
Security deposits
|
52,263 | 53,283 | ||||||
|
Distributions payable
|
46,234 | 46,041 | ||||||
|
Accounts payable and other liabilities
|
246,159 | 238,718 | ||||||
|
Total liabilities
|
3,658,376 | 3,550,638 | ||||||
|
Commitments and contingencies (Note 14)
|
||||||||
|
Capital:
|
||||||||
|
Partners’ capital:
|
||||||||
|
General partner, 149,715,804 and 149,028,965 units
outstanding, respectively; 2,000,000 Series L preferred
units issued and outstanding with a $50,000 liquidation
preference, 2,300,000 Series M preferred units issued and
outstanding with a $57,500 liquidation preference, 3,000,000
Series O preferred units issued and outstanding with a
$75,000 liquidation preference and 2,000,000 Series P
preferred units issued and outstanding with a $50,000
liquidation preference
|
2,899,610 | 2,940,016 | ||||||
|
Limited partners, 2,119,928 and 2,119,928 units
outstanding, respectively
|
37,802 | 38,561 | ||||||
|
Total partners’ capital
|
2,937,412 | 2,978,577 | ||||||
|
Noncontrolling interests:
|
||||||||
|
Joint venture partners
|
291,283 | 289,909 | ||||||
|
Class B limited partnership unitholders
|
22,400 | 22,834 | ||||||
|
Total noncontrolling interests
|
313,683 | 312,743 | ||||||
|
Total capital
|
3,251,095 | 3,291,320 | ||||||
|
Total liabilities and capital
|
$ | 6,909,471 | $ | 6,841,958 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
5
Table of Contents
AMB
PROPERTY, L.P.
For the Three Months Ended March 31, 2010 and
2009
| 2010 | 2009 | |||||||
|
(Unaudited, Dollars in thousands, except unit and |
||||||||
| per unit amounts) | ||||||||
|
REVENUES
|
||||||||
|
Rental revenues
|
$ | 150,507 | $ | 151,724 | ||||
|
Private capital revenues
|
7,445 | 11,695 | ||||||
|
Total revenues
|
157,952 | 163,419 | ||||||
|
COSTS AND EXPENSES
|
||||||||
|
Property operating expenses
|
(28,859 | ) | (30,046 | ) | ||||
|
Real estate taxes
|
(20,850 | ) | (19,342 | ) | ||||
|
Depreciation and amortization
|
(48,634 | ) | (42,125 | ) | ||||
|
General and administrative
|
(31,951 | ) | (31,313 | ) | ||||
|
Restructuring charges
|
(2,973 | ) | — | |||||
|
Fund costs
|
(314 | ) | (261 | ) | ||||
|
Real estate impairment losses
|
— | (175,887 | ) | |||||
|
Other (expenses) income
|
(1,191 | ) | 662 | |||||
|
Total costs and expenses
|
(134,772 | ) | (298,312 | ) | ||||
|
OTHER INCOME AND EXPENSES
|
||||||||
|
Development profits, net of taxes
|
4,803 | 33,286 | ||||||
|
Equity in earnings of unconsolidated joint ventures, net
|
3,875 | (34 | ) | |||||
|
Other income (expenses)
|
289 | (7,069 | ) | |||||
|
Interest expense, including amortization
|
(32,613 | ) | (32,799 | ) | ||||
|
Total other income and expenses, net
|
(23,646 | ) | (6,616 | ) | ||||
|
Loss from continuing operations
|
(466 | ) | (141,509 | ) | ||||
|
Discontinued operations:
|
||||||||
|
Loss attributable to discontinued operations
|
(154 | ) | (461 | ) | ||||
|
Gains from sale of real estate interests, net of taxes
|
— | 18,946 | ||||||
|
Total discontinued operations
|
(154 | ) | 18,485 | |||||
|
Net loss
|
(620 | ) | (123,024 | ) | ||||
|
Noncontrolling interests’ share of net (income) loss:
|
||||||||
|
Joint venture partners’ share of net loss
|
375 | 1,846 | ||||||
|
Joint venture partners’ and Class B limited
partnership unitholders’
|
||||||||
|
share of development profits
|
(39 | ) | (406 | ) | ||||
|
Preferred unitholders
|
— | (1,432 | ) | |||||
|
Class B limited partnership unitholders
|
74 | 1,948 | ||||||
|
Total noncontrolling interests’ share of net loss
|
410 | 1,956 | ||||||
|
Net loss attributable to AMB Property, L.P.
|
(210 | ) | (121,068 | ) | ||||
|
Series L, M, O and P preferred unit distributions
|
(3,952 | ) | (3,952 | ) | ||||
|
Allocation to participating securities
|
(344 | ) | (258 | ) | ||||
|
Net loss available to common unitholders
|
$ | (4,506 | ) | $ | (125,278 | ) | ||
|
Loss available to common unitholders attributable to:
|
||||||||
|
General partner
|
$ | (4,447 | ) | $ | (122,608 | ) | ||
|
Limited partners
|
(59 | ) | (2,670 | ) | ||||
|
Net loss available to common unitholders
|
$ | (4,506 | ) | $ | (125,278 | ) | ||
|
Basic loss per common unit attributable to common
unitholders
|
||||||||
|
Loss from continuing operations (after preferred unit
distributions)
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common unitholders
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
|
Diluted loss per common unit attributable to common
unitholders
|
||||||||
|
Loss from continuing operations (after preferred unit
distributions)
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common unitholders
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
|
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
|
||||||||
|
Basic
|
150,786,346 | 101,093,862 | ||||||
|
Diluted
|
150,786,346 | 101,093,862 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
6
Table of Contents
AMB
PROPERTY, L.P.
CONSOLIDATED STATEMENT OF CAPITAL
For the Three Months Ended March 31, 2010
(Unaudited, Dollars in thousands)
CONSOLIDATED STATEMENT OF CAPITAL
For the Three Months Ended March 31, 2010
(Unaudited, Dollars in thousands)
| General Partner | Limited Partners | |||||||||||||||||||||||||||||||
| Preferred Units | Common Units | Common Units |
Noncontrolling |
|||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Interests | Total | |||||||||||||||||||||||||
|
Balance as of December 31, 2009
|
9,300,000 | $ | 223,412 | 149,028,965 | $ | 2,716,604 | 2,119,928 | $ | 38,561 | $ | 312,743 | $ | 3,291,320 | |||||||||||||||||||
|
Net (loss) income
|
— | 3,952 | — | (4,103 | ) | — | (59 | ) | (410 | ) | ||||||||||||||||||||||
|
Unrealized gain on securities and derivatives
|
— | — | — | (1,700 | ) | — | — | — | ||||||||||||||||||||||||
|
Currency translation adjustment
|
— | — | — | 593 | — | — | — | |||||||||||||||||||||||||
|
Total comprehensive loss
|
(1,727 | ) | ||||||||||||||||||||||||||||||
|
Contributions
|
— | — | — | — | — | — | 3,769 | 3,769 | ||||||||||||||||||||||||
|
Distributions and allocations
|
— | — | — | — | — | (106 | ) | (2,067 | ) | (2,173 | ) | |||||||||||||||||||||
|
Stock-based compensation amortization and issuance of common
limited partnership units in connection with the issuance of
restricted stock and options
|
— | — | 606,945 | 6,812 | — | — | — | 6,812 | ||||||||||||||||||||||||
|
Issuance of common limited partnership units in connection with
the exercise of stock options
|
— | — | 79,894 | 1,548 | — | — | — | 1,548 | ||||||||||||||||||||||||
|
Forfeiture of common limited partnership units in connection
with the forfeiture of restricted stock
|
— | — | — | (1,671 | ) | — | — | — | (1,671 | ) | ||||||||||||||||||||||
|
Distributions ($0.28 per unit)
|
— | (3,952 | ) | — | (41,885 | ) | — | (594 | ) | (352 | ) | (46,783 | ) | |||||||||||||||||||
|
Balance as of March 31, 2010
|
9,300,000 | $ | 223,412 | 149,715,804 | $ | 2,676,198 | 2,119,928 | $ | 37,802 | $ | 313,683 | $ | 3,251,095 | |||||||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
7
Table of Contents
AMB
PROPERTY, L.P.
For the Three Months Ended March 31, 2010 and
2009
| 2010 | 2009 | |||||||
| (Unaudited, Dollars in thousands) | ||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$ | (620 | ) | $ | (123,024 | ) | ||
|
Adjustments to net loss:
|
||||||||
|
Straight-line rents and amortization of lease intangibles
|
(4,289 | ) | (3,392 | ) | ||||
|
Depreciation and amortization
|
48,634 | 42,125 | ||||||
|
Real estate impairment losses
|
— | 175,887 | ||||||
|
Foreign exchange losses
|
2,837 | 2,291 | ||||||
|
Stock-based compensation amortization
|
6,812 | 7,304 | ||||||
|
Equity in earnings of unconsolidated joint ventures
|
(3,875 | ) | 34 | |||||
|
Operating distributions received from unconsolidated joint
ventures
|
5,316 | 2,952 | ||||||
|
Development profits, net of taxes
|
(4,803 | ) | (33,286 | ) | ||||
|
Debt premiums, discounts and finance cost amortization, net
|
3,341 | 3,092 | ||||||
|
Discontinued operations:
|
||||||||
|
Depreciation and amortization
|
26 | 1,334 | ||||||
|
Real estate impairment losses
|
— | 5,966 | ||||||
|
Gains from sale of real estate interests, net of taxes
|
— | (18,946 | ) | |||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable and other assets
|
(1,369 | ) | 4,577 | |||||
|
Accounts payable and other liabilities
|
18,055 | (5,089 | ) | |||||
|
Net cash provided by operating activities
|
70,065 | 61,825 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Change in restricted cash
|
(3,085 | ) | (3,311 | ) | ||||
|
Cash paid for property acquisitions
|
(160 | ) | — | |||||
|
Additions to land, buildings, development costs, building
improvements and lease costs
|
(53,361 | ) | (142,819 | ) | ||||
|
Net proceeds from divestiture of real estate and securities
|
22,408 | 173,426 | ||||||
|
Additions to interests in unconsolidated joint ventures
|
(153,211 | ) | (5,060 | ) | ||||
|
Purchase of noncontrolling interest
|
— | (8,968 | ) | |||||
|
Capital distributions received from unconsolidated joint ventures
|
— | 1,977 | ||||||
|
Repayments from affiliates
|
4,157 | — | ||||||
|
Net cash (used in) provided by investing activities
|
(183,252 | ) | 15,245 | |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Issuance of common units, net
|
— | 552,501 | ||||||
|
Proceeds from stock option exercises
|
1,548 | — | ||||||
|
Borrowings on secured debt
|
4,903 | 14,010 | ||||||
|
Payments on secured debt
|
(134,070 | ) | (8,070 | ) | ||||
|
Borrowings on other debt
|
4,300 | — | ||||||
|
Payments on other debt
|
(4,183 | ) | (212 | ) | ||||
|
Borrowings on unsecured credit facilities
|
308,252 | 200,210 | ||||||
|
Payments on unsecured credit facilities
|
(67,443 | ) | (698,242 | ) | ||||
|
Payment of financing fees
|
(431 | ) | (2,365 | ) | ||||
|
Payments on senior debt
|
— | (100,000 | ) | |||||
|
Contributions from joint venture partners
|
3,509 | 2,606 | ||||||
|
Distributions paid to partners
|
(46,238 | ) | (3,085 | ) | ||||
|
Distributions to noncontrolling interests, including preferred
units
|
(2,767 | ) | (2,985 | ) | ||||
|
Net cash provided by (used in) financing activities
|
67,380 | (45,632 | ) | |||||
|
Net effect of exchange rate changes on cash
|
12,027 | 7,629 | ||||||
|
Net (decrease) increase in cash and cash equivalents
|
(33,780 | ) | 39,067 | |||||
|
Cash and cash equivalents at beginning of period
|
187,169 | 223,936 | ||||||
|
Cash and cash equivalents at end of period
|
$ | 153,389 | $ | 263,003 | ||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
|
Cash paid for interest, net of capitalized interest
|
$ | 15,994 | $ | 24,798 | ||||
|
Non-cash transactions:
|
||||||||
|
Contribution of properties to unconsolidated joint ventures, net
|
$ | — | $ | 8,879 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
8
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
March 31, 2010
(Unaudited)
| 1. | Organization and Formation of the Parent Company and the Operating Partnership |
The Parent Company commenced operations as a fully integrated
real estate company effective with the completion of its initial
public offering on November 26, 1997. The Parent 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 Parent Company, through its controlling interest in
its subsidiary, the Operating Partnership, is engaged in the
ownership, acquisition, development and operation of industrial
properties in key distribution markets throughout the Americas,
Europe and Asia. Unless otherwise indicated, the notes to
consolidated financial statements apply to both the Parent
Company and the Operating Partnership.
The Company uses the terms “industrial properties” or
“industrial buildings” to describe the various types
of industrial properties in its portfolio and uses these terms
interchangeably with the following: logistics facilities,
centers or warehouses; distribution facilities, centers or
warehouses; High Throughput
Distribution®
(HTD®)
facilities; or any combination of these terms. The Company uses
the term “owned and managed” to describe assets in
which it has at least a 10% ownership interest, for which it is
the property or asset manager and which it currently intends to
hold long term. The Company uses the term “joint
venture” to describe all joint ventures, including
co-investment ventures with real estate developers, other real
estate operators, or institutional investors where the Company
may or may not have control, act as the manager
and/or
developer, earn asset management distributions or fees, or earn
incentive distributions or promote interests. In certain cases,
the Company might provide development, leasing, property
management
and/or
accounting services, for which it may receive compensation. The
Company uses the term “co-investment venture” to
describe joint ventures with institutional investors, managed by
the Company, from which the Company typically receives
acquisition fees for acquisitions, portfolio and asset
management distributions or fees, as well as incentive
distributions or promote interests.
As of March 31, 2010, the Parent Company owned an
approximate 97.8% general partnership interest in the Operating
Partnership, excluding preferred units. The remaining
approximate 2.2% common limited partnership interests are owned
by non-affiliated investors and certain current and former
directors and officers of the Parent Company. As the sole
general partner of the Operating Partnership, the Parent Company
has 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 interests. Certain properties are owned
by the Company through limited partnerships, limited liability
companies and other entities. The ownership of such properties
through such entities does not materially affect the
Company’s overall ownership interests in the properties.
Through the Operating Partnership, the Company enters into
co-investment ventures with institutional investors. These
co-investment ventures provide the Company with an additional
source of capital and income. As of March 31, 2010, the
Company had significant investments in three consolidated and
five unconsolidated
co-investment
ventures.
Effective January 1, 2010, the name of the Company’s
unconsolidated co-investment venture AMB Institutional
Alliance Fund III, L.P. was changed to AMB
U.S. Logistics Fund, L.P.
AMB Capital Partners, LLC, a Delaware limited liability company
(“AMB Capital Partners”), provides real estate
investment services to clients on a fee basis. Headlands Realty
Corporation, a Maryland corporation, conducts a variety of
businesses that includes development projects available for sale
or contribution to third parties and incremental income
programs. IMD Holding Corporation, a Delaware corporation,
conducts a variety of businesses that also includes development
projects available for sale or contribution to third parties.
AMB Capital
9
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Partners, Headlands Realty Corporation and IMD Holding
Corporation are direct subsidiaries of the Operating Partnership.
As of March 31, 2010, the Company owned or had investments
in, on a consolidated basis or through unconsolidated
co-investment ventures, properties and development projects
expected to total approximately 155.7 million square feet
(14.5 million square meters) in 48 markets within 15
countries.
Of the approximately 155.7 million square feet as of
March 31, 2010:
| • | on an owned and managed basis, which includes investments held on a consolidated basis or through unconsolidated joint ventures, the Company owned or partially owned approximately 134.8 million square feet (principally, warehouse distribution buildings) that were 90.5% leased; the Company had investments in nine development projects, which are expected to total approximately 3.7 million square feet upon completion; and the Company owned 34 projects, totaling approximately 9.7 million square feet, which are available for sale or contribution; | |
| • | through non-managed unconsolidated joint ventures, the Company had investments in 46 industrial operating buildings, totaling approximately 7.4 million square feet; and | |
| • | the Company held approximately 152,000 square feet through a ground lease, which is the location of the Company’s global headquarters. |
| 2. | Interim Financial Statements |
These consolidated financial statements included herein have
been prepared pursuant to the rules and regulations of the
United States Securities and Exchange Commission (the
“SEC”). Accordingly, certain information and note
disclosures normally included in the annual financial statements
prepared in accordance with accounting principles generally
accepted in the United States (GAAP) have been condensed or
omitted.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments of a
normal, recurring nature, necessary for a fair statement of the
Company’s consolidated financial position and results of
operations for the interim periods presented. The interim
results for the three months ended March 31, 2010 are not
necessarily indicative of future results. These financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Annual Report
on
Form 10-K
for the Parent Company and the Operating Partnership for the
year ended December 31, 2009.
Reclassifications. Certain items in the
consolidated financial statements for prior periods have been
reclassified to conform to current classifications.
Real Estate Impairment Losses and Restructuring
Charges. The Company conducts a comprehensive
review of all real estate asset classes in accordance with its
policy of accounting for the impairment or disposal of
long-lived assets, which indicates that asset values should be
analyzed whenever events or changes in circumstances indicate
that the carrying value of a property may not be fully
recoverable. The intended use of an asset, either held for sale
or held for the long term, can significantly impact how
impairment is measured. If an asset is intended to be held for
the long term, the impairment analysis is based on a two-step
test. The first test measures estimated expected future cash
flows over the holding period, including a residual value
(undiscounted and without interest charges), against the
carrying value of the property. If the asset fails the test,
then the asset carrying value is measured against the estimated
fair value from a market participant standpoint, with the excess
of the asset’s carrying value over the estimated fair value
recognized as an impairment charge to earnings. If an asset is
intended to be sold, impairment is tested based on a one-step
test, comparing the carrying value to the estimated fair value
less costs to sell. The estimation of expected future net cash
flows is inherently uncertain and relies on assumptions
regarding current and future economic and market conditions and
the availability of capital. The Company determines the
estimated fair values based on assumptions regarding rental
rates, costs to complete,
lease-up and
holding periods, as well as sales prices or contribution values.
The Company also utilizes the knowledge of its
10
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
regional teams and the recent valuations of its two open-ended
funds, which contain a large, geographically diversified pool of
assets, all of which are subject to third-party appraisals on at
least an annual basis. During the three months ended
March 31, 2010, the Company did not recognize any real
estate impairment losses. The Company recognized real estate
impairment losses of $181.9 million during the three months
ended March 31, 2009 on certain of its investments. These
real estate impairment losses did not impact the Company’s
liquidity, cost and availability of credit or affect the
Operating Partnership’s continued compliance with its
various financial covenants under its credit facilities and
unsecured bonds.
The Company recognized restructuring charges of approximately
$3.0 million in the three months ended March 31, 2010
associated with severance and the termination of certain
contractual obligations. The majority of the restructuring
charges were cash-related expenses. The Company did not
recognize any restructuring charges for the three months ended
March 31, 2009.
Investments in Consolidated and Unconsolidated Joint
Ventures. The Company holds interests in both
consolidated and unconsolidated joint ventures. The Company
consolidates joint ventures where it exhibits financial or
operational control. Control is determined using accounting
standards related to the consolidation of joint ventures and
variable interest entities. For joint ventures that are defined
as variable interest entities, the primary beneficiary
consolidates the entity. In instances where the Company is not
the primary beneficiary, it does not consolidate the joint
venture for financial reporting purposes. For joint ventures
that are not defined as variable interest entities, management
first considers whether the Company is the general partner or a
limited partner (or the equivalent in such investments which are
not structured as partnerships). The Company consolidates joint
ventures where it is the general partner (or the equivalent) and
the limited partners (or the equivalent) in such investments do
not have rights which would preclude control and, therefore,
consolidation for financial reporting purposes. For joint
ventures where the Company is the general partner (or the
equivalent), but does not control the joint venture as the other
partners (or the equivalent) hold substantive participating
rights, the Company uses the equity method of accounting. For
joint ventures where the Company is a limited partner (or the
equivalent), management considers factors such as ownership
interest, voting control, authority to make decisions, and
contractual and substantive participating rights of the partners
(or the equivalent) to determine if the presumption that the
general partner controls the entity is overcome. In instances
where these factors indicate the Company controls the joint
venture, the Company consolidates the joint venture; otherwise
it uses the equity method of accounting.
Under the equity method, investments in unconsolidated joint
ventures are initially recognized in the balance sheet at cost
and are subsequently adjusted to reflect the Company’s
proportionate share of net earnings or losses of the joint
venture, distributions received, contributions, deferred gains
from the contribution of properties and certain other
adjustments, as appropriate. When circumstances indicate there
may have been a loss in value of an equity investment, the
Company evaluates the investment for impairment by estimating
the Company’s ability to recover its investment or if the
loss in value is other than temporary. To evaluate whether an
impairment is other than temporary, the Company considers
relevant factors, including, but not limited to, the period of
time in any unrealized loss position, the likelihood of a future
recovery, and the Company’s positive intent and ability to
hold the investment until the forecasted recovery. If the
Company determines the loss in value is other than temporary,
the Company recognizes an impairment charge to reflect the
investment at fair value. Fair value is determined through
various valuation techniques, including, but not limited to,
discounted cash flow models, quoted market values and third
party appraisals. At March 31, 2010, the fair value of the
investment in AMB U.S. Logistics Fund L.P. was less
than the carrying value of the investment due to the fair value
of the underlying properties being below the book value. No
impairment charge was recognized for the three months ended
March 31, 2010 because the Company deemed the impairment to
be temporary. However, the Company’s analysis is an ongoing
process and there can be no assurance that the Company will not
recognize such impairment charges in the future.
Fair Value of Financial Instruments. Effective
April 1, 2009, the Financial Accounting Standards Board
(FASB) issued guidance which the Company has adopted regarding
the evaluation of the fair value of financial instruments for
interim reporting periods as well as in annual financial
statements. Due to their short-term nature,
11
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the estimated fair value for cash and cash equivalents,
restricted cash, accounts receivable, dividends payable, and
accounts payable and other liabilities approximate their book
value. Based on borrowing rates available to the Company at
March 31, 2010, the book value and the estimated fair value
of total debt (both secured and unsecured) were both
$3.3 billion. The estimated fair value of Deferred
Financing Costs approximates its book value. Refer to
Note 15, Derivatives and Hedging Activities for
their related fair value disclosures.
In September 2006, the FASB issued guidance, updated in October
2009 for interim periods beginning after December 15, 2009,
related to accounting for fair value measurements which defines
fair value and establishes a framework for measuring fair value
in order to meet disclosure requirements for fair value
measurements. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market
participants on the measurement date. This guidance also
establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. This hierarchy
describes three levels of inputs that may be used to measure
fair value.
Financial assets and liabilities recorded at fair value on the
consolidated balance sheets are categorized based on the inputs
to the valuation techniques as follows:
Level 1. Quoted prices in active markets
for identical assets or liabilities. Level 1 assets and
liabilities include debt and equity securities and derivative
contracts that are traded in an active exchange market.
Level 2. Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities. Level 2 assets and liabilities
include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments and derivative
contracts whose value is determined using a pricing model with
inputs that are observable in the market or can be derived
principally from or corroborated by observable market data.
Level 3. Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value
requires significant management judgment or estimation using
unobservable inputs. This category generally includes long-term
derivative contracts, real estate and unconsolidated joint
ventures.
Fair
Value Measurements on a Recurring or Nonrecurring Basis as of
March 31, 2010
(Dollars in thousands)
(Dollars in thousands)
|
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||||
|
Assets/Liabilities |
Assets/Liabilities |
Assets/Liabilities |
||||||||||||||||||
| at Fair Value | at Fair Value | at Fair Value | Total | |||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Investments in real estate(1)
|
$ | — | $ | — | $ | 189,196 | $ | 189,196 | ||||||||||||
|
Deferred compensation plan
|
19,199 | — | — | 19,199 | ||||||||||||||||
|
Derivative assets
|
— | 52 | — | 52 | ||||||||||||||||
|
Investment securities
|
1,952 | — | — | 1,952 | ||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Derivative liabilities
|
$ | — | $ | 2,267 | $ | — | $ | 2,267 | ||||||||||||
|
Deferred compensation plan
|
19,199 | — | — | 19,199 | ||||||||||||||||
12
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Fair
Value Measurements on a Recurring or Nonrecurring Basis as of
December 31, 2009
(Dollars in thousands)
(Dollars in thousands)
|
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||||
|
Assets/Liabilities |
Assets/Liabilities |
Assets/Liabilities |
||||||||||||||||||
| at Fair Value | at Fair Value | at Fair Value | Total | |||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Investments in real estate(1)
|
$ | — | $ | — | $ | 202,067 | $ | 202,067 | ||||||||||||
|
Deferred compensation plan
|
22,905 | — | — | 22,905 | ||||||||||||||||
|
Derivative assets
|
— | 1,553 | — | 1,553 | ||||||||||||||||
|
Investment securities
|
2,242 | — | — | 2,242 | ||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Derivative liabilities
|
$ | — | $ | 2,012 | $ | — | $ | 2,012 | ||||||||||||
|
Deferred compensation plan
|
22,905 | — | — | 22,905 | ||||||||||||||||
| (1) | Represents certain real estate assets on a consolidated basis that are marked to their fair values at March 31, 2010, as a result of real estate impairment losses, net of recoveries in value. |
New Accounting Pronouncements. In June 2009,
the FASB issued amended guidance related to the consolidation of
variable-interest entities. These amendments require an
enterprise to qualitatively assess the determination of the
primary beneficiary of a variable interest entity
(“VIE”) based on whether the entity (1) has the
power to direct matters that most significantly impact the
activities of the VIE, and (2) has the obligation to absorb
losses or the right to receive benefits of the VIE that could
potentially be significant to the VIE. Additionally, they
require an ongoing reconsideration of the primary beneficiary
and provide a framework for the events that trigger a
reassessment of whether an entity is a VIE. This guidance is
effective for financial statements issued for fiscal years
beginning after November 15, 2009, and the Company has
adopted this guidance as of January 1, 2010. The Company
has evaluated the impact of the adoption of this guidance, and
it does not have a material impact on the Company’s
financial position, results of operations and cash flows.
| 3. | Real Estate Acquisition and Development Activity |
During the three months ended March 31, 2010 and 2009, the
Company did not acquire any properties.
As of March 31, 2010, the Company had nine
construction-in-progress
development projects, on an owned and managed basis, which are
expected to total approximately 3.7 million square feet and
have an aggregate estimated investment of $284.0 million
upon completion, net of $16.7 million of cumulative real
estate impairment losses to date. One of these projects totaling
approximately 0.6 million square feet with an aggregate
estimated investment of $66.4 million was held in an
unconsolidated co-investment venture.
Construction-in-progress,
at March 31, 2010, included projects expected to be
completed through the third quarter of 2011.
On a consolidated basis, as of March 31, 2010, the Company
had an additional 33 pre-stabilized development projects
totaling approximately 9.6 million square feet, with an
aggregate estimated investment of $930.6 million, net of
$80.3 million of cumulative real estate impairment losses
to date, and an aggregate gross book value of
$902.0 million, net of cumulative real estate impairment
losses.
On a consolidated basis, as of March 31, 2010, the Company
and its development joint venture partners had funded an
aggregate of $1.2 billion, or 96%, of the total estimated
investment before the impact of real estate impairment losses
and will need to fund an estimated additional
$51.7 million, or 4%, in order to complete the
Company’s development portfolio.
In addition to the Company’s committed
construction-in-progress,
it held a total of 2,393 acres of land for future
development or sale, on a consolidated basis, approximately 85%
of which was located in North America. The Company currently
estimates that these 2,393 acres of land could support
approximately 43.6 million square feet of future
development.
13
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Development Profits, Gains from Sale or Contribution of Real Estate Interests and Discontinued Operations |
Development Sales and Contributions. During
the three months ended March 31, 2010, the Company
recognized development profits of approximately
$4.8 million primarily as a result of the sale of
development projects to third-parties, aggregating approximately
0.3 million square feet for an aggregate sales price of
$22.9 million. This includes the installment sale of
approximately 0.2 million square feet for
$12.5 million with development profits of $3.9 million
recognized in the three months ended March 31, 2010, which
was initiated in the fourth quarter of 2009 and completed in the
first quarter of 2010. During the three months ended
March 31, 2009, the Company recognized development profits
of approximately $4.7 million as a result of the sale of
development projects and land parcels, aggregating approximately
0.5 million square feet and five acres, respectively.
During the three months ended March 31, 2010, the Company
did not contribute any development projects to unconsolidated
co-investment ventures. During the three months ended
March 31, 2009, the Company recognized development profits
of approximately $28.6 million, as a result of the
contribution of one completed development project, aggregating
approximately 1.0 million square feet, to AMB Japan
Fund I, L.P.
Properties Held for Sale or Contribution,
Net. As of March 31, 2010, the Company held
for sale three properties with an aggregate net book value of
$7.6 million. These properties either are not in the
Company’s core markets, do not meet its current investment
objectives, or are included as part of its
development-for-sale
or value-added conversion programs. The sales of the properties
are subject to negotiation of acceptable terms and other
customary conditions. Properties held for sale are stated at the
lower of cost or estimated fair value less costs to sell. As of
December 31, 2009, the Company held for sale three
properties with an aggregate net book value of
$13.9 million.
As of March 31, 2010, the Company held for contribution to
co-investment ventures eight properties with an aggregate net
book value of $140.2 million, which, if contributed, will
reduce the Company’s average ownership interest in these
projects from approximately 95% to an expected range of less
than 40%. As of December 31, 2009, the Company held for
contribution to co-investment ventures 11 properties with an
aggregate net book value of $200.5 million.
As of March 31, 2010, properties with an aggregate net book
value of $53.1 million were reclassified from held for
contribution to investments in real estate as a result of the
change in management’s intent to hold these assets. These
properties may be reclassified as properties held for sale or
held for contribution at some future time. In accordance with
the Company’s policies of accounting for the impairment or
disposal of long-lived assets, during the three months ended
March 31, 2010, the Company recognized $1.2 million
additional depreciation expense and related accumulated
depreciation as a result of the reclassification of assets from
properties held for sale or contribution to investments in real
estate. During the three months ended March 31, 2009, the
Company recognized additional depreciation expense and related
accumulated depreciation of $3.2 million as a result of
similar reclassifications, as well as impairment charges of
$55.8 million on real estate assets held for sale or
contribution for which it was determined that the carrying value
was greater than the estimated fair value.
Discontinued Operations. The Company reports
its property sales as discontinued operations separately as
prescribed under its policy of accounting for the impairment or
disposal of long-lived assets. During the three months ended
March 31, 2010, the Company did not sell any industrial
operating properties. During the three months ended
March 31, 2009, the Company sold approximately
0.7 million square feet of industrial operating properties
for a sale price of $58.4 million, with a resulting gain of
$19.1 million. These gains are presented in gains from sale
of real estate interests, net of taxes, as discontinued
operations in the consolidated statements of operations.
14
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following summarizes the condensed results of discontinued
operations, net of noncontrolling interests (dollars in
thousands):
|
For the Three Months |
||||||||
| Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Rental revenues
|
$ | 14 | $ | 8,121 | ||||
|
Straight-line rents and amortization of lease intangibles
|
8 | 184 | ||||||
|
Property operating expenses
|
(72 | ) | (993 | ) | ||||
|
Real estate taxes
|
(76 | ) | (916 | ) | ||||
|
Depreciation and amortization
|
(26 | ) | (1,334 | ) | ||||
|
Real estate impairment losses
|
— | (5,966 | ) | |||||
|
Other income and (expenses), net
|
(2 | ) | 443 | |||||
|
Loss attributable to discontinued operations
|
(154 | ) | (461 | ) | ||||
|
Gains from sale of real estate interests, net of taxes
|
— | 18,946 | ||||||
|
Discontinued operations attributable to the Parent Company and
the Operating Partnership
|
$ | (154 | ) | $ | 18,485 | |||
|
Parent Company:
|
||||||||
|
Discontinued operations
|
$ | (154 | ) | $ | 18,485 | |||
|
Noncontrolling interests:
|
||||||||
|
Joint venture partners’ and limited partnership
unitholders’ share of income attributable to discontinued
operations
|
34 | (100 | ) | |||||
|
Joint venture partners’ and limited partnership
unitholders’ share of gains from sale of real estate
interests, net of taxes
|
— | (631 | ) | |||||
|
Discontinued operations attributable to the Parent Company
|
$ | (120 | ) | $ | 17,754 | |||
|
Operating Partnership:
|
||||||||
|
Discontinued operations
|
$ | (154 | ) | $ | 18,485 | |||
|
Noncontrolling interests:
|
||||||||
|
Joint venture partners’ and Class B limited
partnership unitholders’ share of income attributable to
discontinued operations
|
32 | (112 | ) | |||||
|
Joint venture partners’ and Class B limited
partnership unitholders’ share of gains from sale of real
estate interests, net of taxes
|
— | (231 | ) | |||||
|
Discontinued operations attributable to the Operating Partnership
|
$ | (122 | ) | $ | 18,142 | |||
The difference in income from discontinued operations, net of
noncontrolling interests, between the Parent Company and the
Operating Partnership is due to the inclusion of the Operating
Partnership’s common limited partnership unitholders as
noncontrolling interests in the Parent Company’s financial
statements.
15
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of March 31, 2010 and December 31, 2009, assets and
liabilities attributable to properties held for sale by the
Company consisted of the following (dollars in thousands):
|
March 31, |
December 31, |
|||||||
| 2010 | 2009 | |||||||
|
Accounts receivable, deferred financing costs and other assets
|
$ | 50 | $ | 53 | ||||
|
Secured debt
|
$ | — | $ | 1,979 | ||||
|
Accounts payable and other liabilities
|
$ | 52 | $ | 4,622 | ||||
| 5. | Debt of the Parent Company |
The Parent Company itself does not hold any indebtedness. All
debt is held directly or indirectly by the Operating
Partnership. The debt that is guaranteed by the Parent Company
is discussed below. Note 6 below entitled “Debt of the
Operating Partnership” should be read in conjunction with
this Note 5 for a discussion of the debt of the Operating
Partnership consolidated into the Parent Company’s
financial statements. In this Note 5, the “Parent
Company” refers only to AMB Property Corporation and not to
any of its subsidiaries.
Unsecured
Senior Debt Guarantees
The Parent Company guarantees the Operating Partnership’s
obligations with respect to its unsecured senior debt
securities. As of March 31, 2010, the Operating Partnership
had outstanding an aggregate of $1.2 billion in unsecured
senior debt securities, which bore a weighted average interest
rate of 6.4% and had an average term of 5.8 years. The
indenture for the senior debt securities contains limitations on
mergers or consolidations of the Parent Company.
Other
Debt Guarantees
The Parent Company guarantees certain of the Operating
Partnership’s other debt obligations related to its
$425.0 million multi-currency senior unsecured term loan
facility, which includes Euro and Yen tranches. Using the
exchange rates in effect on March 31, 2010, the facility
had an outstanding balance of approximately $412.6 million
in U.S. dollars, which bore a weighted average interest
rate of 3.9% and matures in October 2012.
Unsecured
Credit Facility Guarantees
The Parent Company is a guarantor of the Operating
Partnership’s obligations under its $550.0 million
(includes Euros, Yen, British pounds sterling or
U.S. dollar denominated borrowings) unsecured revolving
credit facility that had an original maturity of June 1,
2010. Subsequent to quarter end, the Operating Partnership
exercised its option to extend the maturity date to
June 2011. This extension is subject to certain conditions.
The Parent Company and the Operating Partnership guarantee the
obligations of AMB Japan Finance Y.K., a subsidiary of the
Operating Partnership, under a Yen-denominated unsecured
revolving credit facility, as well as the obligations of any
other entity in which the Operating Partnership directly or
indirectly owns an ownership interest and which is selected from
time to time to be a borrower under and pursuant to the credit
agreement. This credit facility has an initial borrowing limit
of 55.0 billion Yen, which, using the exchange rate in
effect on March 31, 2010, equaled approximately
$588.5 million U.S. dollars and bore a weighted
average interest rate of 0.68%. This facilty had an original
maturity date of June 22 2010. Subsequent to quarter end,
the Operating Partnership exercised its option to extend the
maturity date to June 2011. This extension is subject to
certain conditions.
The Parent Company and the Operating Partnership guarantee the
obligations for such subsidiaries and other entities controlled
by the Operating Partnership that are selected by the Operating
Partnership from time to time to be borrowers under and pursuant
to a $500.0 million unsecured revolving credit facility.
The Operating Partnership and certain of its wholly owned
subsidiaries, each acting as a borrower, and the Parent Company
and the Operating
16
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Partnership, as guarantors, entered into this credit facility,
which has an option to further increase the facility to
$750.0 million, to extend the maturity date to July 2012
and to allow for borrowing in Indian rupees.
The credit agreements related to the above facilities contain
limitations on the incurrence of liens and limitations on
mergers or consolidations of the Parent Company.
If the Operating Partnership is unable to refinance or extend
principal payments due at maturity or pay them with proceeds
from other capital transactions, then its cash flow may be
insufficient to pay its distributions to the Parent Company,
which will have, as a result, insufficient funds to pay cash
dividends to the Parent Company’s stockholders.
Furthermore, if prevailing interest rates 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, then the Operating Partnership’s
interest expense relating to that refinanced indebtedness would
increase. This increased interest expense of the Operating
Partnership would adversely affect its ability to pay its
distributions to the Parent Company, which will, in turn,
adversely affect the Parent Company’s ability to pay cash
dividends to its stockholders and the market price of the Parent
Company’s stock.
In the event that the Operating Partnership does not have
sufficient cash available through its operations or under its
lines of credit to continue operating its business as usual,
including making its distributions to the Parent Company, it may
need to find alternative ways to increase its liquidity. Such
alternatives may include, without limitation, decreasing the
Operating Partnership’s cash distribution to the Parent
Company and paying some of the Parent Company’s dividends
in stock rather than cash. In addition, the Parent Company may
issue equity in public or private transactions whether or not
with favorable pricing or on favorable terms and contribute the
proceeds of such issuances to the Operating Partnership for a
number of partnership units in the Operating Partnership equal
to the number of shares of Parent Company stock issued in the
applicable transaction.
| 6. | Debt of the Operating Partnership |
As of March 31, 2010 and December 31, 2009, debt of
the Operating Partnership consisted of the following (dollars in
thousands):
|
March 31, |
December 31, |
|||||||
| 2010 | 2009 | |||||||
|
Wholly owned secured debt, varying interest rates from 0.9% to
9.0%, due June 2010 to August 2013 (weighted average interest
rates of 4.8% and 3.5% at March 31, 2010 and
December 31, 2009, respectively)
|
$ | 210,429 | $ | 325,221 | ||||
|
Consolidated joint venture secured debt, varying interest rates
from 1.1% to 9.4%, due June 2010 to November 2022 (weighted
average interest rates of 4.9% and 4.9% at March 31, 2010
and December 31, 2009, respectively)
|
753,516 | 771,284 | ||||||
|
Unsecured senior debt securities, varying interest rates from
5.1% to 8.0%, due November 2010 to December 2019 (weighted
average interest rates of 6.4% and 6.4% at March 31, 2010
and December 31, 2009, respectively)
|
1,165,388 | 1,165,388 | ||||||
|
Other debt, varying interest rates from 1.3% to 7.5%, due May
2012 to November 2015 (weighted average interest rates of 4.1%
and 4.1% at March 31, 2010 and December 31, 2009,
respectively)
|
477,884 | 482,883 | ||||||
|
Unsecured credit facilities, variable interest rate, due June
2010 and July 2011 (weighted average interest rates of 0.8% and
0.8% at March 31, 2010 and December 31, 2009,
respectively)
|
715,998 | 477,630 | ||||||
|
Total debt before unamortized net discounts
|
3,323,215 | 3,222,406 | ||||||
|
Unamortized net discounts
|
(9,495 | ) | (9,810 | ) | ||||
|
Total consolidated debt
|
$ | 3,313,720 | $ | 3,212,596 | ||||
17
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Wholly
Owned and Consolidated Joint Venture Secured Debt
Secured debt generally requires monthly principal and interest
payments. Some of the loans are cross-collateralized by multiple
properties. The secured debt is collateralized by deeds of
trust, mortgages or other instruments on certain properties and
is generally non-recourse. As of March 31, 2010 and
December 31, 2009, the total gross investment book value of
those properties securing the debt was $1.9 billion and
$2.0 billion, respectively, including $1.5 billion
held in consolidated joint ventures as of both balance sheet
dates. As of March 31, 2010, $608.4 million of the
secured debt obligations before unamortized net discounts bore
interest at fixed rates (with a weighted average interest rate
of 6.4%), while the remaining $355.6 million bore interest
at variable rates (with a weighted average interest rate of
2.4%). As of March 31, 2010, $600.2 million of the
secured debt before unamortized net discounts was held by the
Operating Partnership’s co-investment ventures.
Unsecured
Senior Debt
As of March 31, 2010, the Operating Partnership had
outstanding an aggregate of $1.2 billion in unsecured
senior debt securities, which bore a weighted average interest
rate of 6.4% and had an average term of 5.8 years.
The Parent Company guarantees the Operating Partnership’s
obligations with respect to its unsecured senior debt
securities. The unsecured senior debt securities are subject to
various covenants of the Operating Partnership. These covenants
contain affirmative covenants, including compliance with
financial reporting requirements and maintenance of specified
financial ratios, and negative covenants, including limitations
on the incurrence of liens and limitations on mergers or
consolidations. The Operating Partnership was in compliance with
its financial covenants for all unsecured senior debt securities
at March 31, 2010.
Other
Debt
As of March 31, 2010, the Operating Partnership had
$477.9 million outstanding in other debt which bore a
weighted average interest rate of 4.1% and had an average term
of 2.6 years. Other debt includes a $70.0 million
credit facility obtained on August 24, 2007 by AMB
Institutional Alliance Fund II, L.P., a subsidiary of the
Operating Partnership, which had a $54.3 million balance
outstanding as of March 31, 2010. Of the
$423.6 million remaining outstanding balance of other debt,
$412.6 million is related to the loan facility described
below.
In October 2009, the Operating Partnership refinanced its
$325.0 million senior unsecured term loan facility, which
was set to mature in September 2010, with a $345.0 million
multi-currency facility, maturing October 2012. In December
2009, the Operating Partnership exercised its option and
increased the facility to $425.0 million, in accordance
with the terms set forth in the credit facility. Using the
exchange rates in effect on March 31, 2010, the facility
had an outstanding balance of approximately $412.6 million
in U.S. dollars, which bore a weighted average interest
rate of 3.9%. The Parent Company guarantees the Operating
Partnership’s obligations with respect to certain of its
unsecured debt. These covenants contain affirmative covenants,
including compliance with financial reporting requirements and
maintenance of specified financial ratios, and negative
covenants, including limitations on the incurrence of liens and
limitations on mergers or consolidations. The Operating
Partnership was in compliance with its financial covenants for
all other debt at March 31, 2010.
Unsecured
Credit Facilities
As of March 31, 2010, the Operating Partnership had three
credit facilities with total capacity of approximately
$1.6 billion.
The Operating Partnership has a $550.0 million (includes
Euros, Yen, British pounds sterling or U.S. dollar
denominated borrowings) unsecured revolving credit facility. The
Parent Company is a guarantor of the Operating
Partnership’s obligations under the credit facility. The
facility can be increased up to $700.0 million upon certain
conditions. The rate on the borrowings is generally LIBOR plus a
margin, which was 42.5 basis points as of March 31,
2010, based on the Operating Partnership’s long-term debt
rating, with an annual facility fee of 15.0 basis points.
If the
18
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Operating Partnership’s long-term debt ratings fall below
investment grade, the Operating Partnership will be unable to
request money market loans and borrowings in Euros, Yen or
British pounds sterling. The four-year credit facility includes
a multi-currency component, under which up to
$550.0 million can be drawn in Euros, Yen, British pounds
sterling or U.S. dollars. The Operating Partnership uses
the credit facility principally for acquisitions, funding
development activity and general working capital requirements.
As of March 31, 2010, the outstanding balance on this
credit facility was $93.0 million, which bore a weighted
average interest rate of 0.71%, and the remaining amount
available was $445.0 million, net of outstanding letters of
credit of $12.0 million, using the exchange rate in effect
on March 31, 2010. This facility had an original maturity
date of June 2010. Subsequent to quarter end, the Operating
Partnership exercised its option to extend the maturity date to
June 2011. This extension is subject to certain conditions.
AMB Japan Finance Y.K., a subsidiary of the Operating
Partnership, has a Yen-denominated unsecured revolving credit
facility with an initial borrowing limit of 55.0 billion
Yen, which, using the exchange rate in effect on March 31,
2010, equaled approximately $588.5 million
U.S. dollars and bore a weighted average interest rate of
0.68%. The Parent Company and the Operating Partnership
guarantee the obligations of AMB Japan Finance Y.K. under the
credit facility, as well as the obligations of any other entity
in which the Operating Partnership directly or indirectly owns
an ownership interest and which is selected from time to time to
be a borrower under and pursuant to the credit agreement. The
borrowers intend to use the proceeds from the facility to fund
the acquisition and development of properties and for other real
estate purposes in Japan, China and South Korea. Generally,
borrowers under the credit facility have the option to secure
all or a portion of the borrowings under the credit facility
with certain real estate assets or equity in entities holding
such real estate assets. The credit facility had an original
maturity date of June 2010. Subsequent to quarter end, the
Operating Partnership exercised its option to extend the
maturity date to June 2011. This extension is subject to
certain conditions. The rate on the borrowings is generally
TIBOR plus a margin, which was 42.5 basis points as of
March 31, 2010, based on the credit rating of the Operating
Partnership’s long-term debt. In addition, there is an
annual facility fee, payable quarterly, which is based on the
credit rating of the Operating Partnership’s long-term debt
and was 15.0 basis points of the outstanding commitments
under the facility as of March 31, 2010. As of
March 31, 2010, the outstanding balance on this credit
facility, using the exchange rate in effect on March 31,
2010, was $292.0 million, and the remaining amount
available was $296.5 million.
The Operating Partnership and certain of its wholly-owned
subsidiaries, each acting as a borrower, and the Parent Company
and the Operating Partnership, as guarantors, have a
$500.0 million unsecured revolving credit facility. The
Parent Company and the Operating Partnership guarantee the
obligations for such subsidiaries and other entities controlled
by the Operating Partnership that are selected by the Operating
Partnership from time to time to be borrowers under and pursuant
to the credit facility. Generally, borrowers under the credit
facility have the option to secure all or a portion of the
borrowings under the credit facility. The credit facility
includes a multi-currency component under which up to
$500.0 million can be drawn in U.S. dollars, Hong Kong
dollars, Singapore dollars, Canadian dollars, British pounds
sterling, and Euros with the ability to add Indian rupees. The
line, which matures in July 2011, carries a one-year
extension option, which the Operating Partnership may exercise
at its sole option so long as the Operating Partnership’s
long-term debt rating is investment grade, among other things,
and can be increased up to $750.0 million upon certain
conditions and the payment of an extension fee equal to 0.15% of
the outstanding commitments. The rate on the borrowings is
generally LIBOR plus a margin, which was 60.0 basis points
as of March 31, 2010, based on the credit rating of the
Operating Partnership’s senior unsecured long-term debt,
with an annual facility fee based on the credit rating of the
Operating Partnership’s senior unsecured long-term debt. If
the Operating Partnership’s long-term debt ratings fall
below current levels, its cost of debt will increase. If the
Operating Partnership’s long-term debt ratings fall below
investment grade, the Operating Partnership will be unable to
request borrowings in any currency other than U.S. dollars.
The borrowers intend to use the proceeds from the facility to
fund the acquisition and development of properties and general
working capital requirements. As of March 31, 2010, the
outstanding balance on this credit facility, using the exchange
rates in effect at March 31, 2010,
19
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
was approximately $331.0 million with a weighted average
interest rate of 0.86%, and the remaining amount available was
$169.0 million.
The above credit facilities contain affirmative covenants of the
Operating Partnership, including compliance with financial
reporting requirements and maintenance of specified financial
ratios, and negative covenants of the Operating Partnership,
including limitations on the incurrence of liens and limitations
on mergers or consolidations. The Operating Partnership was in
compliance with its financial covenants under each of these
credit agreements at March 31, 2010.
As of March 31, 2010, the Operating Partnership had
$153.4 million in cash and cash equivalents, held in
accounts managed by third party financial institutions,
consisting of invested cash and cash in the Operating
Partnership’s operating accounts. In addition, the
Operating Partnership had $910.5 million available for
future borrowings under its three multicurrency lines of credit
at March 31, 2010. In the event that the Operating
Partnership does not have sufficient cash available to it
through its operations or under its lines of credit to continue
operating its business as usual, the Operating Partnership may
need to find alternative ways to increase its liquidity. Such
alternatives may include, without limitation, divesting itself
of properties; issuing the Operating Partnership’s debt
securities; entering into leases with the Operating
Partnership’s customers at lower rental rates or less than
optimal terms; entering into lease renewals with its existing
customers without an increase or with a decrease in rental rates
at turnover; or the Parent Company issuing equity and
contributing the net proceeds to the Operating Partnership.
If the long-term debt ratings of the Operating Partnership fall
below current levels, the borrowing cost of debt under the
Operating Partnership’s unsecured credit facilities and
certain term loans will increase. In addition, if the long-term
debt ratings of the Operating Partnership fall below investment
grade, the Operating Partnership may be unable to request
borrowings in currencies other than U.S. dollars or
Japanese Yen, as applicable; however, the lack of other currency
borrowings does not affect the Operating Partnership’s
ability to fully draw down under the credit facilities or term
loans. The loss of its ability to borrow in currencies other
than U.S. dollars or Japanese Yen could affect its ability
to optimally hedge its borrowings against foreign currency
exchange rate changes.
As of March 31, 2010, the scheduled maturities and
principal payments of the Operating Partnership’s total
debt were as follows (dollars in thousands):
| Wholly Owned | Consolidated Joint Venture | ||||||||||||||||||||||||||||
| Unsecured |
Total |
||||||||||||||||||||||||||||
|
Senior |
Credit |
Other |
Secured |
Secured |
Other |
Consolidated |
|||||||||||||||||||||||
| Debt | Facilities(1) | Debt | Debt | Debt | Debt | Debt | |||||||||||||||||||||||
|
2010
|
$ | 65,000 | $ | 385,077 | $ | 1,591 | $ | 75,038 | $ | 66,406 | $ | — | $ | 593,112 | |||||||||||||||
|
2011
|
69,000 | 330,921 | 2,186 | 87,933 | 136,178 | — | 626,218 | ||||||||||||||||||||||
|
2012
|
— | — | 417,607 | 27,765 | 417,089 | 50,000 | 912,461 | ||||||||||||||||||||||
|
2013
|
293,897 | — | 920 | 19,693 | 50,026 | 4,300 | 368,836 | ||||||||||||||||||||||
|
2014
|
— | — | 616 | — | 9,811 | — | 10,427 | ||||||||||||||||||||||
|
2015
|
112,491 | — | 664 | — | 17,610 | — | 130,765 | ||||||||||||||||||||||
|
2016
|
250,000 | — | — | — | 16,231 | — | 266,231 | ||||||||||||||||||||||
|
2017
|
— | — | — | — | 1,272 | — | 1,272 | ||||||||||||||||||||||
|
2018
|
125,000 | — | — | — | 1,455 | — | 126,455 | ||||||||||||||||||||||
|
2019
|
250,000 | — | — | — | 29,910 | — | 279,910 | ||||||||||||||||||||||
|
Thereafter
|
— | — | — | — | 7,528 | — | 7,528 | ||||||||||||||||||||||
|
Subtotal
|
$ | 1,165,388 | $ | 715,998 | $ | 423,584 | $ | 210,429 | $ | 753,516 | $ | 54,300 | $ | 3,323,215 | |||||||||||||||
|
Unamortized net (discount) premium
|
(9,443 | ) | — | — | 182 | (234 | ) | — | (9,495 | ) | |||||||||||||||||||
|
Total
|
$ | 1,155,945 | $ | 715,998 | $ | 423,584 | $ | 210,611 | $ | 753,282 | $ | 54,300 | $ | 3,313,720 | |||||||||||||||
20
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (1) | Represents three credit facilities with total capacity of approximately $1.6 billion. Includes $297.5 million of U.S. dollar borrowings, as well as $292.0 million, $85.7 million, $15.5 million and $25.2 million in Yen, Canadian dollar, Euro and Singapore dollar-based borrowings outstanding at March 31, 2010, respectively, translated to U.S. dollars using the foreign exchange rates in effect on March 31, 2010. |
| 7. | Noncontrolling Interests in the Parent Company |
In this Note 7, the “Parent Company” refers only
to AMB Property Corporation and not to any of its subsidiaries.
Noncontrolling interests in the Parent Company’s financial
statements include the common limited partnership interests in
the Operating Partnership, common limited and preferred limited
partnership interests in AMB Property II, L.P., a Delaware
limited partnership and a subsidiary of the Operating
Partnership, and interests held by third party partners in joint
ventures. Such joint ventures hold approximately
21.0 million square feet and are consolidated for financial
reporting purposes.
The Parent Company’s consolidated joint ventures’
total investment and property debt at March 31, 2010 and
December 31, 2009 were as follows (dollars in thousands):
|
Parent |
Total Investment |
|||||||||||||||||||||||||||||
|
Company’s |
in Real Estate | Property Debt | Other Debt | |||||||||||||||||||||||||||
|
Co-investment |
Ownership |
March 31, |
December 31, |
March 31, |
December 31, |
March 31, |
December 31, |
|||||||||||||||||||||||
| Consolidated Joint Ventures | Venture Partner | Percentage | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
|
Co-investment Ventures
|
||||||||||||||||||||||||||||||
|
AMB Institutional Alliance Fund II, L.P.(1)
|
AMB Institutional Alliance REIT II, Inc. | 20 | % | $ | 514,810 | $ | 513,450 | $ | 189,405 | $ | 194,980 | $ | 54,300 | $ | 50,000 | |||||||||||||||
|
AMB-SGP, L.P.(2)
|
Industrial JV Pte. Ltd. | 50 | % | 474,246 | 470,740 | 334,417 | 335,764 | — | — | |||||||||||||||||||||
|
AMB-AMS,
L.P.(3)
|
PMT, SPW and TNO | 39 | % | 159,007 | 158,865 | 76,832 | 79,756 | — | — | |||||||||||||||||||||
|
Other Industrial Operating Joint Ventures
|
89 | % | 231,506 | 230,463 | 31,856 | 32,186 | — | — | ||||||||||||||||||||||
|
Other Industrial Development Joint Ventures
|
60 | % | 258,695 | 272,237 | 120,772 | 128,374 | — | — | ||||||||||||||||||||||
|
Total Consolidated Joint Ventures
|
$ | 1,638,264 | $ | 1,645,755 | $ | 753,282 | $ | 771,060 | $ | 54,300 | $ | 50,000 | ||||||||||||||||||
| (1) | AMB Institutional Alliance Fund II, L.P. is a co-investment partnership formed in 2001, comprised of 14 institutional investors, which invest through a private real estate investment trust, and one third-party limited partner as of March 31, 2010. | |
| (2) | AMB-SGP, L.P. is a co-investment partnership formed in 2001 with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation. | |
| (3) | AMB-AMS, L.P. is a co-investment partnership with three Dutch pension funds. PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO. |
21
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table reconciles the change in the Parent
Company’s noncontrolling interests for the three months
ended March 31, 2009 (dollars in thousands):
|
Balance as of December 31, 2008
|
$ | 451,097 | ||
|
Net loss
|
(4,626 | ) | ||
|
Contributions
|
2,606 | |||
|
Distributions and allocations
|
(6,617 | ) | ||
|
Redemption of partnership units
|
(71 | ) | ||
|
Repurchase of noncontrolling interest
|
(8,909 | ) | ||
|
Reallocation of partnership interest
|
(12,265 | ) | ||
|
Dividends ($0.28 per share)
|
(962 | ) | ||
|
Balance as of March 31, 2009
|
$ | 420,253 | ||
The following table details the noncontrolling interests of the
Parent Company as of March 31, 2010 and December 31,
2009 (dollars in thousands):
|
March 31, |
December 31, |
Redemption/Callable |
||||||||
| 2010 | 2009 | Date | ||||||||
|
Joint venture partners
|
$ | 291,283 | $ | 289,909 | N/A | |||||
|
Limited partners in the Operating Partnership
|
37,802 | 38,561 | N/A | |||||||
|
Held through AMB Property II, L.P.:
|
||||||||||
|
Class B limited partners
|
22,400 | 22,834 | N/A | |||||||
|
Total noncontrolling interests
|
$ | 351,485 | $ | 351,304 | ||||||
The following table distinguishes the Parent Company’s
noncontrolling interests’ share of net loss, including
noncontrolling interests’ share of development profits, for
the three months ended March 31, 2010 and 2009 (dollars in
thousands):
|
For the Three Months |
||||||||
| Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Joint venture partners’ share of net loss
|
$ | (375 | ) | $ | (1,846 | ) | ||
|
Joint venture partners’ and common limited partners’
share of development profits
|
67 | 702 | ||||||
|
Common limited partners in the Operating Partnership’s
share of net loss
|
(126 | ) | (3,372 | ) | ||||
|
Held through AMB Property II, L.P.:
|
||||||||
|
Class B common limited partnership units’ share of
development profits
|
39 | 406 | ||||||
|
Class B common limited partnership units’ share of net
loss
|
(74 | ) | (1,948 | ) | ||||
|
Series D preferred units (liquidation preference of
$79,767)(1)
|
— | 1,432 | ||||||
|
Total noncontrolling interests’ share of net loss
|
$ | (469 | ) | $ | (4,626 | ) | ||
| (1) | On November 10, 2009, the Parent Company purchased all 1,595,337 outstanding series D preferred units of AMB Property II, L.P. from a third party in exchange for 2,880,281 shares of its common stock at a discount of $9.8 million. The Operating Partnership issued 2,880,281 general partnership units to the Parent Company in exchange for the 1,595,337 series D preferred units the Parent Company purchased. |
22
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 8. | Noncontrolling Interests in the Operating Partnership |
Noncontrolling interests in the Operating Partnership represent
limited partnership interests in AMB Property II, L.P., a
Delaware limited partnership, and interests held by third party
partners in several real estate joint ventures, aggregating
approximately 21.0 million square feet, which are
consolidated for financial reporting purposes.
The Operating Partnership’s consolidated joint
ventures’ total investment and property debt at
March 31, 2010 and December 31, 2009 were as follows
(dollars in thousands):
|
Operating |
Total Investment |
|||||||||||||||||||||||||||||
|
Partnership’s |
in Real Estate | Property Debt | Other Debt | |||||||||||||||||||||||||||
|
Co-investment |
Ownership |
March 31, |
December 31, |
March 31, |
December 31, |
March 31, |
December 31, |
|||||||||||||||||||||||
| Consolidated Joint Ventures | Venture Partner | Percentage | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
|
Co-investment Ventures
|
||||||||||||||||||||||||||||||
|
AMB Institutional Alliance Fund II, L.P.
|
AMB Institutional Alliance REIT II, Inc. | 20 | % | $ | 514,810 | $ | 513,450 | $ | 189,405 | $ | 194,980 | $ | 54,300 | $ | 50,000 | |||||||||||||||
|
AMB-SGP, L.P.
|
Industrial JV Pte. Ltd. | 50 | % | 474,246 | 470,740 | 334,417 | 335,764 | — | — | |||||||||||||||||||||
|
AMB-AMS,
L.P.
|
PMT, SPW and TNO | 39 | % | 159,007 | 158,865 | 76,832 | 79,756 | — | — | |||||||||||||||||||||
|
Other Industrial Operating Joint Ventures
|
89 | % | 231,506 | 230,463 | 31,856 | 32,186 | — | — | ||||||||||||||||||||||
|
Other Industrial Development Joint Ventures
|
60 | % | 258,695 | 272,237 | 120,772 | 128,374 | — | — | ||||||||||||||||||||||
|
Total Consolidated Joint Ventures
|
$ | 1,638,264 | $ | 1,645,755 | $ | 753,282 | $ | 771,060 | $ | 54,300 | $ | 50,000 | ||||||||||||||||||
The following table reconciles the change in the Operating
Partnership’s noncontrolling interests for the three months
ended March 31, 2009 (dollars in thousands):
|
Balance as of December 31, 2008
|
$ | 400,266 | ||
|
Net loss
|
(1,956 | ) | ||
|
Contributions
|
2,606 | |||
|
Distributions and allocations
|
(6,618 | ) | ||
|
Contribution of a consolidated interest
|
||||
|
to an unconsolidated joint venture
|
(8,909 | ) | ||
|
Reallocation of partnership interest
|
(4,486 | ) | ||
|
Distributions ($0.28 per unit)
|
(352 | ) | ||
|
Balance as of March 31, 2009
|
$ | 380,551 | ||
The following table details the noncontrolling interests of the
Operating Partnership as of March 31, 2010 and
December 31, 2009 (dollars in thousands):
|
March 31, |
December 31, |
Redemption/Callable |
||||||||
| 2010 | 2009 | Date | ||||||||
|
Joint venture partners
|
$ | 291,283 | $ | 289,909 | N/A | |||||
|
Held through AMB Property II, L.P.:
|
||||||||||
|
Class B limited partners
|
22,400 | 22,834 | N/A | |||||||
|
Total noncontrolling interests
|
$ | 313,683 | $ | 312,743 | ||||||
23
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table distinguishes the Operating
Partnership’s noncontrolling interests’ share of net
loss, including noncontrolling interests’ share of
development profits, for the three months ended March 31,
2010 and 2009 (dollars in thousands):
|
For the Three Months |
||||||||
| Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Joint venture partners’ share of net loss
|
$ | (375 | ) | $ | (1,846 | ) | ||
|
Held through AMB Property II, L.P.:
|
||||||||
|
Class B common limited partnership units’ share of
development profits
|
39 | 406 | ||||||
|
Class B common limited partnership units’ share of net
loss
|
(74 | ) | (1,948 | ) | ||||
|
Series D preferred units (liquidation preference of
$79,767)(1)
|
— | 1,432 | ||||||
|
Total noncontrolling interests’ share of net loss
|
$ | (410 | ) | $ | (1,956 | ) | ||
| (1) | On November 10, 2009, the Parent Company purchased all 1,595,337 outstanding series D preferred units of AMB Property II, L.P. from a third party in exchange for 2,880,281 shares of its common stock at a discount of $9.8 million. The Operating Partnership issued 2,880,281 general partnership units to the Parent Company in exchange for the 1,595,337 series D preferred units the Parent Company purchased. |
The Operating Partnership has consolidated joint ventures that
have finite lives under the terms of the joint venture
agreements. As of March 31, 2010 and December 31,
2009, the aggregate book value of the joint venture
noncontrolling interests in the accompanying consolidated
balance sheets was approximately $291.3 million and
$289.9 million, respectively. The Operating Partnership
believes that the aggregate settlement value of these interests
was approximately $338.6 million at March 31, 2010 and
$336.8 million at December 31, 2009. However, there
can be no assurance that these amounts will be the aggregate
settlement value of the interests. The aggregate settlement
value is based on the estimated liquidation values of the assets
and liabilities and the resulting proceeds that the Operating
Partnership would distribute to its joint venture partners upon
dissolution, as required under the terms of the respective joint
venture agreements. There can be no assurance that the estimated
liquidation values of the assets and liabilities and the
resulting proceeds that the Operating Partnership distributes
upon dissolution will be the same as the actual liquidation
values of such assets, liabilities and proceeds distributed upon
dissolution. Subsequent changes to the estimated fair values of
the assets and liabilities of the consolidated joint ventures
will affect the Operating Partnership’s estimate of the
aggregate settlement value. The joint venture agreements do not
limit the amount to which the noncontrolling joint venture
partners would be entitled in the event of liquidation of the
assets and liabilities and dissolution of the respective joint
ventures.
24
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 9. | Investments in Unconsolidated Joint Ventures |
The Company’s unconsolidated joint ventures’ net
equity investments at March 31, 2010 and December 31,
2009 were (dollars in thousands):
| March 31, 2010 |
The Company’s Net |
|||||||||||||||||||
|
The Company’s |
Equity Investments |
Estimated |
||||||||||||||||||
|
Ownership |
Square |
March 31, |
December 31, |
Investment |
||||||||||||||||
| Unconsolidated Joint Ventures | Percentage | Feet | 2010 | 2009 | Capacity | |||||||||||||||
|
Co-investment Ventures
|
||||||||||||||||||||
|
AMB U.S. Logistics Fund, L.P.(1)
|
31 | % | 37,303,415 | $ | 316,804 | $ | 219,121 | $ | 200,000 | |||||||||||
|
AMB Europe Fund I, FCP-FIS(2)
|
30 | % | 9,239,606 | 106,685 | 60,177 | 200,000 | ||||||||||||||
|
AMB Japan Fund I, L.P.(3)
|
20 | % | 7,263,090 | 81,373 | 80,074 | — | ||||||||||||||
|
AMB-SGP Mexico, LLC(4)
|
22 | % | 6,331,990 | 18,374 | 19,014 | 245,000 | ||||||||||||||
|
AMB DFS Fund I, LLC(5)
|
15 | % | 200,027 | 14,394 | 14,259 | — | ||||||||||||||
|
Other Industrial Operating Joint Ventures(6)
|
51 | % | 7,419,049 | 51,095 | 50,741 | n/a | ||||||||||||||
|
Other Industrial Development Joint
Ventures(6)(7) |
50 | % | — | 3,528 | — | n/a | ||||||||||||||
|
Total Unconsolidated Joint Ventures(8)
|
67,757,177 | $ | 592,253 | $ | 443,386 | $ | 645,000 | |||||||||||||
| (1) | An open-ended co-investment partnership formed in 2004 with institutional investors, which invest through a private real estate investment trust, and a third-party limited partner, on a prospective basis. Effective January 1, 2010, the name of AMB Institutional Alliance Fund III, L.P. was changed to AMB U.S. Logistics Fund, L.P. In the three months ended March 31, 2010, the Company made a $100 million investment in AMB U.S. Logistics Fund, L.P. | |
| (2) | A Euro-denominated open-ended co-investment venture with institutional investors. The institutional investors have committed approximately 263.0 million Euros (approximately $355.3 million in U.S. dollars, using the exchange rate at March 31, 2010) for an approximate 70% equity interest. In the three months ended March 31, 2010, the Company made a $50 million investment in AMB Europe Fund, FCP-FIS. | |
| (3) | A Yen-denominated co-investment venture with 13 institutional investors. The 13 institutional investors have committed 49.5 billion Yen (approximately $526.4 million in U.S. dollars, using the exchange rate at March 31, 2010) for an approximate 80% equity interest. | |
| (4) | A co-investment venture with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation. | |
| (5) | A co-investment venture with Strategic Realty Ventures, LLC. The investment period for AMB DFS Fund I, LLC ended in June 2009, and the remaining capitalization of this fund as of March 31, 2010 was the estimated investment of $5.0 million to complete the existing development assets held by the fund. Since inception, the Company has contributed $28.5 million of equity to the fund. During the three months ended March 31, 2010 and 2009, the Company contributed less than $0.1 million and $0.8 million to this co-investment venture, respectively. | |
| (6) | Other Industrial Operating and Development Joint Ventures includes joint ventures between the Company and third parties which generally have been formed to take advantage of a particular market opportunity that can be accessed as a result of the joint venture partner’s experience in the market. The Company typically owns 40-60% of these joint ventures. | |
| (7) | Includes the first quarter 2010 acquisition of 58 acres of land in Sao Paulo, Brazil with the Company’s joint venture partner Cyrela Commercial Properties. | |
| (8) | Through its investment in AMB Property Mexico, the Company held equity interests in various other unconsolidated ventures totaling approximately $14.6 million and $18.7 million as of March 31, 2010 and December 31, 2009, respectively. |
25
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the three months ended March 31, 2010 and 2009, the
Company received no distributions and $2.0 million,
respectively, from its unconsolidated joint ventures for the
Company’s share of the proceeds from asset sales or
financing during the respective periods.
The following table presents property related transactions for
the Company’s unconsolidated co-investment ventures for the
three months ended March 31, 2010 and 2009 (dollars in
thousands):
|
AMB U.S. Logistics |
AMB Japan |
AMB DFS |
||||||||||||||||||||||
| Fund, L.P. | Fund I, L.P. | Fund I, LLC | ||||||||||||||||||||||
| For the Three Months Ended March 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
|
Number of properties acquired
|
2 | — | — | — | — | — | ||||||||||||||||||
|
Square feet
|
687,932 | — | — | — | — | — | ||||||||||||||||||
|
Acquisition cost(1)
|
$ | 45,552 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
Development properties contributed by the Company:
|
||||||||||||||||||||||||
|
Square feet
|
— | — | — | 981,162 | — | — | ||||||||||||||||||
|
Gross contribution price
|
$ | — | $ | — | $ | — | $ | 184,793 | $ | — | $ | — | ||||||||||||
|
Development profits on sale
|
$ | — | $ | — | $ | — | $ | 28,588 | $ | — | $ | — | ||||||||||||
|
Development properties sold:
|
||||||||||||||||||||||||
|
Square feet
|
— | — | — | — | — | 33,700 | ||||||||||||||||||
|
Gross Sales Price
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 16,229 | ||||||||||||
|
Industrial operating properties sold:
|
||||||||||||||||||||||||
|
Square feet
|
— | 52,403 | — | — | — | — | ||||||||||||||||||
|
Gross Sales Price
|
$ | — | $ | 3,360 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| (1) | Includes estimated total acquisition expenditures of approximately $0.2 million for properties acquired by AMB U.S. Logistics Fund, L.P. during the three months ended March 31, 2010. |
The following table presents summarized income statement
information for the Company’s unconsolidated joint ventures
for the three months ended March 31, 2010 and 2009 (dollars
in thousands):
|
For the Three Months |
For the Three Months |
|||||||||||||||||||||||||||||||
| Ended March 31, 2010 | Ended March 31, 2009 | |||||||||||||||||||||||||||||||
|
Income |
Income |
|||||||||||||||||||||||||||||||
|
(Loss) |
(Loss) |
|||||||||||||||||||||||||||||||
|
Property |
from |
Net |
Property |
from |
Net |
|||||||||||||||||||||||||||
|
Operating |
Continuing |
Income |
Operating |
Continuing |
Income |
|||||||||||||||||||||||||||
| Unconsolidated Joint Ventures: | Revenues | Expenses | Operations | (Loss) | Revenues | Expenses | Operations | (Loss) | ||||||||||||||||||||||||
|
Co-investment Ventures
|
||||||||||||||||||||||||||||||||
|
AMB U.S. Logistics Fund, L.P.
|
$ | 68,521 | $ | (19,228 | ) | $ | 1,663 | $ | 1,663 | $ | 72,135 | $ | (20,641 | ) | $ | (8,140 | ) | $ | (8,141 | ) | ||||||||||||
|
AMB Europe Fund I, FCP-FIS
|
23,301 | (5,257 | ) | 339 | 339 | 22,933 | (4,747 | ) | (10,237 | ) | (10,237 | ) | ||||||||||||||||||||
|
AMB Japan Fund I, L.P.
|
25,468 | (5,433 | ) | 5,246 | 5,246 | 25,743 | (5,374 | ) | 3,760 | 3,760 | ||||||||||||||||||||||
|
AMB-SGP Mexico, LLC
|
8,142 | (1,555 | ) | (4,789 | )(1) | (4,789 | )(1) | 9,461 | (1,291 | ) | (3,067 | )(1) | (3,067 | )(1) | ||||||||||||||||||
|
AMB DFS Fund I, LLC
|
— | (201 | ) | (283 | ) | (281 | ) | 50 | 149 | 3,303 | 3,303 | |||||||||||||||||||||
|
Total Co-investment Ventures
|
125,432 | (31,674 | ) | 2,176 | 2,178 | 130,322 | (31,904 | ) | (14,381 | ) | (14,382 | ) | ||||||||||||||||||||
|
Other Industrial Operating Joint Ventures
|
8,181 | (1,978 | ) | 1,503 | 1,503 | 9,118 | (2,113 | ) | 2,660 | 2,660 | ||||||||||||||||||||||
|
Other Industrial Development Joint Ventures
|
— | — | (2 | ) | (2 | ) | — | — | — | — | ||||||||||||||||||||||
|
Total Unconsolidated Joint Ventures
|
$ | 133,613 | $ | (33,652 | ) | $ | 3,677 | $ | 3,679 | $ | 139,440 | $ | (34,017 | ) | $ | (11,721 | ) | $ | (11,722 | ) | ||||||||||||
26
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (1) | Includes $3.8 million of interest expense on loans from co-investment venture partners for both the three months ended March 31, 2010 and 2009. |
In accordance with guidance issued by the FASB related to the
consolidation of variable-interest entities, the Company has
performed an analysis of all of its joint venture entities to
determine whether they would qualify as variable-interest
entities (“VIEs”) and whether the joint ventures
should be consolidated or accounted for as an equity investment
in an unconsolidated joint venture. As a result of the
Company’s qualitative assessment to determine whether these
joint venture entities are VIEs, the Company identified five
joint venture entities, owned in conjunction with the same joint
venture partner, which were variable-interest entities based
upon the criteria of having insufficient equity investment at
risk. Because these five joint ventures, collectively referred
to as the “Five Ventures,” have partnership and
management agreements with the same joint venture partner and
purposes that are nearly identical, the following disclosures
are made in the aggregate for all Five Ventures. These Five
Ventures have been formed as limited liability companies with
the sole purpose of acquiring, developing, improving,
maintaining, leasing, marketing and selling properties for
profit, with the majority of the business activities to be
financed by third-party debt. In determining whether there was
sufficient equity investment at risk, the Company evaluated the
individual balance sheets of the Five Ventures and compared the
equity balance available as of March 31, 2010 to the total
assets of the Five Ventures and evaluated the outstanding debt
amounts as of the same balance sheet date.
After making the determination that the Five Ventures were
variable interest entities, the Company performed an assessment
of which partner would be considered the primary beneficiary of
these entities and would be required to consolidate the Five
Ventures’ balance sheets and results of operations. This
assessment was based upon which entity (1) had the power to
direct matters that most significantly impact the activities of
the VIEs, and (2) had the obligation to absorb losses or
the right to receive benefits of the VIEs that could potentially
be significant to the VIE based upon the terms of the
partnership and management agreements of the Five Ventures. As
both the Company and the joint venture partner in the entities
had equal 50% ownership in the Five Ventures, and per the terms
of the partnership agreement, they would both have an equal
obligation to absorb losses or the right to receive benefits of
the VIEs. While the joint venture partner is designated as the
administrative member and has the full power to manage the
affairs and operations of the Five Ventures, the partnership and
management agreements require consent of both partners for any
major decisions, which include: the adoption and any subsequent
revision of the operating budget and business plan; the entry
into any significant construction, development and property
acquisition; any capital transaction including sale, financing
or refinancing of the joint venture property; and the entry into
or material modification to any lease of the joint venture
property. Based upon this understanding, the Company concluded
that both partners shared equal power in the significant
decisions of the Five Ventures, as well as the financial rights
and obligations, and therefore neither partner would consolidate
the Five Ventures. As such, the Company accounts for the Five
Ventures as an equity investment in unconsolidated joint
ventures.
The Company includes the following balances related to the Five
Ventures, as of March 31, 2010, in Investments in
unconsolidated joint ventures in the consolidated balance sheet
as of March 31, 2010:
| As of March 31, 2010 | ||||||||
|
Equity |
Maximum Loss |
|||||||
| Investment | Exposure | |||||||
|
Five Ventures
|
$ | 3,335 | $ | 3,335 | (1) | |||
27
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (1) | Per the partnership agreements for the Five Ventures, the Company’s liability is limited to its investment in the entities. The Company does not guarantee any third-party debt held by these Five Ventures. Capital contributions to the Five Ventures subsequent to the initial capital contribution require the unanimous approval of both the Company and the joint venture partner, and as of March 31, 2010, the Company has no commitment to make additional contributions to the Five Ventures. |
| 10. | Stockholders’ Equity of the Parent Company |
Holders of common limited partnership units of the Operating
Partnership and class B common limited partnership units of
AMB Property II, L.P. have the right to require the Operating
Partnership or AMB Property II, L.P., as applicable, to redeem
part or all of their common limited partnership units or
class B common limited partnership units, as applicable,
for cash (based upon the fair market value of an equivalent
number of shares of common stock of the Parent Company at the
time of redemption). The right of the holders of common limited
partnership units is subject to the Operating Partnership or AMB
Property II, L.P., in its respective sole and absolute
discretion, electing to have the Parent Company exchange those
common limited partnership units for shares of the Parent
Company’s common stock, whether or not such shares are
registered under the Securities Act of 1933, on a
one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of certain rights, certain extraordinary
distributions and similar events. The redemption right is also
subject to the limits on ownership and transfer of common stock
set forth in the Parent Company’s charter. With each
exchange of the Operating Partnership’s common limited
partnership units for the Parent Company’s common stock,
the Parent Company’s percentage ownership in the Operating
Partnership will increase. The redemption right commences on or
after the first anniversary of a unitholder becoming a limited
partner of the Operating Partnership or of AMB Property II,
L.P., as applicable (or such other date agreed to by the
Operating Partnership or AMB Property II, L.P. and the unit
holder). During the three months ended March 31, 2010, the
Operating Partnership did not exchange any of its common limited
partnership units for shares of the Parent Company’s common
stock.
The Parent Company has authorized 100,000,000 shares of
preferred stock for issuance, of which the following series were
designated as of March 31, 2010: 2,300,000 shares of
series L cumulative redeemable preferred, of which
2,000,000 are outstanding; 2,300,000 shares of
series M cumulative redeemable preferred, all of which are
outstanding; 3,000,000 shares of series O cumulative
redeemable preferred, all of which are outstanding; and
2,000,000 shares of series P cumulative redeemable
preferred, all of which are outstanding.
The series L, M, O and P preferred stock have preference
rights with respect to distributions and liquidation over the
common stock. Holders of the series L, M, O and P preferred
stock are not entitled to vote on any matters, except under
certain limited circumstances. In the event of a cumulative
arrearage equal to six quarterly dividends, holders of the
series L, M, O and P preferred stock will have the right to
elect two additional members to serve on the Parent
Company’s board of directors until dividends have been paid
in full. At March 31, 2010, there were no dividends in
arrears. The Parent Company may issue additional series of
preferred stock ranking on a parity with the series L, M, O
and P preferred stock, but may not issue any preferred stock
senior to the series L, M, O and P preferred stock without
the consent of two-thirds of the holders of each of the
series L, M, O and P preferred stock. The series L, M,
O and P preferred stock have no stated maturity and are not
subject to mandatory redemption or any sinking fund. The
series L and M preferred stock are redeemable solely at the
option of the Parent Company, in whole or in part, at $25.00 per
share, plus accrued and unpaid dividends. The series O and
P preferred stock will be redeemable at the option of the Parent
Company on and after December 13, 2010 and August 25,
2011, respectively, in whole or in part, at $25.00 per share,
plus accrued and unpaid dividends.
28
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table reconciles the change in the Parent
Company’s consolidated stockholders’ equity for the
three months ended March 31, 2009 (dollars in thousands):
|
Balance as of December 31, 2008
|
$ | 2,966,204 | ||
|
Net loss
|
(123,024 | ) | ||
|
Unrealized loss on derivatives
|
(3,301 | ) | ||
|
Foreign currency translation adjustments
|
(34,007 | ) | ||
|
Total comprehensive loss
|
(160,332 | ) | ||
|
Stock-based compensation amortization and issuance of restricted
stock, net
|
7,304 | |||
|
Contributions
|
2,606 | |||
|
Distributions and allocations
|
(7,579 | ) | ||
|
Issuance of common stock
|
552,572 | |||
|
Conversion of partnership units
|
(71 | ) | ||
|
Repurchase of noncontrolling interest
|
(9,768 | ) | ||
|
Forfeiture of restricted stock
|
(787 | ) | ||
|
Dividends ($0.28 per share)
|
(44,836 | ) | ||
|
Balance as of March 31, 2009
|
$ | 3,305,313 | ||
The following table sets forth the dividends or distributions
paid or payable per share:
|
For the Three Months |
||||||||||
| Ended March 31, | ||||||||||
| Paying Entity | Security | 2010 | 2009 | |||||||
|
AMB Property Corporation
|
Common stock | $ | 0.280 | $ | 0.280 | |||||
|
AMB Property Corporation
|
Series L preferred stock | $ | 0.406 | $ | 0.406 | |||||
|
AMB Property Corporation
|
Series M preferred stock | $ | 0.422 | $ | 0.422 | |||||
|
AMB Property Corporation
|
Series O preferred stock | $ | 0.438 | $ | 0.438 | |||||
|
AMB Property Corporation
|
Series P preferred stock | $ | 0.428 | $ | 0.428 | |||||
As of March 31, 2010, the Parent Company’s stock
incentive plans have approximately 4.0 million shares of
common stock available for issuance as either stock options or
restricted stock grants. The fair value of each option grant is
generally estimated at the date of grant using the Black-Scholes
option-pricing model. The Parent Company uses historical data to
estimate option exercise and forfeitures within the valuation
model. Expected volatilities are based on historical volatility
of the Parent Company’s stock. The risk-free rate for
periods within the expected life of the option is based on the
U.S. Treasury yield curve in effect at the time of the
grant.
The following table presents the assumptions and fair values for
grants made during 2010:
| Dividend Yield | Expected Volatility | Risk-free Interest Rate |
Weighted Average |
Weighted Average |
||||||||||||||||||||||
|
Weighted |
Weighted |
Weighted |
Expected Life |
Grant Date |
||||||||||||||||||||||
| For the Quarter Ended | Range | Average | Range | Average | Range | Average | (Years) | Fair Value | ||||||||||||||||||
|
March 31, 2010
|
4.4% - 5.1% | 5.1 | % | 41.5% - 41.6% | 41.6 | % | 2.6% - 2.7% | 2.6 | % | 6.0 | $ | 5.68 | ||||||||||||||
As of March 31, 2010, approximately 9,381,333 options and
1,228,034 non-vested stock awards were outstanding under the
plans. There were 1,384,787 stock options granted, 77,394
options exercised, and 33,757 options forfeited during the three
months ended March 31, 2010. There were 689,287 restricted
stock awards made, 374,555 non-vested stock awards that vested
and 5,451 non-vested stock awards that were forfeited during the
three months ended March 31, 2010. The grant date fair
value of restricted stock awards range as of the grant dates of
the awards issued during the three months ended March 31,
2010 was $22.14-$25.37. The unamortized expense for restricted
stock as of March 31, 2010 was $29.3 million which is
expected to be recognized over a weighted average
29
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
period of 2.9 years. As of March 31, 2010, the Parent
Company had $11.3 million of total unrecognized
compensation cost related to unvested options granted under the
Parent Company’s stock incentive plans which is expected to
be recognized over a weighted average period of 1.9 years.
During the first quarter of 2010, the Parent Company issued
85,144 restricted share units (“RSUs”). RSUs are
granted to certain employees at a rate of one common share per
RSU and are valued on the grant date based upon the market price
of a common share on that date. The value of the RSUs granted is
recognized as compensation expense over the applicable vesting
period, which is generally four years. Holders of RSUs do not
receive voting rights, nor are they eligible to receive
dividends declared on outstanding shares of common stock, during
the vesting period. Shares of common stock equivalent to the
number of RSUs granted are reserved for issuance until vesting
of the RSUs has completed. The weighted-average grant date fair
value of RSUs granted during the three months ended
March 31, 2010 was $22.14.
| 11. | Partners’ Capital of the Operating Partnership |
Holders of common limited partnership units of the Operating
Partnership and class B common limited partnership units of
AMB Property II, L.P. have the right to require the Operating
Partnership or AMB Property II, L.P., as applicable, to redeem
part or all of their common limited partnership units or
class B common limited partnership units, as applicable,
for cash (based upon the fair market value of an equivalent
number of shares of common stock of the Parent Company at the
time of redemption). The right of the holders of common limited
partnership units is subject to the Operating Partnership or AMB
Property II, L.P., in its respective sole and absolute
discretion, electing to have the Parent Company exchange those
common limited partnership units for shares of the Parent
Company’s common stock, whether or not such shares are
registered under the Securities Act of 1933, on a
one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of certain rights, certain extraordinary
distributions and similar events. The redemption right is also
subject to the limits on ownership and transfer of common stock
set forth in the Parent Company’s charter. With each
exchange of the Operating Partnership’s common limited
partnership units for the Parent Company’s common stock,
the Parent Company’s percentage ownership in the Operating
Partnership will increase. The redemption right commences on or
after the first anniversary of a unitholder becoming a limited
partner of the Operating Partnership or of AMB Property II,
L.P., as applicable (or such other date agreed to by the
Operating Partnership or AMB Property II, L.P. and the unit
holder).
The series L, M, O and P preferred units have preference
rights with respect to distributions and liquidation over the
common units. The series L, M, O and P preferred units are
only redeemable if and when the shares of the series L, M,
O and P preferred stock are redeemed by the Parent Company. The
series L, M, O and P preferred stock have no stated
maturity and are not subject to mandatory redemption or any
sinking fund. Any such redemption would be for a purchase price
equivalent to that of the Parent Company’s preferred stock.
The Parent Company’s series L and M preferred stock
are redeemable solely at the option of the Parent Company, in
whole or in part, at $25.00 per share, plus accrued and unpaid
dividends. The series O and P preferred stock will be
redeemable solely at the option of the Parent Company on and
after December 13, 2010 and August 25, 2011,
respectively, in whole or in part, at $25.00 per share, plus
accrued and unpaid dividends.
The Operating Partnership has classified the preferred and
common units held by outside parties and by the Parent Company
as permanent equity based on the following considerations:
| • | The Operating Partnership determined that settlement in the Parent Company’s stock is equivalent to settlement in equity of the Operating Partnership. The Parent Company’s only significant asset is its interest in the Operating Partnership and the Parent Company conducts substantially all of its business through the Operating Partnership. The Parent Company’s stock is the economic equivalent of the Operating Partnership’s corresponding units. The Company has concluded that a redemption and issuance of shares in exchange for units does not represent a delivery of assets. |
30
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| • | In accordance with the guidance for Contracts in Entity’s Own Equity, the Operating Partnership, as the issuer of the units, controls the settlement options of the redemption of the units (shares or cash). Pursuant to an assignment agreement, the Parent Company has transferred to the Operating Partnership the right to elect to acquire some or all of any tendered units from the tendering partner in exchange for stock of the Parent Company. The unitholder has no control over whether it receives cash or Parent Company stock. There are no factors outside the issuer’s control that could impact those settlement options and there are no provisions that could require cash settlement upon redemption of units. The Operating Partnership units that are held by the Parent Company are redeemable only to maintain the 1:1 ratio of outstanding shares of the Parent Company to the outstanding units of the Operating Partnership and to facilitate the transfer of cash to the Parent Company from the Operating Partnership upon redemption of Parent Company stock. The Parent Company and the Operating Partnership are structured and operated as one interrelated, consolidated business under a single management. The decision to pay cash or have the Parent Company issue registered or unregistered shares of stock is made by a single management team acting for both the Operating Partnership and the Parent Company and causing the entities to act in concert. | |
| • | Management has concluded that there is no conflict in fiduciary duty or interest with respect to the decision to settle a redemption request in cash or common shares of the Parent Company. |
As of March 31, 2010, the Operating Partnership had
outstanding 149,715,804 common general partnership units;
2,119,928 common limited partnership units; 2,000,000 6.5%
series L cumulative redeemable preferred units; 2,300,000
6.75% series M cumulative redeemable preferred units;
3,000,000 7.00% series O cumulative redeemable preferred
units; and 2,000,000 6.85% series P cumulative redeemable
preferred units.
The following table reconciles the change in Operating
Partnership’s partners’ capital for the three months
ended March 31, 2009 (dollars in thousands):
|
Balance as of December 31, 2008
|
$ | 2,966,204 | ||
|
Net loss
|
(123,024 | ) | ||
|
Unrealized loss on derivatives
|
(3,301 | ) | ||
|
Foreign currency translation adjustments
|
(34,007 | ) | ||
|
Total comprehensive income
|
(160,332 | ) | ||
|
Contributions
|
2,606 | |||
|
Distributions and allocations
|
(7,579 | ) | ||
|
Stock-based compensation amortization and issuance of common
limited partnership units in connection with the issuance of
restricted stock and options
|
7,304 | |||
|
Issuance of common units
|
552,572 | |||
|
Cash redemption of operating partnership units
|
(71 | ) | ||
|
Repurchase of noncontrolling interest
|
(9,768 | ) | ||
|
Forfeiture of common limited partnership units in connection
with the forfeiture of restricted stock
|
(787 | ) | ||
|
Distributions
|
(44,836 | ) | ||
|
Balance as of March 31, 2009
|
$ | 3,305,313 | ||
31
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth the distributions paid or payable
per unit:
|
For the Three Months |
||||||||||
| Ended March 31, | ||||||||||
| Paying Entity | Security | 2010 | 2009 | |||||||
|
AMB Property, L.P.
|
Common limited partnership units | $ | 0.280 | $ | 0.280 | |||||
|
AMB Property, L.P.
|
Series L preferred stock | $ | 0.406 | $ | 0.406 | |||||
|
AMB Property, L.P.
|
Series M preferred stock | $ | 0.422 | $ | 0.422 | |||||
|
AMB Property, L.P.
|
Series O preferred stock | $ | 0.438 | $ | 0.438 | |||||
|
AMB Property, L.P.
|
Series P preferred stock | $ | 0.428 | $ | 0.428 | |||||
|
AMB Property II, L.P.
|
Class B common limited partnership units | $ | 0.280 | $ | 0.280 | |||||
|
AMB Property II, L.P.
|
Series D preferred units(1) | $ | — | $ | 0.898 | |||||
| (1) | On November 10, 2009, the Parent Company purchased all 1,595,337 outstanding series D preferred units of AMB Property II, L.P. in exchange for 2,880,281 shares of its common stock at a discount of $9.8 million. The Operating Partnership issued 2,880,281 general partnership units to the Parent Company in exchange for the 1,595,337 series D preferred units the Parent Company purchased. |
For each share of common stock the Parent Company issues
pursuant to the Parent Company and Operating Partnership’s
stock incentive plans, the Operating Partnership will issue a
corresponding common partnership unit to the Parent Company. As
of March 31, 2010, the stock incentive plans have
approximately 4.0 million shares of common stock available
for issuance as either stock options or restricted stock grants.
The fair value of each option grant is generally estimated at
the date of grant using the Black-Scholes option-pricing model.
The Operating Partnership uses historical data to estimate
option exercise and forfeitures within the valuation model.
Expected volatilities are based on historical volatility of the
Parent Company’s stock. The risk-free rate for periods
within the expected life of the option is based on the
U.S. Treasury yield curve in effect at the time of the
grant.
The following table presents the assumptions and fair values for
grants made during 2010:
| Dividend Yield | Expected Volatility | Risk-free Interest Rate |
Weighted Average |
Weighted Average |
||||||||||||||||||||||
|
Weighted |
Weighted |
Weighted |
Expected Life |
Grant Date |
||||||||||||||||||||||
| For the Quarter Ended | Range | Average | Range | Average | Range | Average | (Years) | Fair Value | ||||||||||||||||||
|
March 31, 2010
|
4.4% - 5.1% | 5.1 | % | 41.5% - 41.6% | 41.6 | % | 2.6% - 2.7% | 2.6 | % | 6.0 | $ | 5.68 | ||||||||||||||
As of March 31, 2010, approximately 9,381,333 options and
1,228,034 non-vested stock awards were outstanding under the
plans. There were 1,384,787 stock options granted, 77,394
options exercised, and 33,757 options forfeited during the three
months ended March 31, 2010. There were 689,287 restricted
stock awards made, 374,555 non-vested stock awards that vested
and 5,451 non-vested stock awards that were forfeited during the
three months ended March 31, 2010. The grant date fair
value of restricted stock awards range as of the grant dates of
the awards issued during the three months ended March 31,
2010 was $22.14-$25.37. The unamortized expense for restricted
stock as of March 31, 2010 was $29.3 million which is
expected to be recognized over a weighted average period of
2.9 years. As of March 31, 2010, the Operating
Partnership had $11.3 million of total unrecognized
compensation cost related to unvested options granted under the
Operating Partnership’s stock incentive plans which is
expected to be recognized over a weighted average period of
1.9 years.
During the first quarter of 2010, the Parent Company issued
85,144 restricted share units (“RSUs”). RSUs are
granted to certain employees at a rate of one common share per
RSU and are valued on the grant date based upon the market price
of a common share on that date. The value of the RSUs granted is
recognized as compensation expense over the applicable vesting
period, which is generally four years. Holders of RSUs do not
receive voting rights, nor are they eligible to receive
dividends declared on outstanding shares of common stock, during
the vesting period. Shares of common stock equivalent to the
number of RSUs granted are reserved for issuance until vesting
of the
32
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
RSUs has completed. The weighted-average grant date fair value
of RSUs granted during the three months ended March 31,
2010 was $22.14.
| 12. | Income (Loss) Per Share and Unit |
Effective January 1, 2009, the Company adopted a policy
which clarifies that share-based payment awards that entitle
their holders to receive nonforfeitable dividends before vesting
should be considered participating securities. As participating
securities, these instruments should be included in the
computation of earnings per share (“EPS”) using the
two-class method.
The Parent Company had no dilutive stock options outstanding for
both the three months ended March 31, 2010 and 2009. Such
dilution was computed using the treasury stock method. The
computation of the Parent Company’s basic and diluted EPS
is presented below (dollars in thousands, except share and per
share amounts):
|
For the Three Months |
||||||||
| Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Numerator
|
||||||||
|
Loss from continuing operations attributable to common
stockholders
|
$ | (31 | ) | $ | (136,152 | ) | ||
|
Preferred stock dividends
|
(3,952 | ) | (3,952 | ) | ||||
|
Loss from continuing operations (after noncontrolling
interests’ share of (income) loss from continuing
operations, preferred stock dividends and preferred unit
redemption discount)
|
(3,983 | ) | (140,104 | ) | ||||
|
Total discontinued operations attributable to common
stockholders after noncontrolling interests
|
(120 | ) | 17,754 | |||||
|
Allocation to participating securities
|
(344 | ) | (258 | ) | ||||
|
Net loss available to common stockholders
|
$ | (4,447 | ) | $ | (122,608 | ) | ||
|
Denominator
|
||||||||
|
Basic
|
148,666,418 | 98,915,587 | ||||||
|
Stock option dilution(1)
|
— | — | ||||||
|
Diluted weighted average common shares
|
148,666,418 | 98,915,587 | ||||||
|
Basic (loss) income per common share attributable to AMB
Property Corporation
|
||||||||
|
Loss from continuing operations
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common stockholders(2)
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
|
Diluted (loss) income per common share attributable to AMB
Property Corporation
|
||||||||
|
Loss from continuing operations
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common stockholders(2)
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
| (1) | Excludes anti-dilutive stock options of 6,410,907 and 7,383,791 for the three months ended March 31, 2010 and 2009, respectively. These weighted average shares relate to anti-dilutive stock options, which are calculated using the treasury stock method, and could be dilutive in the future. | |
| (2) | In accordance with the Company’s policies for EPS and participating securities, the net income (loss) available to common stockholders is adjusted for earnings distributed through declared dividends and allocated to all |
33
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| participating securities (weighted average common shares outstanding and unvested restricted stock outstanding) under the two-class method. Under this method, allocations were made to 1,228,034 and 920,281 unvested restricted shares outstanding for the three months ended March 31, 2010 and 2009, respectively. |
When the Parent Company issues shares of common stock upon the
exercise of stock options or issues restricted stock, the
Operating Partnership issues corresponding common general
partnership units to the Parent Company on a
one-for-one
basis. The Operating Partnership had no dilutive stock options
outstanding for both the three months ended March 31, 2010
and 2009. Such dilution was computed using the treasury stock
method. The computation of the Operating Partnership’s
basic and diluted income (loss) per unit is presented below
(dollars in thousands, except unit and per unit amounts):
|
For the Three Months |
||||||||
| Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Numerator
|
||||||||
|
Loss from continuing operations attributable to common
unitholders
|
$ | (88 | ) | $ | (139,210 | ) | ||
|
Preferred stock distributions
|
(3,952 | ) | (3,952 | ) | ||||
|
Loss from continuing operations (after noncontrolling
interests’ share of (income) loss from continuing
operations, preferred unit distributions and preferred unit
redemption discount)
|
(4,040 | ) | (143,162 | ) | ||||
|
Total discontinued operations attributable to common unitholders
after noncontrolling interests
|
(122 | ) | 18,142 | |||||
|
Allocation to participating securities
|
(344 | ) | (258 | ) | ||||
|
Net loss available to common unitholders
|
$ | (4,506 | ) | $ | (125,278 | ) | ||
|
Denominator
|
||||||||
|
Basic
|
150,786,346 | 101,093,862 | ||||||
|
Stock option dilution(1)
|
— | — | ||||||
|
Diluted weighted average common units
|
150,786,346 | 101,093,862 | ||||||
|
Basic (loss) income per common unit attributable to AMB
Property, L.P.
|
||||||||
|
Loss from continuing operations
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common unitholders(2)
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
|
Diluted (loss) income per common unit attributable to AMB
Property, L.P.
|
||||||||
|
Loss from continuing operations
|
$ | (0.03 | ) | $ | (1.42 | ) | ||
|
Discontinued operations
|
— | 0.18 | ||||||
|
Net loss available to common unitholders(2)
|
$ | (0.03 | ) | $ | (1.24 | ) | ||
| (1) | Excludes anti-dilutive stock options of 6,410,907 and 7,383,791 for the three months ended March 31, 2010 and 2009, respectively. These weighted average shares relate to anti-dilutive stock options, which are calculated using the treasury stock method, and could be dilutive in the future. | |
| (2) | In accordance with the Company’s policies for EPS and participating securities, the net income (loss) available to common stockholders is adjusted for earnings distributed through declared dividends and allocated to all participating securities (weighted average common shares outstanding and unvested restricted stock |
34
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| outstanding) under the two-class method. Under this method, allocations were made to 1,228,034 and 920,281 unvested restricted shares outstanding for the three months ended March 31, 2010 and 2009, respectively. |
| 13. | Segment Information |
The Company has two lines of business: real estate operations
and private capital. Real estate operations is comprised of
various segments while private capital consists of a single
segment, on which the Company evaluates its performance. For
further details, refer to Note 18 of Part IV,
Item 15 of the Annual Report on
Form 10-K
for the Parent Company and the Operating Partnership for the
year ended December 31, 2009.
Summary information for the reportable segments is as follows
(dollars in thousands):
| Revenues | Property NOI(2) | Development Gains | ||||||||||||||||||||||
|
For the Three Months |
For the Three Months |
For the Three Months |
||||||||||||||||||||||
| Ended March 31, | Ended March 31, | Ended March 31, | ||||||||||||||||||||||
| Segments(1) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||
|
U.S. Markets
|
||||||||||||||||||||||||
|
Southern California
|
$ | 19,540 | $ | 24,769 | $ | 15,154 | $ | 19,731 | $ | 5 | $ | 838 | ||||||||||||
|
No. New Jersey/New York
|
14,694 | 16,109 | 8,965 | 10,162 | — | — | ||||||||||||||||||
|
San Francisco Bay Area
|
19,936 | 22,766 | 13,703 | 16,611 | 566 | — | ||||||||||||||||||
|
Chicago
|
9,527 | 11,388 | 5,930 | 6,844 | — | — | ||||||||||||||||||
|
On-Tarmac
|
12,863 | 13,355 | 6,482 | 7,026 | — | — | ||||||||||||||||||
|
South Florida
|
10,405 | 10,025 | 7,001 | 6,593 | — | — | ||||||||||||||||||
|
Seattle
|
3,771 | 6,213 | 2,713 | 4,942 | — | 3,044 | ||||||||||||||||||
|
Toronto
|
7,353 | 5,467 | 5,209 | 3,622 | — | — | ||||||||||||||||||
|
Baltimore/Washington
|
5,647 | 5,475 | 3,940 | 3,973 | — | — | ||||||||||||||||||
|
Non — U.S. Markets
|
||||||||||||||||||||||||
|
Europe
|
5,673 | 2,967 | 2,860 | 763 | (122 | ) | — | |||||||||||||||||
|
Japan
|
8,015 | 5,532 | 5,456 | 3,173 | — | 28,588 | ||||||||||||||||||
|
Other Markets
|
28,816 | 32,571 | 18,970 | 21,900 | 4,354 | 816 | ||||||||||||||||||
|
Total markets
|
146,240 | 156,637 | 96,383 | 105,340 | 4,803 | 33,286 | ||||||||||||||||||
|
Straight-line rents and amortization of lease intangibles
|
4,289 | 3,392 | 4,289 | 3,392 | — | — | ||||||||||||||||||
|
Discontinued operations
|
(22 | ) | (8,305 | ) | 126 | (6,396 | ) | — | — | |||||||||||||||
|
Private capital income
|
7,445 | 11,695 | — | — | — | — | ||||||||||||||||||
|
Total
|
$ | 157,952 | $ | 163,419 | $ | 100,798 | $ | 102,336 | $ | 4,803 | $ | 33,286 | ||||||||||||
| (1) | The markets included in U.S. markets are a subset of the Company’s regions defined as East, West and Central in the Americas. Japan is a part of the Company’s Asia region. | |
| (2) | Property net operating income (“NOI”) is defined as rental revenues, including reimbursements, less property operating expenses. NOI excludes depreciation, amortization, general and administrative expenses, restructuring charges, real estate impairment losses, development profits (losses), gains (losses) from sale or contribution of real estate interests, and interest expense. The Company believes that net income, as defined by GAAP, is the most appropriate earnings measure. However, NOI is a useful supplemental measure calculated to help investors understand the Company’s operating performance, excluding the effects of costs and expenses which are not related to the performance of the assets. NOI is widely used by the real estate industry as a useful supplemental measure, which helps investors compare the Company’s operating performance with that of other companies. Real estate impairment losses have been excluded in deriving NOI because the Company does not consider its impairment losses to be a property operating expense. The Company believes that the exclusion of |
35
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| impairment losses from NOI is a common methodology used in the real estate industry. Real estate impairment losses relate to the changing values of the Company’s assets but do not reflect the current operating performance of the assets with respect to their revenues or expenses. The Company’s real estate impairment losses are non-cash charges which represent the write down in the value of assets when estimated fair value over the holding period is lower than current carrying value. The impairment charges were principally a result of increases in estimated capitalization rates and deterioration in market conditions that adversely impacted underlying real estate values. Therefore, the impairment charges are not related to the current performance of the Company’s real estate operations and should be excluded from its calculation of NOI. |
In addition, the Company believes that NOI helps investors
compare the operating performance of its real estate as compared
to other companies. While NOI 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 GAAP and should not be considered as an
alternative to those measures in evaluating the Company’s
liquidity or operating performance. NOI also does not reflect
general and administrative expenses, interest expenses, real
estate impairment losses, depreciation and amortization costs,
capital expenditures and leasing costs, or trends in development
and construction activities that could materially impact the
Company’s results from operations. Further, the
Company’s computation of NOI may not be comparable to that
of other real estate companies, as they may use different
methodologies for calculating NOI. For a reconciliation of NOI
to net income, see the table below.
The following table is a reconciliation from NOI to reported net
loss, a financial measure under GAAP (dollars in thousands):
|
For the Three Months |
||||||||
| Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
|
Property NOI
|
$ | 100,798 | $ | 102,336 | ||||
|
Private capital revenues
|
7,445 | 11,695 | ||||||
|
Depreciation and amortization
|
(48,634 | ) | (42,125 | ) | ||||
|
General and administrative
|
(31,951 | ) | (31,313 | ) | ||||
|
Restructuring charges
|
(2,973 | ) | — | |||||
|
Fund costs
|
(314 | ) | (261 | ) | ||||
|
Real estate impairment losses
|
— | (175,887 | ) | |||||
|
Other (expenses) income
|
(1,191 | ) | 662 | |||||
|
Development profits, net of taxes
|
4,803 | 33,286 | ||||||
|
Equity in earnings (losses) of unconsolidated joint ventures, net
|
3,875 | (34 | ) | |||||
|
Other income (expenses)
|
289 | (7,069 | ) | |||||
|
Interest expense, including amortization
|
(32,613 | ) | (32,799 | ) | ||||
|
Total discontinued operations
|
(154 | ) | 18,485 | |||||
|
Net loss
|
$ | (620 | ) | $ | (123,024 | ) | ||
36
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company’s total assets by reportable segments were
(dollars in thousands):
| Total Assets as of | ||||||||
|
March 31, |
December 31, |
|||||||
| 2010 | 2009 | |||||||
|
U.S. Markets
|
||||||||
|
Southern California
|
$ | 637,685 | $ | 635,124 | ||||
|
No. New Jersey/New York
|
543,083 | 544,743 | ||||||
|
San Francisco Bay Area
|
735,155 | 733,381 | ||||||
|
Chicago
|
300,881 | 302,501 | ||||||
|
On-Tarmac
|
157,039 | 159,549 | ||||||
|
South Florida
|
412,283 | 411,811 | ||||||
|
Seattle
|
146,468 | 146,192 | ||||||
|
Toronto
|
304,863 | 297,282 | ||||||
|
Baltimore/Washington
|
132,370 | 131,186 | ||||||
|
Non — U.S. Markets
|
||||||||
|
Europe
|
547,454 | 579,584 | ||||||
|
Japan
|
658,140 | 663,032 | ||||||
|
Other Markets
|
1,528,843 | 1,542,330 | ||||||
|
Total markets
|
6,104,264 | 6,146,715 | ||||||
|
Investments in unconsolidated joint ventures
|
606,838 | 462,130 | ||||||
|
Non-segment assets
|
198,369 | 233,113 | ||||||
|
Total assets
|
$ | 6,909,471 | $ | 6,841,958 | ||||
A summary of the Company’s real estate impairment losses
and restructuring charges by real estate operations reportable
segment for the three months ended March 31, 2010 and 2009
is as follows (dollars in thousands):
| Real Estate Impairment Losses | Restructuring Charges | |||||||||||||||
|
For the Three Months |
For the Three Months |
For the Three Months |
For the Three Months |
|||||||||||||
| Ended March 31, 2010 | Ended March 31, 2009 | Ended March 31, 2010 | Ended March 31, 2009 | |||||||||||||
|
U.S. Markets
|
||||||||||||||||
|
Southern California
|
$ | — | $ | 16,809 | $ | — | $ | — | ||||||||
|
No. New Jersey/New York
|
— | 9,056 | — | — | ||||||||||||
|
San Francisco Bay Area
|
— | 4,275 | 2,018 | — | ||||||||||||
|
Chicago
|
— | 1,330 | — | — | ||||||||||||
|
On-Tarmac
|
— | — | — | — | ||||||||||||
|
South Florida
|
— | 5,531 | — | — | ||||||||||||
|
Seattle
|
— | — | — | — | ||||||||||||
|
Toronto
|
— | 30,921 | — | — | ||||||||||||
|
Baltimore/Washington
|
— | 543 | — | — | ||||||||||||
|
Non — U.S. Markets
|
||||||||||||||||
|
Europe
|
— | 30,393 | 599 | — | ||||||||||||
|
Japan
|
— | 13,469 | 120 | — | ||||||||||||
|
Other Markets
|
— | 69,526 | 236 | — | ||||||||||||
|
Total markets
|
$ | — | $ | 181,853 | $ | 2,973 | $ | — | ||||||||
37
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 14. | Commitments and Contingencies |
Commitments
Lease Commitments. The Company has entered
into operating ground leases on certain land parcels, primarily
on-tarmac facilities and office space with remaining lease terms
of 1 to 79 years. Buildings and improvements subject to
ground leases are depreciated ratably over the lesser of the
terms of the related leases or 40 years.
Standby Letters of Credit. As of
March 31, 2010, the Company had provided approximately
$14.6 million in letters of credit, of which
$12.0 million was provided under the Operating
Partnership’s $550.0 million unsecured credit
facility. The letters of credit were required to be issued under
certain ground lease provisions, bank guarantees and other
commitments.
Guarantees and Contribution
Obligations. Excluding parent guarantees
associated with debt or contribution obligations as discussed in
Notes 5, 6 and 9 as of March 31, 2010, the Company had
outstanding guarantees and contribution obligations in the
aggregate amount of $391.5 million as described below.
As of March 31, 2010, the Company had outstanding bank
guarantees in the amount of $0.4 million used to secure
contingent obligations, primarily obligations under development
and purchase agreements. As of March 31, 2010, the Company
also guaranteed $45.4 million and $85.1 million on
outstanding loans on six of its consolidated joint ventures and
four of its unconsolidated joint ventures, respectively.
Also, the Company has entered into contribution agreements with
its unconsolidated co-investment ventures. These contribution
agreements require the Company to make additional capital
contributions to the applicable co-investment venture upon
certain defaults by the co-investment venture of certain of its
debt obligations to the lenders. Such additional capital
contributions will cover all or part of the applicable
co-investment venture’s debt obligation and may be greater
than the Company’s share of the co-investment
venture’s debt obligation or the value of its share of any
property securing such debt. The Company’s contribution
obligations under these agreements will be reduced by the
amounts recovered by the lender and the fair market value of the
property, if any, used to secure the debt and obtained by the
lender upon default. The Company’s potential obligations
under these contribution agreements totaled $260.6 million
as of March 31, 2010.
Performance and Surety Bonds. As of
March 31, 2010, the Company had outstanding performance and
surety bonds in an aggregate amount of $5.1 million. These
bonds were issued in connection with certain of its development
projects and were posted to guarantee certain property tax
obligations and the construction of certain real property
improvements and infrastructure. The performance and surety
bonds are renewable and expire upon the payment of the property
taxes due or the completion of the improvements and
infrastructure.
Promote Interests and Other Contractual
Obligations. Upon the achievement of certain
return thresholds and the occurrence of certain events, the
Company may be obligated to make payments to certain of its
joint venture partners pursuant to the terms and provisions of
their contractual agreements with the Operating Partnership.
From time to time in the normal course of the Company’s
business, the Company enters into various contracts with third
parties that may obligate it to make payments, pay promotes or
perform other obligations upon the occurrence of certain events.
Contingencies
Litigation. In the normal course of business,
from time to time, the Company may be involved in legal actions
relating to the ownership and operations of its properties.
Management does not expect that the liabilities, if any, that
may ultimately result from such legal actions will have a
material adverse effect on the consolidated financial position,
results of operations or cash flows of the Company.
38
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Environmental Matters. The Company monitors
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. The Company carries environmental
insurance and believes that the policy terms, conditions, limits
and deductibles are adequate and appropriate under the
circumstances, given the relative risk of loss, the cost of such
coverage and current industry practice.
General Uninsured Losses. The Company carries
property and rental loss, liability, flood and terrorism
insurance. The Company believes that the policy terms,
conditions, limits and deductibles are adequate and appropriate
under the circumstances, given the relative risk of loss, the
cost of such coverage and current industry practice. In
addition, a significant number of the Company’s properties
are located in areas that are subject to earthquake activity. As
a result, the Company has obtained limited earthquake insurance
on those properties. There are, however, certain types of
extraordinary losses, such as those due to acts of war, that may
be either uninsurable or not economically insurable. Although
the Company has obtained coverage for certain acts of terrorism,
with policy specifications and insured limits that it believes
are commercially reasonable, there can be no assurance that the
Company will be able to collect under such policies. Should an
uninsured loss occur, the Company could lose its investment in,
and anticipated profits and cash flows from, a property.
Captive Insurance Company. The Company has a
wholly owned captive insurance company, Arcata National
Insurance Ltd. (Arcata), which provides insurance coverage for
all or a portion of losses below the attachment point of the
Company’s third-party insurance policies. The captive
insurance company is one element of the Company’s overall
risk management program. The Company capitalized Arcata in
accordance with the applicable regulatory requirements. Arcata
establishes annual premiums based on projections derived from
the past loss experience at the Company’s properties. Like
premiums paid to third-party insurance companies, premiums paid
to Arcata may be reimbursed by customers pursuant to specific
lease terms. Through this structure, the Company believes that
it has more comprehensive insurance coverage at an overall lower
cost than would otherwise be available in the market.
| 15. | Derivatives and Hedging Activities |
Risk
Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its
business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business
and operational risks through management of its core business
activities. The Company manages economic risks, including
interest rate, liquidity, and credit risk primarily by managing
the amount, sources, and duration of its debt funding and the
use of derivative financial instruments. Specifically, the
Company enters into derivative financial instruments to manage
exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts,
the value of which are determined by interest rates. The
Company’s derivative financial instruments are used to
manage differences in the amount, timing, and duration of the
Company’s known or expected cash receipts and its known or
expected cash payments principally related to the Company’s
borrowings. The Company’s derivative financial instruments
in effect at March 31, 2010 were two interest rate swaps
and two interest rate caps hedging cash flows of variable rate
borrowings based on U.S. LIBOR.
Certain of the Company’s foreign operations expose the
Company to fluctuations of foreign interest rates and exchange
rates. These fluctuations may impact the value of the
Company’s cash receipts and payments in terms of the
Company’s functional currency. The Company enters into
derivative financial instruments to protect the value or fix the
amount of certain obligations in terms of its functional
currency, the U.S. dollar. At March 31, 2010, the
Company had four currency forward contracts hedging intercompany
loans.
39
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Cash Flow
Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives
are to add stability to interest expense and to manage its
exposure to interest rate movements. To accomplish this
objective, the Company primarily uses interest rate swaps and
caps as part of its interest rate risk management strategy.
Interest rate swaps designated as cash flow hedges involve the
receipt of variable-rate amounts from a counterparty in exchange
for the Company making fixed-rate payments over the life of the
agreements without exchange of the underlying notional amount.
Interest rate caps designated as cash flow hedges involve the
receipt of variable-rate amounts from a counterparty if interest
rates rise above the strike rate on the contract in exchange for
an upfront premium.
The effective portion of changes in the fair value of
derivatives designated and that qualify as cash flow hedges is
recorded in accumulated other comprehensive (loss) income as a
separate component of stockholders’ equity for the Parent
Company and within partners’ capital for the Operating
Partnership and is subsequently reclassified into earnings in
the period that the hedged forecasted transaction affects
earnings. During the three months ended ended March 31,
2010, such derivatives were used to hedge the variable cash
flows associated with existing variable-rate borrowings.
Amounts reported in accumulated other comprehensive (loss)
income related to derivatives will be reclassified to interest
expense as interest payments are made on the Company’s
variable-rate borrowings. For the twelve months from
March 31, 2010, the Company estimates that an additional
$1.7 million will be reclassified as an increase to
interest expense.
As of March 31, 2010, the Company had the following
outstanding interest rate derivatives that were designated as
cash flow hedges of interest rate risk:
|
Number of |
Trade Notional |
|||||||
| Related Derivatives | Instruments | Amount | ||||||
| (in thousands) | ||||||||
|
Interest rate swaps (USD)
|
1 | $ | 130,000 | |||||
|
Interest rate swaps (JPY)
|
1 | $ | 133,649 | |||||
|
Interest rate caps
|
1 | $ | 26,263 | |||||
Non-designated
Hedges
Derivatives not designated as hedges are not speculative and are
used to manage the Company’s exposure to identified risks,
such as foreign currency exchange rate fluctuations, but do not
meet the strict hedge accounting requirements of the accounting
policy for derivative instruments and hedging activities. At
March 31, 2010, the Company had four foreign currency
forward contracts hedging intercompany loans and one interest
rate cap hedging a construction loan and other variable rate
borrowings which were not designated as hedges. Changes in the
fair value of derivatives not designated in hedging
relationships are recorded directly in earnings and are offset
by changes in the fair value of the underlying assets or
liabilities being hedged, which are also recorded in earnings.
As of March 31, 2010, the Company had the following
outstanding derivatives that were non-designated hedges:
|
Number of |
Trade Notional |
|||||||
| Related Derivatives | Instruments | Amount | ||||||
| (in thousands) | ||||||||
|
Foreign exchange forward contracts
|
4 | $ | 657,168 | |||||
|
Interest rate caps
|
1 | $ | 7,319 | |||||
40
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The table below presents the fair value of the Company’s
derivative financial instruments as well as their classification
on the consolidated balance sheets as of March 31, 2010 and
December 31, 2009 (in thousands):
| Fair Value of Derivative Instruments at March 31, 2010 | ||||||||||||||||
| Asset Derivatives | Liability Derivatives | |||||||||||||||
|
Balance Sheet |
Balance Sheet |
|||||||||||||||
| Location | Fair Value | Location | Fair Value | |||||||||||||
|
Derivatives designated as hedging instruments
|
Other assets | |||||||||||||||
|
Interest rate swaps
|
$ | — | (contra asset | ) | $ | 1,426 | ||||||||||
|
Interest rate caps
|
Other assets | 52 | — | |||||||||||||
|
Total
|
$ | 52 | $ | 1,426 | ||||||||||||
|
Derivatives not designated as hedging instruments
|
Other assets | |||||||||||||||
|
Foreign exchange forward contracts
|
Other assets | $ | — | (contra asset | ) | $ | 841 | |||||||||
|
Interest rate caps
|
Other assets | — | — | |||||||||||||
|
Total
|
$ | — | $ | 841 | ||||||||||||
|
Total derivative instruments
|
$ | 52 | $ | 2,267 | ||||||||||||
| Fair Value of Derivative Instruments at December 31, 2009 | ||||||||||||||||
| Asset Derivatives | Liability Derivatives | |||||||||||||||
|
Balance Sheet |
Balance Sheet |
|||||||||||||||
| Location | Fair Value | Location | Fair Value | |||||||||||||
|
Derivatives designated as hedging instruments
|
Other assets | |||||||||||||||
|
Interest rate swaps
|
$ | — | (contra asset | ) | $ | 1,992 | ||||||||||
|
Interest rate caps
|
Other assets | 141 | — | |||||||||||||
|
Total
|
$ | 141 | $ | 1,992 | ||||||||||||
|
Derivatives not designated as hedging instruments
|
Other assets | |||||||||||||||
|
Foreign exchange forward contracts
|
Other assets | $ | 1,412 | (contra asset | ) | $ | 20 | |||||||||
|
Total
|
$ | 1,412 | $ | 20 | ||||||||||||
|
Total derivative instruments
|
$ | 1,553 | $ | 2,012 | ||||||||||||
The tables below present the effect of the Company’s
derivative financial instruments on the consolidated statements
of operations for the three months ended March 31, 2010 and
2009 (in thousands):
|
Location of Gain |
||||||
|
Derivative Instruments Not |
Recognized in Statement |
Amount of Gain |
||||
| Designated as Hedging Instruments | of Operations | Recognized | ||||
|
For the three months ended March 31, 2010
|
||||||
|
Foreign exchange forward contracts
|
Other income (expenses) | $ | 16,878 | |||
|
Total
|
$ | 16,878 | ||||
|
For the three months ended March 31, 2009
|
||||||
|
Foreign exchange forward contracts
|
Other income (expenses) | $ | 5,886 | |||
|
Total
|
$ | 5,886 | ||||
41
Table of Contents
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Loss Recognized |
Location of Loss |
Loss Reclassified |
||||||||
|
in Accumulated Other |
Reclassified from |
from Accumulated |
||||||||
|
Comprehensive (Loss) |
Accumulated OCI into |
OCI into Statement |
||||||||
|
Derivative Instruments in |
Income (OCI) |
Statement of Operations |
of Operations |
|||||||
| Cash Flow Hedging Relationships | (Effective Portion) | (Effective Portion) | (Effective Portion) | |||||||
|
For the three months ended March 31, 2010
|
||||||||||
|
Interest rate swaps
|
$ | (238 | ) | Interest expense | $ | (801 | ) | |||
|
Interest rate caps
|
(88 | ) | Interest expense | — | ||||||
|
Total
|
$ | (326 | ) | $ | (801 | ) | ||||
|
For the three months ended March 31, 2009
|
||||||||||
|
Interest rate swaps
|
$ | (305 | ) | Interest expense | $ | (1,994 | ) | |||
|
Total
|
$ | (305 | ) | $ | (1,994 | ) | ||||
Credit-risk-related
Contingent Features
In order to limit the financial risks associated with derivative
applications, the Company requires rigorous counterparty
selection criteria and agreements to minimize counterparty risk
for
over-the-counter
derivatives. For the Company’s derivatives, the
counterparty is typically the same entity as, or an affiliate
of, the lender.
The Company’s agreements with its derivative counterparties
contain default and termination provisions related to the
Company’s debt. If certain of the Company’s
indebtedness (excluding its corporate lines of credit and
intra-company indebtedness) in an amount in excess of three
percent of the Company’s equity, as determined at the end
of the last fiscal year, becomes, or becomes capable of being
declared, due and payable earlier than it otherwise would have
been, then the Company could also be declared in default on its
derivative obligations. Also, if an event of default occurs
under the Company’s corporate lines of credit and, as a
result, amounts outstanding under such lines are declared or
become due and payable in an amount in excess of three percent
of the Company’s equity, as determined at the end of the
last fiscal year, it shall constitute an additional termination
event under the derivative contracts.
| 16. | Subsequent Events |
In April 2010, the Parent Company completed the issuance of
approximately 18.2 million shares of its common stock at a
price of $27.50 per share for proceeds of approximately
$479.0 million, net of discounts, commissions and estimated
transaction expenses of approximately $18.1 million. The
net proceeds from the offering were contributed to the Operating
Partnership in exchange for the issuance of 18.2 million
general partnership units to the Parent Company.
In April 2010, the Company made an additional equity investment
of $50 million into AMB U.S. Logistics Fund, L.P.,
increasing the Company’s ownership to approximately 34% as
of the end of April. In addition, third-party investors also
contributed $29 million of equity to AMB
U.S. Logistics Fund, L.P. in April 2010.
42
Table of Contents
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Some of the information included in this quarterly report on
Form 10-Q
contains forward-looking statements, such as those related to
our capital resources, portfolio performance, results of
operations and management’s beliefs and expectations, which
are made pursuant to the safe-harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as
amended. Because these forward-looking statements involve
numerous risks and uncertainties, there are important factors
that could cause the company’s actual results to differ
materially from those in the forward-looking statements, and you
should not rely on the forward-looking statements as predictions
of future events. The events or circumstances reflected in the
forward-looking statements might not occur. You can identify
forward-looking statements by the use of forward-looking
terminology such as “believes,” “expects,”
“may,” “will,” “should,”
“seeks,” “approximately,”
“intends,” “plans,” “forecasting,”
“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 should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indicators of whether, or the time at
which, such performance or results will be achieved. There is no
assurance that the events or circumstances reflected in
forward-looking statements will occur or be achieved.
Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise
and the company may not be able to realize them.
The following factors, among others, apply to the
company’s business as a whole and could cause its actual
results and future events to differ materially from those set
forth or contemplated in the forward-looking statements:
| • | changes in general economic conditions in California, the U.S. or globally (including financial market fluctuations), global trade or in the real estate sector (including risks relating to decreasing real estate valuations and impairment charges); | |
| • | risks associated with using debt to fund the company’s business activities, including re-financing and interest rate risks; | |
| • | the company’s failure to obtain, renew, or extend necessary financing or access the debt or equity markets; | |
| • | the company’s failure to maintain its current credit agency ratings or comply with its debt covenants; | |
| • | risks related to the company’s obligations in the event of certain defaults under co-investment venture and other debt; | |
| • | risks associated with equity and debt securities financings and issuances (including the risk of dilution); | |
| • | defaults on or non-renewal of leases by customers or renewal at lower than expected rent; | |
| • | difficulties in identifying properties, portfolios of properties, or interests in real-estate related entities or platforms to acquire and in effecting acquisitions on advantageous terms and the failure of acquisitions to perform as the company expects; | |
| • | unknown liabilities acquired in connection with acquired properties, portfolios of properties, or interests in real-estate related entities; | |
| • | the company’s failure to successfully integrate acquired properties and operations; | |
| • | risks and uncertainties affecting property development, redevelopment and value-added conversion (including construction delays, cost overruns, the company’s inability to obtain necessary permits and financing, the company’s inability to lease properties at all or at favorable rents and terms, and public opposition to these activities); | |
| • | the company’s failure to set up additional funds, attract additional investment in existing funds or to contribute properties to its co-investment ventures due to such factors as its inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or the co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements; | |
| • | risks and uncertainties relating to the disposition of properties to third parties and the company’s ability to effect such transactions on advantageous terms and to timely reinvest proceeds from any such dispositions; |
43
Table of Contents
| • | risks of doing business internationally and global expansion, including unfamiliarity with new markets and currency risks; | |
| • | risks of changing personnel and roles; | |
| • | losses in excess of the company’s insurance coverage; | |
| • | changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws; | |
| • | increases in real property tax rates; | |
| • | risks associated with the company’s tax structuring; | |
| • | increases in interest rates and operating costs or greater than expected capital expenditures; and | |
| • | environmental uncertainties and risks related to natural disasters. |
In addition, if the parent company fails to qualify and
maintain its status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended, then the parent
company’s actual results and future events could differ
materially from those set forth or contemplated in the
forward-looking statements.
The company’s success also depends upon economic trends
generally, various market conditions and fluctuations and those
other risk factors discussed under the heading “Risk
Factors” and elsewhere in the Annual Report on
Form 10-K
for AMB Property Corporation and AMB Property, L.P. for the year
ended December 31, 2009, and any amendments thereto. The
company cautions you not to place undue reliance on
forward-looking statements, which reflect the company’s
analysis only and speak as of the date of this report or as of
the dates indicated in the statements. All of the company’s
forward-looking statements, including those in this report, are
qualified in their entirety by this statement. The company
assumes no obligation to update or supplement forward-looking
statements.
The company uses the terms “industrial properties” or
“industrial buildings” to describe the various types
of industrial properties in its portfolio and uses these terms
interchangeably with the following: logistics facilities,
centers or warehouses, High Throughput
Distribution®
(HTD®)
facilities; or any combination of these terms. The company uses
the term “owned and managed” to describe assets in
which it has at least a 10% ownership interest, for which it is
the property or asset manager and which it currently intends to
hold for the long term. The company uses the term “joint
venture” to describe all joint ventures, including
co-investment ventures with real estate developers, other real
estate operators, or institutional investors where the company
may or may not have control, act as the manager
and/or
developer, earn asset management distributions or fees, or earn
incentive distributions or promote interests. In certain cases,
the company might provide development, leasing, property
management
and/or
accounting services, for which it may receive compensation. The
company uses the term “co-investment venture” to
describe joint ventures with institutional investors, managed by
the company, from which the company typically receives
acquisition fees for acquisitions, portfolio and asset
management distributions or fees, as well as incentive
distributions or promote interests. Unless otherwise indicated,
management’s discussion and analysis applies to both the
operating partnership and the parent company.
The company’s website address is
http://www.amb.com.
The annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
of the parent company and any amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available on the
company’s website free of charge as soon as reasonably
practicable after the company electronically files such material
with, or furnishes it to, the U.S. Securities and Exchange
Commission, or SEC. The public may read and copy these materials
at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website that contains such reports, proxy
and information statements and other information, and the
Internet address is
http://www.sec.gov.
The company’s Corporate Governance Principles and Code of
Business Conduct are also posted on the company’s website.
Information contained on the company’s website is not and
should not be deemed a part of this report or any other report
or filing filed with or furnished to the SEC. The operating
partnership does not have a separate internet address and its
SEC reports are available free of charge upon request to the
attention of the company’s Investor Relations Department,
AMB Property Corporation, Pier 1, Bay 1, San Francisco, CA
94111. The following marks are registered trademarks of AMB
Property Corporation:
AMB®;
and High Throughput
Distribution®
(HTD®).
44
Table of Contents
THE
COMPANY
The company is a global owner, operator and developer of
industrial real estate, focused on major hub and gateway
distribution markets in the Americas, Europe and Asia. As of
March 31, 2010, the company owned, or had investments in,
on a consolidated basis or through unconsolidated joint
ventures, properties and development projects expected to total
approximately 155.7 million square feet (14.5 million
square meters) in 48 markets within 15 countries. The company
invests in properties located predominantly in the infill
submarkets of its targeted markets. The company’s portfolio
is comprised of High Throughput
Distribution®
facilities — industrial properties built for speed and
located near airports, seaports and ground transportation
systems.
The approximately 155.7 million square feet as of
March 31, 2010 included:
| • | 134.8 million square feet (principally, warehouse distribution buildings) on an owned and managed basis, which includes investments held on a consolidated basis or through unconsolidated joint ventures, that were 90.5% leased; | |
| • | 13.4 million square feet in its development portfolio, including approximately 9.7 million square feet in 34 development projects that are complete and in the process of stabilization and approximately 3.7 million square feet in nine development projects under construction; | |
| • | 7.4 million square feet in 46 industrial operating buildings in unconsolidated joint ventures in which the company has investments but does not manage; and | |
| • | 152,000 square feet through a ground lease, which is the location of its global headquarters. |
The company’s business is operated primarily through the
operating partnership. As of March 31, 2010, the parent
company owned an approximate 97.8% general partnership interest
in the operating partnership, excluding preferred units. As the
sole general partner of the operating partnership, the parent
company has the full, exclusive and complete responsibility for
and discretion in its
day-to-day
management and control.
The parent company is a self-administered and self-managed real
estate investment trust and it expects that it has qualified,
and will continue to qualify, as a real estate investment trust
for federal income tax purposes beginning with the year ended
December 31, 1997. As a self-administered and self-managed
real estate investment trust, the company’s own employees
perform its corporate administrative and management functions,
rather than the company relying on an outside manager for these
services. The company believes that real estate is fundamentally
a local business and is best operated by local teams in each of
its markets. As a vertically integrated company, the company
actively manages its portfolio of properties. In select markets,
the company may, from time to time, establish relationships with
third-party real estate management firms, brokers and developers
that provide some property-level administrative and management
services under the company’s direction.
The company’s global headquarters are located at Pier 1,
Bay 1, San Francisco, California 94111; the company’s
telephone number is
(415) 394-9000.
The company’s other principal office locations are in
Amsterdam, Boston, Chicago, Los Angeles, Mexico City, Shanghai,
Singapore and Tokyo. As of March 31, 2010, the company
employed 533 individuals.
Investment
Strategy
The company’s investment strategy focuses on providing
distribution space to customers whose businesses are tied to
global trade and depend on the efficient movement of goods
through the global supply chain. The company’s properties
are primarily located in the world’s busiest distribution
markets featuring large, supply-constrained infill locations
with dense populations and proximity to seaports, airports and
major freeway interchanges. When measured by annualized base
rent, on an owned and managed basis, a substantial majority of
the company’s portfolio of industrial properties is located
in its target markets and much of this is in infill submarkets.
Infill locations are characterized by supply constraints on the
availability of land for competing projects as well as physical,
political or economic barriers to new development. The company
believes that its facilities are essential to creating
efficiencies in the supply chain and its business encompasses a
blend of real estate, global logistics and infrastructure.
45
Table of Contents
In its target markets, the company focuses on
HTD®
facilities, industrial properties designed to facilitate the
rapid distribution of its customers’ products rather than
the long term storage of goods. The company’s investment
focus on
HTD®
assets is based on what it believes to be a continuing global
trend toward lower inventory levels and expedited supply chains.
HTD®
facilities generally have a variety of physical and locational
characteristics that allow for the rapid transport of goods from
point to point. These physical characteristics could include
numerous dock doors, shallower building depths, fewer columns,
large truck courts and more space for trailer parking. The
company believes that these building characteristics help its
customers to reduce their costs and become more efficient in
their delivery systems. The locational characteristics feature
large, supply-constrained infill locations with dense
populations and proximity to seaports, airports and major
freeway interchanges. The company’s customers comprise
logistics, freight forwarding and air-express companies with
time-sensitive needs that value facilities that are proximate to
transportation infrastructure.
The company believes that changes in global trade have been a
primary driver of demand for industrial real estate for decades,
as the correlation between industrial demand and
U.S. imports and exports is approximately 80%. The company
has observed that demand for industrial real estate is further
influenced by the long-term relationship between trade and GDP.
Trade and GDP are closely interrelated as higher levels of
investment, production and consumption within a globalized
country are consistent with increased levels of imports and
exports. As the world produces and consumes more, the company
believes that the volume of global trade will continue to
increase at a rate well in excess of global GDP. International
Monetary Fund (the “IMF”) forecasts indicated that
global trade fell by 10.7% in 2009, the steepest decline in
modern history. This compares to a forecasted decline of only
0.6% in global GDP. The IMF’s most recent forecasts for
U.S. and global GDP growth in 2010 are 3.1% and 4.2%,
respectively, which the company believes should result in a
significant rebound in trade and industrial real estate demand.
Primary
Sources of Revenue and Earnings
The primary source of the company’s core earnings is
revenues received from its real estate operations and private
capital business. The principal contributor of its core earnings
is rent received from customers under long-term (generally three
to ten years) operating leases at its properties, including
reimbursements from customers for certain operating costs and
asset management fees. The company also generates core earnings
from its private capital business, which include priority
distributions, acquisition and development fees, promote
interests and incentive distributions from its co-investment
ventures. The company may generate additional earnings from the
disposition of assets in its
development-for-sale
and value-added conversion programs as well as from land sales.
Long-Term
Growth Strategies
The company believes that its long-term growth will be driven by
its ability to:
| • | maintain and increase occupancy rates and/or increase rental rates at its properties; | |
| • | raise third-party equity and grow its earnings from its private capital business from the acquisition of new properties or through the possible contribution of properties; | |
| • | acquire industrial real estate with total returns above the company’s cost of capital; and | |
| • | develop properties profitably and either to hold or to sell these development properties to third parties. |
Growth
through Operations
The company seeks to generate long-term internal growth by
maintaining a high occupancy rate at its properties, by
controlling expenses and through contractual rent increases on
existing space and thus capitalizing on the economies of scale
inherent in owning, operating and growing a large, global
portfolio. The company actively manages its portfolio by
establishing leasing strategies and negotiating lease terms,
pricing, and level and timing of property improvements. With
respect to its leasing strategies, the company takes a long-term
view to ensure that it maximizes the value of its real estate.
As the company continues to work through a challenging operating
environment and to provide flexibility to its customers, the
company evaluates and adjusts its leasing strategies for market
terms and leasing rates, which may include shorter leasing
terms. The company believes that its
46
Table of Contents
long-standing
focus on customer relationships and ability to provide global
solutions for a well-diversified customer base in the logistics,
shipping, and air cargo industries will enable it to capitalize
on opportunities as they arise.
The company believes that the strategic locations within its
portfolio, the experience of its cycle-tested operations team
and its ability to respond quickly to the needs of its customers
provides a competitive advantage in leasing. The company
believes that its regular maintenance programs, capital
expenditure programs, energy management and sustainability
programs create cost efficiencies that provide benefit to it and
its customers.
Growth
through Co-Investments
The company, through AMB Capital Partners, LLC, its private
capital group, was one of the pioneers of the real estate
investment trust (REIT) industry’s co-investment model and
has more than 26 years of experience in asset management
and fund formation. The company co-invests in properties with
private capital investors through partnerships, limited
liability companies or other joint ventures. The company has a
direct and long-standing relationship with institutional
investors. Nearly 60% of the company’s owned and managed
operating portfolio is held through its eight co-investment
ventures. The company tailors industrial portfolios to
investors’ specific needs in separate or commingled
accounts and deploys capital in both close-ended and open-ended
structures, while providing complete portfolio management and
financial reporting services. Generally, the company is the
largest investor in its funds and owns a
10-50%
interest in its co-investment ventures. The company believes
that its significant ownership in each of its funds provides a
strong alignment of its interest with its co-investment
partners’ interests.
The company believes that its co-investment program with
private-capital investors will continue to serve as a source of
revenues and capital for new investments. In anticipation of the
formation of future co-investment ventures, the company may also
hold acquired and newly developed properties for contribution to
such future co-investment ventures. The company may make
additional investments through its existing co-investment
ventures or new co-investment ventures in the future and
presently plans to do so. The company is in various stages of
discussions with prospective investors to attract new capital to
take advantage of potential opportunities and these capital
raising activities may include the formation of new joint
ventures. Such transactions, if the company completes them, may
be material individually or in aggregate.
Growth
through Acquisitions and Capital Redeployment
The company’s acquisition experience and its network of
property management, leasing and acquisition resources should
continue to provide opportunities for growth. In addition to its
internal resources, the company has long-term relationships with
lenders, leasing and investment sales brokers, as well as
third-party local property management firms, which may give it
access to additional acquisition opportunities because such
managers frequently market properties on behalf of sellers. The
company is actively monitoring its target markets and may seek
opportunities to selectively acquire high-quality, well-located
industrial real estate. The company strives to enhance the
quality of its portfolio through acquisitions that are accretive
to the company’s net asset value and its earnings. In
addition, the company seeks to redeploy capital from the sale of
non-strategic assets into properties that better fit its current
investment focus.
The company is generally engaged in various stages of
negotiations for a number of acqui