AMB Property Corporation
Performance & Operating Highlights
AMB reported earnings per share (EPS) for the second quarter of $0.31, which included $0.03 per share of gains on dispositions of real estate. Second quarter 2002 EPS reflects a 6.1% decrease from second quarter 2001 EPS of $0.33, which included $0.02 per share of net gains from real estate dispositions and non-cash charges for impairment reserves for the Company's private equity investments which were fully written off in 2001. EPS for the first half of 2002 was $0.65, including $0.03 per share of gains on dispositions of real estate, reflecting a 20.7% decrease over EPS for the first half of 2001 of $0.82, which included $0.16 per share of net gains.
Industrial occupancy remained unchanged from the end of the first quarter at 94.4%, down 10 bps from year-end 2001 and down 140 bps from second quarter 2001. The Company grew same store cash basis net operating income by 1.0%, slightly below expectations, while same store GAAP basis net operating income was down 0.5%. The primary drivers of the decrease in 2002 earnings from 2001 earnings were: lower net gains, slightly lower same store GAAP net operating income and net disposition activity over the last six quarters as a result of the Company's focus on long term results. Tenant retention for the quarter was 75.1%, while rents on renewals and rollovers declined by 0.4% as the Company continued to focus on occupancy.
"Our results for the first six months reflect solid progress in a difficult operating environment. Of note, the last of the spaces vacated by bankrupt tenant Webvan Group, Inc. in 2001 was leased during the quarter, reflecting a better than anticipated lease-up time which highlights the strong demand for infill product even in a difficult market environment. However, leasing activity across the portfolio was not as strong as we expected it to be in the second quarter," commented Chairman and CEO, Hamid R. Moghadam. Mr. Moghadam continued, "Nonetheless, we continue to expect national occupancies in industrial real estate to improve in the second half of this year with rent growth to follow in 2003. As we have stated before, improvements in the industrial market will take some time to positively impact our earnings. We now expect same store growth for the year will be between 1-2%, below our prior expectation of 2.5%."
Acquisitions during the quarter totaled five transactions with an aggregate value of $121.9 million and 2.0 million square feet. The Company expanded its on-tarmac presence with the purchase of the leasehold interest in a 285,000 square foot air cargo distribution center at Washington Dulles International Airport for a total acquisition price of $41.9 million. The facility, with over 500,000 square feet of aircraft ramp, is leased to FedEx, United Airlines, Air France and Lufthansa.
AMB and Mexico-based Strategic Alliance Partner (TM) G. Accion jointly closed their first investment during the second quarter to develop a distribution center for the Mexico operations of a major, international consumer products company. AMB's first international project, scheduled for completion in December 2002, is located in the San Martin Obispo Industrial Park within the Cuautitlan submarket of Mexico City.
"We are pleased to announce our first project in Mexico which better allows us to serve our targeted global customers," said W. Blake Baird, President. "Mexico is a logical place to begin our international expansion efforts because of its large domestic and international export markets, its growth in manufacturing and proximity to the United States. Cuautitlan is a preferred submarket for international distribution companies because of its proximity to the 22 million residents of Mexico City and the NAFTA highway, linking Mexico to the U.S.," further explained Mr. Baird.
AMB completed and stabilized three industrial development projects during the quarter, totaling 343,000 square feet for a total estimated investment of $15.8 million. The industrial development and renovation pipeline currently stands at $163.6 million and consists of 3.5 million square feet, of which $102.3 million, or 63%, has been funded and 69% is preleased.
During the quarter, the Company sold one industrial building totaling 484,000 square feet for a price of $12.1 million. In addition, the Company sold $76.9 million of industrial assets, totaling 1.9 million square feet, to the AMB-SGP joint venture, the Company's co-investment partnership with an affiliate of GIC Real Estate, the real estate investment subsidiary of the Government of Singapore.
Mr. Baird summarized, "While our full-year acquisition volume is on track, it will be more back-end loaded than we originally anticipated. Given the transaction environment, our disposition activity including contributions to joint ventures, will more likely than not exceed our previous expectations. This combination will lead to some short term dilution in favor of longer term results."
Accounting for Stock Options
During the quarter, AMB began expensing the fair value of options granted under the Company's stock option plan. The Company will record the expense over the option vesting period, using the fair value at the date of grant. The accounting treatment has been adopted on a prospective basis and is applied to all options granted on January 1, 2002 or later. The Company currently anticipates the 2002 full-year expense to be $0.01 per share.
"We use options to attract and compensate talented employees and directors and further align their interest with our shareholders. Consistent with our goal of ever improving disclosure and transparency, we feel the cost of stock options is better reflected on our income statement, rather than the typical footnote disclosure," explained Mr. Moghadam.
Daniel H. Case III, Chairman of JP Morgan H&Q and an AMB Director, passed away on Wednesday, June 26, 2002 after a 15-month battle with brain cancer. AMB recognizes with gratitude Mr. Case's contributions as a member of AMB's Board of Directors since the Company's IPO in 1997. The Board will seek to fill his position with an independent director of equal knowledge, insight and enthusiasm but does not expect to find this person easily or quickly.
Mr. Moghadam stated, "Dan's contributions to AMB were unique and substantial. As a leader, he represented all those personal and professional values to which we can only aspire. His insights, judgment and integrity were unparalleled; we will miss him greatly. Our deepest sympathies are with his family." AMB has made a contribution in Dan's honor to ABC2, a non-profit organization dedicated to accelerating the discovery of a cure for brain cancer which was founded by Dan, his brother Steve and their families.
Beginning this quarter, AMB is voluntarily adopting the new SEC financial statement certification requirements. Hamid R. Moghadam, W. Blake Baird and Michael A. Coke will certify the Company's financial statements.
Supplemental Reporting Measure
AMB reported second quarter 2002 Funds from Operations (FFO) of $0.60 per share, representing a 39.5% increase over second quarter 2001 FFO of $0.43 per share, which included non-cash charges for impairment reserves of $0.18 per share. FFO per share for the first half of 2002 was $1.21, up 21.0% from the first half of 2001 of $1.00, which included non-cash charges of $0.23 per share. In accordance with the standards established by NAREIT, gains and losses from asset dispositions held for investment are not included in FFO.
AMB will host a conference call to discuss its second quarter 2002 results tomorrow at 11:00 AM PDT/ 2:00 PM EDT. Stockholders and interested parties may listen to a live broadcast of the call by dialing 719-457-2645 and using reservation code 137677. The conference call can also be accessed through the Internet on AMB's website at http://www.amb.com/; please visit the website at least fifteen minutes early to register, download and install any necessary audio software. For those who are not able to listen to the live broadcast, replays will be available shortly after the call until July 23, 2002 via telephone by dialing 719-457-0820 with reservation code 137677 and until August 5, 2002 on the Company's website.
AMB Property Corporation is a leading owner and operator of industrial real estate in North America. As of June 30, 2002 AMB owned, managed and had renovation and development projects totaling 96.6 million square feet and 1,037 buildings in 27 markets. AMB invests in industrial properties located predominantly in infill submarkets of major hub and gateway distribution markets. The Company's portfolio is comprised of High Throughput Distribution(R) facilities -- industrial properties built for speed and located near airports, seaports and ground transportation systems.
AMB's press releases are available on the Company website at http://www.amb.com/ or by contacting the Investor Relations department toll-free at 877-285-3111.
This press release contains forward-looking statements about business strategy, future leasing activities, acquisition opportunities and future plans, which are made pursuant to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve numerous risks and uncertainties and should not be relied upon as predictions of future events. The events or circumstances reflected in our forward-looking statements might not occur. In particular, a number of factors could cause AMB's actual results to differ materially from those anticipated, including, among other things, defaults on or non-renewal of leases by tenants, increased interest rates and operating costs, AMB's failure to obtain necessary outside financing, difficulties in identifying properties to acquire and in effecting acquisitions, AMB's failure to successfully integrate acquired properties and operations, AMB's failure to timely reinvest proceeds from any such dispositions, risks and uncertainties affecting property development and construction (including construction delays, cost overruns, AMB's inability to obtain necessary permits and public opposition to these activities), AMB's failure to qualify and maintain its status as a real estate investment trust under the Internal Revenue Code, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws, risks of doing business internationally and increases in real property tax rates. AMB's success also depends upon economic trends generally, including interest rates, income tax laws, governmental regulation, legislation and population changes. For further information on these and other factors that could impact AMB and the statements contained herein, reference should be made to AMB's filings with the Securities and Exchange Commission, including AMB's quarterly report on Form 10-Q for the quarter ended March 31, 2002.
Consolidated Balance Sheets (dollars in thousands) As of June 30, March 31, December 31, 2002 2002 2001 Assets Investments in real estate: Total investments in properties $4,732,321 $4,566,951 $4,530,711 Accumulated depreciation (311,058) (289,701) (265,653) Net investments in properties 4,421,263 4,277,250 4,265,058 Investment in unconsolidated joint ventures 64,083 71,137 71,097 Properties held for divestiture, net 133,934 139,370 157,174 Net investments in real estate 4,619,280 4,487,757 4,493,329 Cash and cash equivalents 119,287 99,492 81,732 Mortgage receivables 87,175 87,214 87,214 Accounts receivable, net 80,366 75,399 70,794 Other assets 31,172 31,261 27,824 Total assets $4,937,280 $4,781,123 $4,760,893 Liabilities and Stockholders' Equity Secured debt $1,352,218 $1,229,433 $1,220,164 Unsecured senior debt securities 800,000 800,000 780,000 Unsecured credit facility -- -- 12,000 Alliance Fund II credit facility 52,000 116,000 123,500 Other liabilities 162,629 155,568 138,601 Total liabilities 2,366,847 2,301,001 2,274,265 Minority interests: Preferred units 315,847 275,987 275,987 Minority interests 508,577 455,428 458,299 Total minority interests 824,424 731,415 734,286 Stockholders' equity: Common stock 1,649,909 1,652,607 1,656,242 Preferred stock 96,100 96,100 96,100 Total stockholders' equity 1,746,009 1,748,707 1,752,342 Total liabilities and stockholders' equity $4,937,280 $4,781,123 $4,760,893 Consolidated Statements of Operations (dollars in thousands, except share data) For the Quarters Ended For the Six Months Ended June 30, June 30, 2002 2001 2002 2001 Revenues Rental revenues (A) $149,741 $139,535 $301,982 $275,336 Equity in earnings of unconsolidated joint ventures 1,638 1,255 3,121 2,729 Investment management income 3,114 1,544 5,702 3,964 Interest and other income 3,330 3,692 7,312 8,831 Total revenues 157,823 146,026 318,117 290,860 Expenses Property operating 36,843 33,640 73,912 66,560 Interest, including amortization (B) 37,217 30,206 73,268 61,758 Depreciation and amortization 31,972 27,323 61,647 54,177 General, administrative, and other (C) 10,762 9,201 21,831 17,384 Loss on investments in other companies -- 16,103 -- 20,758 Total expenses 116,794 116,473 230,658 220,637 Income before minority interests and gains 41,029 29,553 87,459 70,223 Minority interests' share of income: Preferred units (6,510) (7,345) (12,367) (14,203) Minority interests (8,869) (9,629) (18,635) (15,768) Total minority interests (15,379) (16,974) (31,002) (29,971) Gains from disposition of real estate, net of minority interests 2,768 17,792 2,480 34,559 Net income before discontinued operations and extraordinary items 28,418 30,371 58,937 74,811 Discontinued operations 484 -- 484 -- Extraordinary items (early debt extinguishments) (52) (438) (268) (438) Net income 28,850 29,933 59,153 74,373 Preferred stock dividends (2,125) (2,125) (4,250) (4,250) Net income available to common stockholders $26,725 $27,808 $54,903 $70,123 Net income per common share: Basic $0.32 $0.33 $0.66 $0.83 Diluted $0.31 $0.33 $0.65 $0.82 Weighted average common shares: Basic 83,710,208 84,461,544 83,626,889 84,178,768 Diluted 85,529,416 85,378,727 85,120,197 85,078,751 (A) Includes straight-line rents of $2,786 and $2,141 for the quarters ended June 30, 2002 and 2001, respectively, and $6,747 and $3,466 for the six months ended June 30, 2002 and 2001, respectively. (B) Net of capitalized interest of $1,633 and $3,616 for the quarters ended June 30, 2002 and 2001, respectively, and $3,424 and $7,198 for the six months ended June 30, 2002 and 2001, respectively. (C) Includes share-based plans expense of $0.2 million for the quarter ended June 30, 2002, and $0.4 million for the six months ended June 30, 2002, related to the adoption of SFAS 123. Consolidated Statements of Funds from Operations (dollars in thousands, except share data) For the Quarters Ended For the Six Months Ended June 30, June 30, 2002 2001 2002 2001 Income before minority interests and gains $41,029 $29,553 $87,459 $70,223 Real estate related depreciation and amortization: Total depreciation and amortization 31,972 27,323 61,647 54,177 FF& E depreciation and ground lease amortization (A) (519) (492) (1,193) (973) Discontinued operations 484 -- 484 -- FFO attributable to minority interests (B) (11,274) (8,539) (24,118) (15,726) Adjustments to derive FFO from unconsolidated JV's: (C) Company's share of net income (1,638) (1,255) (3,121) (2,729) Company's share of FFO 2,700 2,133 4,829 4,253 Preferred stock dividends (2,125) (2,125) (4,250) (4,250) Preferred units distributions (6,510) (7,345) (12,367) (14,203) Funds from operations $54,119 $39,253 $109,370 $90,772 FFO per common share and unit: Basic $0.61 $0.44 $1.23 $1.01 Diluted $0.60 $0.43 $1.21 $1.00 Weighted average common shares and units: Basic 88,643,124 89,691,164 88,562,012 89,680,557 Diluted 90,462,332 90,608,347 90,055,320 90,580,540 (A) Ground lease amortization represents the amortization of the Company's investments in ground leased properties, for which the Company does not have a purchase option. (B) Represents FFO attributable to minority interests in consolidated joint ventures whose interests are not exchangeable into common stock. The minority interest's share of cash basis NOI was $19,657 and $16,274 for the quarters ended June 30, 2002 and 2001, respectively, and $39,392 and $26,220 for the six months ended June 30, 2002 and 2001, respectively. (C) AMB's share of NOI was $3,063 and $2,263 for the quarters ended June 30, 2002 and 2001, and $5,707 and $5,801 for the six months ended June 30, 2002, and 2001, respectively.
SOURCE: AMB Property Corporation
CONTACT: investors/analysts, Michael A. Coke or Michelle C. Wells,
877-285-3111, or fax, +1-415-394-9001, or
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Web site: http://www.amb.com/