AMB Property Corporation
In the first half of 2003, EPS was $0.89, including $0.50 per share of gains on disposition of real estate, up from $0.65 per share in first half 2002 which included $0.03 of gains.
The company's industrial operating portfolio was 91.5% leased at the end of the second quarter, down 100 basis points from March 31, 2003 and down 290 basis points from June 30, 2002. Preliminary data indicate national industrial occupancy at the end of the second quarter was 88.5%. Cash-based same store net operating income decreased 2.4% in the quarter and increased 0.7% year to date.
Hamid R. Moghadam, chairman and CEO, said, "AMB's second quarter occupancy decline was consistent with the stalled economic environment. Importantly, based on preliminary national industrial data, our portfolio continues to outperform the industrial market by approximately 300 basis points. With the reduction in geopolitical tensions, domestic fiscal and monetary stimulus, and historically lean levels of inventory, we believe the stage is set for increased absorption of industrial space. However, persistently weak levels of capital spending and manufacturing output, combined with delayed decision making by users, could drive occupancies still lower before recovery begins. Long term, our outlook is positive and reflected in our increased acquisition and development activity in the second quarter."
During second quarter 2003, AMB acquired 16 buildings totaling 2.1 million square feet for a total investment of $120.1 million. The company sold two buildings totaling 229,700 square feet for a disposition price of $15.1 million during the same period.
AMB began four development projects during the quarter with an estimated total investment of $42.1 million. AMB's committed industrial development and renovation pipeline through 2005 currently stands at $157.3 million and consists of an expected 2.8 million square feet, of which 60% has been funded and 20% has been preleased.
W. Blake Baird, AMB's president, noted, "During the last four quarters, AMB's share of dispositions has totaled more than $380 million, including assets in markets that no longer fit our investment strategy and properties at valuations we considered to be at premium levels. In addition, we have contributed nearly $75 million to co-investment joint ventures. Although these sales and contributions have diluted our near-term results, we believe they position the company for superior long-term growth and higher return on invested capital with a portfolio increasingly aligned with our investment focus and private capital model. Further, proceeds from these sales, along with our balance sheet and private capital sources, create significant capacity for future deployment. While we will continue to sell assets on an opportunistic basis, we've substantially achieved our near-term strategic disposition goals. Therefore, in the coming quarters, we expect AMB's net investment activity to begin to reflect the acquisition and development opportunities we are seeing in our targeted global distribution markets."
In addition to the developments begun in the second quarter, AMB has agreed to purchase a 32-acre (13 hectare) development parcel adjacent to Tokyo's Narita International Airport -- one of the world's busiest airports for international air cargo. The land purchase, which is subject to customary closing conditions and completion of infrastructure by the seller, is expected to be completed in May 2004. AMB and its development partner AMB BlackPine currently plan to develop approximately 1.5 million square feet (139,400 square meters) in seven distribution facilities on the site. The company's total investment in AMB Narita Air Cargo Center is expected to be approximately $150 million with delivery in four phases between 2005 and 2007.
Financing Activity and Staffing Update
During the quarter, AMB issued and sold 2,000,000 shares of its 6.5% Series L Cumulative Redeemable Preferred Stock at a price of $25.00 per share. In addition, the company announced the redemption of all 3,995,800 shares of its outstanding 8.5% Series A Cumulative Redeemable Preferred Stock; the shares will be redeemed on July 28, 2003.
In a recent promotion, Alison M. Hill was appointed senior vice president of AMB and senior vice president and chief operating officer of AMB's wholly owned subsidiary, AMB Capital Partners, LLC.
Supplemental Reporting Measure
AMB reports funds from operations per fully diluted share and unit (FFOPS) in accordance with the standards established by NAREIT as a supplemental earnings measure. Second quarter 2003 FFOPS was $0.52, compared with $0.60 for the same period in 2002. Current period FFO was above the company's guidance of $0.47 to $0.48 per share primarily as a result of net lease termination fees of $0.03 per share above the company's expectations. FFOPS for the first half of 2003 was $1.13, below 2002 FFOPS for the same period of $1.21.
In light of the SEC's recent rulemaking regarding the use of non-GAAP financial measures and its related discussions of FFO, the company determined that it should no longer exclude the amortization of investments in leasehold interests from FFO. This change has added $0.01 and $0.02 per share, respectively, to FFO for the quarter and six months ended June 30, 2003. Excluding this change and the net lease termination fees referred to above, second quarter 2003 FFOPS would have been in line with the company's guidance. A reconciliation from net income to funds from operations is provided in the attached tables and published in AMB's quarterly supplemental analyst package and is available on the company's website at www.amb.com.
Conference Call and Supplemental Information
The company will host a conference call to discuss its second quarter 2003 results on July 9, 2003 at 11:00 AM PDT/2:00 PM EDT. Stockholders and interested parties may listen to a live broadcast of the conference call by dialing +1 719 457 2641 and using reservation code 489745 or by webcast through a link on the company's website at www.amb.com. If you are unable to listen to the live conference call, a telephone and webcast replay will be available after 5:00 PM PDT on Wednesday, July 9, 2003. The telephone replay will be available until 5:00 PM PDT on Wednesday, July 30, 2003 and can be accessed by dialing +1 719 457 0820 and using reservation code 489745. The webcast can be accessed through a link on the company's website at www.amb.com and will be available until 5:00 PM PDT on Wednesday, July 30, 2003.
In addition, the company will post a summary of the guidance given on the call and a supplement detailing the components of net asset value to the Investor Information portion of its website on Monday, July 14 by 5:00 PM PDT.
AMB Property Corporation is a leading owner and operator of industrial real estate, focused on major hub and gateway distribution markets throughout North America, Europe and Asia. As of June 30, 2003 AMB owned, managed and had renovation and development projects totaling 96.5 million square feet (9.0 million square meters) and 1,005 buildings in 30 markets. AMB invests in industrial properties located predominantly in the infill submarkets of its targeted markets. The company's portfolio is comprised largely 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 www.amb.com or by contacting the Investor Relations department at 1-877-285-3111.
This document contains forward-looking statements about business strategy 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 customers, 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 divest of properties that we have contracted to sell or timely reinvest proceeds from any such divestitures, 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 our 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, increases in real property tax rates and the risks of doing business internationally, including currency risks. 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, 2003. The quarterly financial data contained herein is unaudited and the historical financial information is not necessarily indicative of future results.
Consolidated Balance Sheets (dollars in thousands) As of June 30, March 31, December 31, 2003 2003 2002 Assets Investments in real estate: Total investments in properties $5,016,014 $4,869,741 $4,925,982 Accumulated depreciation (412,990) (382,900) (362,540) Net investments in properties 4,603,024 4,486,841 4,563,442 Investment in unconsolidated joint ventures 68,566 67,754 64,428 Properties held for divestiture, net 73,000 59,742 107,871 Net investments in real estate 4,744,590 4,614,337 4,735,741 Cash and cash equivalents 91,161 149,908 117,214 Mortgage receivable 13,097 13,112 13,133 Accounts receivable, net 83,116 76,056 74,207 Other assets 44,300 51,909 52,199 Total assets $4,976,264 $4,905,322 $4,992,494 Liabilities and Stockholders' Equity Secured debt $1,215,135 $1,250,528 $1,284,675 Unsecured senior debt securities 800,000 800,000 800,000 Unsecured debt 9,909 10,050 10,186 Alliance Fund II credit facility -- 51,500 45,500 Unsecured credit facility 19,420 17,464 95,000 Accounts payable and other liabilities 167,621 188,050 181,716 Total liabilities 2,212,085 2,317,592 2,417,077 Minority interests: Preferred units 308,369 308,369 308,369 Minority interests 733,304 592,260 582,898 Total minority interests 1,041,673 900,629 891,267 Stockholders' equity: Common stock 1,578,087 1,591,107 1,588,156 Preferred stock 144,419 95,994 95,994 Total stockholders' equity 1,722,506 1,687,101 1,684,150 Total liabilities and stockholders' equity $4,976,264 $4,905,322 $4,992,494 Consolidated Statements of Operations (dollars in thousands, except share data) For the Quarters Ended For the Six Months Ended June 30, June 30, 2003 2002 2003 2002 Revenues and other income Rental revenues $147,961 $139,124 $305,233 $279,179 Equity in earnings of unconsolidated joint ventures 1,622 1,638 2,857 3,121 Private capital income 3,555 3,114 5,916 5,702 Interest and other income 1,549 3,330 2,942 7,312 Total revenues 154,687 147,206 316,948 295,314 Expenses Property operating expenses 38,607 33,671 78,803 67,620 Interest, including amortization (A) 36,645 36,484 73,750 71,177 Depreciation and amortization (B) 38,094 29,967 72,893 57,678 General and administrative 12,170 10,762 24,344 21,831 Total expenses 125,516 110,884 249,790 218,306 Income before minority interests and gains 29,171 36,322 67,158 77,008 Minority interests' share of income: Preferred units (6,379) (6,510) (12,759) (12,367) Minority interests (9,843) (8,760) (20,941) (18,522) Total minority interests share of income (16,222) (15,270) (33,700) (30,889) Income from continuing operations, before gains from dispositions 12,949 21,052 33,458 46,119 Gains from dispositions of real estate, net of minority interests -- 2,768 7,429 2,480 Income from continuing operations 12,949 23,820 40,887 48,599 Discontinued operations: Income attributable to discontinued operations, net of minority interests 1,310 5,030 3,106 10,554 Gains from dispositions of real estate, net of minority interests 3,867 -- 33,511 -- Total discontinued operations 5,177 5,030 36,617 10,554 Net income 18,126 28,850 77,504 59,153 Preferred stock dividends (2,195) (2,125) (4,318) (4,250) Net income available to common stockholders $15,931 $26,725 $73,186 $54,903 Net income per common share (diluted) $0.19 $0.31 $0.89 $0.65 Weighted average common shares (diluted) 82,465,984 85,529,416 82,520,038 85,120,197 (A) Interest expense for the quarter and six months ended June 30, 2002, was adjusted for the retroactive adoption of SFAS No. 145, which resulted in the reclassification of debt extinguishment costs of $0.1 million and $0.3 million, respectively, from extraordinary items. (B) Includes unrealized losses resulting from the impairment of investments in real estate and leasehold interests that continue to he held for long-term investment. For the quarter and six months ended June 30, 2003, such amounts totaled $5.2 million. Also, during the quarter ended June 30, 2003, the Company recorded a reduction of depreciation expense of $2.1 million for the recovery, through a legal settlement, of capital expenditures paid in prior years. 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, 2003 2002(A) 2003 2002(B) Net income $18,126 $28,850 $77,504 $59,153 Gains from dispositions of real estate (3,867) (2,768) (40,940) (2,480) Real estate related depreciation and amortization: Total depreciation and amortization 38,094 29,967 72,893 57,678 Discontinued operations' depreciation 240 2,005 614 3,969 FF& E depreciation (189) (174) (378) (347) Ground lease amortization(B) -- (345) -- (690) Adjustments to derive FFO from consolidated JVs: Minority interests 9,834 8,869 21,017 18,635 FFO attributable to minority interests (15,519) (11,274) (30,502) (24,118) Adjustments to derive FFO from unconsolidated JVs: AMB's share of net income (1,622) (1,638) (2,857) (3,121) AMB's share of FFO 2,645 2,700 5,275 4,673 Preferred stock dividends (2,195) (2,125) (4,318) (4,250) Funds from operations $45,547 $54,067 $98,308 $109,102 FFO per common share and unit (diluted) $0.52 $0.60 $1.13 $1.21 Weighted average common shares and units (diluted) 87,302,896 90,462,332 87,364,056 90,055,320 (A) FFO for the quarter and six months ended June 30, 2002, was adjusted for the retroactive adoption of SFAS No. 145 for the treatment of extraordinary items, resulting in a reduction of $0.1 million and $0.3 million, respectively, from previously reported FFO. (B) In the quarter ended June 30, 2003, and effective January 1, 2003, the Company discontinued its practice of deducting amortization of investments in leasehold interests from FFO as such an adjustment is not provided for in NAREIT's FFO definition. As a result, FFO for the six months ended June 30, 2003, includes an adjustment of $0.9 million to reflect the change. Had the Company not made the change, reported FFO per share for the quarter and six months ended June 30, 2003, would have been $0.51 and $1.11, respectively. Had the Company made the change effective January 1, 2002, reported FFO per share for the quarter and six months ended June 30, 2002, would have been $0.60 and $1.22, respectively.
SOURCE: AMB Property Corporation
Web site: http://www.amb.com/