AMB Property Corporation
Third quarter 2005 EPS decreased 11.4% from EPS of $0.35 in the same period of 2004, primarily reflecting the impact of higher lease termination fees received in 2004. In the first nine months of 2005, EPS increased 74.0% over the comparable period of 2004, primarily driven by development, contribution and disposition gains.
Operating Results
AMB's industrial operating portfolio was 94.6% occupied at both September 30, 2005 and September 30, 2004, an increase of ten basis points from June 30, 2005. Based on preliminary data provided by Torto Wheaton Research (TWR), AMB estimates that U.S. industrial vacancy at the end of the third quarter was 10.0%, representing a 40 basis point improvement in occupancy rates from the prior quarter -- the sixth consecutive quarter of improvement nationally.
Reflecting the decrease in industrial rents nationally from their peak levels in 2000-2001, rents on lease renewals and rollovers in AMB's operating portfolio declined 7.6% in the third quarter 2005, an improvement from declines of 14.6% in the prior quarter and 13.2% in the third quarter of 2004. Cash-basis same store net operating income (NOI) decreased 4.5% in the third quarter of 2005, reflecting the receipt of $5.0 million in same store lease termination fees in the quarter ended September 30, 2004, versus approximately $0.1 million in the quarter ended September 30, 2005.
Hamid R. Moghadam, AMB's chairman and CEO, said, "The key drivers of demand for industrial real estate continue their positive trend. The Production and New Orders components of the ISM Index are at their highest levels since July 2004. Despite high energy prices, year-over-year shipping volumes have increased approximately 10% and international air cargo volumes are up more than 3%, a demonstration of the power of global trade. These factors contributed to the estimated 90 million square feet of national industrial space absorption in the third quarter -- the highest level of quarterly absorption in the last five years. At this level, industrial real estate markets are approaching equilibrium for supply and demand, somewhat ahead of our earlier expectations, spurring rent growth in many of our key markets."
Investment Activity
During the third quarter, the company began development on eight new distribution facilities in Canada, the U.S. and four countries in Europe. The projects are expected to comprise approximately 2.0 million square feet of space with a total expected investment amount of $162.9 million. AMB's development and renovation pipeline now totals 39 projects of approximately 9.7 million square feet globally with an estimated total investment of $923.3 million. These projects are scheduled for delivery through the first quarter of 2008. The pipeline is 67% funded to date.
AMB placed three industrial development projects into operation in the third quarter of 2005. The buildings, held as part of the company's investment portfolio, total approximately 1.1 million square feet and were completed for an aggregate investment of approximately $41.4 million. The new distribution facilities are 100% leased and are located in southern California's Inland Empire and Miami, Florida.
The company completed two additional development projects in the quarter and made them available for sale to third parties or for contribution to private capital funds. Located in Mexico City and northern New Jersey, the buildings total approximately 1.2 million square feet and have an estimated total investment of $82.7 million. Year to date, AMB has sold or contributed eight development properties generating net gains to the company of approximately $16.2 million.
During the third quarter, AMB acquired 1.8 million square feet of distribution facilities in eight buildings with a total acquisition cost of approximately $158.5 million. The properties expand AMB's customer offerings in major distribution hubs in the U.S., Japan and Europe.
W. Blake Baird, AMB's president, said, "We are rapidly expanding our global platform to serve distribution customers in markets essential to trade. This quarter, we entered Brussels and Rotterdam. In addition, we secured a land position to enter Milan with an expected 1.3 million square foot multi- phase development. Our land positions globally can now support approximately 23 million square feet of future development beyond our $923 million pipeline of development currently under way."
As part of its expansion into Canada, AMB acquired an approximate 5% interest in IAT Air Cargo Facilities Income Fund (IAT), a Canadian income trust specializing in aviation-related real estate at Canada's leading international airports. AMB has also acquired the management company which provides property management, leasing and development services for IAT's 1.3 million square foot portfolio.
During the third quarter, AMB completed opportunistic sales of six operating properties which no longer fit the company's property type or submarket focus, including the last of the company's shopping center assets. The buildings comprised approximately 645,000 square feet and totaled approximately $76.8 million in gross disposition proceeds.
Private Capital Financing
Subsequent to the end of the third quarter, AMB Institutional Alliance Fund III closed on an additional $20 million of third party equity. Fund III, the company's open-end commingled fund, had its initial closing in the fourth quarter of 2004 and has thus far raised $251 million in third-party equity. The Fund invests in operating and renovation properties in the U.S. and had investments in real estate of $672.9 million at September 30, 2005.
Supplemental Earnings Measure
AMB reports funds from operations per fully diluted share and unit (FFOPS) in accordance with the standards established by NAREIT. Third quarter 2005 FFOPS was $0.50, at the top end of the company's guidance of $0.48 to $0.50 per share. A year ago, third quarter FFOPS was $0.61; FFOPS for the first nine months of 2005 was $1.59 compared with $1.68 in the same period of 2004. The 2004 results benefited from the receipt of $8.1 million in lease termination fees.
Included in the footnotes to the company's attached financial statements is a discussion of why management believes FFO is a useful supplemental measure of operating performance, of ways in which investors might use FFO when assessing the company's financial performance, and of FFO's limitations as a measurement tool. A reconciliation from net income to funds from operations is provided in the attached tables and published in AMB's quarterly supplemental analyst package, available on the company's website at www.amb.com.
Conference Call and Supplemental Information
The company will host a conference call to discuss the quarterly results on Wednesday, October 12, 2005 at 1:00 PM EDT/10:00 AM PDT. The live broadcast of the call can be accessed by dialing +1-877-447-8218 or +1-706-643-7823 and using reservation code 9566985; the live webcast can be accessed through a link on the company's website at www.amb.com. Replays of both the telephone and webcast formats of the call will be available from 12:00 PM PDT on October 12, 2005 through 5:00 PM PDT Friday, November 11, 2005. The telephone replay can be accessed by dialing +1-800-642-1687 or +1-706-645-9291 and using reservation code 9566985; the webcast can be accessed through a link on the company's website at www.amb.com.
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 Friday, October 14, 2005 by 5:00 PM PDT.
AMB Property Corporation. Local partner to global trade(TM).
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 September 30, 2005 AMB owned, managed and had renovation and development projects totaling 118.0 million square feet (11.0 million square meters) and 1,109 buildings in 40 markets within ten countries. AMB invests in properties located predominantly in the infill submarkets of its targeted 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 www.amb.com or by contacting the Investor Relations department at 1-877-285-3111.
Some of the information included in this report contains forward-looking statements, such as those related to the company's interpretation of trends regarding national and portfolio industrial space absorption; the total expected investment in acquisitions; the timing of sales and contributions of properties; size and timing of deliveries and total investment in development projects; and use of private capital funds for planned investment activity 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 risks and uncertainties, there are important factors that could cause our 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 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," "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 are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of the date of this report or the dates indicated in the statements. We assume no obligation to update or supplement forward-looking statements. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: defaults on or non-renewal of leases by tenants, increased interest rates and operating costs, our failure to obtain necessary outside financing, difficulties in identifying properties to acquire and in effecting acquisitions, our failure to successfully integrate acquired properties and operations, our failure to divest properties we have contracted to sell or to timely reinvest proceeds from any divestitures, risks and uncertainties affecting property development and construction (including construction delays, cost overruns, our inability to obtain necessary permits and public opposition to these activities), our failure to qualify and maintain our status as a real estate investment trust, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate and zoning laws, risks related to doing business internationally and increases in real property tax rates. Our success also depends upon economic trends generally, including interest rates, income tax laws, governmental regulation, legislation, population changes and certain other matters discussed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Business Risks" and elsewhere in our most recent annual report on Form 10-K for the year ended December 31, 2004.
AMB CONTACTS Margan Mitchell Vice President, Corporate Communications Direct +1-415-733-9477 Email[email protected] Evaleen G. Andamo Director, Investor Relations Direct +1-415-733-9565 Email[email protected] CONSOLIDATED BALANCE SHEETS (dollars in thousands) As of September June 30, March 31, December 31, 30, 2005 2005 2005 2004 Assets Investments in real estate: Total investments in properties $6,898,824 $6,680,432 $6,608,737 $6,526,144 Accumulated depreciation (721,892) (683,679) (652,085) (615,646) Net investments in properties 6,176,932 5,996,753 5,956,652 5,910,498 Investments in unconsolidated joint ventures 115,624 121,000 105,127 55,166 Properties held for contribution, net 80,245 -- -- -- Properties held for divestiture, net 45,742 75,472 49,455 87,340 Net investments in real estate 6,418,543 6,193,225 6,111,234 6,053,004 Cash and cash equivalents 162,437 169,471 215,068 146,593 Mortgages and loans receivable 21,652 21,682 21,710 13,738 Accounts receivable, net 158,000 173,360 135,768 109,028 Other assets 75,605 66,633 71,304 64,580 Total assets $6,836,237 $6,624,371 $6,555,084 $6,386,943 Liabilities and Stockholders' Equity Secured debt $2,051,480 $1,843,861 $1,915,702 $1,892,524 Unsecured senior debt securities 1,003,940 1,003,940 1,003,940 1,003,940 Unsecured debt 24,175 8,710 8,869 9,028 Unsecured credit facilities 472,291 549,397 422,616 351,699 Accounts payable and other liabilities 262,425 242,944 258,159 262,286 Total liabilities 3,814,311 3,648,852 3,609,286 3,519,477 Minority interests: Joint venture partners 933,262 906,527 884,188 828,622 Preferred unitholders 278,378 278,378 278,378 278,378 Limited partnership unitholders 86,719 89,601 89,377 89,326 Total minority interests 1,298,359 1,274,506 1,251,943 1,196,326 Stockholders' equity: Common stock 1,620,363 1,597,809 1,590,651 1,567,936 Preferred stock 103,204 103,204 103,204 103,204 Total stockholders' equity 1,723,567 1,701,013 1,693,855 1,671,140 Total liabilities and stockholders' equity $6,836,237 $6,624,371 $6,555,084 $6,386,943 CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except share data) For the Quarters Ended For the Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Revenues Rental revenues $169,658 $165,063 $505,030 $470,751 Private capital income 5,764 2,726 12,520 8,077 Total revenues 175,422 167,789 517,550 478,828 Costs and expenses Property operating costs (43,646) (41,226) (130,842) (120,849) Depreciation and amortization (44,471) (39,488) (132,294) (112,362) General and administrative (19,665) (15,656) (57,070) (44,869) Fund costs (329) (78) (1,073) (737) Total costs and expenses (108,111) (96,448) (321,279) (278,817) Operating income 67,311 71,341 196,271 200,011 Other income and expenses Equity in earnings of unconsolidated joint ventures 1,529 603 9,959 3,256 Other income and expenses, net 2,897 1,253 3,224 3,219 Gains from dispositions of real estate -- -- 18,923 -- Development profits, net of taxes 398 1,521 20,322 4,756 Interest expense, including amortization (40,760) (40,287) (122,345) (119,309) Total other income and expenses (35,936) (36,910) (69,917) (108,078) Income before minority interests and discontinued operations 31,375 34,431 126,354 91,933 Minority interests' share of income: Joint venture partners' share of income (10,902) (9,958) (33,070) (27,811) Joint venture partners' share of development profits (21) (145) (10,136) (894) Preferred unitholders (5,368) (4,942) (16,104) (14,766) Limited partnership unitholders (636) (846) (1,713) (2,099) Total minority interests' share of income (16,927) (15,891) (61,023) (45,570) Income from continuing operations 14,448 18,540 65,331 46,363 Discontinued operations: Income attributable to discontinued operations, net of minority interests 290 3,059 3,620 8,849 Gain from disposition of real estate, net of minority interests 14,330 10,450 47,673 12,325 Total discontinued operations 14,620 13,509 51,293 21,174 Net income 29,068 32,049 116,624 67,537 Preferred stock dividends (1,783) (1,783) (5,349) (5,349) Net income available to common stockholders $27,285 $30,266 $111,275 $62,188 Net income per common share (diluted) $0.31 $0.35 $1.27 $0.73 Weighted average common shares (diluted) 88,373,479 85,395,787 87,424,751 85,012,460 CONSOLIDATED STATEMENTS OF FUNDS FROM OPERATIONS(1) (dollars in thousands, except share data) For the Quarters Ended For the Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Net income $29,068 $32,049 $116,624 $67,537 Gains from disposition of real estate, net of minority interests (14,330) (10,450) (66,596) (12,325) Depreciation and amortization: Total depreciation and amortization 44,471 39,488 132,294 112,362 Discontinued operations' depreciation 239 3,136 1,468 10,369 Non-real estate depreciation (892) (172) (2,439) (508) Adjustments to derive FFO from consolidated JVs: Joint venture partners' minority interests (Net income) 10,902 9,958 33,070 27,811 Limited partnership unitholders' minority interests (Net income) 636 846 1,713 2,099 Limited partnership unitholders' minority interests (Development profits) 16 79 568 222 Discontinued operations' minority interests (Net income) 22 2,728 611 4,150 FFO attributable to minority interests (24,944) (22,193) (72,634) (58,172) Adjustments to derive FFO from unconsolidated JVs: AMB's share of net income (1,529) (603) (9,959) (3,256) AMB's share of FFO 4,592 1,661 11,808 6,089 AMB's share of development profits, net of taxes -- -- 5,441 -- Preferred stock dividends (1,783) (1,783) (5,349) (5,349) Funds from operations $46,468 $54,744 $146,620 $151,029 FFO per common share and unit (diluted) $0.50 $0.61 $1.59 $1.68 Weighted average common shares and units (diluted) 93,034,016 90,146,245 92,121,224 89,764,633
(1) Funds From Operations ("FFO"). The Company believes that net income, as defined by GAAP, is the most appropriate earnings measure. However, the Company considers funds from operations, or FFO, as defined by NAREIT, to be a useful supplemental measure of its operating performance. FFO is defined as net income, calculated in accordance with GAAP, less gains (or losses) from dispositions of real estate held for investment purposes and real estate- related depreciation, and adjustments to derive the Company's pro rata share of FFO of consolidated and unconsolidated joint ventures. Further, the Company does not adjust FFO to eliminate the effects of non-recurring charges. The Company believes that FFO, as defined by NAREIT, is a meaningful supplemental measure of its operating performance because historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expenses. However, since real estate values have historically risen or fallen with market and other conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. The Company believes that the use of FFO, combined with the required GAAP presentations, has been beneficial in improving the understanding of operating results of real estate investment trusts among the investing public and making comparisons of operating results among such companies more meaningful. The Company considers FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help the investing public compare the operating performance of a company's real estate between periods or as compared to other companies. While FFO 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. FFO also does not consider the costs associated with capital expenditures related to the Company's real estate assets nor is FFO necessarily indicative of cash available to fund the Company's future cash requirements. Further, the Company's computation of FFO may not be comparable to FFO reported by other real estate investment trusts that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company does.
SOURCE: AMB Property Corporation
CONTACT: Margan Mitchell, Vice President, Corporate Communications,
+1-415-733-9477, or
Investor Relations, +1-415-733-9565, or
Corporation
Web site: http://www.amb.com/
