AMB Property Corporation and AMB Property, L.P. — Q2 2010 Form 10-Q
Entity note: The request identifies Prologis, Inc., but the supplied filing is for AMB Property Corporation and AMB Property, L.P., for the quarter ended June 30, 2010. It describes an industrial real estate owner, operator and developer. The filing presents the parent REIT and its operating partnership together; substantially all assets and debt are held by the operating partnership.
Business context and reporting period
The company reported results for the three and six months ended June 30, 2010, compared with the corresponding 2009 periods. Its portfolio covered approximately 156.1 million square feet in 48 markets and 15 countries. Owned-and-managed properties totaled 136.7 million square feet and were 91.8% leased at quarter-end.
Financial results and position
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Total revenue | $158.6 million | $148.6 million | $315.6 million | $310.7 million |
| Rental revenue | $151.8 million | $140.8 million | $301.3 million | $291.3 million |
| Net income (loss) | $9.3 million | $29.0 million | $8.7 million | $(94.3) million |
| Net income (loss) available to common stockholders | $2.9 million | $17.2 million | $(1.5) million | $(105.4) million |
| Common EPS | $0.02 | $0.12 | $(0.01) | $(0.86) |
| Property NOI | $103.3 million | $97.8 million | $203.5 million | $199.2 million |
| FFO, as adjusted, per share and unit | $0.30 diluted | $0.37 diluted | $0.62 diluted | $1.07 diluted |
All amounts are U.S. dollars. Six-month operating cash flow was $114.7 million, versus $121.1 million in 2009; investing cash outflow was $331.9 million, versus $3.6 million; financing cash inflow was $188.9 million, versus a $117.3 million outflow. Cash and cash equivalents were $214.5 million at June 30, 2010.
Consolidated debt was $3.0 billion, down from $3.2 billion at December 31, 2009. Management reported approximately $1.2 billion available under three credit facilities, and company-share liquidity of approximately $1.5 billion, including more than $1.2 billion of credit availability and approximately $292 million of unrestricted cash on an owned-and-managed basis. The company-share debt-to-assets ratio was 40.5%; debt-to-market-capitalization was 45.5%. The parent company itself reported no debt; debt is held by the operating partnership and subsidiaries.
Material changes versus prior comparable periods
- Q2 revenue grew 6.7%, driven by rental revenue growth, while six-month revenue grew 1.6%. Same-store rental revenue declined 0.6% in Q2 and 3.7% for the first half, reflecting lower occupancy and rents and more free rent.
- Cash-basis same-store NOI, excluding lease termination fees, declined 6.0% in Q2 and 7.8% for the first half. Management cited lower average occupancy and increased free rent. Quarter-end occupancy rose 130 basis points from Q1; average Q2 occupancy was 90.1%.
- Q2 net income fell year over year, while first-half net income improved from the prior-year loss. The 2009 comparison included $175.9 million of real estate impairment losses in continuing operations and materially higher property-sale and development gains.
- Adjusted FFO per share and unit declined to $0.30 in Q2 and $0.62 for the first half, from $0.37 and $1.07, respectively. Development gains and private-capital revenues were lower year over year for the first half.
- Debt declined by approximately $218 million on the consolidated balance sheet from year-end. In April, the company issued approximately 18.2 million common shares at $27.50, generating about $479 million net proceeds. Management said it completed more than $428 million of debt repayments and extensions in Q2.
Outlook, commentary, risks and unusual items
- Management said the global recovery was encouraging but noted European sovereign-credit concerns, weak U.S. employment growth and slower retail sales were tempering customers’ space commitments. It expected inventory restocking and economic improvement to support future industrial-space demand, but gave no specific company earnings or FFO guidance.
- Management aimed to return owned-and-managed occupancy toward its historical average of 95%, lease up development properties and realize value from land through ventures, sales and build-to-suit projects. It believed rents had bottomed in most markets, while expecting negative rent changes on rollovers in 2010. Trailing-four-quarter rent changes were down 11.2%; Q2 changes were down 12.4%.
- Development activity included seven construction-in-progress projects expected to total approximately 3.2 million square feet, with estimated investment of $234.5 million. The company reported that approximately 97% of its development portfolio investment had been funded, with an estimated $34.3 million still to fund at the consolidated-company level.
- Q2 included $0.9 million of restructuring charges; first-half charges were $3.8 million. No real estate impairment losses were recognized in the first half of 2010, compared with $175.9 million in the first half of 2009. The company reported a $4.2 million gain on Q2 property sales and $5.0 million of first-half development profits.
- Near-term refinancing and capital-market access remain significant risks. Credit facilities mature in 2011, and the filing identifies potential adverse effects from refinancing at higher rates, credit-rating downgrades, covenant noncompliance, weaker leasing or lower rents. Management reported covenant compliance at June 30, 2010.
- Off-balance-sheet exposure included $388.2 million of guarantees and contribution obligations, including $260.6 million of potential co-investment venture contributions. The company also disclosed $12.6 million of letters of credit. Environmental, insurance, natural-disaster and joint-venture risks were noted; management did not expect pending litigation to have a material effect.
- Subsequent events included approximately $188.9 million of Yen-denominated financing in July, additional third-party fund contributions, and the August 2 announcement of a Mexico fund that raised approximately $260 million from investors; the company expected to contribute about $65 million at full deployment.
Most important facts for investors to verify
- Confirm the issuer: the supplied document is AMB’s 2010 filing, not a Prologis, Inc. filing.
- Track same-store occupancy, free rent, renewal spreads and cash-basis NOI, including whether management’s occupancy and rent expectations were achieved.
- Review the 2011 credit-facility maturities, refinancing terms, covenant headroom and the distinction between consolidated debt and company-share debt.
- Assess the sustainability of distributions against operating cash flow and planned development, joint-venture and capital commitments.
- Review the April equity issuance and subsequent financing and fund transactions for dilution, liquidity effects and execution risk.
- Evaluate contingent guarantees and contribution obligations, property valuation assumptions, and exposure to currency, environmental and insurance risks.