Prologis, Inc. — filing identity and reporting period
Important identification: The supplied filing is AMB Property Corporation and AMB Property, L.P.’s joint Form 10-K for the fiscal year ended December 31, 2010, filed February 18, 2011. It is not a Prologis, Inc. 10-K. Prologis appears as the proposed merger counterparty in a subsequent-event disclosure.
AMB was a global industrial-property owner, operator and developer. At year-end, its portfolio comprised approximately 159.6 million square feet across 49 markets in 15 countries; its 141.9 million-square-foot owned-and-managed operating portfolio was 93.7% leased.
Financial and operating performance
| Metric | FY 2010 | Prior comparable period |
|---|---|---|
| Total revenue | $633.5 million | $618.4 million in 2009; up 2.4% |
| Net income (loss) | $33.6 million | $(28.0) million in 2009 |
| Net income (loss) available to common stockholders | $10.0 million; $0.06 per share | $(50.1) million; $(0.37) per share in 2009 |
| Adjusted FFO | $210.2 million; $1.27 per share and unit | $288.8 million; $2.09 diluted in 2009 |
| Adjusted Core FFO | $203.4 million; $1.22 diluted per share and unit | $201.2 million; $1.46 diluted in 2009 |
| Operating cash flow | $252.8 million | $243.1 million in 2009 |
| Investing cash flow | $(586.6) million | $84.1 million provided in 2009 |
| Financing cash flow | $329.7 million provided | $298.4 million used in 2009 |
| Cash and cash equivalents | $198.4 million | $187.2 million at year-end 2009 |
| Consolidated debt | $3.33 billion | $3.21 billion at year-end 2009 |
Management reported approximately $1.6 billion of share-level liquidity, comprising about $1.4 billion of credit-line availability and more than $260 million of unrestricted cash and cash equivalents. This differs from the consolidated balance-sheet cash figure above; investors should confirm the definitions and scope. Operating partnership share of debt was approximately $3.99 billion, and share of debt to share of total assets was 43.0%. Management reported a 4.6% average interest rate and 4.8-year weighted average debt maturity.
Rental revenue rose 3.8% to $602.6 million, while private-capital revenue fell 18.7% to $30.9 million. Property NOI was $413.9 million, compared with $397.1 million in 2009. Full-year same-store cash-basis NOI excluding lease-termination fees declined 3.2%; fourth-quarter cash-basis same-store NOI on the same basis increased 0.9% year over year. Year-end owned-and-managed occupancy improved to 93.7% from 91.2%, while average occupancy was 91.2% versus 91.4%. Trailing-four-quarter rent changes on renewals and rollovers were negative 11.9%, versus negative 6.9% in 2009.
Common dividends were $1.12 per share for 2010, unchanged from 2009. The filing states cash flows from operations covered distributions in 2010, 2009 and 2008, with property-sale proceeds also used where needed.
Material changes versus 2009
- Revenue increased 2.4%, and the company returned to positive GAAP net income after losses in 2009 and 2008.
- Adjusted FFO fell about 27% to $210.2 million, while adjusted Core FFO rose about 1% to $203.4 million. The measures differ because adjusted Core FFO excludes development profits.
- 2010 continuing-operations results included no real-estate impairment charge, compared with $172.1 million in 2009. Restructuring charges declined to $4.9 million from $6.4 million.
- Development profits, net of taxes, declined to $6.7 million from $35.9 million; discontinued operations declined to $24.2 million from $96.2 million, including substantially lower disposition gains.
- Same-store rental revenue declined 2.9%; management cited lower occupancy and rental rates and increased free rent. Interest expense increased 9.6% to $130.3 million, primarily reflecting debt issuance and higher credit-line utilization.
- Cash used in investing activities increased, primarily due to lower divestiture proceeds and increased investments in unconsolidated joint ventures. The company issued approximately 18.2 million shares in 2010 for about $479 million net proceeds.
Outlook, risks and unusual items
- Outlook: Management expected the recovery in industrial-property fundamentals to strengthen in 2011, with increased positive net absorption and declining availability. It anticipated earnings growth through improved asset utilization, lease-up of development properties, and value realization from land. Priorities were increasing asset utilization, improving organizational profitability, and forming co-investment ventures. No numeric 2011 earnings or FFO guidance is provided in the supplied text.
- Development and capital deployment: 2010 development starts totaled approximately 1.6 million square feet with estimated investment of $102.9 million. At year-end, eight construction-in-progress projects were expected to total 2.2 million square feet; the broader development portfolio included 25 projects totaling 6.8 million square feet available for sale or contribution. The company estimated $82.9 million remained to fund its development portfolio and disclosed up to $286.4 million of co-investment commitments.
- Proposed ProLogis merger: Announced January 30, 2011, the merger-of-equals agreement provided for each ProLogis common share to convert into 0.4464 AMB shares, subject to customary conditions and approvals. The proposed combined company would be named ProLogis Inc. The transaction was pending at filing time, and two shareholder class actions sought to enjoin it. AMB said it considered the claims without merit. Depending on the circumstances of termination, AMB could owe a $210 million termination fee. The agreement also restricted certain actions while the transaction was pending.
- Leasing and market risks: Leases representing 16.4% of owned-and-managed industrial annualized base rent were due to expire in 2011. Risks include lower renewal rents, vacancies, tenant defaults, property-value declines, refinancing and interest-rate exposure, and reduced access to debt or equity markets.
- Debt, guarantees and contingencies: The company disclosed $260.6 million of potential contribution obligations related to certain unconsolidated venture defaults, plus guarantees of $58.6 million on consolidated-venture loans and $83.5 million on unconsolidated-venture loans. These are contingent exposures, not stated as amounts currently payable. The operating partnership reported compliance with its financial covenants at year-end.
- Other items: The company recognized $6.3 million of unrecognized tax benefits related to estimated Mexico income-tax liabilities. It reported no material pending legal proceedings as of December 31, 2010; merger-related litigation arose after year-end. Management and the auditor reported effective internal control over financial reporting. The company was continuing a financial-systems migration to Yardi.
Important facts for investors to verify
- Confirm the filing issuer and period: this is AMB’s FY 2010 Form 10-K, not a Prologis, Inc. filing or a quarterly 10-K.
- Review the full financial statements and reconciliations for adjusted FFO, Core FFO, same-store NOI, and share-of-debt measures; these are supplemental, non-GAAP measures.
- Verify the proposed merger’s status, exchange terms, required approvals, litigation, termination provisions and any later amendments or closing disclosures.
- Assess 2011 lease expirations, negative rollover rent changes, occupancy recovery and the cash cost and timing of development lease-up.
- Reconcile reported liquidity measures with balance-sheet cash, available credit, debt maturities and the disclosed guarantee and venture-contribution exposures.