U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (date of earliest event reported): January 23, 2006

AMB PROPERTY CORPORATION

(Exact name of registrant as specified in its charter)

Maryland		001-13545		94-3281941
(State or otherjurisdiction of incorporation)		(Commission file number)		(I.R.S. employer identification number)

Pier 1, Bay 1, San Francisco, California 94111

415-394-9000

n/a

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

ITEM 2.02      RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On January 23, 2006, we issued a press release entitled “AMB Property Corporation Announces Fourth Quarter 2005 and Full Year 2005 Results,” which sets forth disclosure regarding our results of operations for the fourth quarter of 2005 and full 2005 year. A copy of the press release is attached hereto as Exhibit 99.1. This section and the attached exhibit are provided under Item 2.02 of Form 8-K and are furnished to, but not filed with, the Securities and Exchange Commission.

ITEM 8.01      OTHER EVENTS.

On January 23, 2006, we reported results for the fourth quarter and full year 2005.

For the quarter ended December 31, 2005, funds from operations per fully diluted share and unit was $1.15, as compared to $0.62 for the same period of 2004. For the full year ended December 31, 2005, funds from operations per fully diluted share was $2.75, a record for us, as compared to $2.30 for 2004. The quarterly and full year funds from operations per fully diluted share results exceeded the high end of our previous guidance, primarily as a result of strong core operations and better than expected gains from our development-for-sale business.

Net income available to common stockholders per share for the fourth quarter of 2005 was $1.56, as compared to $0.65 for the fourth quarter of 2004. Net income available to common stockholders per share for the full year ended December 31, 2005, was $2.85, as compared to $1.39 for 2004. The increase in net income available to common stockholders per share is due to strong core operations, higher profits from our development business, and gains on the sale of operating properties including the fourth quarter sale of the assets of AMB Institutional Alliance Fund I.

Operating Results

Our industrial operating portfolio was 95.8% leased as of December 31, 2005, up 120 basis points from September 30, 2005, and up 100 basis points from December 31, 2004. Based on preliminary data provided by Torto Wheaton Research, we estimate that U.S. industrial vacancy at the end of the fourth quarter was 9.7%, representing a 40 basis point improvement from the prior quarter—the seventh consecutive quarter of improvement nationally.

Cash-basis same store net operating income increased 5.2% in the fourth quarter of 2005, driven primarily by occupancy gains and lease termination fees. Excluding lease termination fees, same store net operating income during the quarter increased 3.5%. For the full year 2005, same store net operating income increased 0.1%, which can be attributed to occupancy gains offset by lower lease termination fees and decreases in rental rates on leases renewed or rolled over. Excluding lease termination fees, same store net operating income for the full year 2005 increased 0.9%. Rents on lease renewals and rollovers in our same store pool declined 4.6% in the fourth quarter of 2005, an improvement from declines of 7.9% in the prior quarter and 13.6% in the fourth quarter of 2004.

Investment Activity

During the fourth quarter, we placed a development project and a renovation project into operations. The two industrial facilities total approximately 311,000 square feet and were completed for an aggregate investment of approximately $21 million. During 2005, development completed and added to our operating portfolio comprised approximately 2.5 million square feet with a total investment of $138 million.

New development and renovation starts in the quarter totaled approximately 2.4 million square feet in nine projects in North America, Europe, and Asia with an estimated total investment of $187 million. We began development on approximately 7.0 million square feet in 2005, the highest level of annual starts in our history, with an estimated total investment at completion of $522 million. At year end, our industrial development and renovation pipeline comprised 47 projects totaling approximately 11.9 million square feet in North America, Europe, and Asia. Total investment in the pipeline’s development projects is estimated at approximately $1 billion.

During the fourth quarter, we acquired 2.1 million square feet of distribution facilities in 15 buildings at a total acquisition cost of approximately $179 million. The acquisitions expand our presence in several strategic North American markets and represent initial investments at the Port of Hamburg and in Shanghai. The transactions bring our full year acquisition activity to approximately 6.9 million square feet of distribution facilities and ownership positions in G. Accion and IAT Air Cargo Facilities Income Fund for a total acquisition cost of approximately $604 million.

During the quarter, we generated gross sale proceeds of approximately $114 million from our development-for-sale business. Included in this was the sale of Interstate Crossdock, a 617,000 square foot industrial redevelopment project in northern New Jersey for a gross sale price of approximately $70 million. Full year gross sale proceeds were approximately $208 million on development projects sold or contributed, and our recognized share of net cash gain was approximately $49 million.

Also in the fourth quarter, we completed opportunistic sales of seven operating buildings that no longer fit our property type or submarket focus. In the aggregate, the seven buildings comprise approximately 0.9 million square feet and represent approximately $56 million in gross disposition proceeds. Additionally, as announced during the quarter, we sold the properties owned by AMB Institutional Alliance Fund I, comprising 100 operating buildings totaling approximately 5.8 million square feet. The gross disposition proceeds were approximately $618 million. We received cash and a distribution of an on-tarmac property, AMB DFW Air Cargo Center I, in exchange for our 21% interest in the fund. We also received a net incentive distribution of approximately $26 million in cash.

Private Capital

During 2005, a total of $558 million of third party equity was committed: $420 million for AMB Japan Fund I; $114 million for AMB Institutional Alliance Fund III; and $24 million for AMB Partners II. Subsequent to year end, AMB Institutional Alliance Fund III closed on an additional $63 million of third party equity. Fund III, our open-end commingled fund, had its initial closing in the fourth quarter of 2004 and to date has raised approximately $314 million in third party equity. The fund invests in operating and renovation properties in the United States and had investments in real estate of approximately $750 million at the end of fourth quarter 2005.

Promotions of Company Officers

We announced five officer promotions effective January 1, 2006. Mike Evans and Ellen Hall have been promoted to senior vice president, and Deborah Briones, Jaime Cannon, and Tatsuya Nagasako have been promoted to vice president.

Supplemental Earnings Measure

We report fund from operations per fully diluted share and unit in accordance with the standards established by the National Association of Real Estate Investment Trusts. Included in the footnotes to our attached financial statements is a discussion of why management believes FFO is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing our financial performance and FFO’s limitations as a measurement tool. Reconciliation from net income to funds from operations is provided in the attached tables and published in our quarterly supplemental analyst package.

About AMB Property Corporation

We are an owner and operator of industrial real estate, focused on major hub and gateway distribution markets throughout North America, Europe and Asia. As of December 31, 2005, we owned, or had investments in, on a consolidated basis or through unconsolidated joint ventures, or managed buildings, properties and development projects expected to total approximately 115 million square feet (10.7 million square meters) and 1,057 buildings in 42 markets within eleven countries. We invest in properties located predominantly in the infill submarkets of its targeted markets. Our portfolio is comprised of High Throughput Distribution^® facilities—industrial properties built for speed and located near airports, seaports and ground transportation systems.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

		As of
		December 31, 2005				September 30, 2005				June 30, 2005				March 31, 2005				December 31, 2004
Assets
Investments in real estate:
Total investments in properties		$	6,798,294			$	6,898,824			$	6,680,432			$	6,608,737			$	6,526,144
Accumulated depreciation			(697,388	)			(721,892	)			(683,679	)			(652,085	)			(615,646	)
Net investments in properties			6,100,906				6,176,932				5,996,753				5,956,652				5,910,498
Investments in unconsolidated joint ventures			118,653				115,624				121,000				105,127				55,166
Properties held for contribution, net			32,755				80,245				—				—				—
Properties held for divestiture, net			17,936				45,742				75,472				49,455				87,340
Net investments in real estate			6,270,250				6,418,543				6,193,225				6,111,234				6,053,004
Cash and cash equivalents			267,233				162,437				169,471				215,068				146,593
Mortgages and loans receivable			21,621				21,652				21,682				21,710				13,738
Accounts receivable, net			178,682				158,000				173,360				135,768				109,028
Other assets			64,953				75,605				66,633				71,304				64,580
Total assets		$	6,802,739			$	6,836,237			$	6,624,371			$	6,555,084			$	6,386,943
Liabilities and Stockholders’ Equity
Secured debt		$	1,912,526			$	2,051,480			$	1,843,861			$	1,915,702			$	1,892,524
Unsecured senior debt securities			975,000				1,003,940				1,003,940				1,003,940				1,003,940
Unsecured debt			23,963				24,175				8,710				8,869				9,028
Unsecured credit facilities			490,072				472,291				549,397				422,616				351,699
Accounts payable and other liabilities			263,744				262,425				242,944				258,159				262,286
Total liabilities			3,665,305				3,814,311				3,648,852				3,609,286				3,519,477
Minority interests:
Joint venture partners			853,643				933,262				906,527				884,188				828,622
Preferred unitholders			278,378				278,378				278,378				278,378				278,378
Limited partnership unitholders			89,114				86,719				89,601				89,377				89,326
Total minority interests			1,221,135				1,298,359				1,274,506				1,251,943				1,196,326
Stockholders’ equity:
Common equity			1,740,751				1,620,363				1,597,809				1,590,651				1,567,936
Preferred equity			175,548				103,204				103,204				103,204				103,204
Total stockholders’ equity			1,916,299				1,723,567				1,701,013				1,693,855				1,671,140
Total liabilities and stockholders’ equity		$	6,802,739			$	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 Years Ended
		December 31,								December 31,
		2005				2004				2005				2004
Revenues
Rental revenues		$	168,926			$	151,535			$	632,207			$	579,534
Private capital income (1)			31,422				4,818				43,942				12,895
Total revenues			200,348				156,353				676,149				592,429
Costs and expenses
Property operating costs			(43,321	)			(38,238	)			(163,208	)			(148,258	)
Depreciation and amortization			(43,557	)			(38,782	)			(165,438	)			(141,120	)
General and administrative			(20,343	)			(13,961	)			(77,409	)			(58,843	)
Fund costs			(409	)			(1,004	)			(1,482	)			(1,741	)
Total costs and expenses			(107,630	)			(91,985	)			(407,537	)			(349,962	)
Operating income			92,718				64,368				268,612				242,467
Other income and expenses
Equity in earnings of unconsolidated joint ventures			811				525				10,770				3,781
Other income and expenses, net			3,342				509				6,499				3,758
Gains from dispositions of real estate, net			176				5,219				19,099				5,219
Development profits, net of taxes			34,489				3,772				54,811				8,528
Interest expense, including amortization			(38,445	)			(36,176	)			(149,492	)			(144,882	)
Total other income and expenses			373				(26,151	)			(58,313	)			(123,596	)
Income before minority interests and discontinued operations			93,091				38,217				210,299				118,871
Minority interests’ share of income:
Joint venture partners’ share of income			(9,349	)			(7,774	)			(36,398	)			(29,544	)
Joint venture partners’ share of development profits			(3,366	)			(64	)			(13,492	)			(958	)
Preferred unitholders			(5,369	)			(5,395	)			(21,473	)			(20,161	)
Limited partnership unitholders			(2,054	)			(799	)			(3,681	)			(2,615	)
Total minority interests’ share of income			(20,138	)			(14,032	)			(75,044	)			(53,278	)
Income from continuing operations			72,953				24,185				135,255				65,593
Discontinued operations:
Income attributable to discontinued operations, net of minority interests			2,413				4,069				8,999				17,873
Gain from disposition of real estate, net of minority interests			65,817				29,680				113,553				42,005
Total discontinued operations			68,230				33,749				122,552				59,878
Net income			141,183				57,934				257,807				125,471
Preferred stock dividends			(2,039	)			(1,782	)			(7,388	)			(7,131	)
Net income available to common stockholders		$	139,144			$	56,152			$	250,419			$	118,340
Net income per common share (diluted)		$	1.56			$	0.65			$	2.85			$	1.39
Weighted average common shares (diluted)			88,981,657				86,263,305				87,873,399				85,368,626

⁽¹⁾Includes incentive distrbutions for 2005 of $26.4 million for the sale of AMB Institutional Alliance Fund I which is net of $2.7 million which has been deferred.

CONSOLIDATED STATEMENTS OF FUNDS FROM OPERATIONS⁽¹⁾
(dollars in thousands, except share data)

		For the Quarters Ended								For the Years Ended
		December 31,								December 31,
		2005				2004				2005				2004
Net income		$	141,183			$	57,934			$	257,807			$	125,471
Gains from disposition of real estate, net of minority interests (2)			(65,993	)			(34,899	)			(132,652	)			(47,224	)
Depreciation and amortization:
Total depreciation and amortization			43,557				38,782				165,438				141,120
Discontinued operations’ depreciation			2,985				5,837				14,866				26,230
Non-real estate depreciation			(949	)			(363	)			(3,388	)			(871	)
Adjustments to derive FFO from consolidated JVs:
Joint venture partners’ minority interests (Net income)			9,349				7,774				36,398				29,544
Limited partnership unitholders’ minority interests (Net income)			2,054				799				3,681				2,615
Limited partnership unitholders’ minority interests (Development profits)			1,704				213				2,262				435
Discontinued operations’ minority interests (Net income)			1,711				3,075				8,502				13,549
FFO attributable to minority interests			(27,641	)			(22,020	)			(100,275	)			(80,192	)
Adjustments to derive FFO from unconsolidated JVs:
AMB’s share of net income			(811	)			(525	)			(10,770	)			(3,781	)
AMB’s share of FFO			2,633				1,460				14,441				7,549
AMB’s share of development profits, net of taxes			—				—				5,441				—
Preferred stock dividends			(2,039	)			(1,782	)			(7,388	)			(7,131	)
Funds from operations		$	107,743			$	56,285			$	254,363			$	207,314
FFO per common share and unit (diluted)		$	1.15			$	0.62			$	2.75			$	2.30
Weighted average common shares and units (diluted)			93,422,964				91,003,313				92,508,725				90,120,250

     ⁽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.

     ⁽²⁾ 2005 includes accumulated depreciation re-capture of approximately $1.1 million associated with the sale of the Interstate Crossdock redevelopment project.

Forward Looking Statements

Some of the information included in this report contains forward-looking statements, such as those related to our interpretation of trends regarding national and portfolio industrial space absorption; the total expected investment in acquisitions; size and timing of deliveries and total investment in development projects; goals regarding amount of non-U.S. investment; 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 for the year ended December 31, 2004 on Form 10-K.

ITEM 9.01      FINANCIAL STATEMENTS AND EXHIBITS.

     (c) Exhibits:

Exhibit
Number		Description
99.1		AMB Property Corporation Press Release dated January 23, 2006.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibits

Exhibit
Number		Description
99.1		AMB Property Corporation Press Release dated January 23, 2006.