UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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|
|
(Mark One)
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þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2006
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number:
001-13545
AMB Property
Corporation
(Exact Name of Registrant as
Specified in Its Charter)
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|
|
Maryland
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|
94-3281941
|
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
Pier 1, Bay 1,
San Francisco, California
(Address of Principal
Executive Offices)
|
|
94111
(Zip
Code)
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(415) 394-9000
(Registrants Telephone
Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.
Yes þ No o.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o
No þ
As of August 1, 2006, there were 88,382,890 shares of
the Registrants common stock, $0.01 par value per
share, outstanding.
AMB
PROPERTY CORPORATION
INDEX
PART I
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Item 1.
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Financial
Statements
|
AMB
PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 2006 and December 31, 2005
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June 30,
|
|
|
December 31,
|
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|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited, dollars in
|
|
|
|
thousands)
|
|
|
ASSETS
|
Investments in real estate:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,658,040
|
|
|
$
|
1,527,072
|
|
Buildings and improvements
|
|
|
4,648,074
|
|
|
|
4,273,716
|
|
Construction in progress
|
|
|
1,070,208
|
|
|
|
997,506
|
|
|
|
|
|
|
|
|
|
|
Total investments in properties
|
|
|
7,376,322
|
|
|
|
6,798,294
|
|
Accumulated depreciation and
amortization
|
|
|
(774,528
|
)
|
|
|
(697,388
|
)
|
|
|
|
|
|
|
|
|
|
Net investments in properties
|
|
|
6,601,794
|
|
|
|
6,100,906
|
|
Investments in unconsolidated joint
ventures
|
|
|
123,107
|
|
|
|
118,653
|
|
Properties held for contribution,
net
|
|
|
71,981
|
|
|
|
32,755
|
|
Properties held for divestiture, net
|
|
|
46,857
|
|
|
|
17,936
|
|
|
|
|
|
|
|
|
|
|
Net investments in real estate
|
|
|
6,843,739
|
|
|
|
6,270,250
|
|
Cash and cash equivalents
|
|
|
202,345
|
|
|
|
232,881
|
|
Restricted cash
|
|
|
29,567
|
|
|
|
34,352
|
|
Mortgage and loan receivables
|
|
|
18,816
|
|
|
|
21,621
|
|
Accounts receivable, net of
allowance for doubtful accounts of $5,567 and $6,302,
respectively
|
|
|
127,528
|
|
|
|
178,682
|
|
Deferred financing costs, net
|
|
|
24,345
|
|
|
|
25,026
|
|
Other assets
|
|
|
90,026
|
|
|
|
39,927
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,336,366
|
|
|
$
|
6,802,739
|
|
|
|
|
|
|
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|
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|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Debt:
|
|
|
|
|
|
|
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|
Secured debt
|
|
$
|
1,829,968
|
|
|
$
|
1,912,526
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|
Unsecured senior debt
|
|
|
1,051,249
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|
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975,000
|
|
Unsecured credit facilities
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904,452
|
|
|
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490,072
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Other debt
|
|
|
88,217
|
|
|
|
23,963
|
|
|
|
|
|
|
|
|
|
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Total debt
|
|
|
3,873,886
|
|
|
|
3,401,561
|
|
Security deposits
|
|
|
44,286
|
|
|
|
47,055
|
|
Dividends payable
|
|
|
47,007
|
|
|
|
46,382
|
|
Accounts payable and other
liabilities
|
|
|
162,930
|
|
|
|
170,307
|
|
|
|
|
|
|
|
|
|
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Total liabilities
|
|
|
4,128,109
|
|
|
|
3,665,305
|
|
Commitments and contingencies
(Note 12)
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|
|
|
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|
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Minority interests:
|
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|
|
|
|
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Joint venture partners
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|
|
950,209
|
|
|
|
853,643
|
|
Preferred unitholders
|
|
|
190,198
|
|
|
|
278,378
|
|
Limited partnership unitholders
|
|
|
89,705
|
|
|
|
89,114
|
|
|
|
|
|
|
|
|
|
|
Total minority interests
|
|
|
1,230,112
|
|
|
|
1,221,135
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series L preferred stock,
cumulative, redeemable, $.01 par value,
2,300,000 shares authorized and 2,000,000 issued and
outstanding, $50,000 liquidation preference
|
|
|
48,017
|
|
|
|
48,017
|
|
Series M preferred stock,
cumulative, redeemable, $.01 par value,
2,300,000 shares authorized and 2,300,000 issued and
outstanding, $57,500 liquidation preference
|
|
|
55,187
|
|
|
|
55,187
|
|
Series O preferred stock,
cumulative, redeemable, $.01 par value,
3,000,000 shares authorized and 3,000,000 issued and
outstanding, $75,000 liquidation preference
|
|
|
72,127
|
|
|
|
72,344
|
|
Common stock, $.01 par value,
500,000,000 shares authorized, 88,099,463 and 85,814,905
issued and outstanding, respectively
|
|
|
880
|
|
|
|
857
|
|
Additional paid-in capital
|
|
|
1,685,688
|
|
|
|
1,641,186
|
|
Retained earnings
|
|
|
115,873
|
|
|
|
101,124
|
|
Accumulated other comprehensive
income (loss)
|
|
|
373
|
|
|
|
(2,416
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,978,145
|
|
|
|
1,916,299
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
7,336,366
|
|
|
$
|
6,802,739
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
1
AMB
PROPERTY CORPORATION
For the Three and Six Months Ended June 30, 2006 and
2005
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|
|
|
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|
|
|
|
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For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited, dollars in thousands, except
|
|
|
|
share and per share amounts)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
175,330
|
|
|
$
|
154,370
|
|
|
$
|
351,234
|
|
|
$
|
307,204
|
|
Private capital income
|
|
|
4,943
|
|
|
|
3,438
|
|
|
|
10,049
|
|
|
|
6,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
180,273
|
|
|
|
157,808
|
|
|
|
361,283
|
|
|
|
313,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
(24,537
|
)
|
|
|
(21,234
|
)
|
|
|
(49,680
|
)
|
|
|
(42,933
|
)
|
Real estate taxes
|
|
|
(20,346
|
)
|
|
|
(18,682
|
)
|
|
|
(40,720
|
)
|
|
|
(36,567
|
)
|
Depreciation and amortization
|
|
|
(44,088
|
)
|
|
|
(37,764
|
)
|
|
|
(87,162
|
)
|
|
|
(72,636
|
)
|
Impairment losses
|
|
|
(5,394
|
)
|
|
|
|
|
|
|
(5,394
|
)
|
|
|
|
|
General and administrative
|
|
|
(25,144
|
)
|
|
|
(20,111
|
)
|
|
|
(48,191
|
)
|
|
|
(38,060
|
)
|
Other expenses
|
|
|
296
|
|
|
|
792
|
|
|
|
(241
|
)
|
|
|
(738
|
)
|
Fund costs
|
|
|
(479
|
)
|
|
|
(380
|
)
|
|
|
(1,093
|
)
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
(119,692
|
)
|
|
|
(97,379
|
)
|
|
|
(232,481
|
)
|
|
|
(191,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of
unconsolidated joint ventures, net
|
|
|
8,278
|
|
|
|
7,188
|
|
|
|
10,366
|
|
|
|
8,430
|
|
Other income
|
|
|
1,933
|
|
|
|
1,667
|
|
|
|
4,998
|
|
|
|
1,804
|
|
Gains from dispositions of real
estate interests
|
|
|
|
|
|
|
17,622
|
|
|
|
|
|
|
|
18,923
|
|
Development profits, net of taxes
|
|
|
45,698
|
|
|
|
1,975
|
|
|
|
46,372
|
|
|
|
19,924
|
|
Interest expense, including
amortization
|
|
|
(44,075
|
)
|
|
|
(37,186
|
)
|
|
|
(83,800
|
)
|
|
|
(74,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses, net
|
|
|
11,834
|
|
|
|
(8,734
|
)
|
|
|
(22,064
|
)
|
|
|
(24,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests,
discontinued operations and cumulative effect of change in
accounting principle
|
|
|
72,415
|
|
|
|
51,695
|
|
|
|
106,738
|
|
|
|
97,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests share of
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture partners share
of income before minority interests and discontinued operations
|
|
|
(9,060
|
)
|
|
|
(8,893
|
)
|
|
|
(17,731
|
)
|
|
|
(18,242
|
)
|
Joint venture partners share
of development profits
|
|
|
(1,619
|
)
|
|
|
(284
|
)
|
|
|
(1,651
|
)
|
|
|
(10,120
|
)
|
Preferred unitholders
|
|
|
(4,024
|
)
|
|
|
(5,368
|
)
|
|
|
(9,025
|
)
|
|
|
(10,736
|
)
|
Limited partnership unitholders
|
|
|
(495
|
)
|
|
|
(849
|
)
|
|
|
(1,311
|
)
|
|
|
(1,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minority interests
share of income
|
|
|
(15,198
|
)
|
|
|
(15,394
|
)
|
|
|
(29,718
|
)
|
|
|
(40,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before cumulative effect of change in accounting principle
|
|
|
57,217
|
|
|
|
36,301
|
|
|
|
77,020
|
|
|
|
56,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to
discontinued operations, net of minority interests
|
|
|
1,063
|
|
|
|
(882
|
)
|
|
|
1,630
|
|
|
|
(2,634
|
)
|
Gains from dispositions of real
estate, net of minority interests
|
|
|
17,073
|
|
|
|
5,370
|
|
|
|
24,087
|
|
|
|
33,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
|
18,136
|
|
|
|
4,488
|
|
|
|
25,717
|
|
|
|
30,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before cumulative effect
of change in accounting principle
|
|
|
75,353
|
|
|
|
40,789
|
|
|
|
102,737
|
|
|
|
87,556
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
75,353
|
|
|
|
40,789
|
|
|
|
102,930
|
|
|
|
87,556
|
|
Preferred stock dividends
|
|
|
(3,095
|
)
|
|
|
(1,783
|
)
|
|
|
(6,191
|
)
|
|
|
(3,566
|
)
|
Preferred unit redemption
discount/(issuance costs)
|
|
|
77
|
|
|
|
|
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
72,335
|
|
|
$
|
39,006
|
|
|
$
|
95,719
|
|
|
$
|
83,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
(after preferred stock dividends) before cumulative effect of
change in accounting principle
|
|
$
|
0.62
|
|
|
$
|
0.42
|
|
|
$
|
0.80
|
|
|
$
|
0.64
|
|
Discontinued operations
|
|
|
0.21
|
|
|
|
0.05
|
|
|
|
0.30
|
|
|
|
0.37
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
0.83
|
|
|
$
|
0.47
|
|
|
$
|
1.10
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
(after preferred stock dividends) before cumulative effect of
change in accounting principle
|
|
$
|
0.60
|
|
|
$
|
0.40
|
|
|
$
|
0.77
|
|
|
$
|
0.62
|
|
Discontinued operations
|
|
|
0.20
|
|
|
|
0.05
|
|
|
|
0.29
|
|
|
|
0.35
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
0.80
|
|
|
$
|
0.45
|
|
|
$
|
1.06
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
87,317,494
|
|
|
|
83,521,538
|
|
|
|
86,915,959
|
|
|
|
83,339,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
90,135,659
|
|
|
|
87,076,011
|
|
|
|
90,147,493
|
|
|
|
86,845,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
2
AMB
PROPERTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
For the Six Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred
|
|
|
Number
|
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(Unaudited, dollars in thousands, except share amounts)
|
|
|
Balance as of December 31, 2005
|
|
$
|
175,548
|
|
|
|
85,814,905
|
|
|
$
|
857
|
|
|
$
|
1,641,186
|
|
|
$
|
101,124
|
|
|
$
|
(2,416
|
)
|
|
$
|
1,916,299
|
|
Net income
|
|
|
6,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,719
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities and
derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,606
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,699
|
|
Stock-based compensation
amortization and issuance of restricted stock
|
|
|
|
|
|
|
407,558
|
|
|
|
4
|
|
|
|
10,937
|
|
|
|
|
|
|
|
|
|
|
|
10,941
|
|
Exercise of stock options
|
|
|
|
|
|
|
1,865,682
|
|
|
|
19
|
|
|
|
33,381
|
|
|
|
|
|
|
|
|
|
|
|
33,400
|
|
Conversion of partnership units
|
|
|
|
|
|
|
11,318
|
|
|
|
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
576
|
|
Forfeiture of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,263
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,263
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
Reallocation of partnership interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
1,064
|
|
Offering costs
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(217
|
)
|
Dividends
|
|
|
(6,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,970
|
)
|
|
|
|
|
|
|
(87,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2006
|
|
$
|
175,331
|
|
|
|
88,099,463
|
|
|
$
|
880
|
|
|
$
|
1,685,688
|
|
|
$
|
115,873
|
|
|
$
|
373
|
|
|
$
|
1,978,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
3
AMB
PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited, dollars in thousands)
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
102,930
|
|
|
$
|
87,556
|
|
Adjustments to net income:
|
|
|
|
|
|
|
|
|
Straight-line rents and
amortization of lease intangibles
|
|
|
(11,300
|
)
|
|
|
(9,361
|
)
|
Depreciation and amortization
|
|
|
87,162
|
|
|
|
72,636
|
|
Impairment losses
|
|
|
5,394
|
|
|
|
|
|
Stock-based compensation
amortization
|
|
|
10,941
|
|
|
|
6,944
|
|
Equity in earnings of
unconsolidated joint ventures
|
|
|
(10,366
|
)
|
|
|
(8,430
|
)
|
Operating distributions received
from unconsolidated joint ventures
|
|
|
1,147
|
|
|
|
663
|
|
Gains from dispositions of real
estate interest
|
|
|
|
|
|
|
(18,923
|
)
|
Development profits, net of taxes
|
|
|
(46,372
|
)
|
|
|
(19,924
|
)
|
Debt premiums, discounts and
finance cost amortization, net
|
|
|
5,247
|
|
|
|
1,671
|
|
Total minority interests
share of net income
|
|
|
29,718
|
|
|
|
40,477
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
544
|
|
|
|
16,416
|
|
Joint venture partners share
of net income
|
|
|
(295
|
)
|
|
|
4,329
|
|
Limited partnership
unitholders share of net income
|
|
|
81
|
|
|
|
(149
|
)
|
Gains from dispositions of real
estate, net of minority interests
|
|
|
(24,087
|
)
|
|
|
(33,315
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
(193
|
)
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets
|
|
|
13,635
|
|
|
|
(40,086
|
)
|
Accounts payable and other
liabilities
|
|
|
(4,239
|
)
|
|
|
(18,991
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
159,947
|
|
|
|
81,513
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
5,353
|
|
|
|
4,046
|
|
Cash paid for property acquisitions
|
|
|
(311,507
|
)
|
|
|
(193,470
|
)
|
Additions to land, buildings,
development costs, building improvements and lease costs
|
|
|
(497,947
|
)
|
|
|
(221,573
|
)
|
Net proceeds from divestiture of
real estate
|
|
|
149,559
|
|
|
|
237,649
|
|
Additions to interests in
unconsolidated joint ventures
|
|
|
(5,121
|
)
|
|
|
(54,805
|
)
|
Capital distributions received from
unconsolidated joint ventures
|
|
|
13,633
|
|
|
|
|
|
Repayment and (issuance) of
mortgage and loan receivables
|
|
|
2,805
|
|
|
|
(7,944
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(643,225
|
)
|
|
|
(236,097
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of common stock, proceeds
from stock option exercises
|
|
|
33,400
|
|
|
|
16,255
|
|
Borrowings on secured debt
|
|
|
196,149
|
|
|
|
65,892
|
|
Payments on secured debt
|
|
|
(208,377
|
)
|
|
|
(52,607
|
)
|
Borrowings on other debt
|
|
|
65,000
|
|
|
|
|
|
Payments on other debt
|
|
|
(746
|
)
|
|
|
(318
|
)
|
Borrowings on unsecured credit
facilities
|
|
|
646,509
|
|
|
|
501,024
|
|
Payments on unsecured credit
facilities
|
|
|
(252,828
|
)
|
|
|
(279,026
|
)
|
Payment of financing fees
|
|
|
(5,736
|
)
|
|
|
(3,315
|
)
|
Net proceeds from issuances of
senior debt
|
|
|
99,456
|
|
|
|
|
|
Payments on senior debt
|
|
|
(25,000
|
)
|
|
|
|
|
Issuance costs on preferred stock
or units
|
|
|
(217
|
)
|
|
|
|
|
Repurchase of preferred units
|
|
|
(88,180
|
)
|
|
|
|
|
Contributions from co-investment
partners
|
|
|
124,185
|
|
|
|
99,377
|
|
Dividends paid to common and
preferred stockholders
|
|
|
(86,536
|
)
|
|
|
(75,868
|
)
|
Distributions to minority
interests, including preferred units
|
|
|
(52,810
|
)
|
|
|
(83,236
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
444,269
|
|
|
|
188,178
|
|
Net effect of exchange rate changes
on cash
|
|
|
8,473
|
|
|
|
(4,024
|
)
|
Net (decrease) increase in cash and
cash equivalents
|
|
|
(30,536
|
)
|
|
|
29,570
|
|
Cash and cash equivalents at
beginning of period
|
|
|
232,881
|
|
|
|
109,392
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
202,345
|
|
|
$
|
138,962
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of
capitalized interest
|
|
$
|
77,244
|
|
|
$
|
84,640
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Acquisition of properties
|
|
$
|
399,625
|
|
|
$
|
217,674
|
|
Assumption of secured debt
|
|
|
(61,006
|
)
|
|
|
(15,477
|
)
|
Assumption of other assets and
liabilities
|
|
|
(19,096
|
)
|
|
|
(2,871
|
)
|
Acquisition capital
|
|
|
(8,016
|
)
|
|
|
(5,856
|
)
|
|
|
|
|
|
|
|
|
|
Net cash paid for property
acquisitions
|
|
$
|
311,507
|
|
|
$
|
193,470
|
|
|
|
|
|
|
|
|
|
|
Preferred unit redemption issuance
costs
|
|
$
|
1,020
|
|
|
$
|
|
|
Contribution of properties to
unconsolidated joint ventures, net
|
|
$
|
126,067
|
|
|
$
|
27,282
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMB
PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(unaudited)
|
|
1.
|
Organization
and Formation of the Company
|
AMB Property Corporation, a Maryland corporation (the
Company), commenced operations as a fully integrated
real estate company effective with the completion of its initial
public offering on November 26, 1997. The Company elected
to be taxed as a real estate investment trust (REIT)
under Sections 856 through 860 of the Internal Revenue Code
of 1986 (the Code), commencing with its taxable year
ended December 31, 1997, and believes its current
organization and method of operation will enable it to maintain
its status as a REIT. The Company, through its controlling
interest in its subsidiary, AMB Property, L.P., a Delaware
limited partnership (the Operating Partnership), is
engaged in the acquisition, development and operation of
industrial properties in key distribution markets throughout
North America, Europe and Asia. The Company uses the terms
industrial properties or industrial
buildings to describe various types of industrial
properties in its portfolio and uses these terms interchangeably
with the following: logistics facilities, centers or warehouses;
distribution facilities, centers or warehouses; High Throughput
Distribution®
(HTD®)
facilities; or any combination of these terms. Unless the
context otherwise requires, the Company means AMB
Property Corporation, the Operating Partnership and their other
controlled subsidiaries.
As of June 30, 2006, the Company owned an approximate 95.3%
general partnership interest in the Operating Partnership,
excluding preferred units. The remaining approximate 4.7% common
limited partnership interests are owned by non-affiliated
investors and certain current and former directors and officers
of the Company. Certain properties are owned through limited
partnerships, limited liability companies and other entities.
The ownership of such properties through such entities does not
materially affect the Companys overall ownership interests
in the properties. As the sole general partner of the Operating
Partnership, the Company has full, exclusive and complete
responsibility and discretion in the
day-to-day
management and control of the Operating Partnership. Net
operating results of the Operating Partnership are allocated
after preferred unit distributions based on the respective
partners ownership interests.
Through the Operating Partnership, the Company enters into
co-investment joint ventures with institutional investors. These
co-investment joint ventures provide the Company with an
additional source of capital and income. As of June 30,
2006, the Company had investments in seven consolidated
(including one consolidated joint venture in liquidation) and
two unconsolidated co-investment joint ventures.
AMB Capital Partners, LLC, a Delaware limited liability company
(AMB Capital Partners), provides real estate
investment services to clients on a fee basis. Headlands Realty
Corporation, a Maryland corporation, conducts a variety of
businesses that include development projects available for sale
or contribution to third parties and incremental income
programs. IMD Holding Corporation, a Delaware corporation, also
conducts a variety of businesses that include development
projects available for sale or contribution to third parties.
AMB Capital Partners, Headlands Realty Corporation and IMD
Holding Corporation are wholly-owned direct or indirect
subsidiaries of the Company and the Operating Partnership.
As of June 30, 2006, the Company 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 123.1 million
rentable square feet (11.4 million square meters) and 1,118
buildings in 41 markets within eleven countries. The
Companys strategy is to become a leading provider of
distribution properties in supply-constrained submarkets located
near key international passenger and cargo airports, highway
systems and seaports in major metropolitan areas of North
America, Europe and Asia. These submarkets are generally tied to
global trade.
5
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Of the approximately 123.1 million rentable square feet as
of June 30, 2006:
|
|
|
|
|
on a consolidated basis, the Company owned or partially owned
928 industrial buildings, principally warehouse distribution
buildings, encompassing approximately 92.2 million rentable
square feet that were 95.4% leased;
|
|
|
|
the Company managed, but did not have an ownership interest in,
industrial and other properties, totaling approximately
1.5 million rentable square feet;
|
|
|
|
through unconsolidated joint ventures, the Company had
investments in 88 industrial operating properties, totaling
approximately 14.2 million rentable square feet, and in one
industrial development project, expected to total approximately
0.2 million rentable square feet;
|
|
|
|
on a consolidated basis, the Company had investments in 46
industrial development projects which are expected to total
approximately 14.0 million rentable square feet upon
completion; and
|
|
|
|
on a consolidated basis, the Company owned four development
projects, with a total estimated investment of approximately
$89.4 million and approximately 1.0 million rentable
square feet, that were available for sale or contribution.
|
|
|
2.
|
Interim
Financial Statements
|
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the
U.S. Securities and Exchange Commission. Accordingly,
certain information and note disclosures normally included in
the annual financial statements prepared in accordance with
accounting principles generally accepted in the United States
have been condensed or omitted.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments of a
normal, recurring nature, necessary for a fair presentation of
the Companys consolidated financial position and results
of operations for the interim periods. The interim results for
the three and six months ended June 30, 2006 are not
necessarily indicative of future results. These financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2005.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Investments in Real Estate. Investments in
real estate and leasehold interests are stated at cost unless
circumstances indicate that cost cannot be recovered, in which
case, the carrying value of the property is reduced to estimated
fair value. The Company also regularly reviews the impact of
above or below-market leases, in-place leases and lease
origination costs for all new acquisitions, and records an
intangible asset or liability accordingly. Carrying values for
financial reporting purposes are reviewed for impairment on a
property-by-property
basis whenever events or changes in circumstances indicate that
the carrying value of a property may not be fully recoverable.
Impairment is recognized when estimated expected future cash
flows (undiscounted and without interest charges) are less than
the carrying value of the property. The estimation of expected
future net cash flows is inherently uncertain and relies on
assumptions regarding current and future economics and market
conditions and the availability of capital. If impairment
analysis assumptions change, then an adjustment to the carrying
value of the Companys long-lived assets could occur in the
future period in which the assumptions change. To the extent
that a property is impaired, the excess of the carrying amount
of the property over its estimated fair value is charged to
earnings. As a result of leasing activity and the economic
environment, the Company re-evaluated the carrying
6
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of its investments and recorded an impairment charge of
$5.4 million during the three and six months ended
June 30, 2006, on certain of its investments.
Reclassifications. Certain items in the
consolidated financial statements for prior periods have been
reclassified to conform to current classifications.
Comprehensive Income. The Company reports
comprehensive income in its Statement of Stockholders
Equity. Comprehensive income was $77.2 million and
$38.7 million for the three months ended June 30, 2006
and 2005, respectively. Comprehensive income was
$104.7 million and $84.2 million for the six months
ended June 30, 2006 and 2005, respectively.
International Operations. The U.S. dollar
is the functional currency for the Companys subsidiaries
operating in the United States and Mexico. The functional
currency for the Companys subsidiaries operating outside
the United States and Mexico is generally the local currency of
the country in which the entity is located. The Companys
subsidiaries whose functional currency is not the
U.S. dollar translate their financial statements into
U.S. dollars. Assets and liabilities are translated at the
exchange rate in effect as of the financial statement date. The
Company translates income statement accounts using the average
exchange rate for the period and significant nonrecurring
transactions using the rate on the transaction date. These gains
(losses) are included in accumulated other comprehensive income
(loss) as a separate component of stockholders equity.
The Companys international subsidiaries may have
transactions denominated in currencies other than their
functional currency. In these instances, non-monetary assets and
liabilities are reflected at the historical exchange rate,
monetary assets and liabilities are remeasured into the
functional currency at the exchange rate in effect at the end of
the period and income statement accounts are remeasured at the
average exchange rate for the period. These gains (losses) are
included in the Companys results of operations.
The Company also records gains or losses in the income statement
when a transaction with a third party, denominated in a currency
other than the entitys functional currency, is settled and
the functional currency cash flows realized are more or less
than expected based upon the exchange rate in effect when the
transaction was initiated.
New Accounting Pronouncements. In June 2005,
the Emerging Issues Task Force (EITF) issued
EITF 04-5,
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. Under
this consensus, a sole general partner is presumed to control a
limited partnership (or similar entity) and should consolidate
that entity unless the limited partners possess kick-out rights
or other substantive participating rights as described in
EITF 96-16, Investors Accounting for an Investee
When the Investor has a Majority of the Voting Interest but the
Minority Shareholder or Shareholders Have Certain Approval or
Veto Rights. The Company adopted the consolidation
requirements of this consensus in the third quarter of 2005 for
all new or modified agreements and adopted the consensus for
existing agreements during the first quarter of 2006. There was
not a material impact on the Companys financial position,
results of operations or cash flows upon adoption.
|
|
3.
|
Real
Estate Acquisition and Development Activity
|
Acquisition Activity. During the three months
ended June 30, 2006, the Company acquired 27 industrial
buildings, aggregating approximately 2.5 million square
feet for a total expected investment of $246.8 million.
During the six months ended June 30, 2006, the Company
acquired 59 industrial buildings, aggregating approximately
4.6 million square feet for a total expected investment of
$400.1 million, of which the Company acquired 38 buildings
through two of the Companys co-investment joint ventures.
During the three months ended June 30, 2005, the Company
acquired twelve industrial buildings, aggregating approximately
2.1 million square feet for a total expected investment of
$139.9 million. During the six months ended June 30,
2005, the Company acquired 18 industrial buildings, aggregating
approximately 2.9 million square feet for a total expected
investment of
7
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$217.7 million, of which the Company acquired 13 buildings
through three of the Companys co-investment joint ventures.
Development Starts. For the three months ended
June 30, 2006, the Company initiated four new industrial
development projects in North America and Asia with a total
estimated investment of $134.6 million, aggregating an
estimated 2.0 million square feet. During the six months
ended June 30, 2006, the Company initiated 11 new
industrial development projects in North America and Asia with a
total expected investment of $353.4 million, aggregating
approximately 4.9 million square feet. During the three
months ended June 30, 2005, the Company initiated six new
industrial development projects in North America with a total
expected investment of $82.1 million, aggregating
approximately 1.7 million square feet. During the six
months ended June 30, 2005, the Company initiated 13 new
industrial development projects in North America and Amsterdam
with a total expected investment of $172.1 million,
aggregating approximately 2.6 million square feet.
Development Completions. During the three
months ended June 30, 2006, the Company completed
four industrial buildings with a total investment of
$55.0 million, aggregating approximately 0.5 million
square feet. Three of these completed buildings with a total
investment of $52.5 million and aggregating approximately
0.5 million square feet were placed in operations and one
approximately 32,000 square foot building with a total
investment of $2.5 million was sold to a third party.
During the six months ended June 30, 2006, the Company
completed 11 industrial buildings with a total investment of
$347.3 million, aggregating 2.6 million square feet.
Five of these completed buildings with a total investment of
$77.5 million and aggregating approximately
0.8 million square feet were placed in operations, one
0.8 million square foot building with a total investment of
$177.9 million was contributed to an unconsolidated joint
venture, one approximately 32,000 square foot building with
a total investment of $2.5 million was sold to a third
party, and four buildings with a total investment of
$89.4 million aggregating approximately 1.0 million
square feet were available for sale or contribution as of
June 30, 2006. During the three months ended June 30,
2005, the Company completed five industrial buildings with a
total investment of $79.2 million, aggregating
approximately 1.3 million square feet. Four of these
completed buildings with a total investment of
$59.1 million and aggregating approximately
0.9 million square feet were placed in operations and one
approximately 0.4 million square foot building with a total
investment of $20.1 million was contributed to an
unconsolidated joint venture. During the six months ended
June 30, 2005, the Company completed seven industrial
buildings with a total investment of $96.0 million,
aggregating 1.5 million square feet. Six of these completed
buildings with a total investment of $75.9 million and
aggregating approximately 1.1 million square feet were
placed in operations, and one approximately 0.4 million
square foot building with a total investment of
$20.1 million was contributed to an unconsolidated joint
venture.
Development Pipeline. As of June 30,
2006, the Company had 47 industrial projects in its development
pipeline, which will total approximately 14.2 million
square feet, and will have an aggregate estimated investment of
$1.1 billion upon completion. One of these industrial
projects, with a total of approximately 0.2 million square
feet and an aggregate estimated investment of $12.6 million
upon completion, is held in an unconsolidated joint venture. The
Company has an additional four development projects available
for sale or contribution totaling approximately 1.0 million
square feet, with an aggregate estimated investment of
$89.4 million. As of June 30, 2006, the Company and
its joint venture partners had funded an aggregate of
$656.5 million and needed to fund an estimated additional
$487.5 million in order to complete its development
pipeline. The Companys development pipeline currently
includes projects expected to be completed through the second
quarter of 2008. In addition, during the three months ended
June 30, 2006, the Company acquired 129 acres of land for
industrial warehouse development in North America and Asia for
approximately $72.1 million. During the six months ended
June 30, 2006, the Company acquired 340 acres of land
for industrial warehouse development in North America and Asia
for approximately $165.6 million.
8
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Gains
from Dispositions of Real Estate Interests, Development Profits
and Discontinued Operations
|
Development Sales. During the three months
ended June 30, 2006, the Company sold an approximately
32,000 square foot development project for
$2.9 million, resulting in an after-tax gain of
$0.1 million. In addition, during the three and six months
ended June 30, 2006, the Company received approximately
$0.4 million in connection with the condemnation of a
parcel of land resulting in a loss of $1.0 million,
$0.8 million of which was the joint venture partners
share. For the six months ended June 30, 2006, the Company
sold one land parcel and an approximately 32,000 square
foot development project for an aggregate sale price of
$7.6 million, resulting in an after-tax gain of
$0.8 million. During the three months ended June 30,
2005, the Company sold one approximately 19,000 square foot
development project for $2.1 million resulting in an
after-tax gain of $0.1 million. During the six months ended
June 30, 2005, the Company sold two land parcels and two
development projects, aggregating approximately
43,000 square feet for an aggregate price of
$45.0 million, resulting in an after-tax gain of
$18.2 million, of which $9.9 million was the joint
venture partners share.
Discontinued Operations. The Company reported
its property divestitures as discontinued operations separately
as prescribed under the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. During the three months ended June 30, 2006,
the Company divested itself of eight industrial buildings,
aggregating approximately 0.5 million square feet, for an
aggregate price of $37.1 million, with a resulting net gain
of $17.1 million. During the six months ended June 30,
2006, the Company divested itself of 12 industrial
buildings, aggregating approximately 0.9 million square
feet, for an aggregate price of $53.9 million, with a
resulting net gain of $24.1 million. During the three
months ended June 30, 2005, the Company divested itself of
four industrial buildings, aggregating approximately
0.3 million square feet, for an aggregate price of
$33.2 million, with a resulting net gain of
$5.4 million. During the six months ended June 30,
2005, the Company divested itself of 28 industrial buildings,
aggregating approximately 1.9 million square feet, for an
aggregate price of $175.3 million, with a resulting net
gain of $33.3 million.
Development Contributions. During the three
months ended June 30, 2006, the Company contributed one
completed development project totaling approximately
0.8 million square feet into AMB Japan Fund I, L.P.,
and one completed development project totaling approximately
0.6 million square feet into AMB-SGP Mexico, LLC, both
unconsolidated joint ventures. As a result of these
contributions, the Company recognized an aggregate after-tax
gain of $46.6 million representing the portion of its
interest in the contributed properties acquired by the
third-party co-investors for cash. No other contributions were
made during the six months ended June 30, 2006. During the
three months ended June 30, 2005, the Company contributed
one completed development project totaling approximately
0.4 million square feet into AMB-SGP Mexico, LLC and
recognized a gain of $1.9 million. For the six months ended
June 30, 2005, the Company recognized a gain of
$1.3 million, representing the additional value received
from the contribution of a property to AMB-SGP Mexico, LLC
during 2004.
Gains from Dispositions of Real Estate Interests.
On June 30, 2005, the Company contributed
$106.9 million (using the exchange rate in effect at
contribution) in operating properties, consisting of six
industrial buildings, aggregating approximately 0.9 million
square feet, to its then newly formed unconsolidated
co-investment joint venture, AMB Japan Fund I, L.P. The
Company recognized a gain of $17.6 million on the
contribution, representing the portion of its interest in the
contributed properties acquired by the third-party investors for
cash.
Properties Held for Contribution. As of
June 30, 2006, the Company held for contribution to a
co-investment
joint venture three industrial buildings with an aggregate net
book value of $72.0 million, which, when contributed to a
joint venture, will reduce the Companys current ownership
interest from approximately 100% to an expected range of 20-50%.
These assets are not being held for divestiture under
SFAS No. 144.
Properties Held for Divestiture. As of
June 30, 2006, the Company held for divestiture five
industrial buildings and one land parcel with an aggregate net
book value of $46.9 million. These properties either are
not in the Companys core markets or do not meet its
current strategic objectives, or are included as part of its
development-for-sale
program. The divestitures of the properties are subject to
negotiation of acceptable terms
9
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and other customary conditions. Properties held for divestiture
are stated at the lower of cost or estimated fair value less
costs to sell.
The following summarizes the condensed results of operations of
the properties held for divestiture and sold under
SFAS No. 144 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Rental revenues
|
|
$
|
248
|
|
|
$
|
16,809
|
|
|
$
|
1,094
|
|
|
$
|
36,948
|
|
Straight-line rents and
amortization of lease intangibles
|
|
|
114
|
|
|
|
41
|
|
|
|
314
|
|
|
|
256
|
|
Property operating expenses
|
|
|
33
|
|
|
|
(2,941
|
)
|
|
|
(580
|
)
|
|
|
(6,574
|
)
|
Real estate taxes
|
|
|
(73
|
)
|
|
|
(2,017
|
)
|
|
|
(169
|
)
|
|
|
(4,598
|
)
|
Depreciation and amortization
|
|
|
(350
|
)
|
|
|
(7,166
|
)
|
|
|
(544
|
)
|
|
|
(16,416
|
)
|
Other income and (expenses), net
|
|
|
180
|
|
|
|
(25
|
)
|
|
|
181
|
|
|
|
(34
|
)
|
Interest, including amortization
|
|
|
801
|
|
|
|
(3,558
|
)
|
|
|
1,120
|
|
|
|
(8,036
|
)
|
Joint venture partners share
of loss (income)
|
|
|
163
|
|
|
|
(2,075
|
)
|
|
|
295
|
|
|
|
(4,329
|
)
|
Limited partnership
unitholders share of (income) loss
|
|
|
(53
|
)
|
|
|
50
|
|
|
|
(81
|
)
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to
discontinued operations
|
|
$
|
1,063
|
|
|
$
|
(882
|
)
|
|
$
|
1,630
|
|
|
$
|
(2,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 and December 31, 2005, assets and
liabilities attributable to properties held for divestiture
under the provisions of SFAS No. 144 consisted of the
following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Accounts receivable, net
|
|
$
|
2,134
|
|
|
$
|
1,182
|
|
Other assets
|
|
$
|
164
|
|
|
$
|
56
|
|
Accounts payable and other
liabilities
|
|
$
|
4,402
|
|
|
$
|
1,180
|
|
|
|
5.
|
Mortgage
and Loan Receivables
|
Through a wholly-owned subsidiary, the Company holds a mortgage
loan receivable on AMB Pier One, LLC, an unconsolidated joint
venture. The Company also holds a loan receivable on G.Accion
S.A. de C.V. (G.Accion), an unconsolidated equity
investment. The Companys mortgage and loan receivables at
June 30, 2006 and December 31, 2005 consisted of the
following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
Mortgage and Loan Receivables
|
|
Market
|
|
Maturity
|
|
2006
|
|
|
2005
|
|
|
Rate
|
|
|
1. Pier 1
|
|
SF Bay Area
|
|
May 2026
|
|
$
|
12,755
|
|
|
$
|
12,821
|
|
|
|
13.0
|
%
|
2. G.Accion
|
|
Various
|
|
November 2006
|
|
|
6,061
|
|
|
|
8,800
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage and Loan Receivables
|
|
|
|
|
|
$
|
18,816
|
|
|
$
|
21,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of June 30, 2006 and December 31, 2005, debt
consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Wholly-owned secured debt, varying
interest rates from 0.8% to 10.4%, due November 2006 to December
2022 (weighted average interest rate of 4.6% and 4.1% at
June 30, 2006 and December 31, 2005, respectively)
|
|
$
|
365,817
|
|
|
$
|
522,459
|
|
Consolidated joint venture secured
debt, varying interest rates from 3.5% to 9.4%, due October 2006
to January 2025 (weighted average interest rates of 6.3% and
6.3% at June 30, 2006 and December 31, 2005,
respectively)
|
|
|
1,454,493
|
|
|
|
1,378,083
|
|
Unsecured senior debt securities,
varying interest rates from 3.5% to 8.0%, due November 2006 to
June 2018 (weighted average interest rates of 6.2% and 6.2% at
June 30, 2006 and December 31, 2005, respectively)
|
|
|
1,062,491
|
|
|
|
987,491
|
|
Other debt, varying interest rates
from 6.7% to 8.6%, due August 2006 to November 2015 (weighted
average interest rates of 7.3% and 8.2% at June 30, 2006
and December 31, 2005, respectively)
|
|
|
88,217
|
|
|
|
23,963
|
|
Unsecured credit facilities,
variable interest rate, due June 2007 to June 2010 (weighted
average interest rates of 3.2% and 2.2% at June 30, 2006
and December 31, 2005, respectively)
|
|
|
904,452
|
|
|
|
490,072
|
|
|
|
|
|
|
|
|
|
|
Total debt before unamortized net
(discounts)
|
|
|
3,875,470
|
|
|
|
3,402,068
|
|
Unamortized net (discounts)
|
|
|
(1,584
|
)
|
|
|
(507
|
)
|
|
|
|
|
|
|
|
|
|
Total consolidated debt
|
|
$
|
3,873,886
|
|
|
$
|
3,401,561
|
|
|
|
|
|
|
|
|
|
|
Secured debt generally requires monthly principal and interest
payments. Some of the secured loans are cross-collateralized by
multiple properties. The secured debt is secured by deeds of
trust or mortgages on certain properties and is generally
non-recourse. As of June 30, 2006 and December 31,
2005, the total gross investment book value of those properties
securing the debt was $3.7 billion and $3.6 billion,
respectively, including $2.7 billion and $2.5 billion,
respectively, in consolidated joint ventures. As of
June 30, 2006, $1.5 billion of the secured debt
obligations bore interest at fixed rates with a weighted average
interest rate of 6.0% while the remaining $282.2 million
bore interest at variable rates (with a weighted average
interest rate of 4.1%).
As of June 30, 2006, the Operating Partnership had
outstanding an aggregate of $1.1 billion in unsecured
senior debt securities, which bore a weighted average interest
rate of 6.2% and had an average term of 4.4 years. These
unsecured senior debt securities include $300.0 million in
notes issued in June 1998, $225.0 million of medium-term
notes, which were issued under the Operating Partnerships
2000 medium-term note program, $325.0 million of
medium-term notes, which were issued under the Operating
Partnerships 2002 medium-term note program, and
approximately $112.5 million of 5.094% Notes Due
2015, which were issued to Teachers Insurance and Annuity
Association of America on July 11, 2005 in a private
placement, in exchange for the cancelled $100.0 million of
notes that were issued in June 1998 resulting in a discount of
approximately $12.5 million. The unsecured senior debt
securities are subject to various covenants. Also included is a
$100.0 million term loan which matures in December 2006.
Management believes that the Company and the Operating
Partnership were in compliance with their financial covenants as
of June 30, 2006.
As of June 30, 2006, the Company had $88.2 million
outstanding in other debt which bore a weighted average interest
rate of 7.3% and had an average term of 5.7 years. Other
debt includes a $65.0 million non-recourse credit facility
obtained by AMB Partners II which had a $65.0 million
balance outstanding as of June 30, 2006, and the Company
also had $23.2 million outstanding in other non-recourse
debt.
11
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On June 1, 2006, the Operating Partnership entered into a
third amended and restated $550.0 million (includes Euros,
Yen or U.S. Dollar denominated borrowings) unsecured
revolving credit agreement that replaced its then-existing
$500.0 million credit facility, which was to mature on
June 1, 2007. The Company is a guarantor of the Operating
Partnerships obligations under the credit facility. The
line, which matures on June 2010, carries a
one-year
extension option, can be increased up to $700.0 million
upon certain conditions. The rate on the borrowings is generally
LIBOR plus a margin, based on the Operating Partnerships
long-term debt rating, which was 42.5 basis points as of
June 30, 2006, with an annual facility fee of 15 basis
points. The Operating Partnership uses its unsecured credit
facility principally for acquisitions, funding development
activity and general working capital requirements. As of
June 30, 2006, the outstanding balance on the credit
facility was $380.8 million and the remaining amount
available was $143.6 million, net of outstanding letters of
credit of $25.6 million.
The outstanding balance included borrowings denominated in
Euros, which, using the exchange rate in effect on June 30,
2006, equaled approximately $250.8 million in
U.S. dollars. The revolving credit facility contains
affirmative covenants, including compliance with financial
reporting requirements and maintenance of specified financial
ratios, and negative covenants, including limitations on the
incurrence of liens and limitations on mergers or
consolidations. Management believes that the Company and the
Operating Partnership were in compliance with their financial
covenants under this revolving line of credit agreement at
June 30, 2006.
On June 23, 2006, AMB Japan Finance Y.K., a subsidiary of
the Operating Partnership and as the initial borrower, entered
into an amended and restated revolving credit agreement for a
45.0 billion Yen unsecured revolving credit facility,
which, using the exchange rate in effect on June 30, 2006,
equaled approximately $393.0 million U.S. dollars.
This replaced the 35.0 billion Yen unsecured revolving
credit facility executed on June 29, 2004, as previously
amended, which using the exchange rate in effect on
June 30, 2006, equaled approximately $306.0 million
U.S. dollars. The Company, along with the Operating
Partnership guarantees the obligations of AMB Japan Finance Y.K.
under the revolving credit facility, as well as the obligations
of any other entity in which the Operating Partnership directly
or indirectly owns an ownership interest and which is selected
from time to time to be a borrower under and pursuant to the
revolving credit agreement. The borrowers intend to use the
proceeds from the facility to fund the acquisition and
development of properties and for other real estate purposes in
Japan, China and South Korea. Generally, borrowers under the
revolving credit facility have the option to secure all or a
portion of the borrowings under the revolving credit facility
with certain real estate assets or equity in entities holding
such real estate assets. The revolving credit facility matures
in June 2010 and has a one-year extension option. The credit
facility can be increased up to 55.0 billion Yen, which,
using the exchange rate in effect on June 30, 2006, equaled
approximately $481.0 million U.S. dollars. The
extension option is subject to the satisfaction of certain
conditions and the payment of an extension fee equal to 0.15% of
the outstanding commitments under the facility at that time. The
rate on the borrowings is generally TIBOR plus a margin, which
is based on the credit rating of the Operating
Partnerships long-term debt and was 42.5 basis points as
of June 30, 2006. In addition, there is an annual facility
fee, payable in quarterly amounts, which is based on the credit
rating of the Operating Partnerships long-term debt, and
was 15 basis points of the outstanding commitments under
the facility as of June 30, 2006. As of June 30, 2006,
the outstanding balance on this credit facility, using the
exchange rate in effect on June 30, 2006, was
$286.7 million in U.S. dollars. The revolving credit
facility contains affirmative covenants, including financial
reporting requirements and maintenance of specified financial
ratios, and negative covenants, including limitations on the
incurrence of liens and limitations on mergers or
consolidations. Management believes that the Company, the
Operating Partnership and AMB Japan Finance Y.K. were in
compliance with their financial covenants under this revolving
credit agreement at June 30, 2006.
On June 13, 2006, the Operating Partnership and certain of
its consolidated subsidiaries entered into a fourth amended and
restated credit agreement for a $250.0 million unsecured
revolving credit facility, which replaced the third amended and
restated credit agreement for a $250.0 million unsecured
credit facility. On February 16, 2006, the third amended
and restated credit agreement replaced the then-existing
$100.0 million unsecured revolving credit facility that was
to mature in June 2008. The Company, along with the Operating
Partnership, guarantees the obligations for such subsidiaries
and other entities controlled by the Company or the Operating
Partnership that are
12
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
selected to be borrowers by the Operating Partnership from time
to time under and pursuant to the credit facility. The four-year
credit facility includes a multi-currency component under which
up to $250.0 million can be drawn in U.S. dollars,
Hong Kong dollars, Singapore dollars, Canadian dollars and
Euros. The line, which matures in February 2010 and carries a
one-year extension option, can be increased to up to
$350.0 million upon certain conditions and the payment of
an extension fee equal to 0.15% of the outstanding commitments.
The rate on the borrowings is generally LIBOR plus a margin,
based on the credit rating of the Operating Partnerships
senior unsecured long-term debt, which was 60 basis points
as of June 30, 2006, with an annual facility fee based on
the credit rating of the Operating Partnerships senior
unsecured long-term debt. The credit agreement contains
affirmative covenants, including financial reporting
requirements and maintenance of specified financial ratios by
the Operating Partnership, and negative covenants, including
limitations on the incurrence of liens and limitations on
mergers or consolidations. Management believes that the Company
and the Operating Partnership were in compliance with their
financial covenants under this revolving credit agreement at
June 30, 2006. The borrowers intend to use the proceeds
from the facility to fund the acquisition and development of
properties and general working capital requirements. As of
June 30, 2006, the outstanding balance on this facility was
approximately $237.0 million.
As of June 30, 2006, the scheduled maturities of the
Companys total debt, excluding unamortized secured debt
premiums and discounts, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
owned
|
|
|
Joint Venture
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
Secured
|
|
|
Senior
|
|
|
Credit
|
|
|
Other
|
|
|
|
|
|
|
Debt
|
|
|
Debt
|
|
|
Debt
|
|
|
Facilities
|
|
|
Debt
|
|
|
Total
|
|
|
2006
|
|
$
|
45,567
|
|
|
$
|
66,699
|
|
|
$
|
150,000
|
|
|
$
|
|
|
|
$
|
15,534
|
|
|
$
|
277,800
|
|
2007
|
|
|
13,385
|
|
|
|
58,356
|
|
|
|
75,000
|
|
|
|
|
|
|
|
752
|
|
|
|
147,493
|
|
2008
|
|
|
42,069
|
|
|
|
179,272
|
|
|
|
175,000
|
|
|
|
|
|
|
|
810
|
|
|
|
397,151
|
|
2009
|
|
|
4,044
|
|
|
|
122,366
|
|
|
|
100,000
|
|
|
|
|
|
|
|
873
|
|
|
|
227,283
|
|
2010
|
|
|
69,865
|
|
|
|
118,834
|
|
|
|
250,000
|
|
|
|
904,452
|
|
|
|
941
|
|
|
|
1,344,092
|
|
2011
|
|
|
21,681
|
|
|
|
363,111
|
|
|
|
75,000
|
|
|
|
|
|
|
|
1,014
|
|
|
|
460,806
|
|
2012
|
|
|
98,749
|
|
|
|
172,120
|
|
|
|
|
|
|
|
|
|
|
|
1,093
|
|
|
|
271,962
|
|
2013
|
|
|
26,183
|
|
|
|
217,175
|
|
|
|
|
|
|
|
|
|
|
|
65,920
|
|
|
|
309,278
|
|
2014
|
|
|
16,262
|
|
|
|
5,460
|
|
|
|
|
|
|
|
|
|
|
|
616
|
|
|
|
22,338
|
|
2015
|
|
|
2,106
|
|
|
|
118,403
|
|
|
|
112,491
|
|
|
|
|
|
|
|
664
|
|
|
|
233,664
|
|
Thereafter
|
|
|
25,906
|
|
|
|
32,697
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
183,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
365,817
|
|
|
$
|
1,454,493
|
|
|
$
|
1,062,491
|
|
|
$
|
904,452
|
|
|
$
|
88,217
|
|
|
$
|
3,875,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Minority
Interests in Consolidated Joint Ventures and Preferred
Units
|
Minority interests in the Company represent the limited
partnership interests in the Operating Partnership, limited
partnership interests in AMB Property II, L.P., a Delaware
limited partnership, and interests held by certain third parties
in several real estate joint ventures, aggregating approximately
45.1 million square feet, which are consolidated for
financial reporting purposes. Such investments are consolidated
because the Company exercises significant rights over major
operating decisions such as approval of budgets, selection of
property managers, asset management, investment activity and
changes in financing. These joint venture investments do not
meet the variable interest entity criteria under FASB
Interpretation No. 46R, Consolidation of Variable
Interest Entities.
Through the Operating Partnership, the Company enters into
co-investment joint ventures with institutional investors. The
Companys co-investment joint ventures are engaged in the
acquisition, ownership, operation, management and, in some
cases, the renovation, expansion and development of industrial
buildings in target markets in North America.
13
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys consolidated co-investment joint
ventures total investment and property debt at
June 30, 2006 and December 31, 2005 (dollars in
thousands) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment
|
|
|
|
|
|
|
|
|
|
|
|
Companys
|
|
|
in Real Estate(6)
|
|
|
Secured Debt(7)
|
|
|
|
|
|
Ownership
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
Co-investment Joint Venture
|
|
Joint Venture Partner
|
|
Percentage
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
AMB/Erie, L.P.
|
|
Erie Insurance Company
and affiliates
|
|
|
50
|
%
|
|
$
|
100,276
|
|
|
$
|
99,722
|
|
|
$
|
40,351
|
|
|
$
|
40,710
|
|
AMB Partners II, L.P.
|
|
City and County of
San Francisco
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
Retirement System
|
|
|
20
|
%
|
|
|
657,034
|
|
|
|
592,115
|
|
|
|
284,851
|
|
|
|
291,684
|
|
AMB-SGP, L.P.
|
|
Industrial JV Pte Ltd (1)
|
|
|
50
|
%
|
|
|
439,962
|
|
|
|
436,713
|
|
|
|
237,589
|
|
|
|
239,944
|
|
AMB Institutional Alliance
Fund II, L.P.
|
|
AMB Institutional Alliance
REIT II, Inc.(2)
|
|
|
20
|
%
|
|
|
515,590
|
|
|
|
507,493
|
|
|
|
248,239
|
|
|
|
245,056
|
|
AMB-AMS,
L.P.(3)
|
|
PMT, SPW and TNO (4)
|
|
|
39
|
%
|
|
|
148,501
|
|
|
|
146,007
|
|
|
|
62,286
|
|
|
|
63,143
|
|
AMB Institutional Alliance
Fund III, L.P.
|
|
AMB Institutional Alliance
REIT III, Inc.(5)
|
|
|
20
|
%
|
|
|
927,932
|
|
|
|
749,634
|
|
|
|
479,174
|
|
|
|
421,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,789,295
|
|
|
$
|
2,531,684
|
|
|
$
|
1,352,490
|
|
|
$
|
1,301,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A subsidiary of the real estate investment subsidiary of the
Government of Singapore Investment Corporation. |
|
(2) |
|
Comprised of 14 institutional investors as stockholders and one
third-party limited partner as of June 30, 2006. |
|
(3) |
|
AMB-AMS,
L.P. is a co-investment partnership with three Dutch pension
funds advised by Mn Services NV. |
|
(4) |
|
PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is
Stichting Pensioenfonds voor de Woningcorporaties and TNO is
Stichting Pensioenfonds TNO. |
|
(5) |
|
AMB Institutional Alliance Fund III, L.P. is an open-ended
co-investment partnership formed in 2004 with institutional
investors. |
|
(6) |
|
The Company also had other consolidated joint ventures with
total investments in real estate of $406.7 million and
$378.7 million at June 30, 2006 and December 31,
2005, respectively. |
|
(7) |
|
The Company also had other consolidated joint ventures with
secured debt of $109.6 million and $85.7 million at
June 30, 2006 and December 31, 2005, respectively. |
14
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table distinguishes the minority interests as of
June 30, 2006 and December 31, 2005 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
Redemption/Callable
|
|
|
2006
|
|
|
2005
|
|
|
Date
|
|
Joint Venture Partners
|
|
$
|
950,209
|
|
|
$
|
853,643
|
|
|
N/A
|
Limited Partners in the Operating
Partnership
|
|
|
86,728
|
|
|
|
86,164
|
|
|
N/A
|
Series J preferred units
(liquidation preference of $40,000)
|
|
|
38,883
|
|
|
|
38,883
|
|
|
September 2006
|
Series K preferred units
(liquidation preference of $40,000)
|
|
|
38,932
|
|
|
|
38,932
|
|
|
April 2007
|
Held through AMB Property II,
L.P.:
|
|
|
|
|
|
|
|
|
|
|
Class B Limited Partners
|
|
|
2,977
|
|
|
|
2,950
|
|
|
N/A
|
Series D preferred units
(liquidation preference of $79,767)
|
|
|
77,684
|
|
|
|
77,684
|
|
|
May 2004
|
Series E preferred units
(liquidation preference of $11,022)
|
|
|
|
|
|
|
10,788
|
|
|
N/A
|
Series F preferred units
(liquidation preference of $10,057)
|
|
|
9,900
|
|
|
|
9,900
|
|
|
March 2005
|
Series H preferred units
(liquidation preference of $42,000)
|
|
|
|
|
|
|
40,912
|
|
|
N/A
|
Series I preferred units
(liquidation preference of $25,500)
|
|
|
24,799
|
|
|
|
24,800
|
|
|
March 2006
|
Series N preferred units
(liquidation preference of $36,479)
|
|
|
|
|
|
|
36,479
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Total minority interests
|
|
$
|
1,230,112
|
|
|
$
|
1,221,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table distinguishes the minority interests
share of income, including minority interests share of
development profits, but excluding minority interests
share of discontinued operations for the three and six months
ended June 30, 2006 and 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Joint Venture Partners share
of income
|
|
$
|
9,060
|
|
|
$
|
8,893
|
|
|
$
|
17,731
|
|
|
$
|
18,242
|
|
Joint Venture Partners share
of development profits
|
|
|
1,619
|
|
|
|
284
|
|
|
|
1,651
|
|
|
|
10,120
|
|
Common limited partners in the
Operating Partnership
|
|
|
479
|
|
|
|
816
|
|
|
|
1,269
|
|
|
|
1,335
|
|
Series J preferred units
(liquidation preference of $40,000)
|
|
|
795
|
|
|
|
795
|
|
|
|
1,590
|
|
|
|
1,590
|
|
Series K preferred units
(liquidation preference of $40,000)
|
|
|
795
|
|
|
|
795
|
|
|
|
1,590
|
|
|
|
1,590
|
|
Held through AMB Property II,
L.P.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common limited
partnership units
|
|
|
16
|
|
|
|
33
|
|
|
|
42
|
|
|
|
44
|
|
Series D preferred units
(liquidation preference of $79,767)
|
|
|
1,546
|
|
|
|
1,546
|
|
|
|
3,091
|
|
|
|
3,091
|
|
Series E preferred units
(liquidation preference of $11,022)
|
|
|
178
|
|
|
|
213
|
|
|
|
392
|
|
|
|
427
|
|
Series F preferred units
(liquidation preference of $10,057)
|
|
|
200
|
|
|
|
200
|
|
|
|
400
|
|
|
|
400
|
|
Series H preferred units
(liquidation preference of $42,000)
|
|
|
|
|
|
|
853
|
|
|
|
815
|
|
|
|
1,706
|
|
Series I preferred units
(liquidation preference of $25,500)
|
|
|
510
|
|
|
|
510
|
|
|
|
1,020
|
|
|
|
1,020
|
|
Series N preferred units
(liquidation preference of $36,479)
|
|
|
|
|
|
|
456
|
|
|
|
127
|
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minority interests
share of income
|
|
$
|
15,198
|
|
|
$
|
15,394
|
|
|
$
|
29,718
|
|
|
$
|
40,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has consolidated joint ventures that have finite
lives under the terms of the partnership agreements. As of
June 30, 2006 and December 31, 2005, the aggregate
book value of the minority interests in the
15
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accompanying consolidated balance sheets was approximately
$950.2 million and $853.6 million, respectively, and
the Company believes that the aggregate settlement value of
these interests were approximately $1.4 billion and
$1.2 billion, respectively. However, there can be no
assurance that the aggregate settlement value of the interests
will be as such. The aggregate settlement value is based on the
estimated liquidation values of the assets and liabilities and
the resulting proceeds that the Company would distribute to its
joint venture partners upon dissolution, as required under the
terms of the respective partnership agreements. There can be no
assurance that the estimated liquidation values of the assets
and liabilities and the resulting proceeds that the Company
distributes upon dissolution will be the same as the actual
liquidation values of such assets, liabilities and proceeds
distributed upon dissolution. Subsequent changes to the
estimated fair values of the assets and liabilities of the
consolidated joint ventures will affect the Companys
estimate of the aggregate settlement value. The partnership
agreements do not limit the amount that the minority partners
would be entitled to in the event of liquidation of the assets
and liabilities and dissolution of the respective partnerships.
Effective January 27, 2006, Robert Pattillo Properties,
Inc. exercised its rights under its Put Agreement, dated
September 24, 2004, with the Operating Partnership, and
sold all 729,582 of its 5.00% Series N Cumulative
Redeemable Preferred Limited Partnership Units in one of the
Companys subsidiaries, AMB Property II, L.P., to the
Operating Partnership for an aggregate price of
$36.6 million, including accrued and unpaid distributions.
Also on January 27, 2006, AMB Property II, L.P.
repurchased all of the 5.00% Series N Cumulative Redeemable
Preferred Limited Partnership Units from the Operating
Partnership for an aggregate price of $36.6 million and
cancelled all of the outstanding series N preferred units
as of such date.
On March 21, 2006, AMB Property II, L.P., repurchased
all 840,000 of its outstanding 8.125% Series H Cumulative
Redeemable Preferred Limited Partnership Units from a single
institutional investor for an aggregate price of
$42.8 million, including accrued and unpaid distributions.
In addition, the Company recognized a reduction of income
available to common stockholders of $1.1 million for the
related original issuance costs.
On June 30, 2006, AMB Property II, L.P., repurchased
all 220,440 of its outstanding 7.75% Series E Cumulative
Redeemable Preferred Limited Partnership Units from a single
institutional investor for an aggregate price of
$10.9 million, including accrued and unpaid distributions.
In addition, the Company recognized an increase in income
available to common stockholders of $0.1 million for the
discount on repurchase, net of original issuance costs.
|
|
8.
|
Investments
in Unconsolidated Joint Ventures
|
The Companys unconsolidated joint ventures net
equity investments at June 30, 2006 and December 31,
2005 (dollars in thousands) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys
|
|
|
|
|
|
Square
|
|
|
June 30,
|
|
|
December 31,
|
|
|
Ownership
|
|
Unconsolidated Joint Ventures
|
|
Market
|
|
Feet
|
|
|
2006
|
|
|
2005
|
|
|
Percentage
|
|
|
Co-Investment Joint
Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMB-SGP Mexico, LLC
|
|
Various, Mexico
|
|
|
2,474,745
|
|
|
$
|
18,863
|
|
|
$
|
16,218
|
|
|
|
20
|
%
|
AMB Japan Fund I, L.P.
|
|
Various, Japan
|
|
|
1,960,480
|
|
|
|
18,311
|
|
|
|
10,112
|
|
|
|
20
|
%
|
Other Industrial Operating Joint
Ventures
|
|
|
|
|
9,720,658
|
|
|
|
45,949
|
|
|
|
41,520
|
|
|
|
52
|
%
|
Other Industrial Development
Joint Ventures
|
|
|
|
|
250,758
|
|
|
|
1,439
|
|
|
|
6,176
|
|
|
|
50
|
%
|
Other Investment G.
Accion
|
|
Various
|
|
|
n/a
|
|
|
|
38,545
|
|
|
|
44,627
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unconsolidated Joint
Ventures
|
|
|
|
|
14,406,641
|
|
|
$
|
123,107
|
|
|
$
|
118,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 30, 2004, the Company formed AMB-SGP Mexico,
LLC, a joint venture with Industrial (Mexico) JV Pte Ltd, a real
estate investment subsidiary of the Government of Singapore
Investment Corporation, in which the Company retained a 20%
interest. For the three and six months ended June 30, 2006,
the Company recognized development profits of $3.4 million
from the contribution of one completed development project for
16
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$38.4 million aggregating approximately 0.6 million
square feet. For the six months ended June 30, 2005, the
Company recognized a gain of $1.3 million from disposition
of real estate interests, representing the additional value
received from the contribution of properties to AMB-SGP Mexico,
LLC during 2004. For the three and six months ended
June 30, 2005, the Company recognized development profits
of $1.7 million from the contribution of one industrial
building for $23.6 million aggregating approximately
0.4 million square feet.
On June 30, 2005, the Company formed AMB Japan Fund I,
L.P., a joint venture with 13 institutional investors, in which
the Company retained an approximate 20% interest. The 13
institutional investors have committed 49.5 billion Yen
(approximately $432.6 million in U.S. dollars, using
the exchange rate at June 30, 2006) for an approximate
80% equity interest. For the three and six months ended
June 30, 2006, the Company recognized development profits
of $43.2 million from the contribution of one completed
development project for $243.0 million (using the exchange
rate on the date of contribution) aggregating approximately
0.8 million square feet, to this fund. For the three and
six months ended June 30, 2005, the Company contributed
$106.9 million (using the exchange rate in effect at
contribution) in operating properties, consisting of six
industrial buildings, aggregating approximately 0.9 million
square feet, to this fund. For the three and six months ended
June 30, 2005, the Company recognized a gain of
$17.6 million on the contribution, representing the portion
of its interest in contributed properties acquired by the
third-party investors for cash.
Under the agreements governing the joint ventures, the Company
and the other parties to the joint ventures may be required to
make additional capital contributions and, subject to certain
limitations, the joint ventures may incur additional debt.
The Company also has a 0.1% unconsolidated equity interest (with
an approximate 33% economic interest) in AMB Pier One, LLC, a
joint venture related to the 2000 redevelopment of the pier
which houses the Companys office space in
San Francisco. The investment is not consolidated because
the Company does not exercise control over major operating
decisions such as approval of budgets, selection of property
managers, investment activity and changes in financing. The
Company has an option to purchase the remaining equity interest
beginning January 1, 2007 and expiring December 31,
2009, based on the fair market value as stipulated in the
operating agreement. As of June 30, 2006, the Company also
had an approximate 39.0% unconsolidated equity interest in
G.Accion, a Mexican real estate company. G.Accion provides
management and development services for industrial, retail,
residential and office properties in Mexico. In addition, as of
June 30, 2006, a subsidiary of the Company also had an
approximate 5% interest in IAT Air Cargo Facilities Income Fund
(IAT), a Canadian income trust specializing in aviation-related
real estate at Canadas leading international airports.
This equity investment is included in other assets on the
consolidated balance sheets.
Holders of common limited partnership units of the Operating
Partnership and class B common limited partnership units of
AMB Property II, L.P. have the right, commencing generally
on or after the first anniversary of the holder becoming a
limited partner of the Operating Partnership or AMB
Property II, L.P., as applicable (or such other date agreed
to by the Operating Partnership or AMB Property II, L.P.
and the applicable unit holders), to require the Operating
Partnership or AMB Property II, L.P., as applicable, to
redeem part or all of their common units or class B common
limited partnership units, as applicable, for cash (based upon
the fair market value, as defined in the applicable partnership
agreement, of an equivalent number of shares of common stock of
the Company at the time of redemption) or the Operating
Partnership or AMB Property II, L.P. may, in its respective
sole and absolute discretion (subject to the limits on ownership
and transfer of common stock set forth in the Companys
charter), elect to have the Company exchange those common units
or class B common limited partnership units, as applicable,
for shares of the Companys common stock on a
one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of certain rights, certain extraordinary
distributions and similar events. With each redemption or
exchange of the Operating Partnerships common units, the
Companys percentage ownership in the Operating Partnership
will increase. Common limited partners and class B common
17
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limited partners may exercise this redemption right from time to
time, in whole or in part, subject to certain limitations.
During the six months ended June 30, 2006, the Operating
Partnership redeemed 11,318 of its common limited partnership
units for an equivalent number of shares of the Companys
common stock.
The Company has authorized 100,000,000 shares of preferred
stock for issuance, of which the following series were
designated as of June 30, 2006: 1,595,337 shares of
series D cumulative redeemable preferred;
220,440 shares of series E cumulative redeemable
preferred; 267,439 shares of series F cumulative
redeemable preferred; 510,000 shares of series I
cumulative redeemable preferred; 800,000 shares of
series J cumulative redeemable preferred;
800,000 shares of series K cumulative redeemable
preferred; 2,300,000 shares of series L cumulative
redeemable preferred, of which 2,000,000 are outstanding;
2,300,000 shares of series M cumulative redeemable
preferred, all of which are outstanding; and
3,000,000 shares of series O cumulative redeemable
preferred, all of which are outstanding.
The following table sets forth the dividends or distributions
paid per share or unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
Paying Entity
|
|
Security
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
AMB Property Corporation
|
|
Common stock
|
|
$
|
0.460
|
|
|
$
|
0.440
|
|
|
$
|
0.920
|
|
|
$
|
0.880
|
|
AMB Property Corporation
|
|
Series L preferred stock
|
|
$
|
0.406
|
|
|
$
|
0.406
|
|
|
$
|
0.813
|
|
|
$
|
0.813
|
|
AMB Property Corporation
|
|
Series M preferred stock
|
|
$
|
0.422
|
|
|
$
|
0.422
|
|
|
$
|
0.844
|
|
|
$
|
0.844
|
|
AMB Property Corporation
|
|
Series O preferred stock
|
|
$
|
0.438
|
|
|
|
n/a
|
|
|
$
|
0.875
|
|
|
|
n/a
|
|
Operating Partnership
|
|
Common limited partnership units
|
|
$
|
0.460
|
|
|
$
|
0.440
|
|
|
$
|
0.920
|
|
|
$
|
0.880
|
|
Operating Partnership
|
|
Series J preferred units
|
|
$
|
0.994
|
|
|
$
|
0.994
|
|
|
$
|
1.988
|
|
|
$
|
1.988
|
|
Operating Partnership
|
|
Series K preferred units
|
|
$
|
0.994
|
|
|
$
|
0.994
|
|
|
$
|
1.988
|
|
|
$
|
1.988
|
|
AMB Property II, L.P.
|
|
Class B common limited
partnership units
|
|
$
|
0.460
|
|
|
$
|
0.440
|
|
|
$
|
0.920
|
|
|
$
|
0.880
|
|
AMB Property II, L.P.
|
|
Series D preferred units
|
|
$
|
0.969
|
|
|
$
|
0.969
|
|
|
$
|
1.938
|
|
|
$
|
1.938
|
|
AMB Property II, L.P.
|
|
Series E preferred units(1)
|
|
$
|
0.807
|
|
|
$
|
0.969
|
|
|
$
|
1.776
|
|
|
$
|
1.938
|
|
AMB Property II, L.P.
|
|
Series F preferred units
|
|
$
|
0.994
|
|
|
$
|
0.994
|
|
|
$
|
1.988
|
|
|
$
|
1.988
|
|
AMB Property II, L.P.
|
|
Series H preferred units(2)
|
|
|
n/a
|
|
|
$
|
1.016
|
|
|
$
|
0.970
|
|
|
$
|
2.031
|
|
AMB Property II, L.P.
|
|
Series I preferred units
|
|
$
|
1.000
|
|
|
$
|
1.000
|
|
|
$
|
2.000
|
|
|
$
|
2.000
|
|
AMB Property II, L.P.
|
|
Series N preferred units(3)
|
|
|
n/a
|
|
|
$
|
0.625
|
|
|
$
|
0.215
|
|
|
$
|
1.250
|
|
|
|
|
(1) |
|
In June 2006, AMB Property II, L.P. repurchased all of its
Series E preferred units. |
|
(2) |
|
In March 2006, AMB Property II, L.P. repurchased all of its
Series H preferred units. |
|
(3) |
|
The holder of the series N preferred units exercised its
put option in January 2006 and sold all of its series N
preferred units to the Operating Partnership and AMB
Property II, L.P. repurchased all of such units from the
Operating Partnership. |
In December 2005, AMB Property Corporations board of
directors approved a new two-year common stock repurchase
program for the discretionary repurchase of up to
$200.0 million of its common stock. AMB Property
Corporation did not repurchase or retire any of its shares of
common stock during the quarter ended June 30, 2006.
The Companys only dilutive securities outstanding for the
three and six months ended June 30, 2006 and 2005 were
stock options and shares of restricted stock granted under its
stock incentive plans. The effect on income per share was to
increase weighted average shares outstanding. Such dilution was
computed using the treasury stock
18
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
method. The computation of basic and diluted earnings per share
(EPS) is presented below (dollars in thousands,
except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before cumulative effect of change in accounting principle
|
|
$
|
57,217
|
|
|
$
|
36,301
|
|
|
$
|
77,020
|
|
|
$
|
56,875
|
|
Preferred stock dividends
|
|
|
(3,095
|
)
|
|
|
(1,783
|
)
|
|
|
(6,191
|
)
|
|
|
(3,566
|
)
|
Preferred unit redemption
discount/(issuance costs)
|
|
|
77
|
|
|
|
|
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before cumulative effect of change in accounting principle
(after preferred stock dividends)
|
|
|
54,199
|
|
|
|
34,518
|
|
|
|
69,809
|
|
|
|
53,309
|
|
Total discontinued operations
|
|
|
18,136
|
|
|
|
4,488
|
|
|
|
25,717
|
|
|
|
30,681
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
72,335
|
|
|
$
|
39,006
|
|
|
$
|
95,719
|
|
|
$
|
83,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
87,317,494
|
|
|
|
83,521,538
|
|
|
|
86,915,959
|
|
|
|
83,339,366
|
|
Stock options and restricted stock
dilution(1)
|
|
|
2,818,165
|
|
|
|
3,554,473
|
|
|
|
3,231,534
|
|
|
|
3,506,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common
shares
|
|
|
90,135,659
|
|
|
|
87,076,011
|
|
|
|
90,147,493
|
|
|
|
86,845,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
(after preferred stock dividends) before cumulative effect of
change in accounting principle
|
|
$
|
0.62
|
|
|
$
|
0.42
|
|
|
$
|
0.80
|
|
|
$
|
0.64
|
|
Discontinued operations
|
|
|
0.21
|
|
|
|
0.05
|
|
|
|
0.30
|
|
|
|
0.37
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
0.83
|
|
|
$
|
0.47
|
|
|
$
|
1.10
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
(after preferred stock dividends) before cumulative effect of
change in accounting principle
|
|
$
|
0.60
|
|
|
$
|
0.40
|
|
|
$
|
0.77
|
|
|
$
|
0.62
|
|
Discontinued operations
|
|
|
0.20
|
|
|
|
0.05
|
|
|
|
0.29
|
|
|
|
0.35
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders
|
|
$
|
0.80
|
|
|
$
|
0.45
|
|
|
$
|
1.06
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes anti-dilutive stock options of 740,323 and 548,195 for
the three and six months ended June 30, 2006, respectively. |
19
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company operates industrial properties and manages its
business by geographic markets. Such industrial properties
consist primarily of warehouse distribution facilities suitable
for single or multiple customers, and are typically comprised of
multiple buildings that are leased to customers engaged in
various types of businesses. The Companys geographic
markets for industrial properties are managed separately because
each market requires different operating, pricing and leasing
strategies. The accounting policies of the segments are the same
as those described in the summary of significant accounting
policies. The Company evaluates performance based upon property
net operating income of the combined properties in each segment.
The other U.S. target markets category includes Austin,
Baltimore/Washington D.C., Boston and Minneapolis. The other
U.S. non-target markets category captures all of the
Companys other U.S. markets, except for those markets
listed individually in the table. The international target
markets category includes China, France, Germany, Japan, Mexico
and the Netherlands.
Summary information for the reportable segments is as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenues
|
|
|
Property NOI(1)
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
Segments
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Industrial U.S. hub and
gateway markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta
|
|
$
|
5,848
|
|
|
$
|
5,023
|
|
|
$
|
4,478
|
|
|
$
|
3,928
|
|
Chicago
|
|
|
13,643
|
|
|
|
12,740
|
|
|
|
9,802
|
|
|
|
8,857
|
|
Dallas/Fort Worth
|
|
|
4,029
|
|
|
|
4,184
|
|
|
|
2,737
|
|
|
|
2,991
|
|
Los Angeles
|
|
|
27,840
|
|
|
|
26,218
|
|
|
|
22,096
|
|
|
|
20,824
|
|
Northern New Jersey/New York
|
|
|
20,400
|
|
|
|
20,290
|
|
|
|
14,965
|
|
|
|
14,659
|
|
San Francisco Bay Area
|
|
|
20,980
|
|
|
|
21,001
|
|
|
|
16,532
|
|
|
|
17,180
|
|
Miami
|
|
|
10,319
|
|
|
|
8,966
|
|
|
|
6,888
|
|
|
|
6,098
|
|
Seattle
|
|
|
9,768
|
|
|
|
10,837
|
|
|
|
7,703
|
|
|
|
8,512
|
|
On-Tarmac
|
|
|
13,849
|
|
|
|
14,071
|
|
|
|
8,036
|
|
|
|
8,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total industrial U.S. hub
markets
|
|
|
126,676
|
|
|
|
123,330
|
|
|
|
93,237
|
|
|
|
91,318
|
|
Other U.S. target markets
|
|
|
23,446
|
|
|
|
25,060
|
|
|
|
17,107
|
|
|
|
17,639
|
|
Other U.S. non-target markets
|
|
|
5,756
|
|
|
|
8,667
|
|
|
|
4,195
|
|
|
|
5,663
|
|
International target markets
|
|
|
13,657
|
|
|
|
8,528
|
|
|
|
10,073
|
|
|
|
6,251
|
|
Straight-line rents and
amortization of lease intangibles
|
|
|
6,154
|
|
|
|
4,864
|
|
|
|
6,154
|
|
|
|
4,864
|
|
Total other markets
|
|
|
3
|
|
|
|
771
|
|
|
|
3
|
|
|
|
611
|
|
Discontinued operations
|
|
|
(362
|
)
|
|
|
(16,850
|
)
|
|
|
(322
|
)
|
|
|
(11,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175,330
|
|
|
$
|
154,370
|
|
|
$
|
130,447
|
|
|
$
|
114,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Property net operating income (NOI) is defined as
rental revenue, including reimbursements, less property
operating expenses, which excludes depreciation, amortization,
general and administrative expenses and interest expense. For a
reconciliation of NOI to net income, see the table on
page 19. |
20
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenues
|
|
|
Property NOI(1)
|
|
|
|
For the Six Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
Segments
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Industrial U.S. hub and
gateway markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta
|
|
$
|
11,205
|
|
|
$
|
10,479
|
|
|
$
|
8,644
|
|
|
$
|
8,177
|
|
Chicago
|
|
|
27,272
|
|
|
|
26,393
|
|
|
|
19,179
|
|
|
|
18,107
|
|
Dallas/Fort Worth
|
|
|
7,787
|
|
|
|
8,265
|
|
|
|
5,259
|
|
|
|
5,808
|
|
Los Angeles
|
|
|
55,255
|
|
|
|
52,328
|
|
|
|
44,017
|
|
|
|
41,632
|
|
Northern New Jersey/New York
|
|
|
40,053
|
|
|
|
39,832
|
|
|
|
28,389
|
|
|
|
28,378
|
|
San Francisco Bay Area
|
|
|
42,535
|
|
|
|
42,922
|
|
|
|
33,572
|
|
|
|
34,682
|
|
Miami
|
|
|
19,570
|
|
|
|
17,615
|
|
|
|
13,253
|
|
|
|
12,113
|
|
Seattle
|
|
|
19,122
|
|
|
|
21,675
|
|
|
|
14,963
|
|
|
|
17,028
|
|
On-Tarmac
|
|
|
27,904
|
|
|
|
27,864
|
|
|
|
16,002
|
|
|
|
16,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total industrial U.S. hub
markets
|
|
|
250,703
|
|
|
|
247,373
|
|
|
|
183,278
|
|
|
|
182,250
|
|
Other U.S. target markets
|
|
|
47,037
|
|
|
|
53,396
|
|
|
|
33,822
|
|
|
|
37,867
|
|
Other U.S. non-target markets
|
|
|
13,668
|
|
|
|
17,155
|
|
|
|
11,114
|
|
|
|
11,184
|
|
International target markets
|
|
|
29,924
|
|
|
|
15,649
|
|
|
|
21,969
|
|
|
|
11,997
|
|
Straight-line rents and
amortization of lease intangibles
|
|
|
11,300
|
|
|
|
9,361
|
|
|
|
11,300
|
|
|
|
9,361
|
|
Total other markets
|
|
|
10
|
|
|
|
1,474
|
|
|
|
10
|
|
|
|
1,077
|
|
Discontinued operations
|
|
|
(1,408
|
)
|
|
|
(37,204
|
)
|
|
|
(659
|
)
|
|
|
(26,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
351,234
|
|
|
$
|
307,204
|
|
|
$
|
260,834
|
|
|
$
|
227,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Property net operating income (NOI) is defined as
rental revenue, including reimbursements, less property
operating expenses, which excludes depreciation, amortization,
general and administrative expenses and interest expense. For a
reconciliation of NOI to net income, see the table below. |
The Company considers NOI to be an appropriate supplemental
performance measure because NOI reflects the operating
performance of the Companys real estate portfolio on a
segment basis, and the Company uses NOI to make decisions about
resource allocations and to assess regional property level
performance. However, NOI should not be viewed as an alternative
measure of the Companys financial performance since it
does not reflect general and administrative expenses, interest
expense, depreciation and amortization costs, capital
expenditures and leasing costs, or trends in development and
construction activities that could materially impact the
Companys results from operations. Further, the
Companys NOI may not be comparable to that of other real
estate companies, as they may use different methodologies for
calculating NOI.
21
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table is a reconciliation from NOI to reported net
income, a financial measure under GAAP (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Property NOI
|
|
$
|
130,447
|
|
|
$
|
114,454
|
|
|
$
|
260,834
|
|
|
$
|
227,704
|
|
Private capital income
|
|
|
4,943
|
|
|
|
3,438
|
|
|
|
10,049
|
|
|
|
6,756
|
|
Depreciation and amortization
|
|
|
(44,088
|
)
|
|
|
(37,764
|
)
|
|
|
(87,162
|
)
|
|
|
(72,636
|
)
|
Impairment losses
|
|
|
(5,394
|
)
|
|
|
|
|
|
|
(5,394
|
)
|
|
|
|
|
General and administrative
|
|
|
(25,144
|
)
|
|
|
(20,111
|
)
|
|
|
(48,191
|
)
|
|
|
(38,060
|
)
|
Other expenses
|
|
|
296
|
|
|
|
792
|
|
|
|
(241
|
)
|
|
|
(738
|
)
|
Fund costs
|
|
|
(479
|
)
|
|
|
(380
|
)
|
|
|
(1,093
|
)
|
|
|
(744
|
)
|
Equity in earnings of
unconsolidated joint ventures
|
|
|
8,278
|
|
|
|
7,188
|
|
|
|
10,366
|
|
|
|
8,430
|
|
Other income
|
|
|
1,933
|
|
|
|
1,667
|
|
|
|
4,998
|
|
|
|
1,804
|
|
Gains from dispositions of real
estate
|
|
|
|
|
|
|
17,622
|
|
|
|
|
|
|
|
18,923
|
|
Development profits, net of taxes
|
|
|
45,698
|
|
|
|
1,975
|
|
|
|
46,372
|
|
|
|
19,924
|
|
Interest, including amortization
|
|
|
(44,075
|
)
|
|
|
(37,186
|
)
|
|
|
(83,800
|
)
|
|
|
(74,011
|
)
|
Total minority interests
share of income
|
|
|
(15,198
|
)
|
|
|
(15,394
|
)
|
|
|
(29,718
|
)
|
|
|
(40,477
|
)
|
Total discontinued operations
|
|
|
18,136
|
|
|
|
4,488
|
|
|
|
25,717
|
|
|
|
30,681
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
75,353
|
|
|
$
|
40,789
|
|
|
$
|
102,930
|
|
|
$
|
87,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys total assets by market were (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Total Assets as of
|
|
|
|
June 30, 2006
|
|
|
December 31, 2005
|
|
|
Industrial U.S. hub and
gateway markets:
|
|
|
|
|
|
|
|
|
Atlanta
|
|
$
|
231,452
|
|
|
$
|
208,751
|
|
Chicago
|
|
|
565,924
|
|
|
|
504,581
|
|
Dallas/Fort Worth
|
|
|
136,854
|
|
|
|
137,112
|
|
Los Angeles
|
|
|
1,067,775
|
|
|
|
930,917
|
|
Northern New Jersey/New York
|
|
|
856,540
|
|
|
|
756,719
|
|
San Francisco Bay Area
|
|
|
778,315
|
|
|
|
789,129
|
|
Miami
|
|
|
424,350
|
|
|
|
372,728
|
|
Seattle
|
|
|
403,851
|
|
|
|
371,029
|
|
On-Tarmac
|
|
|
239,359
|
|
|
|
245,046
|
|
|
|
|
|
|
|
|
|
|
Total industrial U.S. hub
markets
|
|
|
4,704,420
|
|
|
|
4,316,012
|
|
Other U.S. target markets
|
|
|
694,545
|
|
|
|
693,287
|
|
Other non-target markets
|
|
|
249,549
|
|
|
|
264,954
|
|
International target markets
|
|
|
1,228,702
|
|
|
|
975,960
|
|
Total other markets
|
|
|
|
|
|
|
10,277
|
|
Investments in unconsolidated
joint ventures
|
|
|
123,107
|
|
|
|
118,653
|
|
Non-segment assets
|
|
|
336,043
|
|
|
|
423,596
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,336,366
|
|
|
$
|
6,802,739
|
|
|
|
|
|
|
|
|
|
|
22
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Commitments
and Contingencies
|
Commitments
Lease Commitments. The Company holds operating
ground leases on land parcels at its on-tarmac facilities,
leases on office spaces for corporate use, and a leasehold
interest that it holds for investment purposes. The remaining
lease terms are from one to 56 years. Operating lease
payments are being amortized ratably over the lesser of the
terms of the related leases or 40 years.
Standby Letters of Credit. As of June 30,
2006, the Company had provided approximately $37.1 million
in letters of credit, of which $25.6 million were provided
under the Operating Partnerships $550.0 million
unsecured credit facility. The letters of credit were required
to be issued under certain ground lease provisions, bank
guarantees and other commitments.
Guarantees. Other than parent guarantees
associated with the unsecured debt, as of June 30, 2006,
the Company had outstanding guarantees in the aggregate amount
of $205.8 million in connection with certain acquisitions.
As of June 30, 2006, the Company guaranteed
$26.1 million and $2.3 million on outstanding loans on
two of its consolidated joint ventures and one of its
unconsolidated joint ventures, respectively.
Performance and Surety Bonds. As of
June 30, 2006, the Company had outstanding performance and
surety bonds in an aggregate amount of $1.0 million. These
bonds were issued in connection with certain of its development
projects and were posted to guarantee certain tax obligations
and the construction of certain real property improvements and
infrastructure, such as grading, sewers and streets. Performance
and surety bonds are commonly required by public agencies from
real estate developers. Performance and surety bonds are
renewable and expire upon the payment of the taxes due or the
completion of the improvements and infrastructure.
Promoted Interests and Other Contractual
Obligations. Upon the achievement of certain
return thresholds and the occurrence of certain events, the
Company may be obligated to make payments to certain of joint
venture partners pursuant to the terms and provisions of their
contractual agreements with the Operating Partnership. From time
to time in the normal course of the Companys business, the
Company enters into various contracts with third parties that
may obligate it to make payments or perform other obligations
upon the occurrence of certain events.
Contingencies
Litigation. In the normal course of business,
from time to time, the Company may be involved in legal actions
relating to the ownership and operations of its properties.
Management does not expect that the liabilities, if any, that
may ultimately result from such legal actions will have a
material adverse effect on the consolidated financial position,
results of operations or cash flows of the Company.
Environmental Matters. The Company monitors
its properties for the presence of hazardous or toxic
substances. The Company is not aware of any environmental
liability with respect to the properties that would have a
material adverse effect on the Companys business, assets
or results of operations. However, there can be no assurance
that such a material environmental liability does not exist. The
existence of any such material environmental liability would
have an adverse effect on the Companys results of
operations and cash flow. The Company carries environmental
insurance and believes that the policy terms, conditions, limits
and deductibles are adequate and appropriate under the
circumstances, given the relative risk of loss, the cost of such
coverage and current industry practice.
General Uninsured Losses. The Company carries
property and rental loss, liability, flood and terrorism
insurance. The Company believes that the policy terms,
conditions, limits and deductibles are adequate and appropriate
under the circumstances, given the relative risk of loss, the
cost of such coverage and current industry practice. In
addition, certain of the Companys properties are located
in areas that are subject to earthquake activity; therefore, the
Company has obtained limited earthquake insurance on those
properties. There are, however, certain types of extraordinary
losses, such as those due to acts of war that may be either
uninsurable or not economically
23
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
insurable. Although the Company has obtained coverage for
certain acts of terrorism, with policy specifications and
insured limits that it believes are commercially reasonable,
there can be no assurance that the Company will be able to
collect under such policies. Should an uninsured loss occur, the
Company could lose its investment in, and anticipated profits
and cash flows from, a property.
Various properties that the Company owns or leases in New
Orleans, Louisiana and South Florida suffered damage in 2005 as
a result of Hurricanes Katrina and Wilma. Although the Company
expects that its insurance will cover losses arising from this
damage in excess of the industry standard deductibles paid by
the Company, there can be no assurance the Company will be
reimbursed for all losses incurred. Management is not aware of
circumstances associated with these losses that would have a
material adverse effect on the Companys business, assets
or results from operations.
Captive Insurance Company. In December 2001,
the Company formed a wholly-owned captive insurance company,
Arcata National Insurance Ltd. (Arcata), which
provides insurance coverage for all or a portion of losses below
the deductible under the Companys third-party policies.
The Company capitalized Arcata in accordance with the applicable
regulatory requirements. Arcata established annual premiums
based on projections derived from the past loss experience at
the Companys properties. Annually, the Company engages an
independent third party to perform an actuarial estimate of
future projected claims, related deductibles and projected
expenses necessary to fund associated risk management programs.
Premiums paid to Arcata may be adjusted based on this estimate.
Premiums paid to Arcata have a retrospective component, so that
if expenses, including losses, deductibles and reserves, are
less than premiums collected, the excess may be returned to the
property owners (and, in turn, as appropriate, to the customers)
and conversely, subject to certain limitations, if expenses,
including losses, deductibles and reserves, are greater than
premiums collected, an additional premium will be charged. As
with all recoverable expenses, differences between estimated and
actual insurance premiums will be recognized in the subsequent
year. Through this structure, the Company believes that it has
more comprehensive insurance coverage at an overall lower cost
than would otherwise be available in the market.
|
|
13.
|
Stock
Incentive Plans
|
Stock Incentive Plans. The Company has stock
option and incentive plans (Stock Incentive Plans)
for the purpose of attracting and retaining eligible officers,
directors and employees. The Company has reserved for issuance
18,950,000 shares of common stock under its Stock Incentive
Plans. As of June 30, 2006, the Company had 7,649,775
non-qualified options outstanding granted to certain directors,
officers and employees. Each option is exchangeable for one
share of the Companys common stock. Each options
exercise price is equal to the Companys market price on
the date of grant. The options have an original ten-year term
and generally vest pro rata in annual installments over a three
to five-year period from the date of grant.
The Company adopted SFAS No. 123R, Share Based
Payment, on January 1, 2006. The Company opted to
utilize the modified prospective method of transition in
adopting SFAS No. 123R. The effect of this change from
applying the original expense recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, had an immaterial effect on income before
minority interests and discontinued operations, income from
continuing operations, net income and earnings per share. The
effect of this change from applying the original provisions of
SFAS No. 123 had no effect on cash flow from operating
and financing activities. The Company recorded a cumulative
effect of change in accounting principle in the amount of
$0.2 million as of January 1, 2006 to reflect the
change in accounting for forfeitures. The Company values stock
options using the Black-Scholes option-pricing model and
recognizes this value as an expense over the vesting periods.
Under this standard, recognition of expense for stock options is
applied to all options granted after the beginning of the year
of adoption. In accordance with SFAS No. 123R, the
Company will recognize the associated expense over the three to
five-year vesting periods. For the three months ended
June 30, 2006 and 2005, under SFAS No. 123R,
related stock option expense was $1.0 million and
$0.9 million, respectively. For the six months ended
June 30, 2006 and 2005, related stock option expense was
$3.1 million and $3.0 million, respectively.
Additionally, the Company awards restricted stock and
24
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognizes this value as an expense over the vesting periods.
During the three months ended June 30, 2006 and 2005,
related restricted stock compensation expense was
$5.1 million and $1.7 million, respectively. During
the six months ended June 30, 2006 and 2005, related
restricted stock compensation expense was $7.8 million and
$3.9 million, respectively. The expense is included in
general and administrative expenses in the accompanying
consolidated statements of operations. As of June 30, 2006,
the Company had $6.9 million of total unrecognized
compensation cost related to unvested options granted under the
Stock Incentive Plans which is expected to be recognized over a
weighted average period of 1.2 years. Results for prior
periods have not been restated.
As a result of adopting SFAS No. 123R on
January 1, 2006, the Companys income before income
taxes and net income for the three and six months ended
June 30, 2006 is $0.1 million and $0.5 million,
respectively, higher than if the Company had continued to
account for share-based compensation under the original
provisions of SFAS No. 123. Basic and diluted earnings
per share for the three months ended June 30, 2006 would
have been the same as the reported numbers at $0.83 and $0.80,
respectively, if the Company had not adopted
SFAS No. 123R. Basic and diluted earnings per share
for the six months ended June 30, 2006 would have been the
same as the reported numbers at $1.10 and $1.06, if the Company
had not adopted SFAS No. 123R.
SFAS No. 123R requires the cash flows resulting from
tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax
benefits) to be classified as financing cash flows. The Company
does not have any such excess tax benefits.
The fair value of each option grant was estimated at the date of
grant using the Black-Scholes option-pricing model. The Company
uses historical data to estimate option exercise and employee
termination within the valuation model. Expected volatilities
are based on historical volatility of the Companys stock.
The risk-free rate for periods within the expected life of the
option is based on the U.S. Treasury yield curve in effect
at the time of the grant. The following assumptions are used for
grants during the six months ended June 30, 2006 and 2005,
respectively: dividend yields of 3.5% and 4.5%; expected
volatility of 17.9% and 17.5%; risk-free interest rates of 4.6%
and 3.8%; and expected lives of six and seven years,
respectively.
Following is a summary of the option activity for the six months
ended June 30, 2006 (options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
Weighted
|
|
|
Exercisable
|
|
|
|
Shares Under
|
|
|
Average
|
|
|
at Year
|
|
|
|
Option
|
|
|
Exercise Price
|
|
|
End
|
|
|
Outstanding as of
December 31, 2005
|
|
|
9,148
|
|
|
$
|
27.14
|
|
|
|
7,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
804
|
|
|
|
51.71
|
|
|
|
|
|
Exercised
|
|
|
(2,250
|
)
|
|
|
23.26
|
|
|
|
|
|
Forfeited
|
|
|
(52
|
)
|
|
|
42.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30,
2006
|
|
|
7,650
|
|
|
$
|
30.76
|
|
|
|
6,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining average contractual life
|
|
|
6.35 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of options granted
during the period
|
|
$
|
8.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes additional information concerning
outstanding and exercisable stock options at June 30, 2006
(options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Currently Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
Number
|
|
|
Average
|
|
|
Contractual
|
|
|
Number
|
|
|
Average
|
|
Exercise Price
|
|
of Options
|
|
|
Exercise Price
|
|
|
Life in Years
|
|
|
of Options
|
|
|
Exercise Price
|
|
|
$20.00 - $24.60
|
|
|
1,927
|
|
|
$
|
22.14
|
|
|
|
3.5
|
|
|
|
1,927
|
|
|
$
|
22.14
|
|
$24.64 - $27.12
|
|
|
2,705
|
|
|
|
26.50
|
|
|
|
6.1
|
|
|
|
2,696
|
|
|
|
26.50
|
|
$27.14 - $38.56
|
|
|
2,091
|
|
|
|
35.61
|
|
|
|
7.9
|
|
|
|
1,277
|
|
|
|
34.52
|
|
$39.09 - $54.96
|
|
|
927
|
|
|
|
50.14
|
|
|
|
9.5
|
|
|
|
251
|
|
|
|
48.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
6,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes additional information concerning
unvested stock options at June 30, 2006 (options in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of Options
|
|
|
Exercise Price
|
|
|
Unvested at December 31, 2005
|
|
|
1,912
|
|
|
$
|
27.14
|
|
Granted
|
|
|
804
|
|
|
$
|
51.71
|
|
Vested
|
|
|
(1,164
|
)
|
|
$
|
36.18
|
|
Forfeited
|
|
|
(52
|
)
|
|
$
|
42.18
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2006
|
|
|
1,500
|
|
|
$
|
43.18
|
|
|
|
|
|
|
|
|
|
|
Cash received from options exercised under the Stock Incentive
Plans for the three months ended June 30, 2006 and 2005 was
$3.9 million and $5.6 million, respectively. Cash
received from options exercised during the six months ended
June 30, 2006 and 2005, was $33.4 million and
$16.3 million, respectively. There were no excess tax
benefits realized for the tax deductions from option exercises
during the three and six months ended June 30, 2006 and
2005. The total intrinsic value of options exercised during the
three months ended June 30, 2006 and 2005 was
$3.3 million and $4.2 million, respectively. The total
intrinsic value of options exercised during the six months ended
June 30, 2006 and 2005 was $64.3 million and
$11.8 million, respectively. The total intrinsic value of
options outstanding and exercisable as of June 30, 2006 was
$140.8 million.
The Company issued 13,418 and 443,352 shares of restricted
stock to certain officers of the Company as part of the
performance pay program and in connection with employment with
the Company during the three and six months ended June 30,
2006, respectively. The total fair value of restricted shares
was $0.7 million and $23.0 million for the three and
six months ended June 30, 2006, respectively. As of
June 30, 2006, 52,114 shares of restricted stock had
been forfeited. The 718,613 outstanding restricted shares are
subject to repurchase rights, which generally lapse over a
period from three to five years.
26
AMB
PROPERTY CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes additional information concerning
unvested restricted shares at June 30, 2006 (shares in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
Unvested Shares
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at December 31, 2005
|
|
|
548
|
|
|
$
|
34.41
|
|
Granted
|
|
|
443
|
|
|
$
|
51.86
|
|
Vested
|
|
|
(264
|
)
|
|
$
|
34.67
|
|
Forfeited
|
|
|
(9
|
)
|
|
$
|
44.63
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2006
|
|
|
718
|
|
|
$
|
44.96
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006, there were $28.1 million of total
unrecognized compensation cost related to unvested share-based
compensation arrangements granted under the Stock Incentive
Plans. That cost is expected to be recognized over a weighted
average period of 1.87 years. The total fair value of
shares vested, based on the market price on the vesting date,
during the three months ended June 30, 2006 and 2005 was
$4.1 million and $0.6 million, respectively. The total
fair value of shares vested during the six months ended
June 30, 2006 and 2005 was $13.4 million and
$8.7 million, respectively.
On July 11, 2006, the Company acquired the 50% interest in
AMB BlackPine that the Company did not previously own. The
Company has combined the operations of AMB BlackPine with its
wholly-owned Japanese subsidiary, AMB Property Japan, creating a
unified platform from which the Company will continue to
develop, lease, acquire and operate industrial real estate in
Japan.
27
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Some of the information included in this Quarterly Report on
Form 10-Q
contains forward-looking statements, 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 should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indicators of whether, or the time at
which, such performance or results will be achieved. There is no
assurance that the events or circumstances reflected in
forward-looking statements will occur or be achieved.
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.
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:
|
|
|
|
|
changes in general economic conditions or in the real estate
sector;
|
|
|
|
defaults on or non-renewal of leases by customers or renewal
at lower than expected rent;
|
|
|
|
difficulties in identifying properties to acquire and in
effecting acquisitions on advantageous terms and the failure of
acquisitions to perform as we expect;
|
|
|
|
risks and uncertainties affecting property development and
renovation (including construction delays, cost overruns, our
inability to obtain necessary permits and financing and public
opposition to these activities);
|
|
|
|
risks of doing business internationally, including
unfamiliarity with new markets and currency risks;
|
|
|
|
a downturn in the U.S., California or the global economy or
real estate conditions;
|
|
|
|
losses in excess of our insurance coverage;
|
|
|
|
our failure to divest of properties on advantageous terms or
to timely reinvest proceeds from any such divestitures;
|
|
|
|
unknown liabilities acquired in connection with acquired
properties or otherwise;
|
|
|
|
risks associated with using debt to fund acquisitions and
development, including re-financing risks;
|
|
|
|
our failure to obtain necessary financing;
|
|
|
|
changes in local, state and federal regulatory
requirements;
|
|
|
|
increases in real property tax rates;
|
|
|
|
increases in interest rates and operating costs or greater
than expected capital expenditures;
|
|
|
|
environmental uncertainties; and
|
|
|
|
our failure to qualify and maintain our status as a real
estate investment trust under the Internal Revenue Code of 1986,
as amended.
|
Our success also depends upon economic trends generally,
various market conditions and fluctuations and those other risk
factors discussed under the heading Risk Factors and
elsewhere in our Annual Report on
Form 10-K
for the year ended December 31, 2005.
We caution you not to place undue reliance on forward-looking
statements, which reflect our analysis only and speak as of the
date of this report or as of the dates indicated in the
statements. All of our forward-looking
28
statements, including those set up in this report, are
qualified in their entirety by this statement. We assume no
obligation to update or supplement forward-looking
statements.
Unless the context otherwise requires, the terms we,
us and our refer to AMB Property
Corporation, AMB Property, L.P. and their other controlled
subsidiaries, and the references to AMB Property Corporation
include AMB Property, L.P. and their controlled subsidiaries. We
refer to AMB Property, L.P. as the operating
partnership. The following marks are our registered
trademarks:
AMB®;
High Throughput
Distribution® (HTD®);
and Strategic Alliance
Programs®.
GENERAL
We commenced operations as a fully integrated real estate
company effective with the completion of our initial public
offering on November 26, 1997, and elected to be taxed as a
real estate investment trust under Sections 856 through 860
of the Internal Revenue Code of 1986 with our initial tax return
for the year ended December 31, 1997. AMB Property
Corporation and AMB Property, L.P. were formed shortly before
the consummation of our initial public offering.
Managements
Overview
The primary source of our revenue and earnings is rent received
from customers under long-term (generally three to ten years)
operating leases at our properties, including reimbursements
from customers for certain operating costs, and from partnership
distributions and fees from our private capital business. We
also produce earnings from the disposition of operating assets
that no longer fit the companys strategy, from the
disposition of projects in our
development-for-sale
program and from the contributions of properties to our
co-investment joint ventures. Our long-term growth is driven by
our ability to maintain and increase occupancy rates or increase
rental rates at our properties, and by our ability to continue
to acquire and develop new properties.
National industrial markets continued to improve during the
second quarter of 2006. According to Torto Wheaton Research, the
positive trend in demand began in the second quarter of 2004 and
reversed 14 prior quarters of negatively trending, or rising,
space availability. We believe the protracted period of rising
availability created a difficult national leasing environment
which over the past quarter has been improving, particularly in
large industrial property markets tied to global trade. During
the
three-and-a-half
year period of negatively trending industrial space
availability, investor demand for industrial property (as
supported by our observation of strong national sales volumes
and declining acquisition capitalization rates) remained
consistently strong. We believe we capitalized on the demand for
acquisition property by accelerating the repositioning of our
portfolio through the disposition of non-core properties. We
plan to continue selling selected assets on an opportunistic
basis or that no longer fit our strategic investment objectives,
but believe we have substantially achieved our repositioning
goals.
29
The table below summarizes key operating and leasing statistics
for our consolidated industrial operating properties as of and
for the three and six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Hub and
|
|
|
Total Other
|
|
|
Total/Weighted
|
|
Property Data
|
|
Gateway Markets(1)
|
|
|
Markets
|
|
|
Average
|
|
|
As of and for the three months
ended
June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total rentable square feet
|
|
|
74.9
|
%
|
|
|
25.1
|
%
|
|
|
100.0
|
%
|
Occupancy percentage at period end
|
|
|
96.1
|
%
|
|
|
93.2
|
%
|
|
|
95.4
|
%
|
Same space square footage leased
|
|
|
3,969,267
|
|
|
|
638,702
|
|
|
|
4,607,969
|
|
Rent increases (decreases) on
renewals and rollovers
|
|
|
(0.6
|
)%
|
|
|
(3.1
|
)%
|
|
|
(0.9
|
)%
|
As of and for the three months
ended
June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total rentable square feet
|
|
|
75.1
|
%
|
|
|
24.9
|
%
|
|
|
100.0
|
%
|
Occupancy percentage at period end
|
|
|
94.9
|
%
|
|
|
93.3
|
%
|
|
|
94.5
|
%
|
Same space square footage leased
|
|
|
2,090,748
|
|
|
|
733,412
|
|
|
|
2,824,160
|
|
Rent increases (decreases) on
renewals and rollovers
|
|
|
(15.9
|
)%
|
|
|
(9.3
|
)%
|
|
|
(14.6
|
)%
|
As of and for the six months
ended
June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total rentable square feet
|
|
|
74.9
|
%
|
|
|
25.1
|
%
|
|
|
100.0
|
%
|
Occupancy percentage at period end
|
|
|
96.1
|
%
|
|
|
93.2
|
%
|
|
|
95.4
|
%
|
Same space square footage leased
|
|
|
7,536,540
|
|
|
|
1,799,779
|
|
|
|
9,336,319
|
|
Rent increases (decreases) on
renewals and rollovers
|
|
|
(6.4
|
)%
|
|
|
(4.1
|
)%
|
|
|
(6.0
|
)%
|
As of and for the six months
ended
June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total rentable square feet
|
|
|
75.1
|
%
|
|
|
24.9
|
%
|
|
|
100.0
|
%
|
Occupancy percentage at period end
|
|
|
94.9
|
%
|
|
|
93.3
|
%
|
|
|
94.5
|
%
|
Same space square footage leased
|
|
|
5,753,382
|
|
|
|
1,275,567
|
|
|
|
7,028,949
|
|
Rent increases (decreases) on
renewals and rollovers
|
|
|
(12.7
|
)%
|
|
|
(5.4
|
)%
|
|
|
(11.5
|
)%
|
|
|
|
(1) |
|
Our U.S. hub and gateway markets include on-tarmac and
Atlanta, Chicago, Dallas/Fort Worth, Los Angeles, Northern
New Jersey/New York City, the San Francisco Bay Area, Miami
and Seattle. |
Our industrial operating portfolio occupancy rate was 95.4% at
June 30, 2006, as compared to 94.7% at March 31, 2006.
Rental rates on industrial renewals and rollovers in our
portfolio decreased 0.9% during the quarter ended June 30,
2006, as compared to declines of 11.5% in the prior quarter and
14.6% in the second quarter of 2005. These rental rate declines
occurred as leases were entered into or renewed at rates
consistent with what we believe to be current market levels. We
believe this decline in rents on lease renewals and rollovers is
largely concentrated in the San Francisco Bay Area, where a
significant portion of the square feet that renewed or rolled in
the second quarter of 2006 was in leases that commenced between
1999 and 2001 when rental rates were at their prior peaks in
most of our markets. Without the effect of the
San Francisco portfolio, the rents on lease renewals and
rollover in the remainder of the portfolio increased 1.9% during
this quarter, which we believe reflects the improving trends in
national industrial space availability. We believe that
relatively high levels of national industrial space availability
caused market rents for industrial properties to decline on
average between 10% and 20% from their peak levels in 2001 to
2005 based on our research data. We believe market rental rates
are growing in a number of our markets. Occupancy levels in our
portfolio were 530 basis points in excess of the national
industrial market, as determined by Torto Wheaton Research, by
pricing lease renewals and new leases with sensitivity to local
market conditions. During periods of decreasing or stabilizing
rental rates, we strove to sign leases with shorter terms to
prevent
30
locking in lower rent levels for long periods and to be prepared
to sign new, longer-term leases during periods of growing rental
rates. When we sign leases of shorter duration, we attempt to
limit overall leasing costs and capital expenditures by offering
different grades of tenant improvement packages, appropriate to
the lease term.
We expect development to be a significant driver of our earnings
growth as we expand our land and development pipeline, and
contribute completed development projects into our co-investment
program and recognize development profits. We believe that
development, renovation and expansion of well-located,
high-quality
industrial properties should generally continue to provide us
with attractive investment opportunities at a higher rate of
return than we may obtain from the purchase of existing
properties. We believe that our development opportunities in
Mexico, Japan and China are particularly attractive given the
current lack of supply of modern industrial distribution
facilities in the major metropolitan markets of these countries.
Prior to our global expansion, our development pipeline was
$106.8 million at the end of 2002. During our global
expansion, we have increased our development pipeline to
approximately $1.1 billion at June 30, 2006. In
addition to our committed development pipeline, we hold a total
of 1,524 acres for future development or sale. We believe
these 1,524 acres of land could support approximately
27.2 million square feet of future development.
Going forward, we believe that our co-investment program with
private-capital investors will continue to serve as a
significant source of revenues and capital for new investments.
Through these co-investment joint ventures, we typically earn
acquisition and development fees, asset management fees and
priority distributions, as well as promoted interests and
incentive distributions based on the performance of the
co-investment joint ventures; however, we can not assure you
that we will continue to do so. Through contribution of
development properties to our co-investment joint ventures, we
expect to recognize value creation from our development
pipeline. As of June 30, 2006, we owned approximately
59.5 million square feet of our properties (48.3% of the
total operating and development portfolio) through our
consolidated and unconsolidated co-investment joint ventures. We
may make additional investments through these co-investment
joint ventures or new joint ventures in the future and presently
plan to do so.
By the end of 2007, we expect to have approximately 15% of our
operating portfolio (based on consolidated and unconsolidated
annualized base rent) invested in international markets. As of
June 30, 2006, our international operating properties
comprised 5.6% of our consolidated annualized base rent. When
international operating properties owned in unconsolidated joint
ventures are included, our annualized base rents from
international investments increases to 10.7%. Our North American
target markets outside of the United States currently comprise
Canada and Mexico. Our European target markets currently
comprise Belgium, France, Germany, Italy, Netherlands, Spain and
the United Kingdom. Our Asian target markets currently comprise
China, Japan, Singapore and South Korea. We expect to add
additional target markets outside the United States in the
future.
To maintain our qualification as a real estate investment trust,
we must pay dividends to our stockholders aggregating annually
at least 90% of our taxable income. As a result, we cannot rely
on retained earnings to fund our on-going operations to the same
extent that other corporations that are not real estate
investment trusts can. We must continue to raise capital in both
the debt and equity markets to fund our working capital needs,
acquisitions and developments. See Liquidity and Capital
Resources for a complete discussion of the sources of our
capital.
Summary
of Key Transactions
During the three months ended June 30, 2006, we completed
the following significant capital deployment transactions:
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Acquired 27 buildings in North America and Europe, aggregating
approximately 2.5 million square feet, for
$246.8 million;
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Committed to four development projects in North America and Asia
totaling 2.0 million square feet with an estimated total
investment of approximately $134.6 million;
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Acquired 129 acres of land for development in North America
and Asia for approximately $72.1 million;
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Sold one land parcel and one approximately 32,000 square
foot development project, for an aggregate price of
$3.3 million;
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Divested ourselves of eight industrial buildings aggregating
approximately 0.5 million square feet, for an aggregate
price of approximately $37.1 million; and
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Contributed one completed development project for
$243.0 million to AMB Japan Fund I, L.P., and one
completed development project for $38.4 million to AMB-SGP
Mexico, LLC, both unconsolidated
co-investment
joint ventures. As a result of these contributions, we
recognized an aggregate after-tax gain of $46.6 million,
representing the portion of our interest in the contributed
properties acquired by the
third-party
co-investors for cash.
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During the six months ended June 30, 2006, we completed the
following significant capital deployment transactions:
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Acquired 59 buildings in North America and Europe, aggregating
approximately 4.6 million square feet, for
$400.1 million;
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Committed to eleven development projects in North America and
Asia totaling 4.9 million square feet with an estimated
total investment of approximately $353.4 million;
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Acquired 340 acres of land for development in North America
and Asia for approximately $165.6 million;
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Sold two land parcels and one approximately 32,000 square
foot development project, for an aggregate price of
$8.0 million;
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Divested ourselves of twelve industrial buildings aggregating
approximately 0.9 million square feet, for an aggregate
price of approximately $53.9 million, including one
industrial building that was sold by one of our unconsolidated
joint ventures; and
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Contributed one completed development project for
$243.0 million to AMB Japan Fund I, L.P., and one
completed development project for $38.4 million to AMB-SGP
Mexico, LLC, both unconsolidated
co-investment
joint ventures. As a result of these contributions, we
recognized an aggregate after-tax gain of $46.6 million,
representing the portion of our interest in the contributed
properties acquired by the
third-party
co-investors for cash.
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See Part I, Item 1: Notes 3 and 4 of the
Notes to Consolidated Financial Statements for a
more detailed discussion of our acquisition, development and
disposition activity.
During the three months ended June 30, 2006, we completed
the following significant capital markets and other financing
transactions:
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Obtained long-term secured debt financings for our co-investment
joint ventures of $20.3 million with a weighted average
interest rate of 6.1%;
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Assumed $13.1 million of debt for our co-investment joint
ventures at a weighted average interest rate of 5.3%;
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Obtained $38.3 million of debt (using exchange rates in
effect at applicable quarter end dates) with a weighted average
interest rate of 4.0% for international acquisitions;
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Completed the early renewal and increase of our senior unsecured
revolving line of credit in the amount of $550.0 million,
an increase of $50.0 million;
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Repurchased AMB Property II, L.P.s 7.75%
Series E Cumulative Redeemable Preferred Limited
Partnership Units for an aggregate cost of $10.9 million,
including accrued and unpaid distributions; and
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Entered into an amended and restated revolving line of credit
agreement for a 45.0 billion Yen (approximately
$393.0 million U.S. Dollars, using the exchange rate
at June 30, 2006) unsecured revolving credit facility
that replaced an existing 35.0 billion Yen (approximately
$305.9 million U.S. Dollars, using the exchange rate
at June 30, 2006) unsecured revolving credit facility.
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32
During the six months ended June 30, 2006, we completed the
following significant capital markets and other financing
transactions:
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Obtained long-term secured debt financings for our co-investment
joint ventures of $48.6 million with a weighted average
interest rate of 6.0%;
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Assumed $13.1 million of debt for our co-investment joint
ventures at a weighted average interest rate of 5.3%;
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Obtained $38.3 million of debt (using exchange rates in
effect at applicable quarter end dates) with a weighted average
interest rate of 4.0% for international acquisitions;
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Obtained a $65.0 million floating rate unsecured revolving
credit facility for one of our co-investment joint ventures;
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Entered into a third amended and restated credit agreement for a
$250.0 million unsecured multi-currency revolving credit
facility which replaced an existing $100.0 million
unsecured multi-currency revolving credit facility;
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Repurchased AMB Property II, L.P.s 7.75%
Series E Cumulative Redeemable Preferred Limited
Partnership Units for an aggregate cost of $10.9 million,
including accrued and unpaid distributions;
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Repurchased AMB Property II, L.P.s 8.125%
Series H Cumulative Redeemable Preferred Limited
Partnership Units for an aggregate cost of $42.8 million,
including accrued and unpaid distributions;
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Repurchased AMB Property II, L.P.s 5.0% Series N
Cumulative Redeemable Preferred Limited Partnership Units for an
aggregate cost of $36.6 million, including accrued and
unpaid distributions;
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Completed the early renewal and increase of our senior unsecured
revolving line of credit in the amount of $550.0 million,
an increase of $50.0 million; and
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Entered into an amended and restated revolving line of credit
agreement for a 45.0 billion Yen (approximately
$393.0 million U.S. Dollars, using the exchange rate
at June 30, 2006) unsecured revolving credit facility
that replaced an existing 35.0 billion Yen (approximately
$305.9 million U.S. Dollars, using the exchange rate
at June 30, 2006) unsecured revolving credit facility.
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See Part I, Item 1: Notes 6, 7 and 9 of the
Notes to Consolidated Financial Statements for a
more detailed discussion of our capital markets transactions.
Critical
Accounting Policies
In the preparation of financial statements, we utilize certain
critical accounting policies. Except for SFAS No. 123R
discussed below, there have been no material changes in our
significant accounting policies, which are included in the notes
to our audited financial statements included in our Annual
Report on
Form 10-K
for the year ended December 31, 2005.
Stock-based Compensation Expense. The Company
adopted SFAS No. 123R, Share Based Payment, on
January 1, 2006. The Company opted to utilize the modified
prospective method of transition in adopting
SFAS No. 123R. The effect of this change from applying
the original expense recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation, had an immaterial effect on income before
minority interests and discontinued operations, income from
continuing operations, net income and earnings per share, as
described in further detail in Note 13 to the consolidated
financial statements. The effect of this change from applying
the original provisions of SFAS No. 123 had no effect
on cash flow from operating and financing activities. The
Company recorded a cumulative effect of change in accounting
principle in the amount of $0.2 million as of
January 1, 2006 to reflect the change in accounting for
forfeitures. The Company values stock options using the
Black-Scholes option-pricing model and recognizes this value as
an expense over the vesting periods. Under this standard,
recognition of expense for stock options is applied to all
options granted after the beginning of the year of adoption. In
accordance with SFAS No. 123R, the Company will
recognize the associated expense over the three to five-year
vesting periods. Under SFAS No. 123R, related stock
option expense was $1.0 million and $0.9 million
33
during the three months ended June 30, 2006 and 2005,
respectively, and $3.1 million and $3.0 million during
the six months ended June 30, 2006 and 2005, respectively.
Additionally, the Company awards restricted stock and recognizes
this value as an expense over the vesting periods. Related
restricted stock compensation expense was $5.1 million and
$1.7 million for the three months ended June 30, 2006
and 2005, respectively, and $7.8 million and
$3.9 million for the six months ended June 30, 2006
and 2005, respectively. The expense is included in general and
administrative expenses in the accompanying consolidated
statements of operations. Results for prior periods have not
been restated.
THE
COMPANY
AMB Property Corporation, a Maryland corporation, acquires,
develops and operates industrial properties in key distribution
markets throughout North America, Europe and Asia. We use the
terms industrial properties or industrial
buildings to describe various types of industrial
properties in our portfolio and use these terms interchangeably
with the following: logistics facilities, centers or warehouses;
distribution facilities, centers or warehouses; High Throughput
Distribution®
(HTD®)
facilities; or any combination of these terms.
We commenced operations as a fully integrated real estate
company effective with the completion of our initial public
offering on November 26, 1997. Our strategy focuses on
providing properties for customers who value the efficient
movement of goods in the worlds busiest distribution
markets: large, supply-constrained locations with proximity to
airports, seaports and major highway systems. As of
June 30, 2006, 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 123.1 million rentable square feet
(11.4 million square meters) and 1,118 buildings in 41
markets within eleven countries.
Of the approximately 123.1 million rentable square feet as
of June 30, 2006:
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on a consolidated basis, we owned or partially owned 928
industrial buildings, principally warehouse distribution
facilities, encompassing approximately 92.2 million
rentable square feet that were 95.4% leased;
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we managed, but did not have an ownership interest in,
industrial and other properties, totaling approximately
1.5 million rentable square feet;
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through unconsolidated joint ventures, we had investments in 88
industrial operating properties, totaling approximately
14.2 million rentable square feet, and in one industrial
development project, expected to total approximately
0.2 million rentable square feet;
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on a consolidated basis, we had investments in 46 industrial
development projects which are expected to total approximately
14.0 million rentable square feet upon completion; and
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on a consolidated basis, we owned four development projects,
with a total estimated investment of $89.4 million and
approximately 1.0 million rentable square feet, that were
available for sale or contribution.
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We operate our business primarily through our subsidiary, AMB
Property, L.P., a Delaware limited partnership, which we refer
to as the operating partnership. As of June 30,
2006, we owned an approximate 95.3% general partnership interest
in the operating partnership, excluding preferred units. As the
sole general partner of the operating partnership, we have the
full, exclusive and complete responsibility for and discretion
in its
day-to-day
management and control.
Our strategy is to become a leading provider of industrial
properties in supply-constrained submarkets located near key
international passenger and cargo airports, highway systems and
seaports in major metropolitan areas of North America, Europe
and Asia. These submarkets are generally tied to global trade.
Our investment strategy generally targets customers whose
businesses are tied to global trade, which, according to the
World Trade Organization, has grown more than three times the
world gross domestic product growth rate during the last
20 years. To serve the facilities needs of these customers,
we seek to invest in major distribution markets, transportation
hubs and gateways, both in the U.S. and internationally. Our
investment strategy targets markets that are generally
characterized by large population densities and typically offer
substantial
34
consumer bases, proximity to large clusters of
distribution-facility users and significant labor pools. When
measured by total consolidated and unconsolidated annualized
base rents, 95.4% of our portfolio of industrial properties is
located in our target markets, and much of it in in-fill
submarkets within our target markets. In-fill locations are
characterized by supply constraints on the availability of land
for competing projects as well as physical, political or
economic barriers to new development.
Further, we focus on
HTD®
facilities, which are buildings designed to facilitate the rapid
distribution of our customers products rather than storage
of goods. Our investment focus on
HTD®
assets is based on what we believe to be a global trend toward
lower inventory levels and expedited supply chains.
HTD®
facilities generally have a variety of physical characteristics
that allow for the rapid transport of goods from
point-to-point.
These physical characteristics could include numerous dock
doors, shallower building depths, fewer columns, large truck
courts and more space for trailer parking. We believe that these
building characteristics represent an important success factor
for time-sensitive customers such as air express, logistics and
freight forwarding companies, and that these facilities function
best when located in convenient proximity to transportation
infrastructure, such as major airports and seaports.
We are self-administered and self-managed and expect that we
have qualified and will continue to qualify as a real estate
investment trust for federal income tax purposes beginning with
the year ended December 31, 1997. As a self-administered
and self-managed real estate investment trust, our own employees
perform our corporate administrative and management functions,
rather than our relying on an outside manager for these
services. We manage our portfolio of properties in a flexible
operating model which includes both direct property management
and Strategic Alliance
Programs®
in which we have established relationships with third-party real
estate management firms, brokers and developers that provide
property-level administrative and management services under our
direction.
Our principal executive office is located at Pier 1,
Bay 1, San Francisco, California 94111; our telephone
number is
(415) 394-9000.
We maintain regional offices in Amsterdam, Boston, Chicago, Los
Angeles, New Jersey, Shanghai, Singapore, Tokyo and Vancouver.
As of June 30, 2006, we employed 339 individuals: 166 in
our San Francisco headquarters, 61 in our Boston office and
the remainder in our other regional offices. Our website address
is www.amb.com. Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and any amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available on our website free of charge as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the U.S. Securities and
Exchange Commission. Information contained on our website is not
and should not be deemed a part of this report or any other
report or filing filed with the U.S. Securities and
Exchange Commission.
Operating
Strategy
We base our operating strategy on a variety of operational and
service offerings, including in-house acquisitions, development,
redevelopment, asset management, property management, leasing,
finance, accounting and market research. Our strategy is to
leverage our expertise across a large customer base, and
complement our internal management resources with long-standing
relationships with entrepreneurial real estate management and
development firms in our target markets.
We believe that real estate is fundamentally a local business
and best operated by local teams in each market comprised of AMB
employees, local alliance partners or both. We intend to
continue to increase utilization of internal management
resources in target markets to achieve both operating
efficiencies and to expose our customers to the broadening array
of AMB service offerings, including access to multiple locations
worldwide and
build-to-suit
developments. We actively manage our portfolio, whether directly
or with an alliance partner, by establishing leasing strategies,
negotiating lease terms, pricing, and level and timing of
property improvements.
35
Growth
Strategies
Growth
Through Operations
We seek to generate long-term internal growth through rent
increases on existing space and renewals on rollover space by
working to maintain a high occupancy rate at our properties and
to control expenses by capitalizing on the economies of scale
inherent in owning, operating and growing a large, global
portfolio. During the three months ended June 30, 2006, our
average industrial property base rental rates decreased by 0.9%
from the rent in place at expiration for that space on leases
entered into or renewed during the period. This amount excludes
expense reimbursements, rental abatements, percentage rents and
straight-line rents. Since 2001, as the industrial property
market weakened, we have focused on maintaining occupancy
levels. During the three months ended June 30, 2006
cash-basis same-store net operating income (rental revenues less
property operating expenses and real estate taxes for properties
included in the same-store pool, which is set annually and
excludes properties purchased or developments stabilized after
December 31, 2004) increased by 3.0% on our industrial
properties. Since our initial public offering in November 1997,
we have experienced average annual increases in industrial
property base rental rates of 4.3% and maintained an average
quarter-end occupancy rate of 94.9% in our industrial property
operating portfolio. While we believe that it is important to
view real estate as a long-term investment, past results are not
necessarily an indication of future performance. See
Supplemental Earnings Measures under this Item for a
discussion of net operating income and Part I, Item 1:
Note 11 of the Notes to Consolidated Financial
Statements for detailed segment information, including
revenue attributable to each segment, gross investment in each
segment and total assets.
Growth
Through Development
We believe that development, redevelopment and expansion of
well-located, high-quality industrial properties should continue
to provide us with attractive investment opportunities at a
higher rate of return than we may obtain from the purchase of
existing properties. We believe we have the in-house expertise
to create value both through new construction and acquisition
and management of value-added properties. Value-added conversion
projects represent the redevelopment of land or a building site
for a more valuable use and may include such activities as
rezoning, redesigning, reconstructing and retenanting. Both new
development and value-added conversions require significant
management attention and capital investment to maximize their
return. Completed development properties may be held in our
portfolio, sold to third parties or contributed to our
co-investment joint ventures. We believe our global market
presence and expertise will enable us to continue to generate
and capitalize on a diverse range of development opportunities.
We believe that the multidisciplinary backgrounds of our
employees should provide us with the skills and experience to
capitalize on strategic renovation, expansion and development
opportunities. Many of our officers have specific experience in
real estate development, both with us and with national
development firms, and over the past three years, we have
expanded our development staff. We pursue development projects
directly and in joint ventures, providing us with the
flexibility to pursue development projects independently or in
partnerships, depending on market conditions, submarkets or
building sites.
Growth
Through Acquisitions and Capital Redeployment
We believe that our acquisition experience and our network of
property management, leasing and acquisition resources will
continue to provide opportunities for growth. In addition to our
internal resources, we have long-term relationships with
third-party local property management firms, which we believe
may give us access to additional acquisition opportunities, as
such managers frequently market properties on behalf of sellers.
We believe also that our UPREIT structure enables us to acquire
land and industrial properties in exchange for limited
partnership units in the operating partnership or AMB
Property II, L.P., thereby enhancing our attractiveness to
owners and developers seeking to transfer properties on a
tax-deferred basis. In addition, we seek to redeploy capital
from
non-strategic
assets into properties that better fit our current investment
focus.
We are generally engaged in various stages of negotiations for a
number of acquisitions and dispositions that may include
acquisitions and dispositions of individual properties, large
multi-property portfolios or other real estate companies. We
cannot assure you that we will consummate any of these
transactions. Such transactions, if we
36
consummate them, may be material individually or in the
aggregate. Sources of capital for acquisitions may include
retained cash flow from operations, borrowings under our
unsecured credit facilities, other forms of secured or unsecured
debt financing, issuances of debt or preferred or common equity
securities by us or the operating partnership (including
issuances of units in the operating partnership or its
subsidiaries), proceeds from divestitures of properties,
assumption of debt related to the acquired properties and
private capital from our co-investment partners.
Growth
Through Global Expansion
By the end of 2007, we expect to have approximately 15% of our
operating portfolio (based on consolidated and unconsolidated
annualized base rent) invested in international markets. As of
June 30, 2006, our international operating properties
comprised 5.6% of our consolidated annualized base rent. When
international operating properties owned in unconsolidated joint
ventures are included, our annualized base rents from
international investments increases to 10.7%. Our North American
target markets outside of the United States currently comprise
Canada and Mexico. Our European target markets currently
comprise Belgium, France, Germany, Italy, Netherlands, Spain and
the United Kingdom. Our Asian target markets currently comprise
China, Japan, Singapore and South Korea. We expect to add
additional target markets outside the United States in the
future.
We believe that expansion into international target markets
represents a natural extension of our strategy to invest in
industrial property markets with high population densities,
close proximity to large customer clusters and available labor
pools, and major distribution centers serving global trade. Our
international expansion strategy mirrors our focus in the United
States on supply-constrained submarkets with political, economic
or physical constraints to new development. Our international
investments extend our offering of
HTD®
facilities for customers who value
speed-to-market
over storage. Specifically, we are focused on customers whose
business is derived from global trade. In addition, our
investments target major consumer distribution markets and
customers. We believe that our established customer
relationships, our contacts in the air cargo and logistics
industries, our underwriting of markets and investments and our
strategic alliances with knowledgeable developers and managers
will assist us in competing internationally. For a discussion of
the amount of our revenues attributable to the United States and
international markets, please see Part I, Item 1:
Note 11 of the Notes to Consolidated Financial
Statements.
Growth
Through Co-Investments
We co-invest in properties with private capital investors
through partnerships, limited liability companies or joint
ventures. Our co-investment joint ventures are managed by our
private capital group and typically operate under the same
investment strategy that we apply to our other operations.
Typically, we will own a 20-50% interest in our co-investment
joint ventures. We believe that our co-investment program will
continue to serve as a source of capital for acquisitions and
developments; however, we cannot assure you that it will
continue to do so. In addition, our co-investment joint ventures
typically allow us to earn acquisition and development fees,
asset management fees or priority distributions, as well as
promoted interests or incentive distributions based on the
performance of the co-investment joint ventures. As of
June 30, 2006, we owned approximately 59.5 million
square feet of our properties (48.3% of the total operating and
development portfolio) through our consolidated and
unconsolidated joint ventures.
RESULTS
OF OPERATIONS
The analysis below includes changes attributable to same store
growth, acquisitions, development activity and divestitures.
Same store properties are those that we owned during both the
current and prior year reporting periods, excluding development
properties stabilized after December 31, 2004 (generally
defined as properties that are 90% leased or properties for
which we have held a certificate of occupancy or where building
has been substantially complete for at least 12 months).
As of June 30, 2006, same store industrial properties
consisted of properties aggregating approximately
79.1 million square feet. The properties acquired during
the three months ended June 30, 2006 consisted of
27 buildings, aggregating approximately 2.5 million
square feet. The properties acquired during the three months
ended June 30, 2005 consisted of 12 buildings, aggregating
approximately 2.1 million square feet. During the three
37
months ended June 30, 2006, property divestitures consisted
of eight buildings, aggregating approximately 0.5 million
square feet. During the three months ended June 30, 2005,
property divestitures and contributions consisted of 11
industrial buildings, aggregating approximately 1.7 million
square feet.
The properties acquired during the six months ended
June 30, 2006 consisted of 59 buildings, aggregating
approximately 4.6 million square feet. The properties
acquired during the six months ended June 30, 2005
consisted of 18 buildings, aggregating approximately
2.9 million square feet. During the six months ended
June 30, 2006, property divestitures consisted of 12
buildings, aggregating approximately 0.9 million square
feet. During the six months ended June 30, 2005, property
divestitures and contributions consisted of 35 buildings,
aggregating approximately 3.2 million square feet. Our
future financial condition and results of operations, including
rental revenues, may be impacted by the acquisition of
additional properties and dispositions. Our future revenues and
expenses may vary materially from historical results.
For
the Three Months ended June 30, 2006 and 2005 (dollars in
millions):
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Revenues
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2006
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2005
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$ Change
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% Change
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Rental revenues
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U.S. industrial:
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Same store
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$
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143.5
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$
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140.0
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$
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3.5
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|
|
2.5
|
%
|
2006 acquisitions
|
|
|
2.1
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
%
|
2005 acquisitions
|
|
|
8.8
|
|
|
|
2.2
|
|
|
|
6.6
|
|
|
|
300.0
|
%
|
Development
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
7.7
|
%
|
Other industrial
|
|
|
4.1
|
|
|
|
2.2
|
|
|
|
1.9
|
|
|
|
86.4
|
%
|
International industrial
|
|
|
15.4
|
|
|
|
8.7
|
|
|
|
6.7
|
|
|
|
77.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenues
|
|
|
175.3
|
|
|
|
154.4
|
|
|
|
20.9
|
|
|
|
13.5
|
%
|
Private capital income
|
|
|
5.0
|
|
|
|
3.4
|
|
|
|
1.6
|
|
|
|
47.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
180.3
|
|
|
$
|
157.8
|
|
|
$
|
22.5
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. industrial same store rental revenues increased
$3.5 million from the prior year on a
quarter-to-date
basis due primarily to improved occupancy and lower levels of
free rent in the same store pool. The properties acquired during
2005 consisted of 41 buildings, aggregating approximately
6.9 million square feet. The properties acquired during
2006 consisted of 59 buildings, aggregating approximately
4.6 million square feet. Other industrial revenues include
rental revenues from development projects that have reached
certain levels of operation and are not yet part of the same
store operating pool of properties. In 2005 and 2006, we
continued to acquire properties in China, France, Germany,
Japan, Mexico and the Netherlands, resulting in increased
international revenues. The increase in private capital income
of $1.6 million was primarily due to increased asset
management fees from additional assets held in co-investment
joint ventures and the formation of AMB Japan Fund I, L.P.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Property operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expenses
|
|
$
|
24.5
|
|
|
$
|
21.2
|
|
|
$
|
3.3
|
|
|
|
15.6
|
%
|
Real estate taxes
|
|
|
20.3
|
|
|
|
18.7
|
|
|
|
1.6
|
|
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating costs
|
|
$
|
44.8
|
|
|
$
|
39.9
|
|
|
$
|
4.9
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
$
|
38.2
|
|
|
$
|
36.6
|
|
|
$
|
1.6
|
|
|
|
4.4
|
%
|
2006 acquisitions
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
%
|
2005 acquisitions
|
|
|
2.2
|
|
|
|
0.4
|
|
|
|
1.8
|
|
|
|
450.0
|
%
|
Development
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
20.0
|
%
|
Total debt
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
400.0
|
%
|
International industrial
|
|
|
2.3
|
|
|
|
2.2
|
|
|
|
0.1
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating costs
|
|
|
44.8
|
|
|
|
39.9
|
|
|
|
4.9
|
|
|
|
12.3
|
%
|
Depreciation and amortization
|
|
|
44.1
|
|
|
|
37.8
|
|
|
|
6.3
|
|
|
|
16.8
|
%
|
Impairment losses
|
|
|
5.4
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
%
|
General and administrative
|
|
|
25.1
|
|
|
|
20.1
|
|
|
|
5.0
|
|
|
|
24.9
|
%
|
Other expenses
|
|
|
(0.2
|
)
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
(75.0
|
)%
|
Fund costs
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
119.7
|
|
|
$
|
97.4
|
|
|
$
|
21.1
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store properties operating expenses showed an
increase of $1.6 million from the prior year on a
quarter-to-date
basis due primarily to increased insurance costs as evidenced by
an increase in property and casualty insurance rates of as much
as 30% to 40% over the last year due to hurricane-related losses
sustained by the insurance industry. The properties acquired
during the fiscal year ended December 31, 2005 consisted of
41 buildings, aggregating approximately 6.9 million
square feet. The 2006 acquisitions consisted of 59 buildings,
aggregating approximately 4.6 million square feet. Other
industrial expenses include expenses from development properties
that have reached certain levels of operation and are not yet
part of the same store operating pool of properties. In 2005 and
2006, we continued to acquire properties in China, France,
Germany, Japan, Mexico and the Netherlands, resulting in
increased international operating costs. The 2006 impairment
loss was taken on several non-core assets as a result of leasing
activities and changes in the economic environment and the
holding period of certain assets. The increase in depreciation
and amortization expense was due to the increase in our net
investment in real estate. The increase in general and
administrative expenses was primarily due to increased
stock-based compensation expense of $3.4 million and
additional staffing and expenses for new initiatives, including
our international and development expansions. Other expenses
decreased approximately $0.6 million from the prior year on
a
quarter-to-quarter
basis due primarily to a decrease in the loss associated with
the deferred compensation plan, partially offset by an increase
in certain deal costs. Fund costs represent general and
administrative costs paid to third parties associated with our
co-investment joint ventures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and (Expenses)
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Equity in earnings of
unconsolidated joint ventures, net
|
|
$
|
8.3
|
|
|
$
|
7.2
|
|
|
$
|
1.1
|
|
|
|
15.3
|
%
|
Other income
|
|
|
1.9
|
|
|
|
1.7
|
|
|
|
0.2
|
|
|
|
11.8
|
%
|
Gains from disposition of real
estate interests
|
|
|
|
|
|
|
17.6
|
|
|
|
(17.6
|
)
|
|
|
(100.0
|
)%
|
Development profits, net of taxes
|
|
|
45.7
|
|
|
|
2.0
|
|
|
|
43.7
|
|
|
|
2,185.0
|
%
|
Interest expense, including
amortization
|
|
|
(44.1
|
)
|
|
|
(37.2
|
)
|
|
|
6.9
|
|
|
|
18.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expenses),
net
|
|
$
|
11.8
|
|
|
$
|
(8.7
|
)
|
|
$
|
(20.5
|
)
|
|
|
(235.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
The $1.1 million increase in equity in earnings of
unconsolidated joint ventures was primarily due to an increase
in gains from the disposition of real estate by our
unconsolidated joint ventures, partially offset by an increase
in expenses by our unconsolidated joint ventures during the
quarter. The 2005 gains from disposition of real estate
interests resulted from our contribution of $106.9 million
in operating properties to our then newly formed unconsolidated
co-investment joint venture, AMB Japan Fund I, L.P.
Development profits represent gains from the sale or
contribution of development projects including land. The
increase in development profits was primarily due to increased
disposition and contribution volume during the three months
ended June 30, 2006. During the three months ended
June 30, 2006, we sold an approximately 32,000 square
foot development project for $2.9 million, resulting in an
after-tax gain of $0.1 million. In addition, we received
approximately $0.4 million in connection with the
condemnation of a parcel of land resulting in a loss of
$1.0 million, $0.8 million of which was the joint
venture partners share. During the three months ended
June 30, 2006, we contributed one completed development
project totaling approximately 0.8 million square feet into
AMB Japan Fund I, L.P., and one completed development
project totaling approximately 0.6 million square feet into
AMB-SGP Mexico, LLC, both unconsolidated joint ventures. As a
result of these contributions, we recognized an aggregate
after-tax gain of $46.6 million representing the portion of
our interest in the contributed properties acquired by the
third-party
co-investors
for cash. During the three months ended June 30, 2005, we
sold an approximately 19,000 square foot development
project for $2.1 million resulting in an after-tax gain of
$0.1 million and contributed one completed development
project totaling approximately 0.4 million square feet into
AMB-SGP Mexico, LLC and recognized a gain of $1.9 million.
The increase in interest expense, including amortization, was
due primarily to increased borrowings on unsecured credit
facilities and other debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Income (loss) attributable to
discontinued operations, net of minority interests
|
|
$
|
1.1
|
|
|
$
|
(0.9
|
)
|
|
$
|
2.0
|
|
|
|
(222.2
|
)%
|
Gains from dispositions of real
estate, net of minority interests
|
|
|
17.1
|
|
|
|
5.4
|
|
|
|
11.7
|
|
|
|
216.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
$
|
18.2
|
|
|
$
|
4.5
|
|
|
$
|
13.7
|
|
|
|
304.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2006, we divested
ourselves of eight industrial buildings, aggregating
approximately 0.5 million square feet for
$37.1 million, with a resulting net gain of approximately
$17.1 million. During the three months ended June 30,
2005, we divested ourselves of four industrial buildings,
aggregating approximately 0.3 million square feet for
$33.2 million, with a resulting net gain of approximately
$5.4 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Preferred stock dividends
|
|
$
|
(3.1
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
1.3
|
|
|
|
72.2
|
%
|
Preferred unit redemption discount
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock
|
|
$
|
(3.0
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
1.2
|
|
|
|
66.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2005, we issued 3,000,000 shares of 7.0%
Series O Cumulative Redeemable Preferred Stock. The
increase in preferred stock dividends is due to the newly-issued
shares. In addition, during June 2006,
AMB Property II, L.P., one of our subsidiaries,
redeemed all 220,440 of its outstanding 7.75% Series E
Cumulative Redeemable Preferred Limited Partnership Units and we
recognized an increase in income available to common
stockholders of $0.1 million for the discount on
repurchase, net of original issuance costs.
40
For
the Six Months ended June 30, 2006 and 2005 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Rental revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
$
|
287.9
|
|
|
$
|
278.8
|
|
|
$
|
9.1
|
|
|
|
3.3
|
%
|
2006 acquisitions
|
|
|
2.4
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
%
|
2005 acquisitions
|
|
|
17.3
|
|
|
|
2.9
|
|
|
|
14.4
|
|
|
|
496.6
|
%
|
Development
|
|
|
2.8
|
|
|
|
2.4
|
|
|
|
0.4
|
|
|
|
16.7
|
%
|
Other industrial
|
|
|
6.5
|
|
|
|
7.5
|
|
|
|
(1.0
|
)
|
|
|
(13.3
|
)%
|
International industrial
|
|
|
34.4
|
|
|
|
15.6
|
|
|
|
18.8
|
|
|
|
120.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental revenues
|
|
|
351.3
|
|
|
|
307.2
|
|
|
|
44.1
|
|
|
|
14.4
|
%
|
Private capital income
|
|
|
10.0
|
|
|
|
6.8
|
|
|
|
3.2
|
|
|
|
47.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
361.3
|
|
|
$
|
314.0
|
|
|
$
|
47.3
|
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. industrial same store rental revenues increased
$9.1 million from the prior year on a
year-to-date
basis due primarily to improved occupancy and lower levels of
free rent in the same store pool. The properties acquired during
2005 consisted of 41 buildings, aggregating approximately
6.9 million square feet. The properties acquired during
2006 consisted of 59 buildings, aggregating approximately
4.6 million square feet. Other industrial revenues include
rental revenues from properties that have been contributed to an
unconsolidated joint venture, and accordingly are not classified
as discontinued operations in our consolidated financial
statements, and development projects that have reached certain
levels of operation and are not yet part of the same store
operating pool of properties. In 2005 and 2006, we continued to
acquire properties in China, France, Germany, Japan, Mexico and
the Netherlands, resulting in increased international industrial
revenues. The international properties acquired during 2005
consisted of 8 buildings, aggregating approximately
1.5 million square feet. The international properties
acquired during 2006 consisted of 19 buildings, aggregating
approximately 1.4 million square feet. The increase in
private capital income was primarily due to increased asset
management fees from additional assets held in co-investment
joint ventures.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Property operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expenses
|
|
$
|
49.7
|
|
|
$
|
42.9
|
|
|
$
|
6.8
|
|
|
|
15.9
|
%
|
Real estate taxes
|
|
|
40.7
|
|
|
|
36.6
|
|
|
|
4.1
|
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating costs
|
|
$
|
90.4
|
|
|
$
|
79.5
|
|
|
$
|
10.9
|
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
$
|
77.1
|
|
|
$
|
73.9
|
|
|
$
|
3.2
|
|
|
|
4.3
|
%
|
2006 acquisitions
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
%
|
2005 acquisitions
|
|
|
4.4
|
|
|
|
0.6
|
|
|
|
3.8
|
|
|
|
|
%
|
Development
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
0.2
|
|
|
|
18.2
|
%
|
Other industrial
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
0.9
|
|
|
|
300.0
|
%
|
International industrial
|
|
|
5.8
|
|
|
|
3.6
|
|
|
|
2.2
|
|
|
|
61.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating costs
|
|
|
90.4
|
|
|
|
79.5
|
|
|
|
10.9
|
|
|
|
13.7
|
%
|
Depreciation and amortization
|
|
|
87.2
|
|
|
|
72.6
|
|
|
|
14.6
|
|
|
|
20.1
|
%
|
Impairment losses
|
|
|
5.4
|
|
|
|
|
|
|
|
5.4
|
|
|
|
|
%
|
General and administrative
|
|
|
48.2
|
|
|
|
38.1
|
|
|
|
10.1
|
|
|
|
26.5
|
%
|
Other expenses
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
(0.6
|
)
|
|
|
(75.0
|
)%
|
Fund costs
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
57.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
232.5
|
|
|
$
|
191.7
|
|
|
$
|
40.8
|
|
|
|
21.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store properties operating expenses increased
$3.2 million from the prior year on a
year-to-date
basis due primarily to increased insurance costs and real estate
taxes. The 2005 acquisitions consist of 41 buildings,
aggregating approximately 6.9 million square feet. The 2006
acquisitions consist of 59 buildings, aggregating approximately
4.6 million square feet. Other industrial expenses include
expenses from divested properties that have been contributed to
an unconsolidated joint venture, and accordingly are not
classified as discontinued operations in our consolidated
financial statements, and development properties that have
reached certain levels of operation and are not yet part of the
same store operating pool of properties. In 2005 and 2006, we
continued to acquire properties in China, France, Germany,
Japan, Mexico and the Netherlands, resulting in increased
international industrial property operating costs. The increase
in depreciation and amortization expense was due to the increase
in our net investment in real estate. The 2006 impairment loss
was taken on several non-core assets as a result of leasing
activities and changes in the economic environment and the
holding period of certain assets. The increase in general and
administrative expenses was primarily due to increased
stock-based compensation expense of $4.0 million and
additional staffing and expenses for new initiatives, including
our international and development expansions. Other expenses
decreased approximately $0.6 million from the prior year on
a
year-to-year
basis due primarily to a decrease in losses associated with our
deferred compensation plan, partially offset by an increase in
certain deal costs. Fund costs represent general and
administrative costs paid to third parties associated with our
co-investment joint ventures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income and (Expenses)
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Equity in earnings of
unconsolidated joint ventures, net
|
|
$
|
10.4
|
|
|
$
|
8.4
|
|
|
$
|
2.0
|
|
|
|
23.8
|
%
|
Other income
|
|
|
5.0
|
|
|
|
1.8
|
|
|
|
3.2
|
|
|
|
177.8
|
%
|
Gains from disposition of real
estate interests
|
|
|
|
|
|
|
18.9
|
|
|
|
(18.9
|
)
|
|
|
(100.0
|
)%
|
Development profits, net of taxes
|
|
|
46.4
|
|
|
|
19.9
|
|
|
|
26.5
|
|
|
|
133.2
|
%
|
Interest expense, including
amortization
|
|
|
(83.8
|
)
|
|
|
(74.0
|
)
|
|
|
9.8
|
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expenses),
net
|
|
$
|
(22.0
|
)
|
|
$
|
(25.0
|
)
|
|
$
|
(3.0
|
)
|
|
|
(12.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
The $2.0 million increase in equity in earnings of
unconsolidated joint ventures was primarily due to an increase
in gains from the disposition of real estate by our
unconsolidated joint ventures, partially offset by an increase
in expenses by our unconsolidated joint ventures during the six
months ended June 30, 2006. The $3.2 million increase
in other income was primarily due to an increase in bank
interest income and dividend income related to two of our
investments. The 2005 gains from disposition of real estate
interests resulted primarily from our contribution of
$106.9 million in operating properties to our newly formed
unconsolidated co-investment joint venture, AMB Japan
Fund I, L.P. Development profits represent gains from the
sale or contributions of development projects including land.
The increase in development profits was due to increased
disposition and contribution volume during the six months ended
June 30, 2006. During the six months ended June 30,
2006, we sold one land parcel and an approximately
32,000 square foot development project for an aggregate
sale price of $7.6 million, resulting in an after-tax gain
of $0.8 million and contributed one completed development
project totaling approximately 0.8 million square feet into
AMB Japan Fund I, L.P., and one completed development
project totaling approximately 0.6 million square feet into
AMB-SGP Mexico, LLC. As a result of these contributions, we
recognized an aggregate after-tax gain of $46.6 million
representing the portion of our interest in the contributed
properties acquired by the third-party co-investors for cash. In
addition, we received approximately $0.4 million in
connection with the condemnation of a parcel of land resulting
in a loss of $1.0 million, $0.8 million of which was
the joint venture partners share. During the six months
ended June 30, 2005, we sold two land parcels and two
development projects, aggregating approximately
43,000 square feet, as part of our
development-for-sale
program, for an aggregate price of $45.0 million, resulting
in an after-tax gain of $18.0 million. During the six
months ended June 30, 2005, we contributed an industrial
property for $23.6 million, consisting of one industrial
building, aggregating approximately 0.4 million square
feet, to our unconsolidated co-investment joint venture, AMB-SGP
Mexico, LLC, resulting in an after-tax gain of
$1.9 million. The increase in interest expense, including
amortization, was due primarily to increased borrowings on
unsecured credit facilities and other debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Income (loss) attributable to
discontinued operations, net of minority interests
|
|
$
|
1.6
|
|
|
$
|
(2.6
|
)
|
|
$
|
4.2
|
|
|
|
161.5
|
%
|
Gains from dispositions of real
estate, net of minority interests
|
|
|
24.1
|
|
|
|
33.3
|
|
|
|
(9.2
|
)
|
|
|
(27.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
$
|
25.7
|
|
|
$
|
30.7
|
|
|
$
|
(5.0
|
)
|
|
|
(16.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2006, we divested
ourselves of 12 industrial buildings, aggregating approximately
0.9 million square feet, for an aggregate price of
$53.9 million, with a resulting net gain of
$24.1 million. During the six months ended June 30,
2005, we divested ourselves of 28 industrial buildings,
aggregating approximately 1.9 million square feet, for an
aggregate price of $175.3 million, with a resulting net
gain of $33.3 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
2006
|
|
|
2005
|
|
|
$ Change
|
|
|
% Change
|
|
|
Preferred stock dividends
|
|
$
|
(6.2
|
)
|
|
$
|
(3.6
|
)
|
|
$
|
2.6
|
|
|
|
72.2
|
%
|
Preferred unit redemption issuance
costs
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
1.0
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock
|
|
$
|
(7.2
|
)
|
|
$
|
(3.6
|
)
|
|
$
|
3.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2005, we issued 3,000,000 shares of 7.0%
Series O Cumulative Redeemable Preferred Stock. The
increase in preferred stock dividends is due to the newly-issued
shares. In addition, during the six months ended June 30,
2006, AMB Property II, L.P., one of our subsidiaries,
redeemed all 840,000 of its outstanding 8.125% Series H
Cumulative Redeemable Preferred Limited Partnership Units and
all 220,440 of its outstanding 7.75% Series E Cumulative
Redeemable Preferred Limited Partnership Units. As a result, we
recognized a decrease in income available to common stockholders
of $1.0 million for the original issuance costs, net of
discount on repurchase.
43
LIQUIDITY
AND CAPITAL RESOURCES
Balance Sheet Strategy. In general, we use
unsecured lines of credit, unsecured notes, preferred stock and
common equity (issued by us
and/or the
operating partnership and its subsidiaries) to capitalize our
100%-owned assets. Over time, we plan to retire non-recourse,
secured debt encumbering our 100%-owned assets and replace that
debt with unsecured notes. In managing our co-investment joint
ventures, in general, we use non-recourse, secured debt to
capitalize our co-investment joint ventures.
We currently expect that our principal sources of working
capital and funding for acquisitions, development, expansion and
renovation of properties will include:
|
|
|
|
|
retained earnings and cash flow from operations;
|
|
|
|
private capital from co-investment partners;
|
|
|
|
net proceeds from contribution of properties and completed
development projects to our co-investment joint ventures;
|
|
|
|
borrowings under our unsecured credit facilities;
|
|
|
|
other forms of secured or unsecured financing;
|
|
|
|
proceeds from debt or limited partnership unit offerings
(including issuances of limited partnership units by our
subsidiaries); and
|
|
|
|
net proceeds from divestitures of properties.
|
We currently expect that our principal funding requirements will
include:
|
|
|
|
|
working capital;
|
|
|
|
development, expansion and renovation of properties;
|
|
|
|
acquisitions, including our global expansion;
|
|
|
|
debt service; and
|
|
|
|
dividends and distributions on outstanding common and preferred
stock and limited partnership units.
|
Cash flows. For the six months ended
June 30, 2006, cash provided by operating activities was
$159.9 million as compared to $81.5 million for the
same period in 2005. This change is primarily due to increases
in rental rates, partially offset by an increase in general and
administrative expenses primarily due to additional staffing and
expenses for new initiatives, including our international and
development expansions and increased occupancy costs related to
the expansion of satellite offices. Cash used in investing
activities was $643.2 million for the six months ended
June 30, 2006, as compared to cash used for investing
activities of $236.1 million for the same period in 2005.
This change is primarily due to an increase in funds used for
property acquisitions and capital expenditures, and a decrease
in proceeds from property divestitures, offset by less funds
used for additions to interests in unconsolidated joint ventures
and an increase in capital distributions received from
unconsolidated joint ventures. Cash provided by financing
activities was $444.3 million for the six months ended
June 30, 2006, as compared to $188.2 million for the
same period in 2005. This change is due primarily to an increase
in borrowings, net of repayments and issuance of common stock,
offset by the cost of the repurchase of preferred units during
the six months ended June 30, 2006.
We believe that our sources of working capital, specifically our
cash flow from operations, borrowings available under our
unsecured credit facilities and our ability to access private
and public debt and equity capital, are adequate for us to meet
our liquidity requirements for the foreseeable future. The
unavailability of capital could adversely affect our financial
condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, our stock.
44
Capital
Resources
Property Divestitures. During the three months
ended June 30, 2006 we divested ourselves of eight
industrial buildings aggregating approximately 0.5 million
square feet, for an aggregate price of $37.1 million, with
a resulting net gain of $17.1 million. During the six
months ended June 30, 2006, we divested ourselves of
12 industrial buildings, aggregating approximately
0.9 million square feet, for an aggregate price of
$53.9 million, with a resulting net gain of
$24.1 million.
Development Sales and Contributions. During
the three months ended June 30, 2006, we sold an
approximately 32,000 square foot development project for
$2.9 million, resulting in an after-tax gain of
$0.1 million. In addition, during the three and six months
ended June 30, 2006, we received approximately
$0.4 million in connection with the condemnation of a
parcel of land resulting in a loss of $1.0 million,
$0.8 million of which was our joint venture partners
share. For the six months ended June 30, 2006, we sold one
land parcel and an approximately 32,000 square foot
development project for an aggregate sale price of
$7.6 million, resulting in an after-tax gain of
$0.8 million. During the three months ended June 30,
2005, we sold an approximately 19,000 square foot
development project for $2.1 million resulting in an
after-tax gain of $0.1 million. During the six months ended
June 30, 2005, we sold two land parcels and two development
projects, aggregating approximately 43,000 square feet, for
an aggregate price of $45.0 million, resulting in an
after-tax gain of $18.2 million, of which $9.9 million
was our joint venture partners share. During the three and
six months ended June 30, 2006, we contributed one
completed development project into AMB Japan Fund I, L.P.,
and another completed development project into AMB-SGP Mexico,
LLC, both unconsolidated co-investment joint ventures. As a
result of these contributions, we recognized an aggregate
after-tax gain of $46.6 million representing the portion of
our interest in the contributed property acquired by the
third-party co-investor for cash.
Properties Held for Contribution. As of
June 30, 2006, we held for contribution to a co-investment
joint venture three industrial buildings with an aggregate net
book value of $72.0 million, which, when contributed to the
joint venture, will reduce our current ownership interest from
approximately 100% to an expected range of 20-50%. These assets
are not being held for divestiture under SFAS No. 144.
Properties Held for Divestiture. As of
June 30, 2006, we held for divestiture five industrial
buildings and one land parcel, which are not in our core
markets, do not meet our current strategic objectives or which
we have included as part of our
development-for-sale
program. The divestitures of the properties are subject to
negotiation of acceptable terms and other customary conditions.
As of June 30, 2006, the net carrying value of the
properties held for divestiture was $46.9 million. Expected
net sales proceeds exceed the net carrying value of the
properties.
Co-investment Joint Ventures. Through the
operating partnership, we enter into co-investment joint
ventures with institutional investors. These co-investment joint
ventures are managed by our private capital group and provide us
with an additional source of capital to fund certain
acquisitions, development projects and renovation projects, as
well as private capital income. We generally consolidate these
joint ventures for financial reporting purposes because they are
not variable interest entities and because we are the sole
managing general partner and control all major operating
decisions. However, in certain cases, our co-investment joint
ventures are unconsolidated because we do not control all major
operating decisions.
Third-party equity interests in the joint ventures are reflected
as minority interests in the consolidated financial statements.
As of June 30, 2006, we owned approximately
59.5 million square feet of our properties (48.3% of the
total operating and development portfolio) through our
consolidated and unconsolidated joint ventures. We may
45
make additional investments through these joint ventures or new
joint ventures in the future and presently plan to do so. Our
consolidated co-investment joint ventures at June 30, 2006
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
Original Planned
|
|
Consolidated Co-investment Joint Venture
|
|
Joint Venture Partner
|
|
Percentage
|
|
|
Capitalization(1)
|
|
|
AMB/Erie, L.P.
|
|
Erie Insurance Company and
affiliates
|
|
|
50
|
%
|
|
$
|
200,000
|
|
AMB Partners II, L.P.
|
|
City and County of
San Francisco Employees Retirement System
|
|
|
20
|
%
|
|
$
|
580,000
|
|
AMB-SGP, L.P.
|
|
Industrial JV Pte Ltd(2)
|
|
|
50
|
%
|
|
$
|
425,000
|
|
AMB Institutional Alliance
Fund II, L.P.
|
|
AMB Institutional Alliance
REIT II, Inc.(3)
|
|
|
20
|
%
|
|
$
|
489,000
|
|
AMB-AMS,
L.P.(4)
|
|
PMT, SPW and TNO(5)
|
|
|
39
|
%
|
|
$
|
200,000
|
|
AMB Institutional Alliance
Fund III, L.P.(6)
|
|
AMB Institutional Alliance
REIT III, Inc.
|
|
|
20
|
%
|
|
|
N/A
|
|
|
|
|
(1) |
|
Planned capitalization includes anticipated debt and both
partners expected equity contributions. |
|
(2) |
|
A subsidiary of the real estate investment subsidiary of the
Government of Singapore Investment Corporation. |
|
(3) |
|
Comprised of 14 institutional investors as stockholders and one
third-party limited partner as of June 30, 2006. |
|
(4) |
|
AMB-AMS,
L.P. is a co-investment partnership with three Dutch pension
funds advised by Mn Services NV. |
|
(5) |
|
PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is
Stichting Pensioenfonds voor de Woningcorporaties and TNO is
Stichting Pensioenfonds TNO. |
|
(6) |
|
AMB Institutional Alliance Fund III, L.P. is an open-ended
co-investment partnership formed in 2004 with institutional
investors, which invest through a private real estate investment
trust. |
Our unconsolidated joint ventures at June 30, 2006 (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
Ownership
|
|
Original Planned
|
Unconsolidated Co-investment Joint Venture
|
|
Joint Venture Partner
|
|
Percentage
|
|
Capitalization(1)
|
|
AMB-SGP Mexico, LLC
|
|
Industrial (Mexico) JV Pte Ltd(2)
|
|
|
20
|
%
|
|
$
|
715,000
|
|
AMB Japan Fund I, L.P.
|
|
Institutional investors(3)
|
|
|
20
|
%
|
|
$
|
2,200,000
|
(4)
|
|
|
|
(1) |
|
Planned capitalization includes anticipated debt and both
partners expected equity contributions. |
|
(2) |
|
A subsidiary of the real estate investment subsidiary of the
Government of Singapore Investment Corporation. |
|
(3) |
|
Comprised of 13 institutional investors as of June 30, 2006. |
|
(4) |
|
Using the exchange rate at June 30, 2006. |
Common and Preferred Equity. We have
authorized for issuance 100,000,000 shares of preferred
stock, of which the following series were designated as of
June 30, 2006: 1,595,337 shares of series D
preferred; 220,440 shares of series E cumulative
redeemable preferred; 267,439 shares of series F
cumulative redeemable preferred; 510,000 shares of
series I cumulative redeemable preferred;
800,000 shares of series J cumulative redeemable
preferred; 800,000 shares of series K cumulative
redeemable preferred; 2,300,000 shares of series L
cumulative redeemable preferred, of which 2,000,000 are
outstanding; 2,300,000 shares of series M cumulative
redeemable preferred, all of which are outstanding, and
3,000,000 shares of series O cumulative redeemable
preferred, all of which are outstanding.
On September 24, 2004, AMB Property II, L.P., a
partnership in which Texas AMB I, LLC, a Delaware limited
liability company and our indirect subsidiary, owns an
approximate 1.0% general partnership interest and the operating
partnership owns an approximate 99% common limited partnership
interest, issued 729,582 5.0% Series N Cumulative
Redeemable Preferred Limited Partnership Units at a price of
$50.00 per unit. The series N preferred units were
issued to Robert Pattillo Properties, Inc. in exchange for the
contribution of certain parcels of land that are located in
multiple markets to AMB Property II, L.P. Effective
January 27, 2006, Robert Pattillo Properties, Inc.
exercised its rights under its Put Agreement, dated
September 24, 2004, with the operating
46
partnership, and sold all of its series N preferred units
to the operating partnership for an aggregate price of
$36.6 million, including accrued and unpaid distributions.
Also on January 27, 2006, AMB Property II, L.P.
repurchased all of the series N preferred units from the
operating partnership at an aggregate price of
$36.6 million and cancelled all of the outstanding
series N preferred units as of such date.
On March 21, 2006, AMB Property II, L.P., repurchased
all 840,000 of its outstanding 8.125% Series H Cumulative
Redeemable Preferred Limited Partnership Units from a single
institutional investor for an aggregate price of
$42.8 million, including accrued and unpaid distributions.
In connection with this repurchase, we reclassified all of our
outstanding 840,000 8.125% Series H Cumulative Redeemable
Preferred Stock as preferred stock.
On June 30, 2006, AMB Property II, L.P., repurchased
all 220,440 of its outstanding 7.75% Series E Cumulative
Redeemable Preferred Limited Partnership Units from a single
institutional investor for an aggregate price of
$10.9 million, including accrued and unpaid distributions.
In December 2005, our board of directors approved a new two-year
common stock repurchase program for the discretionary repurchase
of up to $200.0 million of our common stock. We did not
repurchase or retire any shares of our common stock during the
three and six months ended June 30, 2006.
Debt. In order to maintain financial
flexibility and facilitate the deployment of capital through
market cycles, we presently intend to operate with an our share
of total
debt-to-our
share of total market capitalization ratio of approximately 45%
or less. As of June 30, 2006, our share of total
debt-to-our
share of total market capitalization ratio was 37.1%. (See
footnote 1 to the Capitalization Ratios table contained in
Part 1, Item 2: Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources
below for our definitions of our share of total market
capitalization, market equity and our
share of total debt.) However, we typically finance our
consolidated co-investment joint ventures with secured debt at a
loan-to-value
ratio of 50-65% per our joint venture partnership
agreements. Additionally, we currently intend to manage our
capitalization in order to maintain an investment grade rating
on our senior unsecured debt. Regardless of these policies,
however, our organizational documents do not limit the amount of
indebtedness that we may incur. Accordingly, our management
could alter or eliminate these policies without stockholder
approval or circumstances could arise that could render us
unable to comply with these policies.
As of June 30, 2006, the aggregate principal amount of our
secured debt was $1.8 billion, excluding unamortized debt
premiums of $9.7 million. Of the $1.8 billion of
secured debt, $1.5 billion is secured by properties in our
joint ventures. The secured debt is generally non-recourse and
bears interest at rates varying from 0.8% to 10.4% per
annum (with a weighted average rate of 6.0%) and final maturity
dates ranging from October 2006 to January 2025. As of
June 30, 2006, $1.5 billion of the secured debt
obligations bear interest at fixed rates with a weighted average
interest rate of 6.0%, while the remaining $282.2 million
bear interest at variable rates (with a weighted average
interest rate of 4.1%).
As of June 30, 2006, the operating partnership had
outstanding an aggregate of $1.1 billion in unsecured
senior debt securities, which bore a weighted average interest
rate of 6.2% and had a weighted average term of 4.4 years.
These unsecured senior debt securities include
$300.0 million in notes issued in June 1998,
$225.0 million of medium-term notes, which were issued
under the operating partnerships 2000 medium-term note
program, $325.0 million of medium-term notes, which were
issued under the operating partnerships 2002 medium-term
note program, and approximately $112.5 million of
5.094% Notes Due 2015, which were issued to Teachers
Insurance and Annuity Association of America on July 11,
2005 in a private placement, in exchange for the cancellation of
$100 million of notes that were issued in June 1998
resulting in a discount of approximately $12.5 million. The
unsecured senior debt securities are subject to various
covenants. Also included is a $100.0 million term loan
which matures in December 2006.
We guarantee the operating partnerships obligations with
respect to its senior debt securities. If we are unable to
refinance or extend principal payments due at maturity or pay
them with proceeds from other capital transactions, then our
cash flow may be insufficient to pay dividends to our
stockholders in all years and to repay debt upon maturity.
Furthermore, if prevailing interest rates or other factors at
the time of refinancing (such as the reluctance of lenders to
make commercial real estate loans) result in higher interest
rates upon refinancing, then the interest
47
expense relating to that refinanced indebtedness would increase.
This increased interest expense would adversely affect our
financial condition, results of operations, cash flow and
ability to pay dividends on, and the market price of, our stock.
Credit Facilities. On June 1, 2006, the
operating partnership entered into a third amended and restated
$550.0 million unsecured revolving credit agreement that
replaced its then-existing $500.0 million credit facility,
which was to mature on June 1, 2007. We are a guarantor of
the operating partnerships obligations under the credit
facility. The line, which matures on June 1, 2010, carries
a one-year extension option and can be increased up to
$700.0 million upon certain conditions. The rate on the
borrowings is generally LIBOR plus a margin, based on the
operating partnerships long-term debt rating, which was
42.5 basis points as of June 30, 2006, with an annual
facility fee of 15 basis points. The four year credit
facility includes a multi-currency component, under which up to
$550.0 million can be drawn in U.S. Dollars, Euros,
Yen or British Pounds Sterling. The operating partnership uses
its unsecured credit facility principally for acquisitions,
funding development activity and general working capital
requirements. As of June 30, 2006, the outstanding balance
on the credit facility was $380.8 million and the remaining
amount available was $143.6 million, net of outstanding
letters of credit of $25.6 million. The outstanding balance
included borrowings denominated in Euros, which, using the
exchange rate in effect on June 30, 2006, would equal
approximately $250.8 million U.S. dollars.
On June 23, 2006, AMB Japan Finance Y.K., a subsidiary of
the operating partnership and as the initial borrower, entered
into an amended and restated revolving credit agreement for a
45.0 billion Yen unsecured revolving credit facility,
which, using the exchange rate in effect on June 30, 2006,
equaled approximately $393.0 million U.S. dollars.
This replaced the 35.0 billion Yen unsecured revolving
credit facility executed on June 29, 2004, as previously
amended, which using the exchange rate in effect on
June 30, 2006, equaled approximately $306.0 million
U.S. dollars. We, along with the operating partnership,
guarantee the obligations of AMB Japan Finance Y.K. under the
revolving credit facility, as well as the obligations of any
other entity in which the operating partnership directly or
indirectly owns an ownership interest and which is selected from
time to time to be a borrower under and pursuant to the
revolving credit agreement. The borrowers intend to use the
proceeds from the facility to fund the acquisition and
development of properties and for other real estate purposes in
Japan, China and South Korea. Generally, borrowers under the
revolving credit facility have the option to secure all or a
portion of the borrowings under the revolving credit facility
with certain real estate assets or equity in entities holding
such real estate assets. The revolving credit facility matures
in June 2010 and has a one-year extension option. The credit
facility can be increased up to 55.0 billion Yen, which,
using the exchange rate in effect on June 30, 2006, equaled
approximately $481.0 million U.S. dollars. The
extension option is subject to the satisfaction of certain
conditions and the payment of an extension fee equal to 0.15% of
the outstanding commitments under the facility at that time. The
rate on the borrowings is generally TIBOR plus a margin, which
is based on the credit rating of the operating
partnerships long-term debt and was 42.5 basis points as
of June 30, 2006. In addition, there is an annual facility
fee, payable in quarterly amounts, which is based on the credit
rating of the operating partnerships long-term debt, and
was 15 basis points of the outstanding commitments under
the facility as of June 30, 2006. As of June 30, 2006,
the outstanding balance on this credit facility, using the
exchange rate in effect on June 30, 2006, was
$286.7 million in U.S. dollars.
On June 13, 2006, the operating partnership and certain of
its consolidated subsidiaries entered into a fourth amended and
restated credit agreement for a $250.0 million unsecured
revolving credit facility, which replaced the third amended and
restated credit agreement for a $250.0 million unsecured
credit facility. On February 16, 2006, the third amended
and restated credit agreement replaced the then-existing
$100.0 million unsecured revolving credit facility that was
to mature in June 2008. We, along with the operating
partnership, guarantee the obligations for such subsidiaries and
other entities controlled by us or the Operating Partnership
that are selected to be borrowers by the operating partnership
from time to time under and pursuant to the credit facility. The
four-year credit facility includes a multi-currency component
under which up to $250.0 million can be drawn in
U.S. dollars, Hong Kong dollars, Singapore dollars,
Canadian dollars and Euros. The line, which matures in February
2010 and carries a one-year extension option, can be increased
up to $350.0 million upon certain conditions and the
payment of an extension fee equal to 0.15% of the outstanding
commitments. The rate on the borrowings is generally LIBOR plus
a margin, based on the credit rating of the operating
partnerships senior unsecured long-term debt, which was
60 basis points as of June 30, 2006, with an annual
facility fee based on the credit rating of the operating
48
partnerships senior unsecured long-term debt. The credit
agreement contains affirmative covenants, including financial
reporting requirements and maintenance of specified financial
ratios by the operating partnership, and negative covenants,
including limitations on the incurrence of liens and limitations
on mergers or consolidations. The borrowers intend to use the
proceeds from the facility to fund the acquisition and
development of properties and general working capital
requirements. As of June 30, 2006, the outstanding balance
on this facility was approximately $237.0 million.
The tables below summarize our debt maturities and
capitalization as of June 30, 2006 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
Our
|
|
|
Joint
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
Venture
|
|
|
Senior
|
|
|
Credit
|
|
|
Other
|
|
|
|
|
|
|
Debt(4)
|
|
|
Debt
|
|
|
Debt
|
|
|
Facilities(1)
|
|
|
Debt
|
|
|
Total Debt
|
|
|
2006
|
|
$
|
45,567
|
|
|
$
|
66,699
|
|
|
$
|
150,000
|
|
|
$
|
|
|
|
$
|
15,534
|
|
|
$
|
277,800
|
|
2007
|
|
|
13,385
|
|
|
|
58,356
|
|
|
|
75,000
|
|
|
|
|
|
|
|
752
|
|
|
|
147,493
|
|
2008
|
|
|
42,069
|
|
|
|
179,272
|
|
|
|
175,000
|
|
|
|
|
|
|
|
810
|
|
|
|
397,151
|
|
2009
|
|
|
4,044
|
|
|
|
122,366
|
|
|
|
100,000
|
|
|
|
|
|
|
|
873
|
|
|
|
227,283
|
|
2010
|
|
|
69,865
|
|
|
|
118,834
|
|
|
|
250,000
|
|
|
|
904,452
|
|
|
|
941
|
|
|
|
1,344,092
|
|
2011
|
|
|
21,681
|
|
|
|
363,111
|
|
|
|
75,000
|
|
|
|
|
|
|
|
1,014
|
|
|
|
460,806
|
|
2012
|
|
|
98,749
|
|
|
|
172,120
|
|
|
|
|
|
|
|
|
|
|
|
1,093
|
|
|
|
271,962
|
|
2013
|
|
|
26,183
|
|
|
|
217,175
|
|
|
|
|
|
|
|
|
|
|
|
65,920
|
|
|
|
309,278
|
|
2014
|
|
|
16,262
|
|
|
|
5,460
|
|
|
|
|
|
|
|
|
|
|
|
616
|
|
|
|
22,338
|
|
2015
|
|
|
2,106
|
|
|
|
118,403
|
|
|
|
112,491
|
|
|
|
|
|
|
|
664
|
|
|
|
233,664
|
|
Thereafter
|
|
|
25,906
|
|
|
|
32,697
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
183,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
365,817
|
|
|
|
1,454,493
|
|
|
|
1,062,491
|
|
|
|
904,452
|
|
|
|
88,217
|
|
|
|
3,875,470
|
|
Unamortized premiums/(discounts)
|
|
|
2,108
|
|
|
|
7,550
|
|
|
|
(11,242
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated debt
|
|
|
367,925
|
|
|
|
1,462,043
|
|
|
|
1,051,249
|
|
|
|
904,452
|
|
|
|
88,217
|
|
|
|
3,873,886
|
|
Our share of unconsolidated joint
venture debt(2)
|
|
|
|
|
|
|
167,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
367,925
|
|
|
|
1,629,364
|
|
|
|
1,051,249
|
|
|
|
904,452
|
|
|
|
88,217
|
|
|
|
4,041,207
|
|
Joint venture partners share
of consolidated joint venture debt
|
|
|
|
|
|
|
(1,005,456
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,000
|
)
|
|
|
(1,057,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of total debt(3)
|
|
$
|
367,925
|
|
|
$
|
623,908
|
|
|
$
|
1,051,249
|
|
|
$
|
904,452
|
|
|
$
|
36,217
|
|
|
$
|
2,983,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighed average interest rate
|
|
|
4.6
|
%
|
|
|
6.3
|
%
|
|
|
6.2
|
%
|
|
|
3.2
|
%
|
|
|
7.3
|
%
|
|
|
5.4
|
%
|
Weighed average maturity (in years)
|
|
|
5.3
|
|
|
|
5.3
|
|
|
|
4.4
|
|
|
|
3.8
|
|
|
|
5.7
|
|
|
|
4.7
|
|
|
|
|
(1) |
|
Includes $394.0 million, $286.7 million and
$93.8 million in Euro, Yen and Canadian dollar based
borrowings, respectively, translated to U.S. dollars using
the functional exchange rates in effect on June 30, 2006. |
|
(2) |
|
The weighted average interest and maturity for the
unconsolidated joint venture debt were 4.5% and 4.8 years,
respectively. |
|
(3) |
|
Our share of total debt is the pro rata portion of the total
debt based on our percentage of equity interest in each of the
consolidated or unconsolidated joint ventures holding the debt.
We believe that our share of total debt is a meaningful
supplemental measure, which enables both management and
investors to analyze our leverage and to compare our leverage to
that of other companies. In addition, it allows for a more
meaningful comparison of our debt to that of other companies
that do not consolidate their joint ventures. Our share of total
debt is not intended to reflect our actual liability should
there be a default under any or all of such loans or a
liquidation of the joint ventures. The above table reconciles
our share of total debt to total consolidated debt, a GAAP
financial measure. |
|
(4) |
|
Our secured debt and joint venture debt include debt related to
international assets in the amount of $267.4 million. Of
this, $87.4 million is associated with assets located in
Asia and the remaining $180.0 million is related to assets
located in Europe. |
49
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Equity (dollars in thousands except share and per
share data)
|
|
|
|
Shares/Units
|
|
|
Market
|
|
|
Market
|
|
Security
|
|
Outstanding
|
|
|
Price
|
|
|
Value
|
|
|
Common stock
|
|
|
88,099,463
|
|
|
$
|
50.55
|
|
|
$
|
4,453,428
|
|
Common limited partnership units(1)
|
|
|
4,385,207
|
|
|
|
50.55
|
|
|
|
221,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
92,484,670
|
|
|
|
|
|
|
$
|
4,675,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes 145,548 class B common limited partnership units
issued by AMB Property II, L.P. in November 2003.
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock and Units
|
|
|
Dividend
|
|
|
Liquidation
|
|
|
|
Security
|
|
Rate
|
|
|
Preference
|
|
|
Redemption/Callable Date
|
|
Series D preferred units
|
|
|
7.75
|
%
|
|
$
|
79,767
|
|
|
May 2004
|
Series F preferred units
|
|
|
7.95
|
%
|
|
|
10,057
|
|
|
March 2005
|
Series I preferred units
|
|
|
8.00
|
%
|
|
|
25,500
|
|
|
March 2006
|
Series J preferred units
|
|
|
7.95
|
%
|
|
|
40,000
|
|
|
September 2006
|
Series K preferred units
|
|
|
7.95
|
%
|
|
|
40,000
|
|
|
April 2007
|
Series L preferred stock
|
|
|
6.50
|
%
|
|
|
50,000
|
|
|
June 2008
|
Series M preferred stock
|
|
|
6.75
|
%
|
|
|
57,500
|
|
|
November 2008
|
Series O preferred stock
|
|
|
7.00
|
%
|
|
|
75,000
|
|
|
December 2010
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average/total
|
|
|
7.35
|
%
|
|
$
|
377,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization Ratios as of June 30, 2006
|
|
|
Total
debt-to-total
market capitalization(1)
|
|
|
44.4
|
%
|
Our share of total
debt-to-our
share of total market capitalization(1)
|
|
|
37.1
|
%
|
Total debt plus
preferred-to-total
market capitalization(1)
|
|
|
48.6
|
%
|
Our share of total debt plus
preferred-to-our
share of total market capitalization(1)
|
|
|
41.8
|
%
|
Our share of total
debt-to-our
share of total book capitalization(1)
|
|
|
56.9
|
%
|
|
|
|
|
(1)
|
Our definition of total market capitalization is
total debt plus preferred equity liquidation preferences plus
market equity. Our definition of our share of total market
capitalization is our share of total debt plus preferred
equity liquidation preferences plus market equity. Our
definition of market equity is the total number of
outstanding shares of our common stock and common limited
partnership units multiplied by the closing price per share of
our common stock as of June 30, 2006. Our definition of
preferred is preferred equity liquidation
preferences. Our share of total book capitalization is defined
as our share of total debt plus minority interests to preferred
unitholders and limited partnership unitholders plus
stockholders equity. Our share of total debt is the pro
rata portion of the total debt based on our percentage of equity
interest in each of the consolidated or unconsolidated ventures
holding the debt. We believe that our share of total debt is a
meaningful supplemental measure, which enables both management
and investors to analyze our leverage and to compare our
leverage to that of other companies. In addition, it allows for
a more meaningful comparison of our debt to that of other
companies that do not consolidate their joint ventures. Our
share of total debt is not intended to reflect our actual
liability should there be a default under any or all of such
loans or a liquidation of the joint ventures. For a
reconciliation of our share of total debt to total consolidated
debt, a GAAP financial measure, please see the table of debt
maturities and capitalization above.
|
Liquidity
As of June 30, 2006, we had $202.3 million in cash and
cash equivalents and $263.0 million of additional available
borrowings under our credit facilities. As of June 30,
2006, we had $29.6 million in restricted cash.
50
Our board of directors declared a regular cash dividend for the
quarter ended June 30, 2006 of $0.46 per share of
common stock, and the operating partnership announced its
intention to pay a regular cash distribution for the quarter
ended June 30, 2006 of $0.46 per common unit. The
dividends and distributions were payable on July 17, 2006
to stockholders and unitholders of record on July, 7, 2006.
The series L, M, and O preferred stock dividends were
payable on July 17, 2006 to stockholders of record on
July 7, 2006. The series F, J and K preferred unit
quarterly distributions were payable on July 17, 2006. The
series D and I preferred unit quarterly distributions were
paid on June 25, 2006. The series E preferred unit
quarterly distributions were paid on its date of repurchase by
us on June 30, 2006. The following table sets forth the
dividends and distributions paid or payable per share or unit
for the three and six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Paying Entity
|
|
Security
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
AMB Property Corporation
|
|
Common stock
|
|
$
|
0.460
|
|
|
$
|
0.440
|
|
|
$
|
0.920
|
|
|
$
|
0.880
|
|
AMB Property Corporation
|
|
Series L preferred stock
|
|
$
|
0.406
|
|
|
$
|
0.406
|
|
|
$
|
0.813
|
|
|
$
|
0.813
|
|
AMB Property Corporation
|
|
Series M preferred stock
|
|
$
|
0.422
|
|
|
$
|
0.422
|
|
|
$
|
0.844
|
|
|
$
|
0.844
|
|
AMB Property Corporation
|
|
Series O preferred stock
|
|
$
|
0.438
|
|
|
|
n/a
|
|
|
$
|
0.875
|
|
|
|
n/a
|
|
Operating Partnership
|
|
Common limited partnership units
|
|
$
|
0.460
|
|
|
$
|
0.440
|
|
|
$
|
0.920
|
|
|
$
|
0.880
|
|
Operating Partnership
|
|
Series J preferred units
|
|
$
|
0.994
|
|
|
$
|
0.994
|
|
|
$
|
1.988
|
|
|
$
|
1.988
|
|
Operating Partnership
|
|
Series K preferred units
|
|
$
|
0.994
|
|
|
$
|
0.994
|
|
|
$
|
1.988
|
|
|
$
|
1.988
|
|
AMB Property II, L.P.
|
|
Class B common limited partnership
units
|
|
$
|
0.460
|
|
|
$
|
0.440
|
|
|
$
|
0.920
|
|
|
$
|
0.880
|
|
AMB Property II, L.P.
|
|
Series D preferred units
|
|
$
|
0.969
|
|
|
$
|
0.969
|
|
|
$
|
1.938
|
|
|
$
|
1.938
|
|
AMB Property II, L.P.
|
|
Series E preferred units(1)
|
|
$
|
0.807
|
|
|
$
|
0.969
|
|
|
$
|
1.776
|
|
|
$
|
1.938
|
|
AMB Property II, L.P.
|
|
Series F preferred units
|
|
$
|
0.994
|
|
|
$
|
0.994
|
|
|
$
|
1.988
|
|
|
$
|
1.988
|
|
AMB Property II, L.P.
|
|
Series H preferred units(2)
|
|
|
n/a
|
|
|
$
|
1.016
|
|
|
$
|
0.970
|
|
|
$
|
2.031
|
|
AMB Property II, L.P.
|
|
Series I preferred units
|
|
$
|
1.000
|
|
|
$
|
1.000
|
|
|
$
|
2.000
|
|
|
$
|
2.000
|
|
AMB Property II, L.P.
|
|
Series N preferred units(3)
|
|
|
n/a
|
|
|
$
|
0.625
|
|
|
$
|
0.215
|
|
|
$
|
1.250
|
|
|
|
|
(1) |
|
In June 2006, AMB Property II, L.P. repurchased all of its
series E preferred units. |
|
(2) |
|
In March 2006, AMB Property II, L.P. repurchased all of its
series H preferred units. |
|
(3) |
|
The holder of the series N preferred units exercised its
put option in January 2006 and sold all of its series N
preferred units to the operating partnership and AMB
Property II, L.P. repurchased all of such units from the
operating partnership. |
The anticipated size of our distributions, using only cash from
operations, will not allow us to retire all of our debt as it
comes due. Therefore, we intend to also repay maturing debt with
net proceeds from future debt or equity financings, as well as
property divestitures. However, we may not be able to obtain
future financings on favorable terms or at all. Our inability to
obtain future financings on favorable terms or at all would
adversely affect our financial condition, results of operations,
cash flow and ability to pay dividends on, and the market price
of, our stock.
Capital
Commitments
Developments. During the three months ended
June 30, 2006, we initiated four new industrial development
projects in North America and Asia with a total estimated
investment of $134.6 million, aggregating an estimated
2.0 million square feet. During the six months ended
June 30, 2006, we initiated 11 new industrial development
projects in North America and Asia with a total expected
investment of $353.4 million, aggregating approximately
4.9 million square feet. As of June 30, 2006, we had
47 projects in our development pipeline representing a total
estimated investment of $1.1 billion upon completion, of
which one industrial project totaling approximately
0.2 million square feet and with an aggregate estimated
investment of $12.6 million upon completion is held in an
unconsolidated joint venture. In addition, during the six months
ended June 30, 2006, we held four development
51
projects available for sale or contribution, representing a
total estimated investment of $89.4 million upon
completion. Of the total development pipeline,
$656.5 million had been funded as of June 30, 2006,
and an estimated $487.5 million was required to complete
current projects. We expect to fund these expenditures with cash
from operations, borrowings under our credit facilities, debt or
equity issuances, net proceeds from property divestitures and
private capital from co-investment partners, which could have an
adverse effect on our cash flow.
Acquisitions. During the three months ended
June 30, 2006, we acquired 27 industrial buildings,
aggregating approximately 2.5 million square feet for a
total expected investment of $246.8 million. During the six
months ended June 30, 2006, we acquired 59 industrial
buildings, aggregating approximately 4.6 million square
feet for a total expected investment of $400.1 million, of
which we acquired 38 buildings through two of our co-investment
joint ventures. We generally fund our acquisitions through
private capital contributions, borrowings under our credit
facilities, cash, debt issuances and net proceeds from property
divestitures.
Lease Commitments. We have entered into
operating ground leases on certain land parcels, primarily
on-tarmac
facilities and office space with remaining lease terms from one
to 56 years. These operating lease payments are amortized
ratably over the lesser of the terms of the related leases or
40 years.
Co-investment Joint Ventures. Through the
operating partnership, we enter into co-investment joint
ventures with institutional investors. These co-investment joint
ventures are managed by our private capital group and provide us
with an additional source of capital to fund acquisitions,
development projects and renovation projects, as well as private
capital income. As of June 30, 2006, we had investments in
co-investment joint ventures with a gross book value of
$2.8 billion, which are consolidated for financial
reporting purposes, and net equity investments in two
unconsolidated co-investment joint ventures of
$37.2 million. As of June 30, 2006, we may make
additional capital contributions to current and planned
co-investment joint ventures of up to $122.1 million (using
the exchange rates at June 30, 2006) pursuant to the
terms of the joint venture agreements. From time to time, we may
raise additional equity commitments for AMB Institutional
Alliance Fund III, L.P., an open-ended consolidated
co-investment
joint venture formed in 2004 with institutional investors, which
invests through a private real estate investment trust. This
would increase our obligation to make additional capital
commitments. Pursuant to the terms of the partnership agreement
of this fund, we are obligated to contribute 20% of the total
equity commitments to the fund until such time our total equity
commitment is greater than $150.0 million, at which time,
our obligation is reduced to 10% of the total equity
commitments. We expect to fund these contributions with cash
from operations, borrowings under our credit facilities, debt or
equity issuances or net proceeds from property divestitures,
which could adversely effect our cash flow.
Captive Insurance Company. In December 2001,
we formed a wholly-owned captive insurance company, Arcata
National Insurance Ltd., which provides insurance coverage for
all or a portion of losses below the deductible under our
third-party policies. We capitalized Arcata National Insurance
Ltd. in accordance with the applicable regulatory requirements.
Arcata National Insurance Ltd. established annual premiums based
on projections derived from the past loss experience of our
properties. Annually, we engage an independent third party to
perform an actuarial estimate of future projected claims,
related deductibles and projected expenses necessary to fund
associated risk management programs. Premiums paid to Arcata
National Insurance Ltd. may be adjusted based on this estimate.
Premiums paid to Arcata National Insurance Ltd. have a
retrospective component, so that if expenses, including losses,
deductibles and reserves, are less than premiums collected, the
excess may be returned to the property owners (and, in turn, as
appropriate, to the customers). Conversely, subject to certain
limitations, if expenses, including losses, deductibles and
reserves, are greater than premiums collected, an additional
premium will be charged. As with all recoverable expenses,
differences between estimated and actual insurance premiums are
recognized in the subsequent year. Through this structure, we
believe that we have more comprehensive insurance coverage at an
overall lower cost than would otherwise be available in the
market.
Potential Unknown Liabilities. Unknown
liabilities may include the following:
|
|
|
|
|
liabilities for
clean-up or
remediation of undisclosed environmental conditions;
|
|
|
|
claims of customers, vendors or other persons dealing with our
predecessors prior to our formation or acquisition transactions
that had not been asserted prior to our formation or acquisition
transactions;
|
|
|
|
accrued but unpaid liabilities incurred in the ordinary course
of business;
|
52
|
|
|
|
|
tax liabilities; and
|
|
|
|
claims for indemnification by the officers and directors of our
predecessors and others indemnified by these entities.
|
OFF-BALANCE
SHEET ARRANGEMENTS
Standby Letters of Credit. As of June 30,
2006, we had provided approximately $37.1 million in
letters of credit, of which $25.6 million was provided
under the operating partnerships $550.0 million
unsecured credit facility. The letters of credit were required
to be issued under certain ground lease provisions, bank
guarantees and other commitments.
Guarantees. Other than parent guarantees
associated with the unsecured debt, as of June 30, 2006,
we had outstanding guarantees in the aggregate amount of
$205.8 million in connection with certain acquisitions. As
of June 30, 2006, we guaranteed $26.1 million and
$2.3 million on outstanding loans on two of our
consolidated joint ventures and one of our unconsolidated joint
ventures, respectively.
Performance and Surety Bonds. As of
June 30, 2006, we had outstanding performance and surety
bonds in an aggregate amount of $1.0 million. These bonds
were issued in connection with certain of our development
projects and were posted to guarantee certain tax obligations
and the construction of certain real property improvements and
infrastructure, such as grading, sewers and streets. Performance
and surety bonds are commonly required by public agencies from
real estate developers. Performance and surety bonds are
renewable and expire upon the payment of the taxes due or the
completion of the improvements and infrastructure.
Promoted Interests and Other Contractual
Obligations. Upon the achievement of certain
return thresholds and the occurrence of certain events, we may
be obligated to make payments to certain of our joint venture
partners pursuant to the terms and provisions of their
contractual agreements with us. From time to time in the normal
course of our business, we enter into various contracts with
third parties that may obligate us to make payments or perform
other obligations upon the occurrence of certain events.
SUPPLEMENTAL
EARNINGS MEASURES
FFO. We believe that net income, as defined by
GAAP, is the most appropriate earnings measure. However, we
consider funds from operations, or FFO, as defined by the
National Association of Real Estate Investment Trusts (NAREIT),
to be a useful supplemental measure of our 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 our pro
rata share of FFO of consolidated and unconsolidated joint
ventures. Further, we do not adjust FFO to eliminate the effects
of non-recurring charges. We believe that FFO, as defined by
NAREIT, is a meaningful supplemental measure of our 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. We believe 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. We
consider FFO to be a useful measure for reviewing our
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 companys 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
53
alternative to those measures in evaluating our liquidity or
operating performance. FFO also does not consider the costs
associated with capital expenditures related to our real estate
assets nor is FFO necessarily indicative of cash available to
fund our future cash requirements. Further, our 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 we do.
The following table reflects the calculation of FFO reconciled
from net income for the three and six months ended June 30,
2006 and 2005 (dollars in thousands, except per share and unit
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Net income(1)
|
|
$
|
75,353
|
|
|
$
|
40,789
|
|
|
$
|
102,930
|
|
|
$
|
87,556
|
|
Gain from dispositions of real
estate, net of minority interests
|
|
|
(17,073
|
)
|
|
|
(22,992
|
)
|
|
|
(24,087
|
)
|
|
|
(52,238
|
)
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
|
44,088
|
|
|
|
37,764
|
|
|
|
87,162
|
|
|
|
72,636
|
|
Discontinued operations
depreciation
|
|
|
350
|
|
|
|
7,166
|
|
|
|
544
|
|
|
|
16,416
|
|
Non-real estate depreciation
|
|
|
(1,068
|
)
|
|
|
(802
|
)
|
|
|
(2,068
|
)
|
|
|
(1,547
|
)
|
Adjustments to derive FFO from
consolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture partners
minority interests (Net income)
|
|
|
9,060
|
|
|
|
8,893
|
|
|
|
17,731
|
|
|
|
18,242
|
|
Limited partnership
unitholders minority interests (Net income)
|
|
|
495
|
|
|
|
849
|
|
|
|
1,311
|
|
|
|
1,379
|
|
Limited partnership
unitholders minority interests (Development profits)
|
|
|
2,208
|
|
|
|
94
|
|
|
|
2,240
|
|
|
|
552
|
|
Discontinued operations
minority interests (Net income)
|
|
|
(110
|
)
|
|
|
2,025
|
|
|
|
(214
|
)
|
|
|
4,180
|
|
FFO attributable to minority
interests
|
|
|
(21,748
|
)
|
|
|
(24,103
|
)
|
|
|
(42,183
|
)
|
|
|
(47,690
|
)
|
Adjustments to derive FFO from
unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of net income
|
|
|
(8,278
|
)
|
|
|
(7,188
|
)
|
|
|
(10,366
|
)
|
|
|
(8,430
|
)
|
Our share of FFO
|
|
|
2,096
|
|
|
|
4,469
|
|
|
|
5,305
|
|
|
|
7,216
|
|
Our share of development profits,
net
|
|
|
|
|
|
|
5,441
|
|
|
|
|
|
|
|
5,441
|
|
Preferred stock dividends
|
|
|
(3,095
|
)
|
|
|
(1,783
|
)
|
|
|
(6,191
|
)
|
|
|
(3,566
|
)
|
Preferred unit redemption issuance
costs
|
|
|
77
|
|
|
|
|
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
|
|
$
|
82,355
|
|
|
$
|
50,622
|
|
|
$
|
131,094
|
|
|
$
|
100,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic FFO per common share and
unit
|
|
$
|
0.90
|
|
|
$
|
0.57
|
|
|
$
|
1.44
|
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted FFO per common share
and unit
|
|
$
|
0.87
|
|
|
$
|
0.55
|
|
|
$
|
1.39
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
and units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
91,702,701
|
|
|
|
88,241,361
|
|
|
|
91,302,729
|
|
|
|
88,060,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
94,520,866
|
|
|
|
91,795,834
|
|
|
|
94,534,263
|
|
|
|
91,566,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes (losses) gains from undepreciated land sales of
($0.2) million and $0.0 million for the three months
ended June 30, 2006 and 2005, respectively. Includes gains
from undepreciated land sales of $0.5 million and
$8.4 million for the six months ended June 30, 2006
and 2005, respectively. |
54
SS NOI. We believe that net income, as defined
by GAAP, is the most appropriate earnings measure. However, we
consider same store net operating income (SS NOI) to be a useful
supplemental measure of our operating performance. For
properties that are considered part of the same store pool, see
Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations and Operating and Leasing
Statistics Summary, page 57, Note 1. In deriving
SS NOI, we define NOI as rental revenues (as calculated in
accordance with GAAP), including reimbursements, less
straight-line rents, property operating expenses and real estate
taxes. We exclude straight-line rents in calculating SS NOI
because we believe it provides a better measure of actual cash
basis rental growth for a
year-over-year
comparison. In addition, we believe that SS NOI helps the
investing public compare the operating performance of a
companys real estate as compared to other companies.
While SS NOI 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 our liquidity or operating performance.
SS NOI also does not reflect general and administrative
expenses, interest expense, depreciation and amortization costs,
capital expenditures and leasing costs, or trends in development
and construction activities that could materially impact our
results from operations. Further, our computation of SS NOI may
not be comparable to that of other real estate companies, as
they may use different methodologies for calculating SS NOI.
The following table reconciles SS NOI from net income for the
three and six months ended June 30, 2006 and 2005 (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
75,353
|
|
|
$
|
40,789
|
|
|
$
|
102,930
|
|
|
$
|
87,556
|
|
Private capital income
|
|
|
(4,943
|
)
|
|
|
(3,438
|
)
|
|
|
(10,049
|
)
|
|
|
(6,756
|
)
|
Depreciation and amortization
|
|
|
44,088
|
|
|
|
37,764
|
|
|
|
87,162
|
|
|
|
72,636
|
|
Impairment losses
|
|
|
5,394
|
|
|
|
|
|
|
|
5,394
|
|
|
|
|
|
General and administrative
|
|
|
25,144
|
|
|
|
20,111
|
|
|
|
48,191
|
|
|
|
38,060
|
|
Other expenses
|
|
|
(296
|
)
|
|
|
(792
|
)
|
|
|
241
|
|
|
|
738
|
|
Fund costs
|
|
|
479
|
|
|
|
380
|
|
|
|
1,093
|
|
|
|
744
|
|
Total other income and expenses
|
|
|
(11,834
|
)
|
|
|
8,734
|
|
|
|
22,064
|
|
|
|
24,930
|
|
Total minority interests
share of income
|
|
|
15,198
|
|
|
|
15,394
|
|
|
|
29,718
|
|
|
|
40,477
|
|
Total discontinued operations
|
|
|
(18,136
|
)
|
|
|
(4,488
|
)
|
|
|
(25,717
|
)
|
|
|
(30,681
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOI
|
|
|
130,447
|
|
|
|
114,454
|
|
|
|
260,834
|
|
|
|
227,704
|
|
Less non same-store NOI
|
|
|
(21,767
|
)
|
|
|
(7,612
|
)
|
|
|
(44,631
|
)
|
|
|
(12,365
|
)
|
Less non-cash adjustments(1)
|
|
|
(2,112
|
)
|
|
|
(3,422
|
)
|
|
|
(4,707
|
)
|
|
|
(7,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash-basis same-store NOI
|
|
$
|
106,568
|
|
|
$
|
103,420
|
|
|
$
|
211,496
|
|
|
$
|
208,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-cash adjustments include straight line rents and
amortization of lease intangibles for the same store pool only. |
55
OPERATING
AND LEASING STATISTICS SUMMARY
The following table summarizes key operating and leasing
statistics for all of our industrial properties as of and for
the three and six months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
Operating Portfolio(1)
|
|
June 30, 2006
|
|
|
June 30, 2006
|
|
|
Square feet owned at June 30,
2006(2)
|
|
|
92,185,403
|
|
|
|
92,185,403
|
|
Occupancy percentage at
June 30, 2006
|
|
|
95.4
|
%
|
|
|
95.4
|
%
|
Weighted average lease terms:
|
|
|
|
|
|
|
|
|
Original
|
|
|
6.2 years
|
|
|
|
6.2 years
|
|
Remaining
|
|
|
3.4 years
|
|
|
|
3.4 years
|
|
Tenant retention
|
|
|
66.7
|
%
|
|
|
67.5
|
%
|
Same Space Leasing Activity(3):
|
|
|
|
|
|
|
|
|
Rent decreases on renewals and
rollovers
|
|
|
(0.9
|
)%
|
|
|
(6.0
|
)%
|
Same space square footage
commencing (millions)
|
|
|
4.6
|
|
|
|
9.3
|
|
Second Generation Leasing
Activity(4):
|
|
|
|
|
|
|
|
|
Tenant improvements and leasing
commissions per sq. ft.:
|
|
|
|
|
|
|
|
|
Renewals
|
|
$
|
1.23
|
|
|
$
|
1.25
|
|
Re-tenanted
|
|
|
3.21
|
|
|
|
3.05
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
$
|
2.16
|
|
|
$
|
2.09
|
|
|
|
|
|
|
|
|
|
|
Square footage commencing
(millions)
|
|
|
5.2
|
|
|
|
10.1
|
|
|
|
|
(1) |
|
Includes all consolidated industrial operating properties and
excludes industrial development and renovation projects. |
|
(2) |
|
In addition to owned square feet as of June 30, 2006, we
managed, but did not have an ownership interest in,
approximately 0.2 million additional square feet of
industrial properties. One of our subsidiaries also manages
approximately 1.1 million square feet of properties
representing the IAT portfolio on behalf of the IAT Air Cargo
Facilities Income Fund. We also have investments in
approximately 14.2 million square feet of industrial
operating properties through our investments in unconsolidated
joint ventures. |
|
(3) |
|
Consists of second generation leases renewing or re-tenanting
with current and prior lease terms greater than one year. |
|
(4) |
|
Second generation tenant improvements and leasing commissions
per square foot are the total cost of tenant improvements,
leasing commissions and other leasing costs incurred during
leasing of second generation space divided by the total square
feet leased. Costs incurred prior to leasing available space are
not included until such space is leased. Second generation space
excludes newly-developed square footage or square footage vacant
at acquisition. |
56
The following summarizes key same store properties
operating statistics for our industrial properties as of and for
the three and six months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30, 2006
|
|
|
June 30, 2006
|
|
|
Square feet in same store pool at
June 30, 2006(1)
|
|
|
79,143,334
|
|
|
|
79,143,334
|
|
% of total industrial square feet
|
|
|
85.9
|
%
|
|
|
85.9
|
%
|
Occupancy percentage at period end:
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
95.6
|
%
|
|
|
95.6
|
%
|
June 30, 2005
|
|
|
94.5
|
%
|
|
|
94.5
|
%
|
Weighted average lease terms:
|
|
|
|
|
|
|
|
|
Original
|
|
|
6.0 years
|
|
|
|
6.0 years
|
|
Remaining
|
|
|
3.2 years
|
|
|
|
3.2 years
|
|
Tenant retention
|
|
|
66.4
|
%
|
|
|
67.6
|
%
|
Rent decreases on renewals and
rollovers
|
|
|
(1.5
|
)%
|
|
|
(6.4
|
)%
|
Same space square footage
commencing (millions)
|
|
|
4.5
|
|
|
|
9.0
|
|
Cash basis NOI growth %
increase (decrease):
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3.2
|
%
|
|
|
2.3
|
%
|
Expenses
|
|
|
3.7
|
%
|
|
|
4.1
|
%
|
Net operating income
|
|
|
3.0
|
%
|
|
|
1.7
|
%
|
Net operating income without lease
termination fees
|
|
|
2.9
|
%
|
|
|
2.2
|
%
|
|
|
|
(1) |
|
Same store properties are those properties that we owned during
both the current and prior year reporting periods, excluding
development properties prior to being stabilized (generally
defined as properties that are 90% leased or properties for
which we have held a certificate of occupancy or building has
been substantially complete for at least 12 months). |
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk is the risk of loss from adverse changes in market
prices, interest rates and international exchange rates. Our
future earnings and cash flows are dependent upon prevailing
market rates. Accordingly, we manage our market risk by matching
projected cash inflows from operating, investing and financing
activities with projected cash outflows for debt service,
acquisitions, capital expenditures, distributions to
stockholders and unitholders, and other cash requirements. The
majority of our outstanding debt has fixed interest rates, which
minimizes the risk of fluctuating interest rates. Our exposure
to market risk includes interest rate fluctuations in connection
with our credit facilities and other variable rate borrowings
and our ability to incur more debt without stockholder approval,
thereby increasing our debt service obligations, which could
adversely affect our cash flows. As of June 30, 2006, we
had two outstanding interest rate swaps with aggregate notional
amount of $34.3 million (in U.S. dollars).
The table below summarizes the market risks associated with our
fixed and variable rate debt outstanding before net unamortized
debt discounts of $1.6 million as of June 30, 2006
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fixed rate debt(1)
|
|
$
|
205,377
|
|
|
$
|
129,640
|
|
|
$
|
375,568
|
|
|
$
|
189,548
|
|
|
$
|
437,985
|
|
|
$
|
1,255,047
|
|
|
$
|
2,593,165
|
|
Average interest rate
|
|
|
5.1
|
%
|
|
|
7.1
|
%
|
|
|
7.1
|
%
|
|
|
5.2
|
%
|
|
|
6.4
|
%
|
|
|
5.9
|
%
|
|
|
6.1
|
%
|
Variable rate debt(2)
|
|
$
|
72,423
|
|
|
$
|
17,853
|
|
|
$
|
21,583
|
|
|
$
|
37,735
|
|
|
$
|
906,107
|
|
|
$
|
226,604
|
|
|
$
|
1,282,305
|
|
Average interest rate
|
|
|
4.2
|
%
|
|
|
7.2
|
%
|
|
|
7.0
|
%
|
|
|
5.7
|
%
|
|
|
4.5
|
%
|
|
|
3.9
|
%
|
|
|
4.5
|
%
|
Interest Payments
|
|
$
|
13,516
|
|
|
$
|
10,490
|
|
|
$
|
28,176
|
|
|
$
|
12,007
|
|
|
$
|
68,806
|
|
|
$
|
82,885
|
|
|
$
|
215,880
|
|
|
|
|
(1) |
|
Represents 66.9% of all outstanding debt. |
|
(2) |
|
Represents 33.1% of all outstanding debt. |
57
If market rates of interest on our variable rate debt increased
or decreased by 10%, then the increase or decrease in interest
expense on the variable rate debt would be $5.8 million
(net of swaps) annually. As of June 30, 2006, the book
value and the estimated fair value of our total consolidated
debt (both secured and unsecured) was $3.9 billion and
$3.7 billion, respectively, based on our estimate of
current market interest rates.
As of June 30, 2006 and 2005, variable rate debt comprised
33.1% and 22.0%, respectively, of all our outstanding debt.
Variable rate debt was $1.3 billion and
$747.9 million, respectively, as of June 30, 2006 and
2005. The increase is primarily due to higher outstanding
balances on our credit facilities. This increase in our
outstanding variable rate debt increases our risk associated
with unfavorable interest rate fluctuations.
Financial Instruments. We record all
derivatives on the balance sheet at fair value as an asset or
liability, with an offset to accumulated other comprehensive
income or income. For revenues or expenses denominated in
non-functional
currencies, we may use derivative financial instruments to
manage foreign currency exchange rate risk. Our derivative
financial instruments in effect at June 30, 2006 were two
interest rate swaps hedging cash flows of our variable rate
borrowings based on U.S. Libor (USD) and Euribor (Europe).
The following table summarizes our financial instruments as of
June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Dates
|
|
|
|
|
|
|
|
|
|
December 8,
|
|
|
June 8,
|
|
|
Notional
|
|
|
Fair
|
|
Related Derivatives (in thousands)
|
|
2008
|
|
|
2010
|
|
|
Amount
|
|
|
Value
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plain Interest Rate Swap,
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount (U.S. Dollars)
|
|
|
|
|
|
$
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
Receive Floating(%)
|
|
|
|
|
|
|
3M LIBOR
|
|
|
|
|
|
|
|
|
|
Pay Fixed Rate(%)
|
|
|
|
|
|
|
5.17
|
%
|
|
|
|
|
|
|
|
|
Fair Market Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
Plain Interest Rate Swap,
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount (U.S. Dollars)
|
|
$
|
9,331
|
|
|
|
|
|
|
|
9,331
|
|
|
|
|
|
Receive Floating(%)
|
|
|
3M EURIBOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Fixed Rate(%)
|
|
|
3.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Market Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
34,331
|
|
|
$
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operations. Our exposure to
market risk also includes foreign currency exchange rate risk.
The U.S. dollar is the functional currency for our
subsidiaries operating in the United States and Mexico. The
functional currency for our subsidiaries operating outside North
America is generally the local currency of the country in which
the entity is located, mitigating the effect of foreign exchange
gains and losses. Our subsidiaries whose functional currency is
not the U.S. dollar translate their financial statements
into U.S. dollars. Assets and liabilities are translated at
the exchange rate in effect as of the financial statement date.
We translate income statement accounts using the average
exchange rate for the period and significant nonrecurring
transactions using the rate on the transaction date. The losses
resulting from the translation are included in accumulated other
comprehensive income as a separate component of
stockholders equity and totaled $1.6 million for the
six months ended June 30, 2006.
Our international subsidiaries may have transactions denominated
in currencies other than their functional currency. In these
instances, non-monetary assets and liabilities are reflected at
the historical exchange rate, monetary assets and liabilities
are remeasured at the exchange rate in effect at the end of the
period and income statement accounts are remeasured at the
average exchange rate for the period. For the three and six
months ended June 30, 2006, losses from remeasurement and
the sale of two foreign exchange agreements included in our
results of operations were $0.3 million and
$0.2 million, respectively.
We also record gains or losses in the income statement when a
transaction with a third party, denominated in a currency other
than the entitys functional currency, is settled and the
functional currency cash flows realized are more or less than
expected based upon the exchange rate in effect when the
transaction was initiated.
58
|
|
Item 4.
|
Controls
and Procedures
|
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within
the time periods specified in the U.S. Securities and
Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our management,
including our chief executive officer, president and chief
financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
the desired control objectives, and our management is required
to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Also, we have
investments in certain unconsolidated entities, which are
accounted for using the equity method of accounting. As we do
not control or manage these entities, our disclosure controls
and procedures with respect to such entities are necessarily
substantially more limited than those we maintain with respect
to our consolidated subsidiaries.
As required by
Rule 13a-15(b)
of the Securities Exchange Act of 1934, as amended, we carried
out an evaluation, under the supervision and with participation
of our management, including our chief executive officer,
president and chief financial officer, of the effectiveness of
the design and operation of our disclosure controls and
procedures that were in effect as of the end of the quarter
covered by this report. Based on the foregoing, our chief
executive officer, president and chief financial officer each
concluded that our disclosure controls and procedures were
effective at the reasonable assurance level.
There have been no changes in our internal control over
financial reporting during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
59
PART II
|
|
Item 1.
|
Legal
Proceedings
|
As of June 30, 2006, there were no pending legal
proceedings to which we are a party or of which any of our
properties is the subject, the adverse determination of which we
anticipate would have a material adverse effect upon our
financial condition and results of operations.
Except as set forth below, there have been no material changes
to the risk factors previously disclosed under Item 1A. of
our Annual Report on
Form 10-K
for the year ended December 31, 2005.
Risks
Associated With Our International Business
Our
international growth is subject to special risks and we may not
be able to effectively manage our international
growth.
We have acquired and developed, and expect to continue to
acquire and develop, properties outside the United States.
Because local markets affect our operations, our international
investments are subject to economic fluctuations in the
international locations in which we invest. In addition, our
international operations are subject to the usual risks of doing
business abroad such as revisions in tax treaties or other laws
and regulations, including those governing the taxation of our
international revenues, restrictions on the transfer of funds,
and, in certain parts of the world, uncertainty over property
rights and political instability. We cannot predict the
likelihood that any of these developments may occur. Further, we
have entered, and may in the future enter, into agreements with
non-U.S. entities
that are governed by the laws of, and are subject to dispute
resolution in the courts of, another country or region. We
cannot accurately predict whether such a forum would provide us
with an effective and efficient means of resolving disputes that
may arise. And even if we are able to obtain a satisfactory
decision through arbitration or a court proceeding, we could
have difficulty enforcing any award or judgment on a timely
basis or at all.
We also have offices in many countries outside the United States
and, as a result, our operations may be subject to risks that
may limit our ability to effectively establish, staff and manage
our offices outside the United States, including:
|
|
|
|
|
Differing employment practices and labor issues;
|
|
|
|
Local business and cultural factors that differ from our usual
standards and practices;
|
|
|
|
Regulatory requirements and prohibitions that differ between
jurisdictions; and
|
|
|
|
Health concerns.
|
In addition, payroll expenses are paid in local currencies and,
therefore, we are exposed to risks associated with fluctuations
in the rate of exchange between the U.S. dollar and these
currencies.
Further, our business has grown rapidly and continues to grow
through international property acquisitions and developments. If
we fail to effectively manage our international growth, then our
financial condition, results of operations, cash flow and
ability to pay dividends on, and the market price of, our stock
could be adversely affected.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None.
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None.
60
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We held our Annual Meeting of Stockholders on May 11, 2006,
at which our stockholders voted to elect ten directors, who are
listed below, to our Board of Directors to serve until the next
annual meeting of stockholders and until their successors are
duly elected and qualified. The stockholders votes with
respect to the election of directors were as follows:
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
|
Hamid R. Moghadam
|
|
|
75,177,460
|
|
|
|
502,075
|
|
W. Blake Baird
|
|
|
75,627,003
|
|
|
|
52,532
|
|
Afsaneh M. Beschloss
|
|
|
75,603,369
|
|
|
|
76,166
|
|
T. Robert Burke
|
|
|
75,604,645
|
|
|
|
74,890
|
|
David A. Cole
|
|
|
75,629,115
|
|
|
|
50,420
|
|
Lydia H. Kennard
|
|
|
75,606,307
|
|
|
|
73,228
|
|
J. Michael Losh
|
|
|
72,404,311
|
|
|
|
3,275,224
|
|
Frederick W. Reid
|
|
|
75,616,921
|
|
|
|
62,614
|
|
Jeffrey L.
Skelton, Ph.D.
|
|
|
75,609,913
|
|
|
|
69,622
|
|
Thomas W. Tusher
|
|
|
75,629,019
|
|
|
|
50,516
|
|
At our Annual Meeting of Stockholders on May 11, 2006, our
stockholders also ratified the selection of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2006. The stockholders votes with respect to the
ratification of PricewaterhouseCoopers LLP as our independent
registered public accounting firm were as follows:
|
|
Item 5.
|
Other
Information
|
None.
Unless otherwise indicated below, the Commission file number to
the exhibit is
No. 001-13545.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles Supplementary
redesignating and reclassifying all 4,600,000 shares of
81/2%
Series A Cumulative Redeemable Preferred Stock as Preferred
Stock.
|
|
10
|
.1
|
|
Amended and Restated Revolving
Credit Agreement, dated as of June 23, 2006, by and among
the initial borrower and the initial qualified borrowers listed
on the signature pages thereto, AMB Property, L.P., as a
guarantor, AMB Property Corporation, as a guarantor, the banks
listed on the signature pages thereto, Sumitomo Mitsui Banking
Corporation, as administrative agent and sole lead arranger and
bookmanager, and each of the other lending institutions that
becomes a lender thereunder (incorporated herein by reference to
Exhibit 10.1 of AMB Property Corporations Current
Report on
Form 8-K
filed on June 29, 2006).
|
|
10
|
.2
|
|
Fourth Amended and Restated
Revolving Credit Agreement, dated as of June 13, 2006, by
and among the qualified borrowers listed on the signature pages
thereto, AMB Property, L.P., as a qualified borrower and
guarantor, AMB Property Corporation, as guarantor, the banks
listed on the signature pages thereto, Bank of America, N.A., as
administrative agent, The Bank of Nova Scotia, as syndication
agent, LaSalle Bank National Association and Société
Générale, as co-documentation agents, Banc of America
Securities Asia Limited, as Hong Kong dollars agent, Bank of
America, N.A., acting by its Canada branch, as reference bank,
Bank of America, Singapore branch, as Singapore dollars agent,
and each of the other lending institutions that becomes a lender
thereunder (incorporated herein by reference to
Exhibit 10.1 of AMB Property Corporations Current
Report on
Form 8-K
filed on June 19, 2006).
|
61
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.3
|
|
Third Amended and Restated
Revolving Credit Agreement, dated as of June 1, 2006, by
and among AMB Property, L.P., as Borrower, the banks listed
on the signature pages thereof, JPMorgan Chase Bank, N.A., as
Administrative Agent, J.P. Morgan Europe Limited, as
Administrative Agent for Alternate Currencies, Bank of America,
N.A., as Syndication Agent, J.P. Morgan Securities Inc. and
Banc of America Securities LLC, as Joint Lead Arrangers and
Joint Bookrunners, Eurohypo AG, New York Branch, Wachovia Bank,
N.A. and PNC Bank, National Association, as Documentation
Agents, The Bank of Nova Scotia, acting through its
San Francisco Agency, Wells Fargo Bank, N.A., ING Real
Estate Finance (USA) LLC and LaSalle Bank National Association,
as Managing Agents (incorporated herein by reference to
Exhibit 10.1 of AMB Property Corporations Current
Report on
Form 8-K
filed on June 7, 2006).
|
|
10
|
.4
|
|
Eleventh Amended and Restated
Agreement of Limited Partnership of AMB Property, L.P. dated as
of August 4, 2006.
|
|
31
|
.1
|
|
Rule 13a-14 (a)/15d-14 (a) Certifications
dated August 8, 2006.
|
|
32
|
.1
|
|
18 U.S.C.§ 1350
Certifications dated August 8, 2006. The certifications in
this exhibit are being furnished solely to accompany this report
pursuant to 18 U.S.C. sec. 1350, and are not being filed
for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, and are not to be incorporated by reference
into any of our filings, whether made before or after the date
hereof, regardless of any general incorporation language in such
filing.
|
62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMB Property Corporation
Registrant
|
|
|
|
By:
|
/s/ Hamid
R. Moghadam
|
Hamid R. Moghadam
Chairman and CEO
(Duly Authorized Officer and
Principal Executive Officer)
W. Blake Baird
President and Director
(Duly Authorized Officer)
Michael A. Coke
CFO and Executive Vice President
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Date: August 8, 2006
63
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles Supplementary
redesignating and reclassifying all 4,600,000 shares of
81/2%
Series A Cumulative Redeemable Preferred Stock as Preferred
Stock.
|
|
10
|
.1
|
|
Amended and Restated Revolving
Credit Agreement, dated as of June 23, 2006, by and among
the initial borrower and the initial qualified borrowers listed
on the signature pages thereto, AMB Property, L.P., as a
guarantor, AMB Property Corporation, as a guarantor, the banks
listed on the signature pages thereto, Sumitomo Mitsui Banking
Corporation, as administrative agent and sole lead arranger and
bookmanager, and each of the other lending institutions that
becomes a lender thereunder (incorporated herein by reference to
Exhibit 10.1 of AMB Property Corporations Current
Report on
Form 8-K
filed on June 29, 2006).
|
|
10
|
.2
|
|
Fourth Amended and Restated
Revolving Credit Agreement, dated as of June 13, 2006, by
and among the qualified borrowers listed on the signature pages
thereto, AMB Property, L.P., as a qualified borrower and
guarantor, AMB Property Corporation, as guarantor, the banks
listed on the signature pages thereto, Bank of America, N.A., as
administrative agent, The Bank of Nova Scotia, as syndication
agent, LaSalle Bank National Association and Société
Générale, as co-documentation agents, Banc of America
Securities Asia Limited, as Hong Kong dollars agent, Bank of
America, N.A., acting by its Canada branch, as reference bank,
Bank of America, Singapore branch, as Singapore dollars agent,
and each of the other lending institutions that becomes a lender
thereunder (incorporated herein by reference to
Exhibit 10.1 of AMB Property Corporations Current
Report on
Form 8-K
filed on June 19, 2006).
|
|
10
|
.3
|
|
Third Amended and Restated
Revolving Credit Agreement, dated as of June 1, 2006, by
and among AMB Property, L.P., as Borrower, the banks listed
on the signature pages thereof, JPMorgan Chase Bank, N.A., as
Administrative Agent, J.P. Morgan Europe Limited, as
Administrative Agent for Alternate Currencies, Bank of America,
N.A., as Syndication Agent, J.P. Morgan Securities Inc. and
Banc of America Securities LLC, as Joint Lead Arrangers and
Joint Bookrunners, Eurohypo AG, New York Branch, Wachovia Bank,
N.A. and PNC Bank, National Association, as Documentation
Agents, The Bank of Nova Scotia, acting through its
San Francisco Agency, Wells Fargo Bank, N.A., ING Real
Estate Finance (USA) LLC and LaSalle Bank National Association,
as Managing Agents (incorporated herein by reference to
Exhibit 10.1 of AMB Property Corporations Current
Report on
Form 8-K
filed on June 7, 2006).
|
|
10
|
.4
|
|
Eleventh Amended and Restated
Agreement of Limited Partnership of AMB Property, L.P. dated as
of August 4, 2006.
|
|
31
|
.1
|
|
Rule 13a-14 (a)/15d-14 (a) Certifications
dated August 8, 2006.
|
|
32
|
.1
|
|
18 U.S.C.§ 1350
Certifications dated August 8, 2006. The certifications in
this exhibit are being furnished solely to accompany this report
pursuant to 18 U.S.C. sec. 1350, and are not being filed
for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, and are not to be incorporated by reference
into any of our filings, whether made before or after the date
hereof, regardless of any general incorporation language in such
filing.
|
64