Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-K
 
 
 
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2008
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 001-13545
AMB Property Corporation
(Exact name of registrant as specified in its charter)
 
     
Maryland   94-3281941
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer Identification No.)
Pier 1, Bay 1,
San Francisco, California
  94111
(Zip Code)
(Address of Principal Executive Offices)    
 
(415) 394-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
     
(Title of Each Class)
 
(Name of Each Exchange on Which Registered)
 
Common Stock, $.01 par value   New York Stock Exchange
61/2% Series L Cumulative Redeemable Preferred Stock   New York Stock Exchange
63/4% Series M Cumulative Redeemable Preferred Stock   New York Stock Exchange
7.00% Series O Cumulative Redeemable Preferred Stock   New York Stock Exchange
6.85% Series P Cumulative Redeemable Preferred Stock   New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
     
Large accelerated filer þ
  Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of common shares held by non-affiliates of the registrant (based upon the closing sale price on the New York Stock Exchange) on June 30, 2008 was $4,725,199,359.
 
As of February 24, 2009, there were 98,420,207 shares of the registrant’s common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III incorporates by reference portions of the registrant’s Proxy Statement for its Annual Meeting of Stockholders which the registrant anticipates will be filed no later than 120 days after the end of its fiscal year pursuant to Regulation 14A.
 


 

 
TABLES OF CONTENTS
 
                 
Item
 
Description
  Page
 
 
1.
    Business     5  
       
    5  
       
    5  
       
    6  
       
    6  
 
1A.
    Risk Factors     9  
 
1B.
    Unresolved Staff Comments     27  
 
2.
    Properties     27  
       
    27  
       
    32  
       
    34  
       
    36  
 
3.
    Legal Proceedings     40  
 
4.
    Submission of Matters to a Vote of Security Holders     40  
 
PART II
 
5.
    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     41  
 
6.
    Selected Financial Data     43  
 
7.
    Management’s Discussion and Analysis of Financial Condition and Results of Operations     45  
       
    45  
       
    51  
       
    52  
       
    55  
       
    62  
       
    81  
       
    82  
 
7A.
    Quantitative and Qualitative Disclosures About Market Risk     84  
 
8.
    Financial Statements and Supplementary Data     87  
 
9.
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     87  
 
9A.
    Controls and Procedures     87  
 
9B.
    Other Information     87  
 
PART III
 
10.
    Directors, Executive Officers and Corporate Governance     88  
 
11.
    Executive Compensation     88  
 
12.
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     88  
 
13.
    Certain Relationships and Related Transaction, and Director Independence     88  
 
14.
    Principal Accountant Fees and Services     88  
 
PART IV
 
15.
    Exhibits and Financial Statement Schedules     88  
 EX-10.37
 EX-21.1
 EX-23.1
 EX-31.1
 EX-32.1


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FORWARD-LOOKING STATEMENTS
 
Some of the information included in this annual report on Form 10-K 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 numerous 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 the 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,” “forecasting,” “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, global trade or in the real estate sector (including risks relating to decreasing real estate valuations and impairment charges);
 
  •  risks associated with using debt to fund our business activities, including re-financing and interest rate risks;
 
  •  our failure to obtain, renew, or extend necessary financing or access the debt or equity markets;
 
  •  our failure to maintain our current credit agency ratings or comply with our debt covenants;
 
  •  risks related to our obligations in the event of certain defaults under co-investment venture and other debt;
 
  •  risks associated with equity and debt securities financings and issuances (including the risk of dilution);
 
  •  a continued or prolonged downturn in the California, U.S., or the global economy or real estate conditions and other financial market fluctuations;
 
  •  defaults on or non-renewal of leases by customers or renewal at lower than expected rent;
 
  •  risks and uncertainties relating to the disposition of properties to third parties and our ability to effect such transactions on advantageous terms and to timely reinvest proceeds from any such dispositions;
 
  •  our failure to contribute properties to our co-investment ventures due to such factors as our inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or our co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements such as future redemptions;
 
  •  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, redevelopment and value-added conversion (including construction delays, cost overruns, our inability to obtain necessary permits and financing, our inability to lease properties at all or at favorable rents and terms, public opposition to these activities);
 
  •  risks of doing business internationally and global expansion, including unfamiliarity with new markets and currency risks;
 
  •  risks of changing personnel and roles;
 
  •  losses in excess of our insurance coverage;
 
  •  unknown liabilities acquired in connection with acquired properties or otherwise;


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  •  our failure to successfully integrate acquired properties and operations;
 
  •  changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws;
 
  •  increases in real property tax rates;
 
  •  risks associated with our tax structuring;
 
  •  increases in interest rates and operating costs or greater than expected capital expenditures;
 
  •  environmental uncertainties and risks related to natural disasters; 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” in Item 1A of this report. 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 statements, including those 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 “AMB,” the “Company,” “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®; and High Throughput Distribution® (HTD®).


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PART I
 
ITEM 1.   Business
 
The Company
 
AMB Property Corporation, a Maryland corporation, organized in 1997, owns, acquires, develops and operates industrial properties in key distribution markets tied to global trade in the Americas, 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 use the term “owned and managed” to describe assets in which we have at least a 10% ownership interest, we are the property or asset manager and we currently intend to hold for the long term. We use the term “joint venture” to describe all joint ventures, which include co-investment ventures, as well as ventures with third parties. We earn asset management distributions or fees, or earn incentive distributions or promote interests from the joint ventures. In certain cases, we might provide development, leasing, property management and/or accounting services, for which we may receive compensation. We use the term “co-investment venture” to describe joint ventures with institutional investors that are managed by us, from which we receive acquisition fees for third-party acquisitions, portfolio and asset management distributions or fees, as well as incentive distributions or promote interests.
 
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 December 31, 2008, we owned an approximate 96.6% 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.
 
We are a self-administered and self-managed real estate investment trust 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 generally through direct property management performed by our own employees. Additionally, within our flexible operating model, we may from time to time establish relationships with third-party real estate management firms, brokers and developers that provide some property-level administrative and management services under our direction.
 
Our global headquarters are located at Pier 1, Bay 1, San Francisco, California 94111; our telephone number is (415) 394-9000. Our other principal office locations are in Amsterdam, Boston, Chicago, Los Angeles, Mexico City, Shanghai, Singapore and Tokyo. As of December 31, 2008, we employed 645 individuals: 171 in our San Francisco headquarters, 46 in our Boston office, 54 in our Tokyo office, 58 in our Amsterdam office, 64 in our Mexico City office and the remainder in our other offices.
 
Investment Strategy
 
Our strategy focuses on providing industrial distribution warehouse space to customers whose businesses are tied to global trade and who value the efficient movement of goods through the global supply chain. Our properties are primarily located in the world’s busiest distribution markets: large, supply-constrained infill locations with dense populations and proximity to airports, seaports and major highway systems. When measured by annualized base rent, on an owned and managed basis, a substantial majority of our portfolio of industrial properties is located in our target markets and much of this is in infill submarkets within our target markets. Infill 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.
 
In many of our target markets, we focus on HTD® facilities, which are buildings designed to facilitate the rapid distribution of our customers’ products rather than the 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®


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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 help our customers to reduce their costs and become more efficient in their delivery systems. Our customers include air express, logistics and freight forwarding companies that have time-sensitive needs, and that value facilities located in convenient proximity to transportation infrastructure, such as major airports and seaports.
 
As of December 31, 2008, we owned, or had investments in, on a consolidated basis or through unconsolidated co-investment ventures, properties and development projects expected to total approximately 160.0 million square feet (14.9 million square meters) in 49 markets within 15 countries. Additionally, as of December 31, 2008, we managed, but did not have an ownership interest in, industrial and other properties totaling approximately 1.1 million rentable square feet.
 
Of the approximately 160.0 million square feet as of December 31, 2008:
 
  •  on an owned and managed basis, which includes investments held on a consolidated basis or through unconsolidated joint ventures, we owned or partially owned approximately 131.5 million square feet (principally, warehouse distribution buildings) that were 95.1% leased; we had investments in 53 development projects, which are expected to total approximately 16.4 million square feet upon completion; and we owned 16 development projects, totaling approximately 4.6 million square feet, which are available for sale or contribution;
 
  •  through non-managed unconsolidated joint ventures, we had investments in 46 industrial operating properties, totaling approximately 7.4 million square feet; and
 
  •  we held approximately 0.1 million square feet through a ground lease, which is the location of our global headquarters.
 
Operating Strategy
 
We believe that real estate is fundamentally a local business and is best operated by local teams in each of our markets. As a vertically integrated company, we actively manage our portfolio of properties. In select markets, we may, from time to time, establish relationships with third-party real estate management firms, brokers and developers that provide some property-level administrative and management services under our direction. We offer a broad array of service offerings, including access to multiple locations worldwide and build-to-suit developments.
 
Long Term Growth Strategies
 
Growth through Operations
 
We seek to generate long-term internal growth through rent increases on existing space and renewals on rollover space, striving 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. We actively manage our portfolio, whether directly or with an alliance partner, by establishing leasing strategies and negotiating lease terms, pricing, and level and timing of property improvements. We believe that our long-standing focus on customer relationships and ability to provide global solutions in fifteen countries for a well-diversified customer base in the shipping, air cargo and logistics industries will enable us to capitalize on opportunities as they arise.
 
We believe that our properties benefit from cost efficiencies produced by an experienced, cycle-tested operations team attentive to preventive maintenance and energy management and from our ongoing programs to ensure that our property management personnel remain focused on customer relations. Our goal is to be well-situated to attract new customers and achieve solid rental rates as a result of properties that are well-located, well-designed and well-maintained, a reputation for high-quality building services and responsiveness to customers and an ability to offer expansion, consolidation and relocation alternatives within our submarkets.


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Growth through Development
 
We think that the development, redevelopment and expansion of well-located, high-quality industrial properties provide us with attractive investment opportunities at higher rates of return than may be obtained from the purchase of existing properties. Through the deployment of our in-house development and redevelopment expertise, we seek to create value both through new construction and the acquisition and management of redevelopment opportunities. Additionally, we believe that our historical focus on infill locations creates a unique opportunity to enhance value through the select conversion of industrial properties to higher and better uses, within our value-added conversion business. Value-added conversion projects generally involve a significant enhancement or a change in use of the property from industrial distribution warehouse to a higher and better use, such as office, retail or residential. New developments, redevelopments and value-added conversions require significant management attention, and development and redevelopment require significant capital investment, to maximize their returns. Completed development and redevelopment properties are generally contributed to our co-investment ventures and held in our owned and managed portfolio or sold to third parties. Value-added conversion properties are generally sold to third parties at some point in the re-entitlement/conversion process, thus recognizing the enhanced value of the underlying land that supports the property’s repurposed use. We think our global market presence and expertise will enable us to generate and capitalize on a diverse range of development opportunities in the long term. At this time, however, while development, redevelopment and value added conversions will continue to be a fundamental part of our long term growth strategy, we will limit this activity to situations where we are fulfilling prior commitments until the financial and real estate markets stabilize.
 
Although we have reduced our development staff in correlation to reduced levels of development activity, our core team possesses multidisciplinary backgrounds, which positions us to complete the build out of our development pipeline and for future development or redevelopment opportunities when stability returns to the financial and real estate markets. We believe our development team has extensive experience in real estate development, both with us and with local, national or international development firms. We pursue development projects directly and in co-investment ventures and development joint ventures, providing us with the flexibility to pursue development projects independently or in partnerships, depending on market conditions, submarkets or building sites and availability of capital.
 
Growth through Acquisitions and Capital Redeployment
 
Our acquisition experience and our network of property management, leasing and acquisition resources should continue to provide opportunities for growth. In addition to our internal resources, we have long-term relationships with leasing and investment sales brokers, as well as third-party local property management firms, which may give us access to additional acquisition opportunities because such managers frequently market properties on behalf of sellers. In addition, we seek to redeploy capital from non-strategic assets into properties that better fit our current investment focus. See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Key Transactions in 2008.” At this time, while acquisitions will continue to be a fundamental part of our long term growth strategy, we will limit this activity to situations where we are fulfilling prior commitments until the financial and real estate markets stabilize.
 
We are generally engaged in various stages of negotiations for a number of acquisitions and other transactions, some of which may be significant, that may include, but are not limited to, individual properties, large multi-property portfolios or property owning or real estate-related entities. We cannot assure you that we will consummate any of these transactions. Such transactions, if we consummate them, may be material individually or in the aggregate.
 
Growth through Global Expansion
 
Our long-term capital allocation goal is to have approximately 50% of our owned and managed operating portfolio invested in markets outside the United States based on annualized base rent. Expansion into target markets outside the United States represents a natural extension of our strategy to invest in industrial property markets with high population densities, 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-


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constrained submarkets with political, economic or physical constraints to new development. Our international investments extend our offering of HTD® facilities to customers who value speed-to-market over storage. We think that our established customer relationships, our contacts in the air cargo, shipping and logistics industries, our underwriting of markets and investments, our in-house expertise 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 IV, Item 15: Note 16 of the “Notes to Consolidated Financial Statements.”
 
Growth through Co-Investments
 
We, through AMB Capital Partners, LLC, our private capital group, were one of the pioneers of the real estate investment trust (REIT) industry’s co-investment private capital investment model and have more than 25 years of experience meeting institutional investors’ real estate needs. We co-invest in properties with private capital investors through partnerships, limited liability companies or other joint ventures. We have a direct and long-standing relationship with institutional investors. More than 60% of our owned and managed operating portfolio is owned through our eight co-investment ventures. We tailor industrial portfolios to investors’ specific needs — in separate or commingled accounts — deploying capital in both close-ended and open-ended structures and providing complete portfolio management and financial reporting services. Generally, we will own a 10-50% interest in our co-investment ventures. Our co-investment ventures typically allow us to earn acquisition and development fees, asset management fees or priority distributions, as well as promote interests or incentive distributions based on the performance of the co-investment ventures. As of December 31, 2008, we owned approximately 78.7 million square feet of our properties (49.2% of the total operating and development portfolio) through our consolidated and unconsolidated co-investment ventures.
 
New York Stock Exchange Certification
 
We submitted our 2008 annual Section 12(a) Chief Executive Officer certification with the New York Stock Exchange. The certification was not qualified in any respect. Additionally, we filed with the SEC as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2008, the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 and furnished as exhibits to this Annual Report the Chief Executive Officer and Chief Financial Officer certifications required under Section 906 of the Sarbanes-Oxley Act of 2002.
 
Our website address is http://www.amb.com. Our annual reports 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, or SEC. The public may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains such reports, proxy and information statements and other information, and the Internet address is http://www.sec.gov. Our Corporate Governance Principles and Code of Business Conduct are also posted on our website. 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 or furnished to the SEC.


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ITEM 1A.   Risk Factors
 
BUSINESS RISKS
 
Our operations involve various risks that could have adverse consequences to us. These risks include, among others:
 
Risks of the Current Economic Environment
 
If the global market and economic crisis intensifies or continues in the long term, disruptions in the capital and credit markets may adversely affect our business, results of operations, cash flows and financial condition.
 
Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions, slower growth through the fourth quarter of 2008 and recession in most major economies continuing into 2009. Continued concerns about the systemic impact of inflation, the availability and cost of credit, declining real estate market, energy costs and geopolitical issues have contributed to increased market volatility and diminished expectations for the global economy. In the fourth quarter of 2008, added concerns fueled by the failure of several large financial institutions and government interventions in the credit markets led to increased market uncertainty and instability in the capital and credit markets. These conditions, combined with declining business activity levels and consumer confidence, increased unemployment and volatile oil prices, have contributed to unprecedented levels of volatility in the capital markets. If the global market and economic crisis intensifies or continues in the long term, disruptions in the capital and credit markets may adversely affect our business, results of operations, cash flows and financial condition.
 
As a result of these market conditions, the cost and availability of credit have been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike, and a corresponding decrease in global infrastructure spending. While we currently believe that we have sufficient working capital and capacity under our credit facilities in the near term, continued turbulence in the global markets and economies and prolonged declines in business and consumer spending may adversely affect our liquidity and financial condition, as well as the liquidity and financial condition of our customers. If these market conditions persist in the long term, they may limit our ability, and the ability of our customers, to timely replace maturing liabilities, and access the credit markets to meet liquidity needs.
 
If the long-term debt ratings of the operating partnership fall below our current levels, the borrowing cost of debt under our unsecured credit facilities and certain term loans may increase. In addition, if the long-term debt ratings of the operating partnership fall below investment grade, we may be unable to request borrowings in currencies other than U.S. dollars or Japanese Yen, as applicable; however, the lack of other currency borrowings does not affect our ability to fully draw down under the credit facilities or term loans. While we currently do not expect our long-term debt ratings to fall below investment grade, in the event that our ratings do fall below those levels, we may be unable to exercise our options to extend the term of our credit facilities or our $230 million secured term loan credit agreement, and the loss of our ability to borrow in foreign currencies could affect our ability to optimally hedge our borrowings against foreign currency exchange rate changes. In addition, while based on publicly available information regarding our lenders, we currently do not expect to lose borrowing capacity under our existing lines of credit and term loans as a result of a dissolution, bankruptcy, consolidation, merger or other business combination among our lenders, we cannot assure you that continuing long-term disruptions in the global economy and the continuation of tighter credit conditions among, and potential failures of, third-party financial institutions as a result of such disruptions will not have an adverse effect on our borrowing capacity and liquidity position. Our access to funds under our credit facilities is dependent on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. We can not assure you that if one of our lenders fails (some of whom are lenders under a number of our facilities), we will be successful in finding a replacement lender and, as a result, our borrowing capacity under the applicable facilities may be permanently reduced. If we do not have sufficient cash flows and income from our operations to meet our financial commitments and those lenders


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are not able to meet their funding commitments to us, our business, results of operations, cash flows and financial condition could be adversely affected.
 
Certain of our third-party indebtedness is held by our consolidated or unconsolidated joint ventures. In the event that our joint venture partner is unable to meet its obligations under our joint venture agreements or the third-party debt agreements, we may elect to pay our joint venture partner’s portion of debt to avoid foreclosure on the mortgaged property or permit the lender to foreclose on the mortgaged property to meet the joint venture’s debt obligations. In either case, we could face a loss of income and asset value on the property.
 
Until the financial and real estate markets stabilize, we have limited our capital deployment activities to situations where we are fulfilling prior commitments. There can be no assurance that the markets will stabilize in the near future or that we will choose to or be able to increase our levels of capital deployment at such time or ever. In addition, a continued increase in the cost of credit and inability to access the capital and credit markets may adversely impact the occupancy of our properties, the disposition of our properties, private capital raising and contribution of properties to our co-investment ventures. For example, an inability to fully lease our properties may result in such properties not meeting our investment criteria for contributions to our co-investment ventures. If we are unable to contribute completed development properties to our co-investment ventures or sell our completed development projects to third parties, we will not be able to recognize gains from the contribution or sale of such properties and, as a result, our net income available to our common stockholders and our funds from operations will decrease. Additionally, business layoffs, downsizing, industry slowdowns and other similar factors that affect our customers may adversely impact our business and financial condition. Furthermore, general uncertainty in the real estate markets has resulted in conditions where the pricing of certain real estate assets may be difficult due to uncertainty with respect to capitalization rates and valuations, among other things, which may add to the difficulty of buyers or our co-investment ventures to obtain financing on favorable terms to acquire such properties or cause potential buyers to not complete acquisitions of such properties. The market uncertainty with respect to capitalization rates and real estate valuations also adversely impacts our net asset value. In addition, we may face difficulty in refinancing our mortgage debt, or may be unable to refinance such debt at all, if our property values significantly decline. Such a decline may also cause a default under the loan-to-value covenants in some of our joint ventures’ mortgage debt, which may require our joint ventures to re-margin or pay down a portion of the applicable debt. There can be no assurance, however, that in such an event, we will be able to do so to prevent foreclosure.
 
In the event that we do not have sufficient cash available to us through our operations to continue operating our business as usual, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, divesting ourselves of properties, whether or not they otherwise meet our strategic objectives to keep in the long term, at less than optimal terms; issuing and selling our debt and equity in public or private transactions under less than optimal conditions; entering into leases with our customers at lower rental rates or less than optimal terms; or entering into lease renewals with our existing customers without an increase in rental rates at turnover. There can be no assurance, however, that such alternative ways to increase our liquidity will be available to us. Additionally, taking such measures to increase our liquidity may adversely affect our business, results of operations and financial condition.
 
As of December 31, 2008, we had $223.9 million in cash and cash equivalents. Our available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of invested cash and cash in our operating accounts. The invested cash is invested in money market funds that invest solely in direct obligations of the government of the United States or in time deposits with certain financial institutions. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
 
At any point in time, we also have a significant amount of cash deposits in our operating accounts that are with third-party financial institutions, and, as of December 31, 2008, the amount in such deposits was approximately $176.6 million on a consolidated basis. These balances exceed the Federal Deposit Insurance Corporation insurance limits. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or be subject to other


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adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts.
 
The price per share of our stock may decline or fluctuate significantly.
 
The market price per share of our common stock may decline or fluctuate significantly in response to many factors, including:
 
  •  general market and economic conditions;
 
  •  actual or anticipated variations in our quarterly operating results or dividends or our payment of dividends in shares of our stock;
 
  •  changes in our funds from operations or earnings estimates;
 
  •  difficulties or inability to access capital or extend or refinance existing debt;
 
  •  breaches of covenants and defaults under our credit facilities and other debt;
 
  •  decreasing (or uncertainty in) real estate valuations;
 
  •  publication of research reports about us or the real estate industry;
 
  •  the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies);
 
  •  general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of our stock to demand a higher annual yield from future dividends;
 
  •  a change in analyst ratings or our credit ratings;
 
  •  changes in market valuations of similar companies;
 
  •  adverse market reaction to any additional debt we incur in the future;
 
  •  additions or departures of key management personnel;
 
  •  actions by institutional stockholders;
 
  •  speculation in the press or investment community;
 
  •  terrorist activity may adversely affect the markets in which our securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending;
 
  •  governmental regulatory action and changes in tax laws; and
 
  •  the realization of any of the other risk factors included or incorporated by reference in this report.
 
Many of the factors listed above are beyond our control. These factors may cause the market price of shares of our common stock to decline, regardless of our financial condition, results of operations, business or our prospects.
 
Debt Financing Risks
 
We face risks associated with the use of debt to fund our business activities, including refinancing and interest rate risks.
 
As of December 31, 2008, we had total debt outstanding of $4.0 billion. As of December 31, 2008, we guaranteed $1.2 billion of the operating partnership’s obligations with respect to the senior debt securities referenced in our financial statements. We are subject to risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. We anticipate that we will repay only a small portion of the principal of our debt prior to maturity. Accordingly, we will likely need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of our existing debt. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds of other capital


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transactions, then we expect that our cash flow will not be sufficient in all years to repay all such maturing debt and to pay cash dividends to our stockholders. 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 expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could adversely affect our financial condition, results of operation and cash flow, the market price of our stock, our ability to pay principal and interest on our debt, our ability to pay cash dividends to our stockholders and our capital deployment activity. In addition, there may be circumstances that will require us to obtain amendments or waivers to provisions in our credit facilities or other financings. There can be no assurance that we will be able to obtain necessary amendments or waivers at all or without significant expense. In such case, we may not be able to fund our business activities as planned, within budget or at all.
 
In addition, if we mortgage one or more of our properties to secure payment of indebtedness and we are unable to meet mortgage payments, then the property could be foreclosed upon or transferred to the lender with a consequent loss of income and asset value. A foreclosure on one or more of our properties could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders, and the market price of our stock.
 
As of December 31, 2008, we had outstanding bank guarantees in the amount of $27.8 million used to secure contingent obligations, primarily obligations under development and purchase agreements, including $0.7 million guaranteed under a purchase agreement entered into by an unconsolidated joint venture. As of December 31, 2008, we also guaranteed $49.6 million and $231.8 million on outstanding loans for six of our consolidated co-investment ventures and four of our unconsolidated co-investment ventures, respectively, as well as the following credit facility held by AMB Europe Fund I, FCP-FIS, one of our unconsolidated co-investment ventures. In December 2008, we agreed to guarantee 50.2 million Euros (approximately $70.1 million in U.S. dollars using the exchange rate as of December 31, 2008) that our European affiliate borrowers and/or their affiliates borrowed under an existing credit facility held by AMB Europe Fund  I, FCP-FIS. The European affiliate borrowers are in the process of granting security interests to the lender, as the security agent, under and in accordance with the terms of such facility, all of which security interests are expected to become effective in the first half of 2009. We agreed to guarantee the 50.2 million Euro amount borrowed under such existing credit facility only until the security interests are granted, at which time the guarantees will be extinguished. Also, we have entered into contribution agreements with certain of our unconsolidated co-investment venture funds. These contribution agreements require us to make additional capital contributions to the applicable co-investment venture fund upon certain defaults by the co-investment venture of its debt obligations to the lenders. Such additional capital contributions will cover all or part of the applicable co-investment venture’s debt obligation and may be greater than our share of the co-investment venture’s debt obligation or the value of our share of any property securing such debt. Our contribution obligations under these agreements will be reduced by the amounts recovered by the lender and the fair market value of the property, if any, used to secure the debt and obtained by the lender upon default. Our potential obligations under these contribution agreements were $260.6 million as of December 31, 2008. We intend to continue to guarantee debt of our unconsolidated co-investment venture funds and make additional contributions to our unconsolidated co-investment venture funds in connection with property contributions to the funds. Such payment obligations under such guarantees and contribution obligations under such contribution agreements, if required to be paid, could be of a magnitude that could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock.
 
Adverse changes in our credit ratings could negatively affect our financing activity.
 
The credit ratings of our senior unsecured long-term debt and preferred stock are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analyses of us. Our credit ratings can affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur. There can be no assurance that we will be able to maintain our current credit ratings, and in the event our current credit ratings are downgraded, we would likely incur higher borrowing costs and may encounter difficulty in obtaining additional financing. Also, a downgrade in our credit ratings may trigger additional payments or other negative consequences under our current and future credit facilities


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and debt instruments. For example, if our credit ratings of our senior unsecured long-term debt are downgraded to below investment grade levels, we may not be able to obtain or maintain extensions on certain of our existing debt. Adverse changes in our credit ratings could negatively impact our refinancing activities, our ability to manage our debt maturities, our future growth, our financial condition, the market price of our stock, and our development and acquisition activity.
 
Covenants in our debt agreements could adversely affect our financial condition.
 
The terms of our credit agreements and other indebtedness require that we comply with a number of financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit flexibility in our operations, and our failure to comply with these covenants could cause a default under the applicable debt agreement even if we have satisfied our payment obligations. As of December 31, 2008, we had certain non-recourse, secured loans, which are cross-collateralized by multiple properties. If we default on any of these loans, we may then be required to repay such indebtedness, together with applicable prepayment charges, to avoid foreclosure on all the cross-collateralized properties within the applicable pool. Foreclosure on our properties, or our inability to refinance our loans on favorable terms, could adversely impact our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock. In addition, our credit facilities and senior debt securities contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the credit facilities and the senior debt securities in addition to any mortgage or other debt that is in default, which could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock.
 
Failure to hedge effectively against exchange and interest rates may adversely affect results of operations.
 
We seek to manage our exposure to exchange and interest rate volatility by using exchange and interest rate hedging arrangements, such as cap agreements and swap agreements. These agreements involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to exchange or interest rate changes and that a court could rule that such agreements are not legally enforceable. Hedging may reduce overall returns on our investments. Failure to hedge effectively against exchange and interest rate changes may materially adversely affect our results of operations.
 
We are dependent on external sources of capital.
 
In order to qualify as a real estate investment trust, we are required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) and are subject to tax to the extent our income is not fully distributed. While historically we have satisfied these distribution requirements by making cash distributions to our stockholders, we may choose to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, our own stock. For distributions with respect to taxable years ending on or before December 31, 2009, recent Internal Revenue Service guidance allows us to satisfy up to 90% of the distribution requirements discussed above through the distribution of shares of our stock, if certain conditions are met. Assuming we continue to satisfy these distribution requirements with cash, we may not be able to fund all future capital needs, including acquisition and development activities, from cash retained from operations and may have to rely on third-party sources of capital. Further, in order to maintain our real estate investment trust status and avoid the payment of federal income and excise taxes, we may need to borrow funds on a short-term basis to meet the real estate investment trust distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. Our ability to access private debt and equity capital on favorable terms or at all is dependent upon a number of factors, including general


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market conditions, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of our securities.
 
We could incur more debt, increasing our debt service.
 
As of December 31, 2008, our share of total debt-to-our share of total market capitalization ratio was 61.4%. Our definition of “our share of total market capitalization” is our share of total debt plus preferred equity liquidation preferences plus market equity. See footnote 1 to the Capitalization Ratios table contained in Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources” for our definitions of “market equity” and “our share of total debt.” As this ratio percentage increases directly with a decrease in the market price per share of our capital stock, an unstable market environment will impact this ratio in a volatile manner. However, there can be no assurance that we would not also become more highly leveraged, resulting in an increase in debt service that could adversely affect the cash available for distribution to our stockholders. Furthermore, if we become more highly leveraged, we may not be in compliance with the debt covenants contained in the agreements governing our co-investment ventures, which could adversely impact our private capital business.
 
Other Real Estate Industry Risks
 
Our performance and value are subject to general economic conditions and risks associated with our real estate assets.
 
The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay cash dividends to our stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline when circumstances reduce the income from the property. Income from, and the value of, our properties may be adversely affected by:
 
  •  changes in the general economic climate, such as the current one, including diminished access to or availability of capital (including difficulties in financing, refinancing and extending existing debt) and rising inflation;
 
  •  local conditions, such as oversupply of or a reduction in demand for industrial space;
 
  •  the attractiveness of our properties to potential customers;
 
  •  competition from other properties;
 
  •  our ability to provide adequate maintenance and insurance;
 
  •  increased operating costs;
 
  •  increased cost of compliance with regulations;
 
  •  the potential for liability under applicable laws (including changes in tax laws); and
 
  •  disruptions in the global supply chain caused by political, regulatory or other factors, including terrorism.
 
In addition, periods of economic slowdown or recession in the United States and in other countries, rising interest rates, diminished access to or availability of capital or declining demand for real estate, may result in a general decrease in rents, an increased occurrence of defaults under existing leases or greater difficulty in financing our acquisition and development activities, which would adversely affect our financial condition and results of operations. Future terrorist attacks may result in declining economic activity, which could reduce the demand for and the value of our properties. To the extent that future attacks impact our customers, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.


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Our properties are concentrated predominantly in the industrial real estate sector. As a result of this concentration, we feel the impact of an economic downturn in this sector more acutely than if our portfolio included other property types.
 
Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.
 
The current economic downturn has generally resulted in lower real estate valuations, which has required us to recognize real estate impairment charges on our assets. In the quarter ended December 31, 2008, we recognized non-cash impairment charges of approximately $207.2 million on an owned and managed basis including $195.4 million of real estate impairment losses ($193.9 million on a consolidated basis) and $11.8 million of charges for the write-off of pursuit costs related to development projects that we no longer plan to commence and reserves against tax assets associated with the reduction in development activity. To the extent that the book value of a land parcel or development asset exceeded the fair market value of the property, based on its intended holding period, a non-cash impairment charge was recognized for the shortfall. We examined the estimated fair value of all of our assets under development and assets held for sale or contribution. The estimated fair value of each of these assets was calculated based upon our intent to sell or contribute these properties, assumptions regarding rental rates, costs to complete, lease-up and holding periods and sales prices or contribution values. To determine the fair market value for our land holdings, we considered our intent to sell or to develop the parcels and, in the case of the latter, assumptions regarding rental rates, costs to complete, lease-up and holding periods and sales prices or contribution values are taken into account. There can be no assurance that the estimates and assumptions we use to assess impairments are accurate and will reflect actual results. Further deterioration in real estate market conditions may lead to additional impairment charges in the future, possibly against other assets we hold or of a greater magnitude than we have currently recognized. A worsening real estate market may cause us to reevaluate the assumptions used in our impairment analysis and our intent to hold, sell, develop or contribute properties. Impairment charges could adversely affect our financial condition, results of operations and our ability to pay cash dividends to our stockholders and the market price of our stock. See Part IV, Item 15: Note 3 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the real estate impairment losses recorded in our results of operations during the fourth quarter of 2008.
 
We may be unable to renew leases or relet space as leases expire.
 
As of December 31, 2008, on an owned and managed basis, leases on a total of 16.8% of our industrial properties (based on annualized base rent) will expire on or prior to December 31, 2009. We derive most of our income from rent received from our customers. Accordingly, our financial condition, results of operations, cash flow and our ability to pay dividends on, and the market price of, our stock could be adversely affected if we are unable to promptly relet or renew these expiring leases or if the rental rates upon renewal or reletting are significantly lower than expected. Periods of economic slowdown or recession are likely to adversely affect our leasing activities. If a customer experiences a downturn in its business or other type of financial distress, then it may be unable to make timely rental payments or renew its lease. Further, our ability to rent space and the rents that we can charge are impacted, not only by customer demand, but by the number of other properties we have to compete with to appeal to customers.
 
We could be adversely affected if a significant number of our customers are unable to meet their lease obligations.
 
Our results of operations, distributable cash flow and the value of our stock would be adversely affected if a significant number of our customers were unable to meet their lease obligations to us. In the current economic environment, it is likely that customer bankruptcies will increase. If a customer seeks the protection of bankruptcy, insolvency or similar laws, such customer’s lease may be terminated in the process and result in a reduction of cash flow to us. In the event of a significant number of lease defaults and/or tenant bankruptcies, our cash flow may not be sufficient to pay cash dividends to our stockholders and repay maturing debt and any other obligations. As of December 31, 2008, on an owned and managed basis, we did not have any single customer account for annualized


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base rent revenues greater than 4.1%. However, in the event of lease defaults by a significant number of our customers, we may incur substantial costs in enforcing our rights as landlord.
 
We may be unable to complete divestitures on advantageous terms or at all.
 
We intend to continue to divest ourselves of properties, which are currently in our pipeline, are held for sale or which otherwise do not meet our strategic objectives, and we may, in certain circumstances, divest ourselves of properties to increase our liquidity or to capitalize on opportunities that arise. Our ability to dispose of properties on advantageous terms or at all depends on factors beyond our control, including competition from other sellers, current market conditions (including capitalization rates applicable to our properties) and the availability of financing for potential buyers of our properties. If we are unable to dispose of properties at all or on favorable terms or redeploy the proceeds of property divestitures in accordance with our investment strategy, then our financial condition, results of operations, cash flow, ability to meet our debt obligations in a timely manner and ability to pay cash dividends to our stockholders and the market price of our stock could be adversely affected.
 
Actions by our competitors may affect our ability to divest properties and may decrease or prevent increases of the occupancy and rental rates of our properties.
 
We compete with other owners, operators and developers of real estate, some of which own properties similar to ours in the same submarkets in which our properties are located. If our competitors sell assets similar to assets we intend to divest in the same markets and/or at valuations below our valuations for comparable assets, we may be unable to divest our assets at all or at favorable pricing or on favorable terms. In addition, if our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, trading price of our common stock and ability to satisfy our debt service obligations could be materially adversely affected.
 
We may not be successful in contributing properties to our co-investment ventures.
 
Although we are curtailing our capital deployment activities until the financial and real estate markets stabilize, we may contribute or sell properties to our co-investment ventures on a case-by-case basis. However, we may fail to contribute properties to our co-investment ventures due to such factors as our inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or our co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements such as forward commitments, loan maturities and future redemptions. If the co-investment ventures are unable to raise additional capital on favorable terms after currently available capital is depleted or if the value of such properties are appraised at less than the cost of such properties, then such contributions or sales could be delayed or prevented, adversely affecting our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders, and the market price of our stock. For example, although we have acquired land for development and made capital commitments, we cannot be assured that we ultimately will be able to contribute such properties to our co-investment ventures as we have planned.
 
A delay in these contributions could result in adverse effects on our liquidity and on our ability to meet projected earnings levels in a particular reporting period. Failure to meet our projected earnings levels in a particular reporting period could have an adverse effect on our results of operations, distributable cash flow and the value of our securities.
 
We are subject to risks and liabilities in connection with properties owned through co-investment ventures, limited liability companies, partnerships and other investments.
 
As of December 31, 2008, approximately 89.9 million square feet of our properties were held through several joint ventures, limited liability companies or partnerships with third parties. Our organizational documents do not limit the amount of available funds that we may invest in partnerships, limited liability companies or co-investment ventures, and we may continue to develop and acquire properties through co-investment ventures, limited liability


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companies, partnerships with and investments in other entities when warranted by the circumstances. Such partners may share certain approval rights over major decisions and some partners may manage the properties in the joint venture partnership, limited liability company or joint venture investments. Partnership, limited liability company or co-investment venture investments involve certain risks, including:
 
  •  if our partners, co-members or co-venturers go bankrupt, then we and any other remaining general partners, members or co-venturers may generally remain liable for the partnership’s, limited liability company’s or co-investment venture’s liabilities;
 
  •  if our partners fail to fund their share of any required capital contributions, then we may choose to or be required to contribute such capital;
 
  •  our partners, co-members or co-venturers might have economic or other business interests or goals that are inconsistent with our business interests or goals that would affect our ability to operate the property;
 
  •  our partners, co-members or co-venturers may have the power to act contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a real estate investment trust;
 
  •  the joint venture, limited liability company and partnership agreements often restrict the transfer of a co-venturer’s, member’s or partner’s interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;
 
  •  our relationships with our partners, co-members or co-venturers are generally contractual in nature and may be terminated or dissolved under the terms of the agreements, and in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at an above-market price to continue ownership;
 
  •  disputes between us and our partners, co-members or co-investment venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable partnership, limited liability company, or joint venture to additional risk; and
 
  •  we may in certain circumstances be liable for the actions of our partners, co-members or co-venturers.
 
We generally seek to maintain sufficient control or influence over our partnerships, limited liability companies and joint ventures to permit us to achieve our business objectives, however, we may not be able to do so, and the occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock.
 
We may be unable to complete renovation, development and redevelopment projects at all or on advantageous terms.
 
On a strategic and selective basis, we may develop, renovate and redevelop properties. In the long term after the credit markets stabilize, we may expand and increase our investment in our development, renovation and redevelopment business. The real estate development, renovation and redevelopment business involves significant risks that could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock, which include the following risks:
 
  •  we may not be able to obtain financing for development projects at all or on favorable terms and complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties, generating cash flow and, if applicable, contributing properties to a joint venture;
 
  •  we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;
 
  •  the properties may perform below anticipated levels, producing cash flow below budgeted amounts;
 
  •  we may not be able to lease properties at all or on favorable terms;


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  •  construction costs, total investment amounts and our share of remaining funding may exceed our estimates and projects may not be completed, delivered or stabilized as planned;
 
  •  we may not be able to capture the anticipated enhanced value created by our value-added conversion projects ever or on our expected timetables;
 
  •  we may fail to contribute properties to our co-investment ventures due to such factors as our inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or our co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements such as future redemptions;
 
  •  we may experience delays (temporary or permanent) if there is public opposition to our activities;
 
  •  substantial renovation, new development and redevelopment activities, regardless of their ultimate success, typically require a significant amount of management’s time and attention, diverting their attention from our day-to-day operations; and
 
  •  upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we have financed through construction loans.
 
We may be unable to consummate acquisitions at all or on advantageous terms or acquisitions may not perform as we expect.
 
On a strategic and selective basis, we may continue to acquire properties, primarily industrial in nature. The acquisition of properties entails various risks, including the risks that our investments may not perform or grow in value as we expect, that we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations or, if applicable, contribute the acquired properties to a joint venture, and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. In addition, we expect to finance future acquisitions through a combination of borrowings under our unsecured credit facilities, proceeds from equity or debt offerings by us or the operating partnership or our subsidiaries and proceeds from property divestitures, which may not be available and which could adversely affect our cash flow. Further, we face significant competition for attractive investment opportunities from other real estate investors, including both publicly-traded real estate investment trusts and private institutional investors and funds. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be significantly elevated. Any of the above risks could adversely affect our financial condition, results of operations, cash flow and the ability to pay cash dividends to our stockholders, and the market price of our stock.
 
Real estate investments are relatively illiquid, making it difficult for us to respond promptly to changing conditions.
 
Real estate assets are not as liquid as certain other types of assets. Further, the Internal Revenue Code regulates the number of properties that we, as a real estate investment trust, can dispose of in a year, their tax bases and the cost of improvements that we make to the properties. In addition, a portion of the properties held directly or indirectly by certain of our subsidiary partnerships were acquired in exchange for limited partnership units in the applicable partnership. The contribution agreements for such properties may contain restrictions on certain sales, exchanges or other dispositions of these properties, or a portion thereof, that result in a taxable transaction for specified periods, following the contribution of these properties to the applicable partnership. These limitations may affect our ability to sell properties. This lack of liquidity and the Internal Revenue Code restrictions may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect our financial condition, results of operations and cash flow, the market price of our stock, the ability to pay cash dividends to our stockholders, and our ability to access capital necessary to meet our debt payments and other obligations.


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Risks Associated With Our International Business
 
Our international activities are subject to special risks and we may not be able to effectively manage our international business.
 
We have acquired and developed, and may continue to acquire and develop on a strategic and selective basis, 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. Access to capital may be more restricted, or unavailable entirely or on favorable terms, in certain locations. 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. Further, 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.
 
Our global growth (including growth in new regions in the United States) subjects us to certain risks, including risks associated with funding increasing headcount, integrating new offices, and establishing effective controls and procedures to regulate the operations of new offices. 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 may continue to grow in a strategic and deliberate manner. If we fail to effectively manage our international growth, then our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders, and the market price of our stock could be adversely affected.
 
We are subject to risks from potential fluctuations in exchange rates between the U.S. dollar and the currencies of the other countries in which we invest.
 
We may pursue growth opportunities in international markets on a strategic and selective basis. As we invest in countries where the U.S. dollar is not the national currency, we are subject to international currency risks from the potential fluctuations in exchange rates between the U.S. dollar and the currencies of those other countries. A significant depreciation in the value of the currency of one or more countries where we have a significant investment may materially affect our results of operations. We attempt to mitigate any such effects by borrowing in the currency of the country in which we are investing and, under certain circumstances, by putting in place international currency put option contracts to hedge exchange rate fluctuations. For leases denominated in international currencies, we may use derivative financial instruments to manage the international currency exchange risk. We cannot assure you, however, that our efforts will successfully neutralize all international currency risks.


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Acquired properties may be located in new markets, where we may face risks associated with investing in an unfamiliar market.
 
We have acquired and may continue to acquire properties on a strategic and selective basis in international markets that are new to us. When we acquire properties located in these markets, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. We work to mitigate such risks through extensive diligence and research and associations with experienced partners; however, there can be no guarantee that all such risks will be eliminated.
 
General Business Risks
 
Our performance and value are impacted by the local economic conditions of and the risks associated with doing business in California.
 
As of December 31, 2008, our industrial properties located in California represented 23.7% of the aggregate square footage of our industrial operating properties and 22.3% of our industrial annualized base rent, on an owned and managed basis. Our revenue from, and the value of, our properties located in California may be affected by local real estate conditions (such as an oversupply of or reduced demand for industrial properties) and the local economic climate. Business layoffs, downsizing, industry slowdowns, changing demographics and other factors may adversely impact California’s economic climate. Because of the number of properties we have located in California, a downturn in California’s economy or real estate conditions could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock.
 
We may experience losses that our insurance does not cover.
 
We carry commercial liability, property and rental loss insurance covering all the properties that we own and manage in types and amounts that we believe are adequate and appropriate given the relative risks applicable to the property, the cost of coverage and industry practice. Certain losses, such as those due to terrorism, windstorms, floods or seismic activity, may be insured subject to certain limitations, including large deductibles or co-payments and policy limits. Although we have obtained coverage for certain acts of terrorism, with policy specifications and insured limits that we consider commercially reasonable given the cost and availability of such coverage, we cannot be certain that we will be able to renew coverage on comparable terms or collect under such policies. In addition, there are other types of losses, such as those from riots, bio-terrorism or acts of war, that are not generally insured in our industry because it is not economically feasible to do so. We may incur material losses in excess of insurance proceeds and we may not be able to continue to obtain insurance at commercially reasonable rates. Given current market conditions, there can also be no assurance that the insurance companies providing our coverage will not fail or have difficulty meeting their coverage obligations to us. Furthermore, we cannot assure you that our insurance companies will be able to continue to offer products with sufficient coverage at commercially reasonable rates. If we experience a loss that is uninsured or that exceeds our insured limits with respect to one or more of our properties or if our insurance companies fail to meet their coverage commitments to us in the event of an insured loss, then we could lose the capital invested in the damaged properties, as well as the anticipated future revenue from those properties and, if there is recourse debt, then we would remain obligated for any mortgage debt or other financial obligations related to the properties. Moreover, as the general partner of the operating partnership, we generally will be liable for all of the operating partnership’s unsatisfied recourse obligations, including any obligations incurred by the operating partnership as the general partner of co-investment ventures. Any such losses or higher insurance costs could adversely affect our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders and the market price of our stock.
 
A number of our properties are located in areas that are known to be subject to earthquake activity. U.S. properties located in active seismic areas include properties in the San Francisco Bay Area, Los Angeles, and Seattle. Our largest concentration of such properties is in California where, on an owned and managed basis, as of December 31, 2008, we had 296 industrial buildings, aggregating approximately 31.2 million square feet and representing 23.7% of our industrial operating properties based on aggregate square footage and 22.3% based on industrial annualized base rent, on an owned and managed basis. International properties located in active seismic


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areas include Tokyo and Osaka, Japan and Mexico City, Mexico. We carry earthquake insurance on all of our properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles that we believe are commercially reasonable. We evaluate our earthquake insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.
 
A number of our properties are located in areas that are known to be subject to hurricane and/or flood risk. We carry hurricane and flood hazard insurance on all of our properties located in areas historically subject to such activity, subject to coverage limitations and deductibles that we believe are commercially reasonable. We evaluate our insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.
 
Contingent or unknown liabilities could adversely affect our financial condition.
 
We have acquired and may in the future acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of any of these entities or properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Contingent or unknown liabilities with respect to entities or properties acquired might include:
 
  •  liabilities for environmental conditions;
 
  •  losses in excess of our insured coverage;
 
  •  accrued but unpaid liabilities incurred in the ordinary course of business;
 
  •  tax, legal and regulatory liabilities;
 
  •  claims of customers, vendors or other persons dealing with our predecessors prior to our formation or acquisition transactions that had not been asserted or were unknown prior to our formation or acquisition transactions; and
 
  •  claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of our properties.
 
Risks Associated With Our Dependence on Key Personnel
 
We depend on the efforts of our executive officers and other key employees. From time to time, our personnel and their roles may change. As part of our cost savings plan, we have reduced our total global headcount and may do so again in the future. While we believe that we have retained our key talent and left our global platform intact and can find suitable employees to meet our personnel needs, the loss of key personnel, any change in their roles, or the limitation of their availability could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends to our stockholders, and the market price of our stock. We do not have employment agreements with any of our executive officers.
 
Because our compensation packages include equity-based incentives, pressure on our stock price or limitations on our ability to award such incentives could affect our ability to offer competitive compensation packages to our executives and key employees. If we are unable to continue to attract and retain our executive officers, or if compensation costs required to attract and retain key employees become more expensive, our performance and competitive position could be materially adversely affected.
 
Conflicts of Interest Risks
 
Some of our directors and executive officers are involved in other real estate activities and investments and, therefore, may have conflicts of interest with us.
 
From time to time, certain of our executive officers and directors may own interests in other real-estate related businesses and investments, including de minimis holdings of the equity securities of public and private real estate companies. Our executive officers’ involvement in other real estate-related activities could divert their attention from our day-to-day operations. Our executive officers have entered into non-competition agreements with us


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pursuant to which they have agreed not to engage in any activities, directly or indirectly, in respect of commercial real estate, and not to make any investment in respect of any industrial or retail real estate, other than through ownership of not more than 5% of the outstanding shares of a public company engaged in such activities or through certain specified investments. State law may limit our ability to enforce these agreements. We will not acquire any properties from our executive officers, directors or their affiliates unless the transaction is approved by a majority of the disinterested and independent (as defined by the rules of the New York Stock Exchange) members of our board of directors with respect to that transaction.
 
Our role as general partner of the operating partnership may conflict with the interests of our stockholders.
 
As the general partner of the operating partnership, we have fiduciary obligations to the operating partnership’s limited partners, the discharge of which may conflict with the interests of our stockholders. In addition, those persons holding limited partnership units will have the right to vote as a class on certain amendments to the operating partnership’s partnership agreement and individually to approve certain amendments that would adversely affect their rights. The limited partners may exercise these voting rights in a manner that conflicts with the interests of our stockholders. In addition, under the terms of the operating partnership’s partnership agreement, holders of limited partnership units will have approval rights with respect to specified transactions that affect all stockholders but which they may not exercise in a manner that reflects the interests of all stockholders.
 
Risks Associated with Government Regulations
 
The costs of compliance with environmental laws and regulations and any related potential liability could exceed our budgets for these items.
 
Under various environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of investigation, removal or remediation of certain hazardous or toxic substances or petroleum products at, on, under, in or from its property. The costs of removal or remediation of such substances could be substantial. These laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination.
 
Environmental laws in some countries, including the United States, also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of our properties are known to contain asbestos-containing building materials.
 
In addition, some of our properties are leased or have been leased, in part, to owners and operators of businesses that use, store or otherwise handle petroleum products or other hazardous or toxic substances, creating a potential for the release of such hazardous or toxic substances. Further, certain of our properties are on, adjacent to or near other properties that have contained or currently contain petroleum products or other hazardous or toxic substances, or upon which others have engaged, are engaged or may engage in activities that may release such hazardous or toxic substances. From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. In such an instance, we underwrite the costs of environmental investigation, clean-up and monitoring into the acquisition cost and obtain appropriate environmental insurance for the property. Further, in connection with certain divested properties, we have agreed to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.


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At the time of acquisition, we subject all of our properties to a Phase I or similar environmental assessments by independent environmental consultants and we may have additional Phase II testing performed upon the consultant’s recommendation. These environmental assessments have not revealed, and we are not aware of, any environmental liability that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole. Nonetheless, it is possible that the assessments did not reveal all environmental liabilities and that there are material environmental liabilities unknown to us, or that known environmental conditions may give rise to liabilities that are greater than we anticipated. Further, our properties’ current environmental condition may be affected by customers, the condition of land, operations in the vicinity of the properties (such as releases from underground storage tanks) or by unrelated third parties. If the costs of compliance with existing or future environmental laws and regulations exceed our budgets for these items, then our financial condition, results of operations, cash flow and ability to pay cash dividends to our stockholders, and the market price of our stock could be adversely affected.
 
Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.
 
Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then our cash flow and the amounts available for dividends to our stockholders may be adversely affected. Our properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life-safety requirements. We could incur fines or private damage awards if we fail to comply with these requirements. While we believe that our properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flow and results of operations.
 
Federal Income Tax Risks
 
Our failure to qualify as a real estate investment trust would have serious adverse consequences to our stockholders.
 
We elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with our taxable year ended December 31, 1997. We believe we have operated so as to qualify as a real estate investment trust under the Internal Revenue Code and believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to continue to qualify as a real estate investment trust. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a real estate investment trust, or that our future operations could cause us to fail to qualify. Qualification as a real estate investment trust requires us to satisfy numerous requirements (some on an annual and others on a quarterly basis) established under highly technical and complex sections of the Internal Revenue Code for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a real estate investment trust, we must derive at least 95% of our gross income in any year from qualifying sources. In addition, we must pay dividends to our stockholders aggregating annually at least 90% of our real estate investment trust taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. While historically we have satisfied the distribution requirement discussed above by making cash distributions to our stockholders, we may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, our own stock. For distributions with respect to taxable years ending on or before December 31, 2009, recent Internal Revenue Service guidance allows us to satisfy up to 90% of this distribution requirement through the distribution of shares of our stock, if certain conditions are met. The provisions of the Internal Revenue Code and applicable Treasury regulations regarding qualification as a real estate investment trust are more complicated in our case because we hold our assets through the operating partnership. Legislation, new regulations, administrative interpretations or


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court decisions could significantly change the tax laws with respect to qualification as a real estate investment trust or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to qualify as a real estate investment trust.
 
If we fail to qualify as a real estate investment trust in any taxable year, we will be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, we would be disqualified from treatment as a real estate investment trust for the four taxable years following the year in which we lost our qualification. If we lost our real estate investment trust status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to our stockholders.
 
Furthermore, we own a direct or indirect interest in certain subsidiary REITs which elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. Provided that each subsidiary REIT qualifies as a REIT, our interest in such subsidiary REIT will be treated as a qualifying real estate asset for purposes of the REIT asset tests, and any dividend income or gains derived by us from such subsidiary REIT will generally be treated as income that qualifies for purposes of the REIT gross income tests. To qualify as a REIT, the subsidiary REIT must independently satisfy various REIT qualification requirements. If such subsidiary REIT were to fail to qualify as a REIT, and certain relief provisions did not apply, it would be treated as a regular taxable corporation and its income would be subject to United States federal income tax. In addition, a failure of the subsidiary REIT to qualify as a REIT would have an adverse effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify as a REIT.
 
Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on gain attributable to the transaction.
 
From time to time, we may transfer or otherwise dispose of some of our properties, including by contributing properties to our co-investment venture funds. Under the Internal Revenue Code, any gain resulting from transfers of properties we hold as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax. We do not believe that our transfers or disposals of property or our contributions of properties into our co-investment ventures are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or dispositions of properties by us or contributions of properties into our co-investment venture funds are prohibited transactions. While we believe that the Internal Revenue Service would not prevail in any such dispute, if the Internal Revenue Service were to argue successfully that a transfer, disposition, or contribution of property constituted a prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a real estate investment trust.
 
We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.
 
We may distribute taxable dividends that are payable in our stock. Under IRS Revenue Procedure 2009-15, up to 90% of any such taxable dividend for 2008 and 2009 could be payable in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.


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Risks Associated with Ownership of Our Stock
 
Limitations in our charter and bylaws could prevent a change in control.
 
Certain provisions of our charter and bylaws may delay, defer or prevent a change in control or other transaction that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for the common stock. To maintain our qualification as a real estate investment trust for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year after the first taxable year for which a real estate investment trust election is made. Furthermore, our common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxable year (or a proportionate part of a short tax year). In addition, if we, or an owner of 10% or more of our stock, actually or constructively owns 10% or more of one of our customers (or a customer of any partnership in which we are a partner), then the rent received by us (either directly or through any such partnership) from that customer will not be qualifying income for purposes of the real estate investment trust gross income tests of the Internal Revenue Code. To help us maintain our qualification as a real estate investment trust for federal income tax purposes, we prohibit the ownership, actually or by virtue of the constructive ownership provisions of the Internal Revenue Code, by any single person, of more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of each of our common stock, series L preferred stock, series M preferred stock, series O preferred stock, and series P preferred stock (unless such limitations are waived by our board of directors). We also prohibit the ownership, actually or constructively, of any shares of our series D preferred stock by any single person so that no such person, taking into account all of our stock so owned by such person, including any common stock or other series of preferred stock, may own in excess of 9.8% of our issued and outstanding capital stock (unless such limitations are waived by our board of directors). We refer to this limitation as the “ownership limit.” The charter provides that shares acquired or held in violation of the ownership limit will be transferred to a trust for the benefit of a designated charitable beneficiary. The charter further provides that any person who acquires shares in violation of the ownership limit will not be entitled to any dividends on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the price paid for the shares or the amount realized from the sale. A transfer of shares in violation of the above limits may be void under certain circumstances. The ownership limit may have the effect of delaying, deferring or preventing a change in control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with such transaction.
 
Our charter authorizes us to issue additional shares of common and preferred stock and to establish the preferences, rights and other terms of any series or class of preferred stock that we issue. Our board of directors could establish a series or class of preferred stock that could have the effect of delaying, deferring or preventing a transaction, including a change in control, that might involve a premium price for the common stock or otherwise be in the best interests of our stockholders.
 
Our charter and bylaws and Maryland law also contain other provisions that may impede various actions by stockholders without the approval of our board of directors, which in turn may delay, defer or prevent a transaction, including a change in control. Those provisions in our charter and bylaws include:
 
  •  directors may be removed only for cause and only upon a two-thirds vote of stockholders;
 
  •  our board can fix the number of directors within set limits (which limits are subject to change by our board), and fill vacant directorships upon the vote of a majority of the remaining directors, even though less than a quorum, or in the case of a vacancy resulting from an increase in the size of the board, a majority of the entire board;
 
  •  stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and
 
  •  the request of the holders of 50% or more of our common stock is necessary for stockholders to call a special meeting.


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Those provisions provided for under Maryland law include:
 
  •  a two-thirds vote of stockholders is required to amend our charter; and
 
  •  stockholders may only act by written consent with the unanimous approval of all stockholders entitled to vote on the matter in question.
 
In addition, our board could elect to adopt, without stockholder approval, other provisions under Maryland law that may impede a change in control.
 
If we issue additional securities, then the investment of existing stockholders will be diluted.
 
As a real estate investment trust, we are dependent on external sources of capital and may issue common or preferred stock or debt securities to fund our future capital needs. We have authority to issue shares of common stock or other equity or debt securities, and to cause the operating partnership or AMB Property II, L.P., one of our subsidiaries, to issue limited partnership units, in exchange for property or otherwise. Existing stockholders have no preemptive right to acquire any additional securities issued by the operating partnership, AMB Property II, L.P., or us and any issuance of additional equity securities may adversely effect the market price of our stock and could result in dilution of an existing stockholder’s investment.
 
Earnings, cash dividends, asset value and market interest rates affect the price of our stock.
 
As a real estate investment trust, the market value of our equity securities, in general, is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. The market value of our equity securities is based secondarily upon the market value of our underlying real estate assets. For this reason, shares of our stock may trade at prices that are higher or lower than our net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our stock. Our failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our stock. Further, the distribution yield on the stock (as a percentage of the price of the stock) relative to market interest rates may also influence the price of our stock. An increase in market interest rates might lead prospective purchasers of our stock to expect a higher distribution yield, which would adversely affect our stock’s market price. Additionally, if the market price of our stock declines significantly, then we might breach certain covenants with respect to our debt obligations, which could adversely affect our liquidity and ability to make future acquisitions and our ability to pay cash dividends to our stockholders.
 
Our board of directors has decided to align our regular dividend payments with the projected taxable income from recurring operations alone. We may make special distributions going forward, as necessary, related to taxable income associated with any asset dispositions and gain activity. In the past, our board of directors has suspended dividends to our stockholders, and it is possible that they may do so again in the future, or decide to pay dividends in our own stock as provided for in the Internal Revenue Code.
 
We could change our investment and financing policies without a vote of stockholders.
 
Subject to our current investment policy to maintain our qualification as a real estate investment trust (unless a change is approved by our board of directors under certain circumstances), our board of directors determines our investment and financing policies, our growth strategy and our debt, capitalization, distribution and operating policies. Our board of directors may revise or amend these strategies and policies at any time without a vote of stockholders. Any such changes may not serve the interests of all stockholders and could adversely affect our financial condition or results of operations, including our ability to pay cash dividends to our stockholders.
 
Shares available for future sale could adversely affect the market price of our common stock.
 
The operating partnership and AMB Property II, L.P. had 3,439,522 common limited partnership units issued and outstanding as of December 31, 2008, all of which are currently exchangeable on a one-for-one basis into shares of our common stock. In the future, the operating partnership or AMB Property II, L.P. may issue additional limited


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partnership units, and we may issue shares of common stock, in connection with the acquisition of properties or in private placements. These shares of common stock and the shares of common stock issuable upon exchange of limited partnership units may be sold in the public securities markets over time, pursuant to registration rights that we have granted, or may grant in connection with future issuances, or pursuant to Rule 144 under the Securities Act of 1933. In addition, common stock issued under our stock option and incentive plans may also be sold in the market pursuant to registration statements that we have filed or pursuant to Rule 144. As of December 31, 2008, under our stock option and incentive plans, we had 8,447,215 shares of common stock reserved and available for future issuance, had outstanding options to purchase 6,206,678 shares of common stock (of which 5,161,609 are vested and exercisable and 178,890 have exercise prices below market value at December 31, 2008) and had 859,026 unvested restricted shares of common stock outstanding. Future sales of a substantial number of shares of our common stock in the market or the perception that such sales might occur could adversely affect the market price of our common stock. Further, the existence of the common limited partnership units of the operating partnership and AMB Property II, L.P. and the shares of our common stock reserved for issuance upon exchange of limited partnership units and the exercise of options, and registration rights referred to above, may adversely affect the terms upon which we are able to obtain additional capital through the sale of equity securities.
 
Risks Associated with Our Disclosure Controls and Procedures and Internal Control over Financial Reporting
 
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.
 
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Furthermore, our disclosure controls and procedures and internal control over financial reporting with respect to entities that we do not control or manage or third-party entities that we may acquire may be substantially more limited than those we maintain with respect to the subsidiaries that we have controlled or managed over the course of time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.
 
ITEM 1B.   Unresolved Staff Comments
 
None.
 
ITEM 2.   Properties
 
INDUSTRIAL PROPERTIES
 
As of December 31, 2008, we owned and managed 1,116 industrial buildings aggregating approximately 131.5 million rentable square feet (on a consolidated basis, we had 696 industrial buildings aggregating approximately 72.8 million rentable square feet), excluding development and renovation projects and recently completed development projects available for sale or contribution, located in 49 global markets throughout the Americas, Europe and Asia. Our industrial properties were 95.1% leased to 2,602 customers, the largest of which accounted for no more than 4.1% of our annualized base rent from our industrial properties. See Part IV, Item 15: Note 16 of “Notes to Consolidated Financial Statements” for segment information related to our operations.
 
Property Characteristics.  Our industrial properties, which consist primarily of warehouse distribution facilities suitable for single or multiple customers, are typically comprised of multiple buildings.


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The following table identifies types and characteristics of our industrial buildings and each type’s percentage, based on square footage, of our total owned and managed operating portfolio:
 
                     
        December 31,
Building Type
  Description   2008   2007
 
Warehouse
  Customers typically 15,000-75,000 square feet, single or multi-customer     53.6 %     51.6 %
Bulk Warehouse
  Customers typically over 75,000 square feet, single or multi-customer     36.2 %     37.1 %
Flex Industrial
  Includes assembly or research & development, single or multi-customer     3.4 %     3.6 %
Light Industrial
  Smaller customers, 15,000 square feet or less, higher office finish     2.7 %     3.0 %
Air Cargo
  On-tarmac or airport land for transfer of air cargo goods     2.5 %     2.8 %
Trans-Shipment
  Unique configurations for truck terminals and cross-docking     1.1 %     1.3 %
Office
  Single or multi-customer, used strictly for office     0.5 %     0.6 %
                     
          100.0 %     100.0 %
 
Lease Terms.  Our industrial properties are typically subject to leases on a “triple net basis,” in which customers pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a “modified gross basis,” in which customers pay expenses over certain threshold levels. In addition, most of our leases include fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years, with a weighted average of six years, excluding renewal options. However, the majority of our industrial leases do not include renewal options.
 
Overview of Our Global Market Presence.  Our industrial properties are located in the following markets:
 
             
The Americas   Europe   Asia
 
Atlanta
  Northern New Jersey/   Amsterdam   Beijing
Austin
  New York City   Bremerhaven   Guanhzhou
Baltimore/Washington, D.C.
  Orlando   Brussels   Nagoya
Boston
  Querétaro   Frankfurt   Osaka
Chicago
  Reynosa   Hamburg   Seoul
Dallas/Ft. Worth
  San Francisco Bay Area   Le Havre   Shanghai
Guadalajara
  Savannah   London   Singapore
Houston
  Seattle   Lyon   Tokyo
Mexico City
  South Florida   Madrid    
Minneapolis
  Southern California   Milan    
Monterrey
  Tijuana   Paris    
New Orleans
  Toronto   Rotterdam    
        Warsaw    
 
Within these metropolitan areas, our industrial properties are generally concentrated in locations with limited new construction opportunities within established, relatively large submarkets, which we believe should provide a higher rate of occupancy and rent growth than properties located elsewhere. These infill locations are typically near major airports or seaports or convenient to major highway systems and rail lines, and are proximate to large and diverse labor pools. There is typically broad demand for industrial space in these centrally-located submarkets due to a diverse mix of industries and types of industrial uses, including warehouse distribution, light assembly and manufacturing. We generally avoid locations at the periphery of metropolitan areas where there are fewer constraints to the supply of additional industrial properties.


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Portfolio Overview
 
The following includes our owned and managed operating portfolio and development properties, investments in operating properties through non-managed unconsolidated joint ventures, and recently completed developments that have not yet been placed in operations but are being held for sale or contribution:
 
                                                 
                            Year-to-Date
    Trailing Four
 
          AMB’s share
          Annualized
    Same Store NOI
    Quarters Rent
 
    Square Feet
    of Square
    2008
    Base Rent(1)
    Growth Without
    Change on
 
    as of
    Feet as of
    Average
    psf as of
    Lease
    Renewals and
 
Markets
  12/31/2008     12/31/2008     Occupancy     12/31/2008     Termination Fees(2)     Rollovers(3)  
 
Southern California
    20,135,479       55.2 %     97.1 %   $ 6.43       6.2 %     8.4 %
Chicago
    13,395,861       52.6 %     90.3 %     5.45       (2.4 )%     0.1 %
No. New Jersey/New York
    11,351,674       48.4 %     98.5 %     7.45       4.8 %     3.0 %
San Francisco Bay Area
    10,908,232       71.3 %     93.0 %     6.64       1.4 %     4.7 %
Seattle
    8,645,277       47.1 %     96.9 %     5.23       7.9 %     7.6 %
South Florida
    6,279,591       70.8 %     95.3 %     7.54       0.6 %     10.1 %
U.S. On-Tarmac(4)
    2,630,724       92.7 %     92.3 %     19.09       (1.4 )%     (2.8 )%
Other U.S. Markets
    28,690,611       63.2 %     93.3 %     5.63       1.4 %     0.5 %
                                                 
U.S. Subtotal / Wtd Avg
    102,037,449       59.3 %     94.6 %   $ 6.50       2.6 %     3.8 %
Canada
    2,441,076       100.0 %     97.2 %   $ 4.96       0.0 %     4.9 %
Mexico City
    3,590,942       47.4 %     98.0 %     5.94       11.3 %     (3.0 )%
Guadalajara
    2,890,526       21.6 %     96.1 %     4.66       4.3 %     0.9 %
Other Mexico Markets
    419,845       26.8 %     100.0 %     5.20       1.3 %     n/a  
                                                 
Mexico Subtotal / Wtd Avg
    6,901,313       35.4 %     97.4 %   $ 5.36       8.8 %     (0.7 )%
                                                 
The Americas Total / Wtd Avg
    111,379,838       58.7 %     94.8 %   $ 6.39       2.8 %     3.7 %
                                                 
France
    3,432,527       22.3 %     94.8 %   $ 8.86       5.7 %     (21.5 )%
Germany
    3,191,670       30.3 %     97.0 %     8.92       (2.0 )%     3.5 %
Benelux
    2,835,213       20.8 %     99.2 %     10.11       17.2 %     5.9 %
Other Europe Markets
    343,077       61.9 %     100.0 %     13.50       0.0 %     n/a  
                                                 
Europe Subtotal / Wtd Avg(5)
    9,802,487       25.9 %     97.0 %   $ 9.42       5.9 %     (14.6 )%
                                                 
Tokyo
    5,263,053       20.0 %     93.0 %   $ 15.17       12.4 %     4.5 %
Osaka
    2,000,037       59.2 %     93.0 %     11.83       17.1 %     0.9 %
                                                 
Japan Subtotal / Wtd Avg(5)
    7,263,090       30.8 %     93.0 %   $ 14.25       13.2 %     3.3 %
China
    1,908,646       100.0 %     94.2 %   $ 4.59       9.4 %     11.1 %
Singapore
    935,926       100.0 %     99.3 %     9.48       14.2 %     4.2 %
Other Asia Markets
    218,132       100.0 %     100.0 %     6.65       0.0 %     n/a  
                                                 
Asia Total / Wtd Avg(5)
    10,325,794       51.3 %     93.9 %   $ 12.00       11.4 %     4.0 %
                                                 
Owned and Managed Total / Wtd Avg(6)
    131,508,119       55.7 %     94.9 %   $ 7.05       3.7 %     3.1 %
Other Real Estate Investments(7)
    7,495,659       54.3 %     94.1 %     5.32                  
                                                 
Total Operating Portfolio
    139,003,778       55.6 %     94.9 %   $ 6.96                  
                                                 
Development
Pipeline
    16,437,557       90.2 %                                
Available for Sale
or Contribution(8)
    4,553,798       93.4 %                                
                                                 
Development Subtotal
    20,991,355       90.9 %                                
                                                 
Total Global Portfolio
    159,995,133       60.2 %                                
                                                 
 
 
(1) Annualized base rent (“ABR”) is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2008, multiplied by 12.
 
(2) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a reconciliation to net income and a discussion of why management believes same store cash basis NOI is a useful supplemental measure for our management and investors, ways to use this measure when assessing our financial performance, and the limitations of the measure as a measurement tool.
 
(3) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former tenant’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.


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(4) Includes domestic on-tarmac air cargo facilities at 14 airports.
 
(5) Annualized base rent for leases denominated in foreign currencies is translated using the currency exchange rate at December 31, 2008.
 
(6) Owned and managed is defined by us as assets in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we currently intend to hold for the long term.
 
(7) Includes investments in operating properties through our investments in unconsolidated joint ventures that we do not manage, and are therefore excluded from our owned and managed portfolio, and the location of our global headquarters.
 
(8) Represents development projects available for sale or contribution that are not included in the operating portfolio.
 
Lease Expirations(1)
 
The following table summarizes the lease expirations for our owned and managed operating properties for leases in place as of December 31, 2008, without giving effect to the exercise of renewal options or termination rights, if any, at or prior to the scheduled expirations:
 
                         
    Square
    Annualized Base
    % of Annualized
 
Year
  Feet     Rent (000’s)(2)(3)     Base Rent(2)  
 
2009
    23,444,706     $ 149,454       16.8 %
2010
    19,278,934       131,344       14.7 %
2011
    22,593,857       158,835       17.8 %
2012
    15,059,276       118,395       13.3 %
2013
    13,692,677       98,151       11.0 %
2014
    10,522,141       80,243       9.0 %
2015
    6,007,611       44,524       5.0 %
2016
    3,157,107       20,962       2.3 %
2017
    3,685,865       26,806       3.0 %
2018+
    8,235,934       63,319       7.1 %
                         
Total
    125,678,108     $ 892,033       100.0 %
                         
 
 
(1) Schedule includes leases that expire on or after December 31, 2008. Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we currently intend to hold for the long term.
 
(2) Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2008, multiplied by 12. If free rent is granted, then the first positive rent value is used. Leases denominated in foreign currencies are translated using the currency exchange rate at December 31, 2008.
 
(3) Apron rental amounts (but not square footage) are included.


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Customer Information(1)
 
Top Customers.  As of December 31, 2008, our largest customers by annualized base rent, on an owned and managed basis, are set forth in the table below:
 
                             
          Annualized
    % of Annualized
 
    Square
    Base (000’s)
    Aggregate
 
Customer(2)
  Feet     Rent(3)     Base Rent(3)(4)  
 
1
  Deutsche Post World Net (DHL)(5)     4,546,771     $ 35,812       4.1 %
2
  United States Government(5)(6)     1,393,646       20,770       2.4 %
3
  FedEx Corporation(5)     1,469,895       15,035       1.7 %
4
  Nippon Express     1,074,128       13,096       1.5 %
5
  Sagawa Express     729,135       11,992       1.4 %
6
  BAX Global Inc/Schenker/Deutsche Bahn(5)     1,044,503       9,924       1.1 %
7
  Panalpina     1,316,351       8,727       1.0 %
8
  La Poste     902,391       8,249       0.9 %
9
  UPS     1,263,715       8,075       0.9 %
10
  Caterpillar Logistics Services     543,039       7,977       0.9 %
                             
    Subtotal     14,283,574     $ 139,657       15.9 %
    Top 11-20 Customers     6,784,688       52,058       5.9 %
                             
    Total     21,068,262     $ 191,715       21.8 %
                             
 
 
(1) Schedule includes owned and managed operating properties.
 
(2) Customer(s) may be a subsidiary of or an entity affiliated with the named customer.
 
(3) Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2008, multiplied by 12. If free rent is granted, then the first positive rent value is used. Leases denominated in foreign currencies are translated using the currency exchange rate at December 31, 2008.
 
(4) Computed as aggregate annualized base rent divided by the aggregate annualized base rent of operating properties.
 
(5) Airport apron rental amounts (but not square footage) are included.
 
(6) United States Government includes the United States Postal Service, United States Customs, United States Department of Agriculture and various other U.S. governmental agencies.


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OWNED AND MANAGED OPERATING STATISTICS
 
Owned and Managed Operating and Leasing Statistics(1)
 
The following table summarizes key operating and leasing statistics for all of our owned and managed operating properties as of and for the years ended December 31, 2008, 2007 and 2006:
 
                         
Operating Portfolio
  2008   2007   2006
 
Square feet owned(2)(3)
    131,508,119       118,180,295       100,702,915  
Occupancy percentage(3)
    95.1 %     96.0 %     96.1 %
Average occupancy percentage
    94.9 %     95.1 %     95.3 %
Weighted average lease terms (years):
                       
Original
    6.2       6.2       6.1  
Remaining
    3.4       3.5       3.3  
Trailing four quarter tenant retention
    71.5 %     74.0 %     70.9 %
Trailing four quarter rent change on renewals and rollovers:(4) 
                       
Percentage
    3.1 %     4.9 %     (0.1 )%
Same space square footage commencing (millions)
    18.4       19.2       16.2  
Trailing four quarter second generation leasing activity:(5)
                       
Tenant improvements and leasing commissions per sq. ft.:
                       
Retained
  $ 1.43     $ 1.19     $ 1.41  
Re-tenanted
  $ 3.23     $ 3.25     $ 3.19  
Weighted average
  $ 2.02     $ 2.03     $ 2.20  
Square footage commencing (millions)
    22.0       22.8       19.1  
 
 
(1) Schedule includes owned and managed operating properties. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) As of December 31, 2008, one of our subsidiaries also managed approximately 1.1 million additional square feet of properties representing the IAT portfolio on behalf of the IAT Air Cargo Facilities Income Fund. In December 2008, we entered into a definitive agreement to terminate our management agreement with IAT Air Cargo Facilities Income Fund, effective in the first quarter of 2009. As of December 31, 2008, we also had investments in 7.4 million square feet of operating properties through our investments in non-managed unconsolidated joint ventures and 0.1 million square feet, which is the location of our global headquarters.
 
(3) On a consolidated basis, we had approximately 72.8 million rentable square feet with an occupancy rate of 94.5% at December 31, 2008.
 
(4) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former customer’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(5) 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.


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Owned and Managed Same Store Operating Statistics(1)
 
The following table summarizes key operating and leasing statistics for our owned and managed same store operating properties as of and for the years ended December 31, 2008, 2007 and 2006:
 
                         
Same Store Pool(2)
  2008   2007   2006
 
Square feet in same store pool(3)
    100,912,256       85,192,781       77,291,866  
% of total square feet
    76.7 %     72.1 %     76.8 %
Occupancy percentage(3)
    94.8 %     96.4 %     97.0 %
Average occupancy percentage
    94.6 %     95.9 %     95.9 %
Weighted average lease terms (years):
                       
Original
    5.8       6.1       6.0  
Remaining
    2.8       3.1       3.0  
Trailing four quarters tenant retention
    71.7 %     73.4 %     72.5 %
Trailing four quarters rent change on renewals and rollovers:(4)
                       
Percentage
    2.7 %     5.0 %     (0.4 )%
Same space square footage commencing (millions)
    17.3       17.6       15.7  
Growth % increase (including straight-line rents):
                       
Revenues(5)
    3.4 %     4.3 %     2.1 %
Expenses(5)
    5.0 %     6.7 %     3.5 %
Net operating income, excluding lease termination fees(5)(6)
    2.8 %     3.4 %     1.6 %
Growth % increase (excluding straight-line rents):
                       
Revenues(5)
    4.0 %     5.6 %     2.8 %
Expenses(5)
    5.0 %     6.7 %     3.5 %
Net operating income, excluding lease termination fees(5)(6)
    3.7 %     5.1 %     2.6 %
 
 
(1) Schedule includes owned and managed operating properties. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) Same store pool includes all properties that are owned as of both the current and prior year reporting periods and excludes development properties for both the current and prior reporting years. The same store pool is set annually and excludes properties purchased and developments stabilized (generally defined as properties that are 90% leased or properties that have been substantially complete for at least 12 months) after December 31, 2006, 2005 and 2004 for the years ended December 31, 2008, 2007 and 2006, respectively.
 
(3) On a consolidated basis, we had approximately 65.0 million square feet with an occupancy rate of 94.8% at December 31, 2008.
 
(4) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former customer’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(5) As of December 31, 2008, on a consolidated basis, the percentage change was 1.4%, 2.4% and 1.0%, respectively, for revenues, expenses and NOI (including straight-line rents) and 2.1%, 2.4% and 2.0%, respectively, for revenues, expenses and NOI (excluding straight-line rents).
 
(6) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a discussion of same store net operating income and cash-basis same store net operating income and a reconciliation of same store net operating income and cash-basis same store net operating income and net income.


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Table of Contents

 
Development Properties
 
Development Pipeline(1)
 
The following table sets forth the properties owned by us as of December 31, 2008, that are currently under development.
 
Industrial Projects Under Development
(Dollars in thousands)
 
                                                         
    2009 Expected Stabilizations     2010 Expected Stabilizations     Total        
    Estimated
    Estimated
    Estimated
    Estimated
    Estimated
    Estimated
    % of Total
 
    Square Feet at
    Total
    Square Feet at
    Total
    Square Feet at
    Total
    Estimated
 
    Stabilization(2)     Investment(3)(4)     Stabilization(2)     Investment(3)(4)     Stabilization(2)     Investment(3)(4)     Investment(2)(3)(4)  
 
The Americas
                                                       
United States
    5,580,595     $ 449,120       189,740     $ 16,552       5,770,335       465,672       35.3 %
Other Americas
    3,741,731       229,681       875,533       55,362       4,617,264       285,043       21.6 %
                                                         
The Americas Total
    9,322,326     $ 678,801       1,065,273     $ 71,914       10,387,599     $ 750,715       56.9 %
Europe
                                                       
France
    460,050     $ 44,244       340,441     $ 28,944     $ 800,491     $ 73,188       5.5 %
Germany
                413,958       48,781       413,958       48,781       3.7 %
Benelux
    1,054,754       122,429                   1,054,754       122,429       9.3 %
Other Europe
    436,916       38,715                   436,916       38,715       2.9 %
                                                         
Europe Total
    1,951,720     $ 205,388       754,399     $ 77,725       2,706,119     $ 283,113       21.5 %
Asia
                                                       
Japan
    685,757     $ 122,762       417,833     $ 55,215       1,103,590       177,977       13.5 %
China
    617,062       29,211       1,623,187       78,001       2,240,249       107,212       8.1 %
Other Asia
                                        0.0 %
                                                         
Asia Total
    1,302,819     $ 151,973       2,041,020     $ 133,216       3,343,839     $ 285,189       21.6 %
                                                         
Total
    12,576,865     $ 1,036,162       3,860,692     $ 282,855       16,437,557     $ 1,319,017       100.0 %
                                                         
Real estate impairment losses(5)
                                            (42,368 )        
                                                         
Estimated total investment, net of real estate impairment losses
                                          $ 1,276,649          
                                                         
                                                         
Number of Projects
            43               10               53          
Funded-to-Date(6)
          $ 920,346             $ 136,862             $ 1,057,208          
AMB’s Weighted Average Ownership Percentage
            90.5 %             98.8 %             92.3 %        
AMB’s Share of Amounts Funded to Date(6)
          $ 834,025             $ 134,682             $ 968,707          
AMB’s Share of Amounts Funded to Date Percentage(6)(7)(8)
            88.9 %             48.2 %             79.6 %        
AMB’s Share of Remainder to Fund(6)(7)
          $ 103,862             $ 144,697             $ 248,559          
Weighted Average Estimated Yield(7)(9)
            7.5 %             7.4 %             7.5 %        
Percent Pre-Leased(10)
            46.0 %             3.8 %             36.1 %        
 
 
(1) Includes investments held through unconsolidated joint ventures.
 
(2) Stabilization is generally defined as properties that are 90% leased or properties that have been substantially complete for at least 12 months.
 
(3) Represents total estimated cost of development, renovation, or expansion, including initial acquisition costs, prepaid ground leases, buildings, tenant improvements and associated capitalized interest and overhead costs. Estimated total investments are based on current forecasts and are subject to change. Non-U.S. dollar investments are translated to U.S. dollars using the exchange rate at December 31, 2008. We cannot assure you that any of these projects will be completed on schedule or within budgeted amounts.
 
(4) Includes value-added conversion projects.
 
(5) See Part IV, Item 15: Note 3 of “Notes to Consolidated Financial Statements” for discussion of real estate impairment losses.
 
(6) Amounts include capitalized interest and overhead costs, as applicable.
 
(7) Calculated using estimated total investment before the impact of real estate impairment losses.
 
(8) Calculated as our share of amounts funded to date to our share of estimated total investment.
 
(9) Yields exclude value-added conversion projects and are calculated on an after-tax basis for international projects.


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(10) Percent pre-leased represents the executed lease percentage of total square feet as of the reporting data.
 
Completed Development Projects Available for Sale or Contribution(1)
 
The following table sets forth completed development projects that we intend to either sell or contribute to co-investment funds as of December 31, 2008 (dollars in thousands):
 
                 
          Total
 
    Square Feet     Investment(2)  
 
The Americas
               
United States
    928,751     $ 86,882  
Other Americas
           
                 
The Americas Total
    928,751     $ 86,882  
Europe
               
France
    277,817     $ 23,304  
Germany
    139,608       18,850  
Benelux
    110,712       16,606  
Other Europe
    585,971       70,138  
                 
Europe Total
    1,114,108     $ 128,898  
Asia
               
Japan
    2,148,194     $ 387,511  
China
           
Other Asia
    362,745       25,767  
                 
Asia Total
    2,510,939     $ 413,278  
                 
Total
    4,553,798     $ 629,058  
                 
Real estate impairment losses(3)
            (16,205 )
                 
Total investment, net of real estate impairment losses
          $ 612,853  
                 
AMB’s Weighted Average Ownership Percentage
            92.9 %
Weighted Average Estimated Yield(4)
            7.0 %
Percent Pre-leased
            45.2 %
 
 
(1) Represents projects where development activities have been completed and which we intend to sell or contribute within two years of construction completion. Includes investments held through unconsolidated joint ventures.
 
(2) Represents total estimated cost of development, renovation, or expansion, including initial acquisition costs, prepaid ground leases, buildings, tenant improvements and associated capitalized interest and overhead costs. Estimated total investments are based on current forecasts and are subject to change. Non-U.S. dollar investments are translated to U.S. dollars using the exchange rate at December 31, 2008.
 
(3) See Part IV, Item 15: Note 3 of “Notes to Consolidated Financial Statements” for discussion of real estate impairment losses.
 
(4) Calculated using estimated total investment before the impact of real estate impairment losses.


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Properties Held Through Co-investment Ventures, Limited Liability Companies and Partnerships
 
The following table summarizes our eight consolidated and unconsolidated significant co-investment ventures as of December 31, 2008:
 
                         
            Principal
      Incentive
   
    Date
  Geographic
  Venture
  Functional
  Distribution
   
Co-investment Venture
  Established   Focus   Investors   Currency   Frequency   Term
 
Consolidated
                       
AMB-SGP
  March 2001   United States   Subsidiary of GIC Real Estate Pte Ltd.   USD   10 years   March 2011; extendable 10 years
AMB Institutional Alliance Fund II
  June 2001   United States   Various   USD   At dissolution   December 2014 (estimated)
AMB-AMS
  June 2004   United States   Various   USD   At dissolution   December 2012; extendable 4 years
Unconsolidated
                       
AMB Institutional Alliance Fund III
  October 2004   United States   Various   USD   3 years (next 2Q11)   Open ended
AMB-SGP Mexico
  December 2004   Mexico   Subsidiary of GIC Real Estate Pte Ltd.   USD   7 years   December 2011; extendable 7 years
AMB Japan Fund I
  June 2005   Japan   Various   JPY   At dissolution   June 2013; extendable 2 years
AMB DFS Fund I
  October 2006   United States   GE Real Estate   USD   Upon project sales   Perpetual
AMB Europe Fund I
  June 2007   Europe   Various   EUR   3 years (next 2Q10)   Open ended
 
Consolidated Joint Ventures
 
As of December 31, 2008, we held interests in co-investment ventures, limited liability companies and partnerships with institutional investors and other third parties, which we consolidate in our financial statements. We determine consolidation based on standards set forth in FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51 (FIN 46) or EITF Issue No. 04-5 (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 and SOP 78-9, Accounting for Investments in Real Estate Ventures. Based on the guidance set forth in EITF 04-5, we consolidate certain joint venture investments because we exercise significant control over major operating decisions, such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing. We are the general partner (or equivalent of a general partner in entities not structured as partnerships) in a number of our consolidated joint venture investments. In all such cases, the limited partners in such investments (or equivalent of limited partners in such investments which are not structured as partnerships) do not have rights described in EITF 04-5, which would preclude consolidation. We consolidate certain other joint ventures where we are not the general partner (or equivalent of a general partner in entities not structured as partnerships) because we have control over those entities through majority ownership, retention of the majority of economics, and a combination of substantive kick-out rights and/or substantive participating rights.
 
Under the agreements governing the co-investment ventures, we and the other party to the co-investment venture may be required to make additional capital contributions and, subject to certain limitations, the co-investment ventures may incur additional debt. Such agreements also impose certain restrictions on the transfer of co-investment venture interests by us or the other party to the co-investment venture and typically provide certain rights to us or the other party to the co-investment venture to sell our or their interest in the co-investment venture to the co-investment venture or to the other co-investment venture partner on terms specified in the agreement. In addition, under certain circumstances, many of the co-investment ventures include buy/sell provisions. See Part IV, Item 15: Notes 9 and 10 of the “Notes to Consolidated Financial Statements” for additional details.


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The table that follows summarizes our consolidated joint ventures as of December 31, 2008 (dollars in thousands):
 
                                         
    Our
          Gross
             
    Ownership
    Square
    Book
    Property
    Other
 
Consolidated Joint Ventures
  Percentage     Feet(1)     Value(2)     Debt     Debt  
 
Operating Co-investment Ventures
                                       
AMB-SGP(3)
    50%       8,288,663     $ 461,981     $ 341,855     $  
AMB Institutional Alliance Fund II(4)
    20%       8,006,081       533,491       232,856       50,000  
AMB-AMS(5)
    39%       2,172,137       157,034       83,337        
                                         
Total Operating Co-investment Ventures
    35%       18,466,881       1,152,506       658,048       50,000  
Development Co-investment Ventures
                                       
AMB Institutional Alliance Fund II(4)
    20%       98,560       5,415              
                                         
Total Development Co-investment Ventures
    20%       98,560       5,415              
                                         
Total Consolidated Co-investment Ventures
    35%       18,565,441       1,157,921       658,048       50,000  
Other Industrial Operating Joint Ventures
    92%       2,196,134       212,472       21,544        
Other Industrial Development Joint Ventures
    65%       1,551,047       299,687       128,501        
                                         
Total Consolidated Joint Ventures
    47%       22,312,622     $ 1,670,080     $ 808,093     $ 50,000  
                                         
 
 
(1) For development properties, represents the estimated square feet upon completion for committed phases of development projects.
 
(2) Represents the book value of the property (before accumulated depreciation) owned by the joint venture and excludes net other assets as of December 31, 2008. Development book values include uncommitted land.
 
(3) AMB-SGP, L.P. is a co-investment partnership formed in 2001 with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(4) AMB Institutional Alliance Fund II, L.P. is a co-investment partnership formed in 2001 with institutional investors, which invest through a private real estate investment trust, and a third-party limited partner.
 
(5) AMB-AMS, L.P. is a co-investment partnership formed in 2004 with three Dutch pension funds.
 
Unconsolidated Joint Ventures
 
As of December 31, 2008, we held interests in five significant equity investment co-investment ventures that are not consolidated in our financial statements. We determine consolidation based on standards set forth in FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51 (FIN 46) or EITF Issue No. 04-5 (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 and SOP 78-9, Accounting for Investments in Real Estate Ventures. For joint ventures that are variable interest entities as defined under FIN 46 where we are not the primary beneficiary, we do not consolidate the joint venture for financial reporting purposes. For joint ventures under EITF 04-5 where we do not exercise significant control over major operating and management decisions, but where we exercise significant influence, we use the equity method of accounting and do not consolidate the joint venture for financial reporting purposes. In such unconsolidated joint ventures, either we are not the general partner (or general partner equivalent) and do not hold sufficient capital or any rights that would require consolidation or, alternatively, we are the general partner (or the general partner equivalent) and the other partners (or equivalent) hold substantive participating rights that override the presumption of control.


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The table that follows summarizes our unconsolidated joint ventures as of December 31, 2008 (dollars in thousands):
 
                                                                 
    Our
          Gross
                Our
    Estimated
    Planned
 
    Ownership
    Square
    Book
    Property
    Other
    Net Equity
    Investment
    Gross
 
Unconsolidated Joint Ventures
  Percentage     Feet(1)     Value(2)     Debt     Debt     Investment(3)     Capacity     Capitalization  
 
Operating Co-investment Ventures
                                                               
AMB Institutional Alliance Fund III(4)(5)
    19%       36,869,518     $ 3,339,952     $ 1,761,477     $ 40,000     $ 184,645     $     $ 3,340,000  
AMB Europe Fund I(5)(6)
    21%       9,165,082       1,223,167       705,522             64,665             1,223,000  
AMB Japan Fund I(7)
    20%       6,281,928       1,350,958       775,254       132,168       65,705       189,000       1,540,000  
AMB-SGP Mexico(8)
    22%       6,331,990       353,983       170,403       58,825       19,519       245,000       599,000  
                                                                 
Total Operating Co-investment Ventures
    20%       58,648,518       6,268,060       3,412,656       230,993       334,534       434,000       6,702,000  
Development Co-investment Ventures:
                                                               
AMB DFS Fund I(9)
    15%       1,237,764       132,989                   20,663       306,000       439,000  
AMB Institutional Alliance Fund III(4)(5)
    19%       178,567       10,047       5,996             785       n/a       n/a  
AMB Europe Fund I(5)(6)
    21%       63,507       8,616       4,290             898       n/a       n/a  
                                                                 
Total Development Co-investment Ventures
    16%       1,479,838       151,652       10,286             22,346       306,000       439,000  
                                                                 
Total Unconsolidated Co-investment Ventures
    20%       60,128,356       6,419,712       3,422,942       230,993       356,880       740,000       7,141,000  
Other Industrial Operating Joint Ventures
    51%       7,418,749 (10)     278,214       164,206             49,791       n/a       n/a  
                                                                 
Total Unconsolidated Joint Ventures
    21%       67,547,105     $ 6,697,926     $ 3,587,148     $ 230,993     $ 406,671     $ 740,000     $ 7,141,000  
                                                                 
 
 
(1) For development properties, represents the estimated square feet upon completion for committed phases of development projects.
 
(2) Represents the book value of the property (before accumulated depreciation) owned by the joint venture and excludes net other assets as of December 31, 2008. Development book values include uncommitted land.
 
(3) On June 13, 2008, we acquired an additional approximate 19% interest in G. Accion, S.A. de C.V., a Mexican real estate company that holds equity method investments, and as a result of our increased ownership, we began consolidating our interest in G. Accion, effective as of that date. On July 18, 2008, we acquired the remaining equity interest (approximately 42%) in G. Accion. As of December 31, 2008 and December 31, 2007, we had a 100% consolidated interest and 39% unconsolidated equity interest, respectively, in G. Accion. As our wholly-owned subsidiary, G. Accion has been renamed AMB Property Mexico, S.A. de C.V. and it continues to provide management and development services for industrial, retail and residential properties in Mexico. Through our investment in AMB Property Mexico, we hold equity interests in various other unconsolidated ventures totaling approximately $24.6 million as of December 31, 2008. At December 31, 2007, we had equity interests in G. Accion totaling approximately $32.7 million.
 
(4) 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. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture.
 
(5) The planned capitalization and investment capacity of AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, as open-ended funds are not limited. The planned capitalization represents the gross book value of real estate assets as of the most recent quarter end.
 
(6) AMB Europe Fund I, FCP-FIS, is an open-ended co-investment venture formed in 2007 with institutional investors. The venture is Euro-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2008.
 
(7) AMB Japan Fund I, L.P. is a co-investment venture formed in 2005 with institutional investors. The venture is Yen-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2008.


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(8) AMB-SGP Mexico, LLC is a co-investment venture formed in 2004 with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(9) AMB DFS Fund I, LLC is a co-investment venture formed in 2006 with a subsidiary of GE Real Estate to build and sell properties.
 
(10) Includes investments in 7.4 million square feet of operating properties through our investments in unconsolidated joint ventures that we do not manage, which we exclude from our owned and managed portfolio. Our owned and managed operating portfolio includes properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we currently intend to hold for the long-term.
 
On December 30, 2004, we formed AMB-SGP Mexico, LLC, a co-investment venture with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation, in which we retained an approximate 20% interest. This interest increased to approximately 22% upon our acquisition of AMB Property Mexico. During 2008, we contributed three completed development projects totaling approximately 1.4 million square feet to this co-investment venture for approximately $90.5 million. During 2007, we contributed one approximately 0.1 million square foot operating property for approximately $4.6 million to this co-investment venture. In addition, we recognized development profits from the contribution to this co-investment venture of two completed development projects aggregating approximately 0.3 million square feet with a contribution value of $22.9 million.
 
On June 30, 2005, we formed AMB Japan Fund I, L.P., a co-investment venture with 13 institutional investors, in which we retained an approximate 20% interest. The 13 institutional investors have committed 49.5 billion Yen (approximately $545.9 million in U.S. dollars, using the exchange rate at December 31, 2008) for an approximate 80% equity interest. During 2008, we contributed to this co-investment venture two completed development projects, aggregating approximately 0.9 million square feet for approximately $174.9 million (using the exchange rate on the date of contribution). During 2007, we contributed to this co-investment venture one completed development project aggregating approximately 0.5 million square feet for approximately $84.4 million (using the exchange rate on the date of contribution).
 
On October 17, 2006, we formed AMB DFS Fund I, LLC, a merchant development co-investment venture with GE Real Estate (“GE”), in which we retained an approximate 15% interest. The co-investment venture has total investment capacity of approximately $500.0 million to pursue development-for-sale opportunities primarily in U.S. markets other than those we identify as our target markets. GE and we have committed $425.0 million and $75.0 million of equity, respectively. No properties were contributed to this co-investment venture during 2008. During the year ended December 31, 2007, we contributed to this co-investment venture approximately 82 acres of land with a contribution value of approximately $30.3 million.
 
Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P., an open-ended co-investment partnership formed in 2004 with institutional investors, on a prospective basis, due to the re-evaluation of our accounting for our investment because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture. During 2008, we contributed to this co-investment venture one approximately 0.8 million square foot operating property and four completed development projects, aggregating approximately 2.7 million square feet, for approximately $274.3 million. During 2007, we contributed to this co-investment venture one approximately 0.2 million square foot operating property and four completed development projects, aggregating approximately 1.0 million square feet for approximately $116.6 million.
 
On June 12, 2007, we formed AMB Europe Fund I, FCP-FIS, a Euro-denominated open-ended co-investment venture with institutional investors, in which we retained an approximate 20% interest upon formation. At the time of formation, the institutional investors committed approximately 263.0 million Euros (approximately $367.5 million in U.S. dollars, using the exchange rate at December 31, 2008) for an approximate 80% equity interest. During 2008, we contributed to this co-investment venture two development projects, aggregating approximately


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0.2 million square feet, for approximately $35.2 million (using the exchange rate on the date of contribution). During 2007, we contributed approximately 4.2 million square feet of operating properties and approximately 1.8 million square feet of completed development projects to this co-investment venture for approximately $799.3 million (using the exchange rates on the dates of contribution).
 
During 2008, we recognized gains from the contribution of real estate interests, net, of approximately $20.0 million, representing the portion of our interest in the contributed properties acquired by the third-party investors for cash, as a result of the contribution of approximately 0.8 million square feet of operating properties to AMB Institutional Alliance Fund III, L.P. These gains are presented in gains from sale or contribution of real estate interests, in the consolidated statements of operations.
 
During 2008, we recognized development profits of approximately $73.9 million, as a result of the contribution 11 completed development projects, aggregating approximately 5.2 million square feet, to AMB Institutional Alliance Fund III, L.P., AMB Europe Fund I, FCP-FIS, AMB Japan Fund I, L.P. and AMB-SGP Mexico, LLC. During 2007, we recognized development profits of approximately $95.7 million, as a result of the contribution of 15 completed development projects and two land parcels, aggregating approximately 82 acres of land, to AMB Europe Fund I, FCP-FIS, AMB-SGP Mexico, LLC, AMB Institutional Alliance Fund III, L.P., AMB DFS Fund I, LLC, and AMB Japan Fund I, L.P.
 
Under the agreements governing the co-investment ventures, we and the other parties to the co-investment ventures may be required to make additional capital contributions and, subject to certain limitations, the co-investment ventures may incur additional debt.
 
AMB Pier One, LLC, is a joint venture related to the 2000 redevelopment of the pier which holds our global headquarters in San Francisco, California. On June 30, 2007, we exercised our option to purchase the remaining equity interest from an unrelated third party, based on the fair market value as stipulated in the joint venture agreement in AMB Pier One, LLC, for a nominal amount. As a result, the investment was consolidated as of June 30, 2007.
 
In August 2008, a subsidiary of ours sold its approximate 5% interest in IAT Air Cargo Facilities Income Fund, a Canadian income trust specializing in aviation-related real estate at Canada’s international airports, as part of a tender offer for interests in the income trust. This equity investment of approximately $2.1 million (valued as of December 31, 2007) was included in other assets on the consolidated balance sheets as of December 31, 2007.
 
Secured Debt
 
As of December 31, 2008, we had $1.5 billion of secured indebtedness, net of unamortized premiums, secured by deeds of trust or mortgages. As of December 31, 2008, the total gross investment book value of those properties securing the debt was $2.1 billion. Of the $1.5 billion of secured indebtedness, $808.1 million was consolidated co-investment venture debt secured by properties with a gross investment value of $1.4 billion. For additional details, see Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Part IV, Item 15: Note 6 of “Notes to Consolidated Financial Statements” included in this report.
 
ITEM 3.   Legal Proceedings
 
As of December 31, 2008, there were no material pending legal proceedings to which we were a party or of which any of our properties was the subject, the adverse determination of which we anticipate would have a material adverse effect upon our financial condition, results of operations and cash flows.
 
ITEM 4.   Submission of Matters to a Vote of Security Holders
 
None.


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PART II
 
ITEM 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Our common stock trades on the New York Stock Exchange under the symbol “AMB.” As of February 24, 2009, there were approximately 470 holders of record of our common stock (excluding shares held through The Depository Trust Company, as nominee). Set forth below are the high and low sales prices per share of our common stock, as reported on the NYSE composite tape, and the distribution per share paid or payable by us during the period from January 1, 2007 through December 31, 2008:
 
                         
Year
  High   Low   Dividend
 
2007
                       
1st Quarter
  $ 65.38     $ 56.02     $ 0.500  
2nd Quarter
    62.83       51.53       0.500  
3rd Quarter
    60.00       48.10       0.500  
4th Quarter
    66.86       54.28       0.500  
2008
                       
1st Quarter
  $ 57.92     $ 45.75     $ 0.520  
2nd Quarter
    60.17       49.91       0.520  
3rd Quarter
    57.13       40.27       0.520  
4th Quarter
    44.18       8.73        
 
The payment of dividends and other distributions by us is at the discretion of our board of directors and depends on numerous factors, including our cash flow, financial condition and capital requirements, real estate investment trust provisions of the Internal Revenue Code and other factors.


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Stock Performance Graph
 
The following line graph compares the change in our cumulative total stockholder return on shares of our common stock from December 31, 2003 to December 31, 2008 to the cumulative total return of the Standard and Poor’s 500 Stock Index and the NAREIT Equity REIT Total Return Index from December 31, 2003 to December 31, 2008. The graph assumes an initial investment of $100 in the common stock of AMB Property Corporation and each of the indices on December 31, 2003 and, as required by the SEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among AMB Property Corporation, The S&P 500 Index
And The FTSE NAREIT Equity Index
 
(PERFORMANCE GRAPH)
 
$100 invested on 12/31/03 in stock & index-inducing investment of dividends. Fiscal year ending December 31. Copyright© 2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
 
This graph and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.


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ITEM 6.   Selected Financial Data
 
SELECTED COMPANY FINANCIAL AND OTHER DATA(1)
 
The following table sets forth selected consolidated historical financial and other data for AMB Property Corporation on a historical basis as of and for the years ended December 31:
 
Note: Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis. See footnote 2 below for further discussion of the comparability of selected financial and other data.
 
                                         
    2008(2)   2007   2006(2)   2005   2004
    (Dollars in thousands, except share and per share amounts)
 
Operating Data
                                       
Total revenues
  $ 715,045     $ 671,290     $ 712,391     $ 648,384     $ 565,229  
(Loss) income before minority interests, discontinued operations and cumulative effect of change in accounting principle(3)
    (9,160 )     298,193       228,457       197,558       106,576  
(Loss) income from continuing operations before cumulative effect of change in accounting principle(3)
    (50,796 )     243,368       166,283       123,807       50,702  
Income from discontinued operations
    1,486       70,892       57,596       134,000       74,769  
Net (loss) income before cumulative effect of change in accounting principle
    (49,310 )     314,260       223,879       257,807       125,471  
Net (loss) income
    (49,310 )     314,260       224,072       257,807       125,471  
Net (loss) income available to common stockholders
    (65,116 )     295,524       209,420       250,419       118,340  
(Loss) income from continuing operations per common share:
                                       
Basic
    (0.69 )     2.31       1.73       1.39       0.53  
Diluted
    (0.69 )     2.25       1.67       1.33       0.51  
Income from discontinued operations per common share:
                                       
Basic
    0.02       0.73       0.66       1.59       0.91  
Diluted
    0.02       0.71       0.63       1.52       0.88  
Net (loss) income available to common stockholders per common share:
                                       
Basic
    (0.67 )     3.04       2.39       2.98       1.44  
Diluted
    (0.67 )     2.96       2.30       2.85       1.39  
Dividends declared per common share
    1.56       2.00       1.84       1.76       1.70  
Weighted average common shares outstanding — basic
    97,403,659       97,189,749       87,710,500       84,048,936       82,133,627  
Weighted average common shares outstanding — diluted
    97,403,659       99,808,455       91,106,893       87,873,399       85,368,626  
Other Data
                                       
Funds from operations(4)
  $ 80,530     $ 365,492     $ 297,912     $ 254,363     $ 207,314  
Funds from operations per common share and unit:(4)
                                       
Basic
    0.83       3.60       3.24       2.87       2.39  
Diluted
    0.78       3.51       3.12       2.75       2.30  
Cash flows provided by (used in):
                                       
Operating activities
    301,020       240,543       335,855       295,815       297,349  
Investing activities
    (881,768 )     (632,240 )     (880,560 )     (60,407 )     (731,402 )
Financing activities
    581,765       420,025       483,621       (101,856 )     409,705  
Balance Sheet Data
                                       
Investments in real estate at cost
  $ 6,603,856     $ 6,709,545     $ 6,575,733     $ 6,798,294     $ 6,526,144  
Total assets
    7,301,648       7,262,403       6,713,512       6,802,739       6,386,943  
Total consolidated debt
    3,990,185       3,494,844       3,437,415       3,401,561       3,257,191  
Our share of total debt(5)
    4,293,510       3,272,513       3,088,624       2,601,878       2,395,046  
Preferred stock
    223,412       223,412       223,417       175,548       103,204  
Stockholders’ equity (excluding preferred stock)
    2,291,695       2,540,540       1,943,240       1,740,751       1,567,936  


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(1) Certain items in the consolidated financial statements for prior periods have been reclassified to conform with current classifications with no effect on net income or stockholders’ equity.
 
(2) Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis, due to the re-evaluation of the accounting for our investment in the fund because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture. As a result, the financial measures for the years 2008, 2007, 2006, 2005 and 2004, included in our operating data, other data and balance sheet data above are not comparable.
 
(3) (Loss) income from continuing operations for the year ended December 31, 2008 includes real estate impairment losses of $193.9 million and restructuring charges of $12.3 million.
 
(4) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures,” for a reconciliation to net income and a discussion of why we believe FFO is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing our financial performance, and FFO’s limitations as a measurement tool.
 
(5) 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 and 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 co-investment 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 in Part II, Item 7: “Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Resources.”


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ITEM 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Please read the following discussion and analysis of our consolidated financial condition and results of operations in conjunction with the notes to the consolidated financial statements.
 
Management’s Overview
 
Current Global Market and Economic Conditions
 
Recent global market and economic conditions have been unprecedented, challenging and unpredictable with significantly tighter credit and declining economic growth through the fourth quarter of 2008. Continued concerns about the availability and cost of credit, declining real estate market and geopolitical issues have contributed to increased market volatility and decreased expectations for the global economy. In the fourth quarter, added concerns fueled by the failure of several large financial institutions and government interventions in the U.S. financial system led to increased market uncertainty and instability in the global capital and credit markets. These conditions, combined with declining business activity levels and consumer confidence and increased unemployment, have contributed to unprecedented levels of volatility.
 
In light of this economic downturn, we are increasing our focus on our operations with a special emphasis on tenant retention and occupancy. Until the financial and real estate markets stabilize, we are limiting our acquisition and development activities to fulfilling prior commitments. We have realigned and streamlined internal resources as well as our overhead structure to meet the current and future needs of the business and have taken further steps to strengthen our capital and liquidity position. Our priorities are the strength of our balance sheet, controlling expenses and managing our business for the long term. Our goal is to do what we consider best for long-term value creation and enhancement of our net asset value. As we look forward, our objective is to emerge from this downturn in a competitive position to take advantage of opportunities as they arise, with our long term earnings capacity enhanced.
 
Primary sources of revenue and earnings
 
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. We may also generate earnings from our private capital business, which consists of asset management fees and priority distributions, acquisition and development fees, and promote interests and incentive distributions from our co-investment ventures. Additionally, we may generate earnings from the contributions of development properties to our co-investment ventures, from the disposition of projects in our development-for-sale and value-added conversion programs and from land sales. We believe that our long-term growth will be driven by our ability to:
 
  •  maintain and increase occupancy rates and/or increase rental rates at our properties;
 
  •  raise third-party equity in our co-investment ventures and to grow our earnings from our private capital business from the acquisition of new properties or through the possible contribution of properties; and
 
  •  develop properties profitably and sell to third parties or contribute to our select co-investment ventures.
 
Focus on our balance sheet and cost structure
 
To position ourselves to meet the challenges of the current business environment, we implemented a broad based cost reduction plan in the fourth quarter of 2008. As a result, we recognized a restructuring charge of approximately $12.3 million in the quarter, associated with severance, office closures and the termination of certain contractual obligations. About one-third of the restructuring charges were non-cash. As part of this plan, we reduced our total global headcount by approximately 22% as well as certain forecasted third-party expenditures. In executing these cost saving efforts, we believe that we have preserved our ability to serve our global customers and manage our operating portfolio. While we have removed excess capacity in our deployment teams, we believe that we have retained our key talent and left our global platforms intact. Cost reductions were also made to the back


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office, support functions and third party costs, particularly those that related to our global expansion efforts in India and Poland.
 
During the fourth quarter, we suspended our regular quarterly common stock dividend as we had met our 2008 REIT dividend distribution requirement. In addition, we aligned our 2009 regular quarterly dividend payments with the projected taxable income from recurring operations alone. Together, we believe these actions will improve our cash position by allowing us to retain $53.0 million of cash in the fourth quarter of 2008 and an additional $98 million over the course of 2009. We may make special distributions going forward, as necessary, related to taxable income associated with any asset dispositions and gain activity.
 
We are currently exploring various options to monetize some of our development and operating assets, including asset sales and the formation of new joint ventures. On an owned and managed basis, we have properties available for sale or contribution with an estimated total investment upon completion of $1.1 billion as of December 31, 2008. We may use some or all of the proceeds from these transactions to decrease our debt obligations, but there can be no assurance that we will consummate any such transactions or use the proceeds to pay our debt obligations.
 
Our liquidity position
 
As a result of the current market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to businesses and consumers. We believe our current maturity schedule is well-laddered. As of December 31, 2008, our total consolidated debt maturities for 2009 were $782.6 million, excluding principal amortization. Assuming that we exercise available extension options, our total 2009 consolidated debt maturities would be $340.7 million, excluding principal amortization. Our total unconsolidated debt maturities for 2009 were $212.1 million as of December 31, 2008, excluding principal amortization. Assuming we exercise available extension options, our total 2009 unconsolidated debt maturities would be $173.4 million, excluding principal amortization. As of December 31, 2008, we had $710.2 million available for future borrowings under our three multi-currency lines of credit and had cash and cash equivalents of $223.9 million. While we believe that we have sufficient working capital and capacity under our credit facilities to continue our business operations as usual in the near-term, continued turbulence in the global markets and economies and prolonged declines in business and consumer spending may adversely affect our liquidity and financial condition, as well as the liquidity and financial condition of our customers. If these market conditions persist in the long-term, they may limit our ability, and the ability of our customers, to timely replace maturing liabilities and access the capital markets to meet liquidity needs.
 
If the long-term debt ratings of the operating partnership fall below current levels, the borrowing cost of debt under our unsecured credit facilities and certain term loans may increase. In addition, if the long-term debt ratings of the operating partnership fall below investment grade, we may be unable to request borrowings in currencies other than U.S. dollars or Japanese Yen, as applicable. However, the lack of other currency borrowings does not affect our ability to fully draw down under the credit facilities or term loans. While we currently do not expect the long-term debt ratings of the operating partnership to fall below investment grade, in the event that the ratings do fall below those levels, we may be unable to exercise our options to extend the term of our credit facilities or our $230.0 million secured term loan credit agreement, and the loss of our ability to borrow in foreign currencies could affect our ability to optimally hedge our borrowings against foreign currency exchange rate changes. In addition, based on publicly available information regarding our lenders, we currently do not expect to lose borrowing capacity under our existing lines of credit and as a result of a dissolution, bankruptcy, consolidation, merger or other business combination among our lenders. Our access to funds under our credit facilities is dependent on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. If we do not have sufficient cash flows and income from our operations to meet our financial commitments and lenders are not able to meet their funding commitments to us, our business, results of operations, cash flows and financial condition could be adversely affected.
 
Certain of our third party indebtedness is held by our consolidated or unconsolidated joint ventures. In the event that our joint venture partner is unable to meet its obligations under our joint venture agreements or the third


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party debt agreements, we may elect to pay our joint venture partner’s portion of debt to avoid foreclosure on the mortgaged property or permit the lender to foreclose on the mortgaged property to meet the joint venture’s debt obligations. In either case, we would face a loss of income and asset value on the property.
 
In addition, a continued increase in the cost of credit and inability to access the capital and credit markets may adversely impact the occupancy of our properties, the disposition of our properties, private capital raising and contribution of properties to our co-investment ventures. If we are unable to contribute completed development properties to our co-investment ventures or sell our completed development projects to third parties, we will not be able to recognize gains from the contribution or sale of such properties and, as a result, our net income available to our common stockholders and our funds from operations will decrease. Additionally, business layoffs, downsizing, industry slowdowns and other similar factors that affect our customers may adversely impact our business and financial condition. Furthermore, general uncertainty in the real estate markets has resulted in conditions where the pricing of certain real estate assets may be difficult due to uncertainty with respect to capitalization rates and valuations, among other things, which may add to the difficulty of buyers or our co-investment ventures to obtain financing on favorable terms to acquire such properties or cause potential buyers to not complete acquisitions of such properties. The market uncertainty with respect to capitalization rates and real estate valuations also adversely impacts our net asset value.
 
In the event that we do not have sufficient cash available to us through our operations to continue operating our business as usual, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, divesting ourselves of properties, whether or not they otherwise meet our strategic objectives to keep in the long term, at less than optimal terms; issuing and selling our debt and equity in public or private transactions under less than optimal conditions; entering into leases with our customers at lower rental rates or less than optimal terms; or entering into lease renewals with our existing customers without an increase in rental rates at turnover. There can be no assurance, however, that such alternative ways to increase our liquidity will be available to us. Additionally, taking such measures to increase our liquidity may adversely affect our business, results of operations and financial condition.
 
Our main financial covenants with respect to our credit facilities generally relate to fixed charge or debt service coverage, liabilities to asset value, debt to asset value and unencumbered cash flow. As of December 31, 2008, we were in compliance with all of these covenants. There can be no assurance, however, that if the financial markets and economic conditions continue to deteriorate, that we will be able to continue to comply with our financial covenants.
 
Impairment and restructuring charges
 
We recognized charges in the fourth quarter of 2008 related to the valuation of our development program and reduction in personnel of approximately $219.5 million on an owned and managed basis ($218.0 million on a consolidated basis); these charges were almost entirely non-cash. The impairment charge on the assets under development and those available for sale or contribution on an owned or managed basis totaled approximately $100.7 million ($99.2 million on a consolidated basis), reflecting a 16% decline from the $617.4 million cost basis of the assets written down. The majority of the impairment charges related to assets in the Americas, with the remainder primarily in Europe. The impairment charge on the land inventory totaled approximately $94.7 million, reflecting a 34% decline from the $278.9 million cost basis of the land written down. These impairments were related to land inventory in the Americas. We also incurred approximately $11.8 million in charges for the write-off of pursuit costs related to development projects that we no longer plan to commence and reserves against tax assets associated with the reduction in development activity, as well as approximately $12.3 million of restructuring charges associated with severance, office closures and the termination of certain contractual obligations.
 
An impairment charge is recognized when the book value of a property or land parcel is greater than its estimated fair value, based on the intended use and holding period. The intended use of an asset, either held for sale or held for the long term, can significantly impact how impairment is measured. If an asset is intended to be sold, impairment is determined using the estimated fair value. If an asset is intended to be held for the long term, impairment is recognized if undiscounted cash flows over the entire holding period, including a residual value, are less than the cost basis. We determined impairment based upon estimated fair market values which are consistent


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with our business model to sell or contribute the assets we develop. When available, current market information was used to determine capitalization and rental growth rates. When market information was not readily available, the inputs were based on our understanding of market conditions and the experience of the management team, although actual results could differ significantly from our estimates. In a few instances, current comparative sales values were available and used to establish fair value. Additional impairments may be necessary in the future in the event that market conditions continue to deteriorate and impact the factors used to estimate fair value. We also utilized the knowledge of our regional teams and the recent valuations of our two open-ended funds, which contain a large, geographically-diversified pool of assets, all of which were subject to third-party appraisals at year end.
 
In order to comply with disclosure requirements as outlined in SFAS No. 157, the designation of the level of inputs used in the fair value models must be determined. Inputs used in establishing fair value for real estate assets generally fall within level three, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs was current market conditions that, in many instances, resulted in the use of significant unobservable inputs in establishing fair value measurements. See Part IV, Item 15: Note 3 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the real estate impairment losses recorded in our results of operations during the fourth quarter of 2008.
 
Market price of our shares
 
Recent global financial market and economic conditions have adversely impacted the market price per share of our common stock. Our market equity was $2.39 billion as of December 31, 2008, compared to $5.94 billion as of December 31, 2007. We define market equity as 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 at the relevant period end. The factors impacting the price per share of our common stock are discussed under the heading “Business Risks” in Part I, Item 1A of this report.
 
Customer bankruptcies
 
From a customer receivables standpoint, as of December 31, 2008, we believe that account receivables delinquency levels were consistent with our historical norms and we believe that we maintain adequate bad debt reserves. Although we believe that the number of bankruptcies of our customers increased during the fourth quarter of 2008, we believe the impact of such bankruptcies on our business was not significant for the year ended December 31, 2008. Our account receivables delinquencies may not continue at the same levels, our bad debt reserves may not be sufficient to cover such delinquencies as they occur and the level of customer bankruptcies may increase to levels that could be significant to our operations.
 
Real estate operations
 
Real estate fundamentals in the United States continued to weaken in the fourth quarter of 2008 as the national economy slowed further. We anticipate that the U.S. and global economies will decline further in 2009. Customer decision-making is prolonged, as commitments for new space are being eliminated or put on hold with only time critical leasing decisions being made. According to data provided by Torto Wheaton Research as of February 19, 2009, availability in the United States was 11.4% for the quarter ended December 31, 2008, up 70 basis points from the prior quarter and 200 basis points from the fourth quarter of 2007. Also, according to Torto Wheaton Research, absorption was negative 47.1 million square feet in the fourth quarter of 2008, and construction completions were 44.5 million square feet, down from 45.6 million square feet in the prior quarter. For 2008, absorption was negative 94.1 million square feet, the lowest since 2001. While we expect the delivery pipeline to decline substantially, we expect net absorption to be negative in 2009.
 
We believe the strongest industrial markets in the United States continue to be the primary infill coastal markets tied to global trade. While demand has weakened notably across the U.S., due primarily to the weakening economy, we believe our coastal markets will continue to outperform other U.S. industrial markets. Outside the United States, while activity is moderating, we believe that we will continue to experience demand for our


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distribution facilities due to the reconfiguration of supply chains and customer requirements for upgraded distribution space to modern facilities.
 
The table below summarizes key operating and leasing statistics for our owned and managed operating properties for the years ended December 31, 2008 and 2007:
 
                                 
                Total/Weighted
Owned and Managed Property Data(1)
  The Americas   Europe   Asia   Average
 
For the year ended December 31, 2008:
                               
Rentable square feet
    111,379,838       9,802,487       10,325,794       131,508,119  
Occupancy percentage at period end(2)
    95.1 %     97.0 %     92.7 %     95.1 %
Trailing four quarter same space square footage leased
    17,452,675       421,051       513,354       18,387,080  
Trailing four quarter rent change on renewals and rollovers(2)(3)
    3.7 %     (14.6 )%     4.0 %     3.1 %
For the year ended December 31, 2007:
                               
Rentable square feet
    101,627,803       8,500,962       8,051,530       118,180,295  
Occupancy percentage at period end(2)
    96.0 %     96.1 %     96.6 %     96.0 %
Trailing four quarter same space square footage leased
    18,144,411       690,569       405,912       19,240,892  
Trailing four quarter rent change on renewals and rollovers(2)(3)
    4.1 %     7.6 %     19.5 %     4.9 %
 
 
(1) Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager and which we currently intend to hold for the long-term. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) On a consolidated basis, for the Americas, Europe and Asia, occupancy percentage at period end for 2008 was 94.8%, 90.8% and 90.0%, and trailing four quarter rent change on renewals and rollovers at period end for 2008 was 4.2%, n/a and 5.7%, respectively. On a consolidated basis, for the Americas, Europe and Asia, occupancy percentage at period end for 2007 was 96.6%, 100.0% and 100.0%, and trailing four quarter rent change on renewals and rollovers at period end for 2007 was 4.2%, n/a and 48.7% respectively. Properties in Europe are primarily held in the unconsolidated co-investment venture AMB Europe Fund I, FCP-FIS.
 
(3) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net annualized base rent (ABR) due the first month of a term commencement and the net ABR due the last month of the former customer’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
Although the economy continued to slow, we maintained strong occupancy levels at December 31, 2008 compared to September 30, 2008 and December 31, 2007. Our owned and managed portfolio occupancy at December 31, 2008 was 95.1%, down from 95.4% at September 30, 2008 and 96.0% at December 31, 2007, while average occupancy was 94.9%, down from 95.0% at September 30, 2008 and 95.1% at December 31, 2007. During the three months ended December 31, 2008, rent on renewed and re-leased space in our operating portfolio increased 2.5% on an owned and managed basis, excluding expense reimbursements, rental abatements, percentage rents and straight-line rents. Rental rates on lease renewals and rollovers in our portfolio increased 3.1% for the trailing four quarters ended December 31, 2008. During 2008, cash-basis same store net operating income, with and without the effect of lease termination fees, grew by 4.0% and 0.2%, respectively, on an owned and managed basis. Excluding the impact of foreign currency exchange rate movements against the U.S. dollar, cash-basis same store net operating income without the effect of lease termination fees increased 2.3% during the year ended


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December 31, 2008. At December 31, 2008, cash-basis same store net operating income, with and without the effect of lease termination fees, increased by 4.4% and 3.7%, respectively, on an owned and managed basis. See “Supplemental Earnings Measures” for a discussion of cash-basis same store net operating income and a reconciliation of cash-basis same store net operating income and net income.
 
Development Business
 
Our development business consists of conventional development, build-to-suit development, redevelopment, value-added conversions and land sales. We generate earnings from our development business through the disposition or contribution of projects from these activities.
 
Despite the cyclical downturn in the U.S. and global economies, we believe that, over the long term, customer demand for new industrial space in strategic markets tied to global trade will continue to outpace supply, most notably in major gateway markets in Asia and Europe. To capitalize on this demand, we intend to opportunistically develop in many of our global markets that are essential to global trade. However, given the uncertainty in the global economy, we curtailed development activity, and as a result, development starts for the full year decreased 50% over 2007 with 69% of our 2008 development starts outside the United States. For 2009, our development activity will be limited to fulfilling prior commitments until the financial and real estate markets stabilize. In addition to our committed development pipeline, we hold a total of 2,503 acres of land for future development or sale, approximately 86% of which is located in North America, including 79 acres that are held in an unconsolidated joint venture. We currently estimate that these 2,503 acres of land could support approximately 45.1 million square feet of future development. Our long-term capital allocation goal is to have approximately 50% of our owned and managed operating portfolio invested in non-U.S. markets based on annualized base rent.
 
We believe that our historical investment focus on industrial real estate in some of the world’s most strategic infill markets positions us to create value through the select conversion of industrial properties to higher and better uses (value-added conversions). Generally, we expect to sell to third parties these value-added conversion projects at some point in the re-entitlement/conversion process, thus recognizing the enhanced value of the underlying land that supports the property’s repurposed use. Value-added conversions involve the repurposing of industrial properties to a higher and better use, including office, residential, retail, research & development or manufacturing. Activities required to prepare the property for conversion to a higher and better use may include such activities as rezoning, redesigning, reconstructing and retenanting. The sales price of a value-added conversion project is generally based on the underlying land value, reflecting its ultimate higher and better use and as such, little to no residual value is ascribed to the industrial building. Due to dislocation in the housing industry, we do not believe that this is the optimal time to market certain value-added conversion projects, in particular, those intended to include a residential component. We remain committed to the viability of this development activity and believe that a well-timed approach to executing value-added conversion transactions will enhance stockholder value over the long term.
 
Private Capital Business
 
Since our initial public offering in 1997, we have formed eleven co-investment ventures and raised approximately $3.1 billion of private capital from third parties as equity in such co-investment ventures. Eight of these co-investment ventures are still active in the United States, Mexico, Europe and Japan: AMB Institutional Alliance Fund III, L.P., AMB Europe Fund I, FCP-FIS, AMB Japan Fund I, L.P., AMB-SGP Mexico, LLC, AMB DFS Fund I, LLC, AMB-SGP, L.P., AMB Institutional Alliance Fund II, L.P., and AMB-AMS, L.P.
 
We believe that our co-investment program with private-capital investors will continue to serve as a source of revenues and capital for new investments. Through these co-investment ventures, we typically earn acquisition fees, asset management fees and priority distributions, as well as promote interests and incentive distributions based on the performance of the co-investment ventures; however, we cannot assure you that we will continue to do so. Through contribution of development properties to our co-investment ventures, we expect to recognize value creation from our development pipeline. In anticipation of the formation of future co-investment ventures, we may also hold acquired and newly developed properties for contribution to such future co-investment ventures.


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Equityholders in two of our co-investment ventures, AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, have a right to request that the ventures redeem their interests under certain conditions. The redemption right of investors in AMB Institutional Alliance Fund III, L.P. is currently exercisable, and as of December 31, 2008, this co-investment venture had $132.7 million of outstanding redemption requests based on the co-investment venture’s net asset value at December 31, 2008. The redemption right of investors in AMB Europe Fund I, FCP-FIS is exercisable beginning after July 1, 2011. Although such redemption rights generally do not require the co-investment ventures to allocate newly acquired capital to cover redemption activity, there can be no assurance that such allocation will not occur and will not occur in such magnitude that will affect our contribution of properties to the ventures. While we have no obligation to fund redemption requests, we plan to meet our redemptions as cash becomes available through property sales, financings and new capital contributions.
 
As of December 31, 2008, we owned approximately 78.7 million square feet of our properties (49.2% of the total operating and development portfolio) through our consolidated and unconsolidated co-investment ventures. We may make additional investments through these co-investment ventures or new co-investment ventures in the future and presently plan to do so. Given the current economic environment, however, the pace of new private capital commitments has slowed significantly.
 
Summary of Key Transactions in 2008
 
During the year ended December 31, 2008, we completed the following significant capital deployment and other transactions:
 
  •  Acquired, on an owned and managed basis, 21 properties in the Americas, Asia and Europe aggregating approximately 5.3 million square feet for $543.2 million, including 11 properties aggregating approximately 2.5 million square feet for $326.2 million through unconsolidated co-investment ventures and ten properties aggregating approximately 2.8 million square feet for $217.0 million acquired directly by us;
 
  •  Committed to 23 new development projects in the Americas, Europe and Asia totaling approximately 7.4 million square feet with an estimated total investment of approximately $544.7 million;
 
  •  Acquired 380 acres of land for development in the Americas, Europe and Asia for approximately $217.1 million;
 
  •  Sold development projects aggregating approximately 0.2 million square feet, including 0.1 million square feet that was held in an unconsolidated co-investment venture, and one seven-acre parcel of land that was held in an unconsolidated co-investment venture, for an aggregate sale price of $83.8 million;
 
  •  Contributed eleven completed development projects aggregating approximately 5.2 million square feet to AMB Institutional Alliance Fund III, L.P., AMB-SGP Mexico, LLC, AMB Europe Fund I, FCP-FIS, and AMB Japan Fund I, L.P., all unconsolidated co-investment ventures;
 
  •  On June 13, 2008, acquired approximately 19% and, on July 18, 2008, acquired the remaining equity interest (approximately 42%) in G. Accion, a Mexican real estate company, increasing our equity interest in the aggregate from approximately 39% to 100%; and
 
  •  On July 1, 2008, the partners of AMB Partners II, L.P. contributed their interests in AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture.
 
See Part IV, Item 15: Notes 4 and 5 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of our acquisition, development and disposition activity.
 
During the year ended December 31, 2008, we completed the following significant capital markets and other financing transactions:
 
  •  Obtained long-term secured debt financings for our consolidated joint ventures of $55.4 million with a weighted average interest rate of 5.8%;
 
  •  Assumed $36.4 million secured debt for our joint ventures with a weighted average interest rate of 8.6%;


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  •  Obtained $239.0 million of secured debt (using the exchange rates in effect at the applicable quarter end dates) with a weighted average interest rate of 2.5% for international assets;
 
  •  Sold $325.0 million aggregate principal amount of the operating partnership’s senior unsecured notes under its Series C medium-term note program;
 
  •  Paid off $175.0 million of medium-term notes which matured in June 2008 and had an interest rate of 7.10%;
 
  •  Obtained and paid off a $100.0 million unsecured money market loan which matured in June 2008 and had an interest rate of 3.6%;
 
  •  Obtained and paid off a $100.0 million unsecured money market loan, which matured in September 2008 and had an interest rate of 3.4%;
 
  •  Obtained a $325.0 million unsecured term loan facility, which had a balance of $325.0 million outstanding as of December 31, 2008, with a weighted average interest rate of 3.5%;
 
  •  Repurchased approximately 1.8 million shares of our common stock for an aggregate price of $87.7 million, at a weighted average price of $49.64 per share;
 
  •  On July 1, 2008, the partners of AMB Partners II, L.P. contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P., in exchange for interests in AMB Institutional Alliance Fund III, L.P. At the contribution date, the outstanding balance of the $65.0 million non-recourse credit facility obtained by AMB Partners II, L.P. was repaid in full and the facility was terminated. Additionally, AMB Institutional Alliance Fund III, L.P., assumed $314.4 million of secured debt with a weighted average interest rate of 6.1%; and
 
  •  Obtained a $230.0 million secured term loan facility, which had a balance of $230.0 million outstanding as of December 31, 2008, and a weighted average interest rate of 4.0%.
 
See Part IV, Item 15: Notes 6, 9 and 11 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of our capital markets transactions.
 
Critical Accounting Policies
 
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
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, an adjustment to the carrying value of the property is made to reduce it to its estimated fair value. We also regularly review the impact of above or below-market leases, in-place leases and lease origination costs for acquisitions, and record 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. When the carrying value of a property or land parcel is greater than its estimated fair value, based on the intended use and holding period, an impairment charge to earnings is recognized for the excess over its estimated fair value less costs to sell. The intended use of an asset, either held for sale or held for the long term, can significantly impact how impairment is measured. If an asset is intended to be held for the long term, the impairment


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analysis is based on a two-step test. The first test measures estimated expected future cash flows over the holding period, including a residual value (undiscounted and without interest charges), against the carrying value of the property. If the asset fails the test, then the asset carrying value is measured against the lower of cost or the present value of expected cash flows over the expected hold period. An impairment charge to earnings is recognized for the excess of the asset’s carrying value over the lower of cost or the present values of expected cash flows over the expected hold period. If an asset is intended to be sold, impairment is determined using the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economic and market conditions and the availability of capital. We determine the estimated fair values based on our assumptions regarding rental rates, costs to complete, lease-up and holding periods, as well as sales prices or contribution values. When available, current market information was used to determine capitalization and rental growth rates. When market information was not readily available, the inputs were based on our understanding of market conditions and the experience of the management team. Actual results could differ significantly from our estimates. The discount rates used in the fair value estimates ranged from 8-11% and represent a rate commensurate with the indicated holding period with a premium layered on for risk. In a few instances, current comparative sales values were available and used to establish fair value. We also utilize the knowledge of our regional teams and the recent valuations of our two open-ended funds, which contain a large, geographically diversified pool of assets, all of which are subject to third-party appraisals at year end.
 
Revenue Recognition.  We record rental revenue from operating leases on a straight-line basis over the term of the leases and maintain an allowance for estimated losses that may result from the inability of our customers to make required payments. If customers fail to make contractual lease payments that are greater than our allowance for doubtful accounts, security deposits and letters of credit, then we may have to recognize additional doubtful account charges in future periods. We monitor the liquidity and creditworthiness of our customers on an on-going basis by reviewing their financial condition periodically as appropriate. Each period we review our outstanding accounts receivable, including straight-line rents, for doubtful accounts and provide allowances as needed. We also record lease termination fees when a customer has executed a definitive termination agreement with us and the payment of the termination fee is not subject to any conditions that must be met or waived before the fee is due to us. If a customer remains in the leased space following the execution of a definitive termination agreement, the applicable termination fees are deferred and recognized over the term of such customer’s occupancy.
 
Property Dispositions.  We report real estate dispositions in three separate categories on our consolidated statements of operations. First, when we divest a portion of our interests in real estate entities or properties, gains from the sale represent the interests acquired by third-party investors for cash and are included in gains from sale or contribution of real estate interests in the statement of operations. Second, we dispose of value-added conversion projects and build-to-suit and speculative development projects for which we have not generated material operating income prior to sale. The gain or loss recognized from the disposition of these projects is reported net of estimated taxes, when applicable, and are included in development profits, net of taxes, within continuing operations of the statement of operations. Third, we dispose of value-added conversion and other redevelopment projects for which we may have generated material operating income prior to sale. The gain or loss recognized is reported net of estimated taxes, when applicable, in the development gains line within discontinued operations. Lastly, Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires us to separately report as discontinued operations the historical operating results attributable to operating properties sold and the applicable gain or loss on the disposition of the properties, which is included in development gains and gains from dispositions of real estate, net of taxes and minority interests, in the statement of operations. The consolidated statements of operations for prior periods are also adjusted to conform with this classification. There is no impact on our previously reported consolidated financial position, net income or cash flows. In all cases, gains and losses are recognized using the full accrual method of accounting. Gains relating to transactions which do not meet the requirements of the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met.
 
Joint Ventures.  We hold interests in both consolidated and unconsolidated joint ventures. We determine consolidation based on standards set forth in FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51 (FIN 46) or EITF Issue No. 04-5 (EITF 04-5), Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the


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Limited Partners Have Certain Rights and SOP 78-9, Accounting for Investments in Real Estate Ventures. For joint ventures that are variable interest entities as defined under FIN 46 where we are not the primary beneficiary, we do not consolidate the joint venture for financial reporting purposes. Based on the guidance set forth in EITF 04-5, we consolidate certain joint venture investments because we exercise significant control over major operating decisions, such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing. We are the general partner (or equivalent of a general partner in entities not structured as partnerships) in a number of our consolidated joint venture investments. In all such cases, the limited partners in such investments (or equivalent of limited partners in such investments which are not structured as partnerships) do not have rights described in EITF 04-5, which would preclude consolidation. We consolidate certain other joint ventures where we are not the general partner (or equivalent of a general partner in entities not structured as partnerships) because we have control over those entities through majority ownership, retention of the majority of economics, and a combination of substantive kick-out rights and/or substantive participating rights. For joint ventures under EITF 04-5 where we do not exercise significant control over major operating and management decisions, but where we exercise significant influence, we use the equity method of accounting and do not consolidate the joint venture for financial reporting purposes. In such unconsolidated joint ventures, either we are not the general partner (or general partner equivalent) and do not hold sufficient capital or any rights that would require consolidation or, alternatively, we are the general partner (or the general partner equivalent) and the other partners (or equivalent) hold substantive participating rights that override the presumption of control.
 
Based on the guidance set forth in EITF 04-5, we consolidate certain co-investment venture investments because we exercise significant control over major operating decisions, such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing. For co-investment ventures under EITF 04-5, where we do not exercise significant control over major operating and management decisions, but where we exercise significant influence, we use the equity method of accounting and do not consolidate the co-investment venture for financial reporting purposes.
 
Capitalized General and Administrative Expenses.  In conformity with SFAS No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, we capitalize costs, such as general and administrative expenses that are directly related to our development projects, based on time spent on development activities.
 
Real Estate Investment Trust.  As a real estate investment trust, we generally will not be subject to corporate level federal income taxes in the United States if we meet minimum distribution requirements, and certain income, asset and share ownership tests. However, some of our subsidiaries may be subject to federal and state taxes. In addition, foreign entities may also be subject to the taxes of the host country. An income tax allocation is required to be estimated on our taxable income arising from our taxable real estate investment trust subsidiaries and international entities. A deferred tax component could arise based upon the differences in GAAP versus tax income for items such as depreciation and gain recognition. However, we believe the net deferred tax is an immaterial component of our consolidated balance sheet.
 
Foreign Currency Remeasurement and Translation.  Transactions that require the remeasurement and translation of a foreign currency are recorded according to the guidance set forth in SFAS No. 52, Foreign Currency Translation. The U.S. dollar is the functional currency for our subsidiaries formed in the United States, Mexico and certain subsidiaries in Europe. Other than Mexico and certain subsidiaries in Europe, the functional currency for our subsidiaries operating outside the United States is generally the local currency of the country in which the entity or property is located, mitigating the effect of currency 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.
 
Our international subsidiaries may have transactions denominated in currencies other than their functional currencies. 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. We also record gains or losses in the income statement when a transaction with a third party, denominated in a currency other than the entity’s functional


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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.
 
CONSOLIDATED RESULTS OF OPERATIONS
 
The analysis below includes changes attributable to same store growth, acquisitions, development activity and divestitures. The same store pool includes all properties that are owned as of the end of both the current and prior year reporting periods and excludes development properties stabilized after December 31, 2006 (generally defined as properties that are 90% leased or properties that have been substantially complete for at least 12 months). As of December 31, 2008, the same store industrial pool consisted of properties aggregating approximately 65.0 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 Years Ended December 31,
    2008   2007   2006
 
Acquired:
                       
Number of properties
    10       7       31  
Square feet (in thousands)
    2,831       702       6,595  
Acquisition cost (in thousands)
  $ 217,044     $ 62,241     $ 568,369  
Sold or Contributed:
                       
Number of properties
    19       32       50  
Square feet (in thousands)
    5,274       8,600       7,500  
 
For the Years Ended December 31, 2008 and 2007 (dollars in millions):
 
                                 
    For the Years Ended
             
    December 31,              
Revenues
  2008     2007     $ Change     % Change  
 
Rental revenues
                               
U.S. industrial:
                               
Same store
  $ 534.1     $ 569.5     $ (35.4 )     (6.2 )%
2008 acquisitions
    0.2             0.2       100.0 %
2007 acquisitions
    1.4       0.5       0.9       180.0 %
Development
    9.1       8.6       0.5       5.8 %
Other industrial
    16.8       8.7       8.1       93.1 %
Non-U.S. industrial
    85.0       52.3       32.7       62.5 %
                                 
Total rental revenues
    646.6       639.6       7.0       1.1 %
Private capital revenues
    68.4       31.7       36.7       115.6 %
                                 
Total revenues
  $ 715.0     $ 671.3     $ 43.7       6.5 %
                                 
 
U.S. industrial same store rental revenues decreased $35.4 million from the prior year primarily due to the decrease of $40.6 million in same store revenues from the contribution of the interests in AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture, on July 1, 2008. Same store rental revenues for the year ended December 31, 2008 would have been $574.7 million if the interests in AMB Partners II, L.P. had not been contributed as of December 31, 2008. The decrease of $40.6 million related to the contribution of interests in AMB Partners II, L.P. was offset by an increase of $5.2 million, primarily due to increased rates and decreases in free rent. The increase in rental revenues from development of $0.5 million was primarily due to increased occupancy at several of our development projects. Other industrial revenues include rental revenues from development projects that have reached certain levels of operation but are not yet part of the same store operating pool of properties. The increase in these revenues of


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$8.1 million reflects the number of projects that have reached these levels of operation and higher rent levels during 2008. The increase in revenues from non-U.S. industrial properties of $32.7 million was primarily due to the acquisition of 2.4 million square feet of operating properties during 2008 as well as an increase in square footage leased at our completed development properties. The increase in private capital revenues of $36.7 million was primarily due to the receipt of an incentive distribution of $33.0 million for AMB Institutional Alliance Fund III, L.P., an incentive distribution of $1.0 million in connection with the sale of the partnership interests in AMB/Erie, L.P., including its final real estate asset to AMB Institutional Alliance Fund III, L.P., and an increase in asset management fees as a result of an increase in total unconsolidated assets under management, partially offset by a decrease in acquisition fees.
 
                                 
    For the Years Ended
             
    December 31,              
Costs and Expenses
  2008     2007     $ Change     % Change  
 
Property operating costs:
                               
Rental expenses
  $ 103.5     $ 99.2     $ 4.3       4.4 %
Real estate taxes
    81.2       75.2       6.0       7.9 %
                                 
Total property operating costs
  $ 184.7     $ 174.4     $ 10.3       5.9 %
                                 
Property operating costs
                               
U.S. industrial:
                               
Same store
  $ 148.4     $ 162.4     $ (14.0 )     (8.6 )%
2008 acquisitions
    0.2             0.2       100.0 %
2007 acquisitions
    0.3       1.8       (1.5 )     (83.3 )%
Development
    4.4       4.8       (0.4 )     (8.3 )%
Other industrial
    6.7       8.8       (2.1 )     (23.9 )%
Non-U.S. industrial
    24.7       (3.4 )     28.1       (826.5 )%
                                 
Total property operating costs
    184.7       174.4       10.3       5.9 %
Depreciation and amortization
    169.1       162.3       6.8       4.2 %
General and administrative
    144.0       129.5       14.5       11.2 %
Retructuring charges
    12.3             12.3       100.0 %
Fund costs
    1.1       1.1             %
Real estate impairment losses
    193.9       1.2       192.8       NA %
Other expenses
    0.5       5.1       (4.6 )     (89.8 )%
                                 
Total costs and expenses
  $ 705.6     $ 473.6     $ 232.0       49.0 %
                                 
 
Same store properties’ operating expenses decreased $14.0 million from the prior year primarily due to a decrease of $10.5 million from the contribution of the interests in AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture, on July 1, 2008. The decrease of $3.5 million, excluding the effect of the AMB Partners II, L.P. contribution, was primarily due to decreased repairs and maintenance expense as well as decreases in real estate taxes and insurance expense. Other industrial expenses include expenses from divested properties that have been contributed to unconsolidated co-investment ventures, which are not classified as discontinued operations in our consolidated financial statements, and development properties that have reached certain levels of operation but are not yet part of the same store operating pool of properties. The decrease in these costs of $2.1 million during the year ended December 31, 2008 was primarily due to the decrease in our development-start and acquisition activities. Development starts for the full year 2008 totaled $544.7 million, a 50 percent decrease from $1.1 billion in 2007. The decrease was partially offset by the contribution of one operating property totaling 0.8 million square feet during 2008. The increase in property operating costs for non-U.S. industrial properties of $28.1 million was primarily due to the acquisition of 2.4 million square feet of operating properties during 2008, as well as an increase in square footage leased at our completed development properties. The increase in depreciation and amortization expense of $6.8 million was primarily due to the recognition of $4.3 million of depreciation expense resulting from


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the reclassification of $76.7 million from properties held for contribution to investments in real estate. The increase in general and administrative expenses of $14.5 million was primarily due to an increase in personnel costs, resulting from increased employee headcount in the first three quarters of 2008 as well as an increase in professional services, and taxes. During the year ended December 31, 2008, we recorded $12.3 million in restructuring charges due to the implementation of a broad-based cost reduction plan, which included a reduction in global headcount, office closure costs and the termination of certain contractual obligations. The increase in real estate impairment losses was primarily a result of changes in the economic environment in addition to the write-off of pursuit costs. See Part IV, Item 15: Note 3 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the real estate impairment losses recorded in our results of operations during the fourth quarter of 2008. The decrease in other expenses of $4.6 million was primarily due to a loss on our non-qualified deferred compensation plans during the year ended December 31, 2008, compared to a gain during the year ended December 31, 2007.
 
                                 
    For the Years Ended
             
    December 31,              
Other Income and (Expenses)
  2008     2007     $ Change     % Change  
 
Development profits, net of taxes
  $ 81.1     $ 124.3     $ (43.2 )     (34.8 )%
Gains from sale or contribution of real estate interests, net
    20.0       73.4       (53.5 )     (72.8 )%
Equity in earnings of unconsolidated joint ventures, net
    17.1       7.5       9.7       129.3 %
Other (expense) income
    (3.2 )     22.3       (25.4 )     (114.4 )%
Interest expense, including amortization
    (133.5 )     (127.0 )     6.6       5.2 %
                                 
Total other income and (expenses), net
  $ (18.5 )   $ 100.5     $ (118.9 )     118.4 %
                                 
 
Development profits represent gains from the sale or contribution of development projects including land. See the development sales and development contributions tables and “— Property Divestitures” in “Capital Resources” for a discussion of the development asset sales and contributions and the associated development profits during the years ended December 31, 2008 and 2007. During the year ended December 31, 2008, we contributed an operating property for approximately $66.2 million, aggregating approximately 0.8 million square feet, into AMB Institutional Alliance Fund III, L.P. As a result, we recognized a gain of $20.0 million on the contribution, representing the portion of our interest in the contributed property acquired by the third-party investors for cash. During the year ended December 31, 2007, we contributed 4.2 million square feet in operating properties into AMB Europe Fund I, FCP-FIS, contributed a 0.2 million square foot operating property into AMB Institutional Alliance Fund III, L.P., and contributed an operating property aggregating approximately 0.1 million square feet into AMB-SGP Mexico, LLC, for a total of approximately $524.9 million. As a result of these contributions, we recognized gains from the contribution of real estate interests of approximately $73.4 million, representing the portion of our interest in the contributed properties acquired by the third-party investors for cash.
 
The increase in equity in earnings of unconsolidated joint ventures of $9.7 million for the year ended December 31, 2008 as compared to the year ended December 31, 2007 was primarily due to the contribution of the interests in AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture, as well as growth in our unconsolidated assets under management. Other (expense) income decreased $25.4 million from the prior year primarily due to foreign currency exchange rate loss, a loss on our non qualified deferred compensation plan of $7.8 million, the recognition of a $5.5 million loss on impairment of an investment and a decrease in interest income of approximately $3.3 million, partially offset by an increase in third party management fees. During the year ended December 31, 2007, we recognized a gain on currency remeasurement of approximately $3.1 million, compared to a loss of approximately $5.7 million in 2008. Additionally, other income during the year ended December 31, 2007 included insurance proceeds of approximately $2.9 million related to losses from Hurricanes Katrina and Wilma. Interest expense increased $6.6 million as result of increased total consolidated debt at December 31, 2008.
 


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    For the Years Ended
             
    December 31,              
Discontinued Operations
  2008     2007     $ Change     % Change  
 
(Loss) income attributable to discontinued operations, net of minority interests
  $ (0.4 )   $ 8.9     $ (9.3 )     (104.5 )%
Development gains and gains from sale of real estate interests, net of taxes and minority interests
    1.9       62.0       (60.1 )     (97.0 )%
                                 
Total discontinued operations
  $ 1.5     $ 70.9     $ (69.4 )     (97.9 )%
                                 
 
During the year ended December 31, 2008, we sold an approximate 0.1 million square foot industrial operating property for a sale price of $3.6 million, with a resulting net gain of $0.7 million, and also recognized a deferred gain of approximately $1.1 million on the divestiture of one industrial building, aggregating approximately 0.1 million square feet, for a price of $3.5 million, which was disposed of on December 31, 2007. During the year ended December 31, 2007, we divested ourselves of three industrial buildings, aggregating approximately 0.3 million square feet, for an aggregate price of $120.0 million, with a resulting net gain of $2.0 million, and two value-added conversion projects resulting in a gain of approximately $60.0 million.
 
                                 
    For the Years Ended
             
    December 31,              
Preferred Stock
  2008     2007     $ Change     % Change  
 
Preferred stock dividends
  $ (15.8 )   $ (15.8 )   $       %
Preferred unit redemption issuance costs
          (2.9 )     2.9       (100.0 )%
                                 
Total preferred stock
  $ (15.8 )   $ (18.7 )   $ 2.9       (15.6 )%
                                 
 
On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units and all 800,000 of its outstanding 7.95% Series K Cumulative Redeemable Preferred Limited Partnership Units. In addition, AMB Property II, L.P., one of our subsidiaries, repurchased all 510,000 of its outstanding 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units. As a result of the redemptions and repurchase, we recognized a reduction of income available to common stockholders of $2.9 million for the original issuance costs during the year ended December 31, 2007. No repurchases were made during the year ended December 31, 2008.

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For the Years Ended December 31, 2007 and 2006 (dollars in millions):
 
Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P., on a prospective basis, due to the re-evaluation of the accounting for our investment in the fund because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. As a result, our results of operations presented below are not comparable between years presented.
 
                                 
    For the Years Ended
             
    December 31,              
Revenues
  2007     2006     $ Change     % Change  
 
Rental revenues
                               
U.S. industrial:
                               
Same store
  $ 569.5     $ 595.5     $ (26.0 )     (4.4 )%
2007 acquisitions
    0.5             0.5       100.0 %
Development
    8.6       2.9       5.7       196.6 %
Other industrial
    8.7       5.3       3.4       64.2 %
Non-U.S. industrial
    52.3       62.6       (10.3 )     (16.5 )%
                                 
Total rental revenues
    639.6       666.3       (26.7 )     (4.0 )%
Private capital revenues
    31.7       46.1       (14.4 )     (31.2 )%
                                 
Total revenues
  $ 671.3     $ 712.4     $ (41.1 )     (5.8 )%
                                 
 
U.S. industrial same store rental revenues decreased $26.0 million from the prior year due primarily to the deconsolidation of AMB Institutional Alliance Fund III, L.P., on October 1, 2006. Same store rental revenues for the year ended December 31, 2006 would have been $542.1 million if AMB Institutional Alliance Fund III, L.P. had been deconsolidated as of January 1, 2006. The increase of $27.4 million, excluding the deconsolidation of AMB Institutional Alliance Fund III, L.P., is primarily due to increased occupancy, rent increases on renewals and rollovers as well as decreases in free rent. The 2007 acquisitions consisted of seven properties, aggregating approximately 0.7 million square feet. The increase in rental revenues from development was primarily due to increased occupancy at several of our development projects where development activities have been substantially completed as well as an increase in the number of development projects. Other industrial revenues include rental revenues from properties that have been contributed to an unconsolidated co-investment 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. The increase in other industrial revenues was primarily due to an increase in base rents. The decrease in revenues from non-U.S. industrial properties was primarily due to the contribution of 4.2 million square feet of operating properties and approximately 1.8 million square feet of completed development projects into AMB Europe Fund I, FCP-FIS. The decrease in private capital income of $14.4 million was primarily due to a decrease in incentive fees, acquisition fees, and disposition fees offset by an increase in asset management fees as a result of an increase in total assets under management.
 


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    For the Years Ended
             
    December 31,              
Costs and Expenses
  2007     2006     $ Change     % Change  
 
Property operating costs:
                               
Rental expenses
  $ 99.2     $ 96.3     $ 2.9       3.0 %
Real estate taxes
    75.2       76.9       (1.7 )     (2.2 )%
                                 
Total property operating costs
  $ 174.4     $ 173.2     $ 1.2       0.7 %
                                 
Property operating costs
                               
U.S. industrial:
                               
Same store
  $ 162.4     $ 158.4     $ 4.0       2.5 %
2007 acquisitions
    1.8             1.8       100.0 %
Development
    4.8       2.8       2.0       71.4 %
Other industrial
    8.8       0.1       8.7       N/A  
Non-U.S. industrial
    (3.4 )     11.9       (15.3 )     (128.6 )%
                                 
Total property operating costs
    174.4       173.2       1.2       0.7 %
Depreciation and amortization
    162.3       175.4       (13.1 )     (7.5 )%
General and administrative
    129.5       104.3       25.2       24.2 %
Fund costs
    1.1       2.1       (1.0 )     (48.5 )%
Real estate impairment losses
    1.2       6.3       (5.2 )     (81.7 )%
Other expenses
    5.1       2.6       2.5       95.1 %
                                 
Total costs and expenses
  $ 473.6     $ 463.9     $ 9.6       2.1 %
                                 
 
Same store properties’ operating expenses increased $4.0 million from the prior year, despite a decrease of approximately $12.7 million due to the deconsolidation of AMB Institutional Alliance Fund III, L.P., on October 1, 2006. Same store operating expenses for the year ended December 31, 2006 would have been $145.7 million if AMB Institutional Alliance Fund III, L.P. had been deconsolidated as of January 1, 2006. The increase of approximately $16.7 million, had AMB Institutional Alliance Fund III, L.P. been deconsolidated as of January 1, 2006, was primarily due to increased insurance costs, real estate taxes, roads and grounds expense, and management fees. The 2007 acquisitions consisted of seven properties, aggregating approximately 0.7 million square feet. The increase in development operating costs was primarily due to increased operations in certain development projects which have been substantially completed. This increase was primarily due to increases in real estate taxes and utilities. The increase in other industrial property operating costs was primarily due to insurance, cleaning and non-reimbursable expenses. The decrease in property operating costs from non-U.S. industrial properties is primarily due to the contribution of 4.2 million square feet of operating properties and approximately 1.8 million square feet of completed development projects into AMB Europe Fund I, FCP-FIS. The decrease in depreciation and amortization expense was due to the deconsolidation of AMB Institutional Alliance Fund III, L.P. The increase in general and administrative expenses was primarily due to additional staffing and the opening of new offices both domestically and internationally. The decrease of fund costs from the prior year was due primarily to the deconsolidation of AMB Institutional Alliance Fund III, L.P. The impairment losses during the year ended December 31, 2007 were taken on non-core assets as a result of leasing activities and changes in the economic environment. The impairment losses during the year ended December 31, 2006 were 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. Other expenses increased approximately $2.5 million from the prior year due primarily to an increase in dead deal expenditures.
 

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    For the Years Ended
             
    December 31,              
Other Income and (Expenses)
  2007     2006     $ Change     % Change  
 
Development profits, net of taxes
  $ 124.3     $ 106.4     $ 17.9       16.8 %
Gains from sale or contribution of real estate interests, net
    73.4             73.4       100.0 %
Equity in earnings of unconsolidated joint ventures, net
    7.5       23.2       (15.8 )     (67.9 )%
Other income
    22.3       11.8       10.4       88.4 %
Interest expense, including amortization
    (127.0 )     (161.4 )     (34.5 )     (21.4 )%
                                 
Total other income and (expenses), net
  $ 100.5     $ (20.0 )   $ 120.5       602.1 %
                                 
 
Development profits, net of taxes, represent gains from the sale or contribution of development projects including land. See the development sales and development contributions tables and “— Property Divestitures” in “Capital Resources” for a discussion of the development asset sales and contributions and the associated development profits during the years ended December 31, 2007 and 2006. During the year ended December 31, 2007, we contributed 4.2 million square feet in operating properties into AMB Europe Fund I, FCP-FIS, contributed a 0.2 million square foot operating property into AMB Institutional Alliance Fund III, L.P., and contributed an operating property aggregating approximately 0.1 million square feet into AMB-SGP Mexico, LLC, for a total of approximately $524.9 million. As a result of these contributions, we recognized gains from contribution of real estate interests of approximately $73.4 million, representing the portion of our interest in the contributed properties acquired by the third-party investors for cash. The decrease in equity in earnings of unconsolidated joint ventures of approximately $15.8 million was primarily due to a decrease in gains from the sale of real estate interests by our unconsolidated joint ventures partially offset by the deconsolidation of AMB Institutional Alliance Fund III, L.P. Other income increased approximately $10.4 million from the prior year due primarily to an increase in the gain on currency remeasurement of approximately $3.9 million, an increase in insurance proceeds of approximately $2.9 million related to losses from Hurricanes Katrina and Wilma and an increase in interest income of $2.3 million. The decrease in interest expense, including amortization, was due primarily to decreased borrowings on unsecured credit facilities and the deconsolidation of AMB Institutional Alliance Fund III, L.P.
 
                                 
    For the Years Ended
             
    December 31,              
Discontinued Operations
  2007     2006     $ Change     % Change  
 
Income attributable to discontinued operations, net of minority interests
  $ 8.9     $ 15.0     $ (6.1 )     (40.7 )%
Development gains and gains from sale of real estate interests, net of taxes and minority interests
    62.0       42.6       19.4       45.5 %
                                 
Total discontinued operations
  $ 70.9     $ 57.6     $ 13.3       23.1 %
                                 
 
During 2007, we divested ourselves of three industrial properties, aggregating approximately 0.3 million square feet for $120.0 million, with a resulting gain of approximately $2.0 million, and two value-added conversion projects resulting in a gain of approximately $60.0 million. During 2006, we divested ourselves of 17 industrial properties, aggregating approximately 3.5 million square feet, for an aggregate price of approximately $175.3 million, with a resulting net gain of approximately $42.6 million.
 
                                 
    For the Years Ended
             
    December 31,              
Preferred Stock
  2007     2006     $ Change     % Change  
 
Preferred stock dividends
  $ (15.8 )   $ (13.6 )   $ 2.2       16.4 %
Preferred unit redemption issuance costs
    (2.9 )     (1.1 )     1.9       173.8 %
                                 
Total preferred stock
  $ (18.7 )   $ (14.7 )   $ 4.1       (27.9 )%
                                 

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In August 2006, we issued 2,000,000 shares of 6.85% Series P Cumulative Redeemable Preferred Stock. The increase in preferred stock dividends is due to the then newly issued shares. On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units and all 800,000 of its outstanding 7.95% Series K Cumulative Redeemable Preferred Limited Partnership Units. In addition, on April 17, 2007, AMB Property II, L.P., one of our subsidiaries, repurchased all 510,000 of its outstanding 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units. As a result of the redemptions and repurchase, we recognized a reduction of income available to common stockholders of $2.9 million for the original issuance costs during the year ended December 31, 2007. During the year ended December 31, 2006, AMB Property II, L.P., one of our subsidiaries, repurchased all 840,000 of its outstanding 8.125% Series H Cumulative Redeemable Preferred Limited Partnership Units, all 220,440 of its outstanding 7.75% Series E Cumulative Redeemable Preferred Limited Partnership Units, all 201,139 of its outstanding 7.95% Series F Cumulative Redeemable Preferred Limited Partnership Units and all 729,582 of its outstanding 5.00% Series N Cumulative Redeemable Preferred Limited Partnership Units. As a result, we recognized a decrease in income available to common stockholders of $1.1 million for the original issuance costs, net of discount on repurchase.
 
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 wholly-owned assets. Over time, we plan to retire non-recourse, secured debt encumbering our wholly-owned assets and replace that debt with unsecured notes where practicable. In managing the co-investment ventures, in general, we use non-recourse, secured debt to capitalize our co-investment ventures.
 
We currently expect that our principal sources of working capital and funding for debt service, development, acquisitions, expansion and renovation of properties will include:
 
  •  cash on hand and cash flow from operations;
 
  •  private capital from co-investment partners;
 
  •  net proceeds from contributions of properties and completed development projects to our co-investment ventures;
 
  •  net proceeds from the sales of development projects, value-added conversion projects and land to third parties;
 
  •  net proceeds from divestitures of properties;
 
  •  borrowings under our unsecured credit facilities;
 
  •  other forms of secured or unsecured financing;
 
  •  assumption of debt related to acquired properties;
 
  •  proceeds from limited partnership unit offerings (including issuances of limited partnership units by our subsidiaries); and
 
  •  proceeds from equity (common and preferred) or debt securities offerings.
 
We currently expect that our principal funding requirements will include:
 
  •  debt service;
 
  •  development, expansion and renovation of properties;
 
  •  acquisitions;
 
  •  dividends and distributions on outstanding common and preferred stock and limited partnership units; and
 
  •  working capital.


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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. While historically we have satisfied this distribution requirement by making cash distributions to our stockholders, we may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, our own stock. As a result of this distribution requirement, 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 may need to continue to raise capital in both the debt and equity markets to fund our working capital needs, acquisitions and developments.
 
If the long-term debt ratings of the operating partnership fall below its current levels, the borrowing cost of debt under our unsecured credit facilities and certain term loans will increase. In addition, if the long-term debt ratings of the operating partnership fall below investment grade, we may be unable to request borrowings in currencies other than U.S. dollars or Japanese Yen, as applicable, however, the lack of other currency borrowings does not affect our ability to fully draw down under the credit facilities or term loans. In the event the long-term debt ratings of the operating partnership fall below investment grade, we may be unable to exercise our options to extend the term of our credit facilities or our $230 million secured term loan credit agreement. However, our lenders will not be able to terminate our credit facilities or certain term loans in the event that the operating partnership’s credit rating falls below investment grade status. None of our credit facilities or such term loans contains covenants regarding our stock price or market capitalization, thus a decrease in our stock price is not expected to impact our ability to borrow under our existing lines of credit and term loans. Based on publicly available information regarding our lenders, we currently do not expect to lose borrowing capacity under our existing lines of credit and term loans as a result of a consolidation, merger or other business combination among our lenders. However, our access to funds under our credit facilities is dependent on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. We continue to closely monitor global economic conditions and the lenders who are parties to our credit facilities, as well as our long-term debt and credit ratings and outlooks, our customers’ financial positions, private capital raising and capital market activity.
 
Should we face a situation in which we do not have sufficient cash available to us through our operations to continue operating our business as usual, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, divesting ourselves of properties, whether or not the sales price is optimal or if they otherwise meet our strategic objectives to keep for the long term; issuing and selling our debt and equity in public or private transactions whether or not at favorable pricing or on favorable terms; entering into leases with our customers at lower rental rates or entering into lease renewals with our existing customers without an increase in rental rates at turnover or, in either case, on suboptimal terms.
 
Cash Flows.  As of December 31, 2008, cash provided by operating activities was $301.0 million as compared to $240.5 million for the same period in 2007. This change was primarily due to an increase in impairment losses, a decrease in income from operations, development profits and gains from sales and contributions of real estate interests, net, and changes in our accounts receivable and other assets and accounts payable and other liabilities. Cash used in investing activities was $888.2 million for the year ended December 31, 2008, as compared to cash used in investing activities of $632.2 million for the same period in 2007. This increase was primarily due to an increase in cash paid for property acquisitions, a decrease in net proceeds from divestiture of real estate and securities, an increase in loans made to affiliates and the purchase of additional equity interest in G. Accion, offset by an increase in repayment of mortgage and loan receivables and a decrease in additions to land, buildings, development costs, building improvements and lease costs. Cash provided by financing activities was $581.8 million for the year ended December 31, 2008, as compared to cash provided by financing activities of $420.0 million for the same period in 2007. This increase was due primarily to an increase in borrowings on other debt, net of payments, an increase in proceeds from issuances of senior debt, net of payments, an increase in borrowings on unsecured credit facilities, net of payments, a decrease in the repurchase of preferred units and a decrease in distributions to minority interests. This activity was partially offset by a decrease in the issuance of common stock.
 
Subject to the above discussion, we believe our sources of working capital, specifically our cash flow from operations, and borrowings available under our unsecured credit facilities, are adequate for us to meet our current liquidity requirements. However, there can be no assurance that our sources of capital will continue to be available at all or in amounts sufficient to meet our needs. The unavailability of capital could adversely affect our financial


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condition, results of operations, cash flow and ability to pay cash dividends to our stockholders, and the market price of our stock.
 
Capital Resources
 
Development Completions.  Development completions are generally defined as properties that are substantially complete and 90% occupied or pre-leased, or that have been substantially complete for at least 12 months. Development completions during the years ended December 31, 2008 and 2007 were as follows (dollars in thousands):
 
                 
    For the Years Ended December 31,  
    2008     2007  
 
Placed in Operations:
               
Number of projects
    1       1  
Square feet
    396,710       179,400  
Investment
  $ 17,396     $ 10,657  
Sold:
               
Number of projects
    2       7  
Square feet
    158,871       498,017  
Investment
  $ 37,686     $ 74,432  
Contributed:
               
Number of projects
    4       10  
Square feet
    2,122,056       2,674,044  
Investment
  $ 139,316     $ 259,678  
Available for Sale or Contribution:
               
Number of projects
    19       14  
Square feet
    5,834,143       4,695,036  
Investment
  $ 751,028     $ 425,754  
                 
Total:
               
Number of projects
    26       32  
Square feet
    8,511,780       8,046,497  
Investment
  $ 945,426     $ 770,521  
 
Development sales to third parties during the years ended December 31, 2008, 2007 and 2006 were as follows (dollars in thousands):
 
                         
    For the Years Ended December 31,
    2008   2007   2006
 
Number of completed development projects
    6       7       6  
Number of land parcels
    2       3       5  
Square feet
    73,927       498,017       1,323,748  
Gross sales price
  $ 25,520     $ 130,419     $ 86,629  
Development gains, net of taxes
  $ 7,235     $ 28,575     $ 12,440  


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Development contribution activity during the years ended December 31, 2008, 2007 and 2006 was as follows (dollars in thousands):
 
                         
    For the Years Ended December 31,  
    2008     2007     2006  
 
Number of projects contributed to AMB Institutional Alliance Fund III, L.P. 
    4       4       3  
Square feet
    2,723,003       1,006,164       554,279  
Number of projects contributed to AMB-SGP Mexico, LLC
    3       2       2  
Square feet
    1,421,043       329,114       843,439  
Number of land parcels contributed to AMB DFS Fund I, LLC
          2       1  
Square feet
                 
Number of projects contributed to AMB Europe Fund I, FCP-FIS
    2       8        
Square feet
    164,574       1,838,011        
Number of projects contributed to AMB Japan Fund I, L.P. 
    2       1       4  
Square feet
    891,596       469,627       2,644,258  
                         
Total number of contributed development assets
    11       17       10  
Total square feet
    5,200,216       3,642,916       4,041,976  
Development gains, net of taxes
  $ 73,849     $ 95,713     $ 93,949  
 
Property Divestitures.  During 2008, we recognized development profits of approximately $7.2 million as a result of the sale of six development projects, aggregating approximately 73.9 million square feet, and two land parcels, aggregating approximately 95 acres. During 2007, we recognized development profits of approximately $28.6 million as a result of the sale of seven development projects and 76 acres of land. During 2006, we sold five land parcels and six development projects totaling approximately 1.3 million square feet for an aggregate sale price of $86.6 million, resulting in an after-tax gain of $13.5 million. In addition, during 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 the joint venture partner’s share.
 
During 2008, we recognized development profits of approximately $73.9 million, as a result of the contribution of eleven completed development projects, aggregating approximately 5.2 million square feet, to AMB Institutional Alliance Fund III, L.P., AMB Europe Fund I, FCP-FIS, AMB Japan Fund I, L.P. and AMB-SGP Mexico, LLC. During 2007, we recognized development profits of approximately $95.7 million, as a result of the contribution of 15 completed development projects and 2 land parcels, aggregating approximately 82 acres of land, to AMB Europe Fund I, FCP-FIS, AMB-SGP Mexico, LLC, AMB Institutional Alliance Fund III, L.P., AMB DFS Fund I, LLC, and AMB Japan Fund  I, L.P. During 2006, we contributed a total of nine completed development projects and one land parcel into unconsolidated co-investment joint ventures. Four projects totaling approximately 2.6 million square feet were contributed into AMB Japan Fund I, L.P., two projects totaling approximately 0.8 million square feet were contributed into AMB-SGP Mexico, LLC, and three projects totaling approximately 0.6 million square feet were contributed into AMB Institutional Alliance Fund III, L.P. In addition, one land parcel was contributed into AMB DFS Fund I, LLC. As a result of these contributions, we recognized an aggregate after-tax gain of $93.9 million, representing the portion of our interest in the contributed property acquired by the third-party investors for cash.
 
Gains from Sale or Contribution of Real Estate Interests.  During 2008, we sold an approximate 0.1 million square foot industrial operating property for a sale price of $3.6 million, with a resulting net gain of $0.7 million, and we also recognized a deferred gain of approximately $1.1 million on the divestiture of one industrial building, aggregating approximately 0.1 million square feet, for a price of $3.5 million, which was disposed of on December 31, 2007. During 2007, we divested ourselves of three industrial properties, aggregating approximately


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0.3 million square feet, for an aggregate price of $120.0 million, with a resulting net gain of approximately $2.0 million, and sold two value-added conversion projects for a gain of approximately $60.0 million. During 2006, we divested ourselves of 39 industrial buildings, aggregating approximately 3.5 million square feet, for an aggregate price of $175.3 million, with a resulting net gain of $42.6 million.
 
During 2008, we contributed an operating property for approximately $66.2 million, aggregating approximately 0.8 million square feet, into AMB Institutional Alliance Fund III, L.P. We recognized a gain of $20.0 million on the contribution, representing the portion of our interest in the contributed property acquired by the third-party investors for cash. During 2007, we contributed operating properties for approximately $524.9 million, aggregating approximately 4.5 million square feet, into AMB Europe Fund I, FCP-FIS, AMB Institutional Alliance Fund III, L.P. and AMB-SGP Mexico, LLC. We recognized a gain of $73.4 million on the contributions, representing the portion of our interest in the contributed properties acquired by the third-party investors for cash. During 2006, there were no contributions of operating properties.
 
Properties Held for Divestiture or Contribution.  As of December 31, 2008, we held for divestiture two properties with an aggregate net book value of $8.2 million. These properties either are not in our core markets, do not meet our current investment objectives, or are included as part of our development-for-sale or value-added conversion programs. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. Properties held for divestiture are stated at the lower of cost or estimated fair value less costs to sell. As of December 31, 2007, we held for divestiture five properties with an aggregate net book value of $40.5 million.
 
As of December 31, 2008, we held for contribution to co-investment ventures 20 properties with an aggregate net book value of $600.8 million which, when contributed, will reduce our average ownership interest in these projects from approximately 96% to an expected range of 15-20%. As of December 31, 2008, properties with an aggregate net book value of $100.4 million were reclassified from properties held for contribution to investments in real estate as a result of the change in management’s expectations regarding the launch of a co-investment venture. These properties may be reclassified as properties held for contribution at some future time. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as of December 31, 2008, we recognized additional depreciation expense and related accumulated depreciation of $2.2 million as a result of this reclassification, as well as impairment charges of $21.8 million on real estate assets held for divestiture or contribution for which it was determined that the carrying value was greater than its estimated fair value. As of December 31, 2007, we held for contribution to co-investment ventures 17 properties with an aggregate net book value of $488.3 million.
 
Co-investment Ventures.  Through the operating partnership, we enter into co-investment ventures with institutional investors. These co-investment 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.
 
Third-party equity interests in the consolidated co-investment ventures are reflected as minority interests in the consolidated financial statements. As of December 31, 2008, we owned approximately 78.7 million square feet of our properties (49.2% of the total operating and development portfolio) through our consolidated and unconsolidated co-investment ventures. We may make additional investments through these co-investment ventures or new co-investment ventures in the future and presently plan to do so.
 
The following table summarizes our significant consolidated co-investment ventures at December 31, 2008 (dollars in thousands):
 
                     
        Approximate
  Original
        Ownership
  Planned
Consolidated Co-investment Venture
  Co-investment Venture Partner   Percentage   Capitalization(1)
 
AMB Institutional Alliance Fund II, L.P.(2)
  AMB Institutional Alliance REIT II, Inc.     20 %   $ 490,000  
AMB-SGP, L.P.(3)
  Industrial JV Pte. Ltd.     50 %   $ 420,000  
AMB-AMS, L.P.(4)
  PMT, SPW and TNO(5)     39 %   $ 228,000  


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(1) Planned capitalization includes anticipated debt and all partners’ expected equity contributions.
 
(2) AMB Institutional Alliance Fund II, L.P. is a co-investment partnership formed in 2001 with institutional investors, which invest through a private real estate investment trust, and a third-party limited partner.
 
(3) AMB-SGP, L.P. is a co-investment partnership formed in 2001 with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(4) AMB-AMS, L.P. is a co-investment partnership formed in 2004 with three Dutch pension funds.
 
(5) PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.
 
The following table summarizes our significant unconsolidated co-investment ventures at December 31, 2008 (dollars in thousands):
 
                     
        Approximate
   
        Ownership
  Planned
Unconsolidated Co-investment Venture
  Co-investment Venture Partner   Percentage   Capitalization(1)
 
AMB Institutional Alliance Fund III, L.P.(2)(3)
  AMB Institutional Alliance REIT III, Inc.     19 %   $ 3,340,000  
AMB Europe Fund I, FCP-FIS(3)(4)
  Institutional investors     21 %   $ 1,223,000  
AMB Japan Fund I, L.P.(5)
  Institutional investors     20 %   $ 1,540,000  
AMB-SGP Mexico, LLC(6)
  Industrial (Mexico) JV Pte. Ltd.     22 %   $ 599,000  
AMB DFS Fund I, LLC(7)
  Strategic Realty Ventures, LLC     15 %   $ 439,000  
 
 
(1) Planned capitalization includes anticipated debt and all partners’ expected equity contributions.
 
(2) 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. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture.
 
(3) The planned capitalization and investment capacity of AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, as open-ended funds are not limited. The planned capitalization represents the gross book value of real estate assets as of the most recent quarter end.
 
(4) AMB Europe Fund I, FCP-FIS, is an open-ended co-investment venture formed in 2007 with institutional investors. The venture is Euro-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2008.
 
(5) AMB Japan Fund I, L.P. is a co-investment venture formed in 2005 with institutional investors. The venture is Yen-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2008.
 
(6) AMB-SGP Mexico, LLC is a co-investment venture formed in 2004 with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(7) AMB DFS Fund I, LLC is a co-investment venture formed in 2006 with a subsidiary of GE Real Estate to build and sell properties.
 
AMB Pier One, LLC, is a joint venture related to the 2000 redevelopment of the pier that houses our global headquarters in San Francisco, California. On June 30, 2007, we exercised our option to purchase the remaining equity interest held by an unrelated third party, based on the fair market value as stipulated in the joint venture agreement, in AMB Pier One, LLC, for a nominal amount. As a result, the investment was consolidated as of June 30, 2007.
 
As of December 31, 2008, we also had a 100% consolidated interest in G. Accion, a Mexican real estate company, which has been renamed AMB Property Mexico, S.A. de C.V. AMB Property Mexico owns and develops real estate and provides real estate management and development services in Mexico. On June 13, 2008, we


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acquired approximately 19% of additional equity interest and on July 18, 2008, we acquired the remaining equity interest (approximately 42%) in AMB Property Mexico, increasing our equity interest from approximately 39% to 100%. Through our investment in AMB Property Mexico, we hold equity interests in various other unconsolidated ventures totaling approximately $24.6 million. In addition, in August 2008, one of our subsidiaries sold its approximate 5% interest in IAT Air Cargo Facilities Income Fund (IAT), a Canadian income trust specializing in aviation-related real estate at Canada’s international airports, as part of a tender offer for interests in the income trust. These equity investments of approximately $2.1 million (valued as of December 31, 2007) were included in other assets on the consolidated balance sheets as of December 31, 2007.
 
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 December 31, 2008: 1,595,337 shares of series D cumulative redeemable preferred, none of which are outstanding; 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; 3,000,000 shares of series O cumulative redeemable preferred, all of which are outstanding; and 2,000,000 shares of series P cumulative redeemable preferred, all of which are outstanding.
 
As of December 31, 2008, no preferred units become callable in 2009.
 
On April 17, 2007, AMB Property II, L.P. repurchased all 510,000 of its outstanding 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $25.6 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 510,000 shares of our 8.00% Series I Cumulative Redeemable Preferred Stock as preferred stock.
 
On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $40.0 million, including accrued and unpaid distributions. In connection with this redemption, we reclassified all 800,000 shares of our 7.95% Series J Cumulative Redeemable Preferred Stock as preferred stock.
 
On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series K Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $40.0 million, including accrued and unpaid distributions. In connection with this redemption, we reclassified all 800,000 shares of our 7.95% Series K Cumulative Redeemable Preferred Stock as preferred stock.
 
On January 29, 2007, all of the outstanding 7.75% Series D Cumulative Redeemable Preferred Limited Partnership Units of AMB Property II, L.P. were transferred from one institutional investor to another institutional investor. In connection with that transfer, on February 22, 2007, AMB Property II, L.P. amended the terms of the series D preferred units to, among other things, change the rate applicable to the series D preferred units from 7.75% to 7.18% and change the date prior to which the series D preferred units may not be redeemed from May 5, 2004 to February 22, 2012.
 
On November 1, 2006, AMB Property II, L.P., issued 1,130,835 of its class B common limited partnership units in connection with a property acquisition.
 
In March 2007, we issued approximately 8.4 million shares of our common stock for net proceeds of approximately $472.1 million, which were contributed to the operating partnership in exchange for the issuance of approximately 8.4 million general partnership units. As a result of the common stock issuance, there was a significant reallocation of partnership interests due to the difference in our stock price at issuance as compared to the book value per share at the time of issuance. We used the proceeds from the offering for general corporate purposes and, over the long term, to expand our global development business.
 
On September 21, 2006, AMB Property II, L.P., repurchased all 201,139 of its outstanding 7.95% Series F Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $10.0 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 267,439 shares of our 7.95% Series F 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


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price of $10.9 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 220,440 shares of our 7.75% Series E Cumulative Redeemable Preferred Stock as preferred stock.
 
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 840,000 shares of our 8.125% Series H Cumulative Redeemable Preferred Stock as preferred stock.
 
On August 25, 2006, we issued and sold 2,000,000 shares of 6.85% Series P Cumulative Redeemable Preferred Stock at $25.00 per share. Dividends are cumulative from the date of issuance and payable quarterly in arrears at a rate per share equal to $1.7125 per annum. The series P preferred stock is redeemable by us on or after August 25, 2011, subject to certain conditions, for cash at a redemption price equal to $25.00 per share, plus accumulated and unpaid dividends thereon, if any, to the redemption date. We contributed the net proceeds of approximately $48.1 million to the operating partnership, and in exchange, the operating partnership issued to us 2,000,000 6.85% Series P Cumulative Redeemable Preferred Units.
 
In December 2005, our board of directors approved a two-year common stock repurchase program for the repurchase of up to $200.0 million of our common stock. On December 18, 2007, our board of directors approved another two-year common stock repurchase program for the repurchase of up to $200.0 million of our common stock, which shall terminate on December 31, 2009. During the year ended December 31, 2008, we repurchased approximately 1.8 million shares of our common stock for an aggregate price of $87.7 million at a weighted average price of $49.64 per share. During the year ended December 31, 2007, we repurchased approximately 1.1 million shares of our common stock for an aggregate price of $53.4 million at a weighted average price of $49.87 per share. We have the authorization to repurchase up to an additional $112.3 million of our common stock under the 2007 program.
 
Debt.  In order to maintain financial flexibility and facilitate the deployment of capital through market cycles, we presently intend over the long-term to operate with an our share of total debt-to-our share of total market capitalization ratio or our share of total debt-to-our share of total assets of approximately 45% or less. In order to operate at this targeted ratio over the long term, we are currently exploring various options to monetize our development assets through possible contribution to funds where capacity is available, the formation of joint ventures and the sale to third parties. We are also exploring the potential sale of operating assets to further enhance liquidity. As of December 31, 2008, our share of total debt-to-our share of total market capitalization ratio was 61.4%. (See footnote 1 to the Capitalization Ratios table below for our definitions of “our share of total market capitalization,” “market equity,” “our share of total debt” and “our share of total assets”). We typically finance our co-investment ventures with secured debt at a loan-to-value ratio of 50-65% per our co-investment venture 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. For example, decreases in the market price of our common stock have caused an increase in the ratio of our share of total debt-to-our share of total market capitalization.
 
As of December 31, 2008, the aggregate principal amount of our secured debt was $1.5 billion, excluding unamortized debt premiums of $1.2 million. Of the $1.5 billion of secured debt, $808.1 million is secured by properties in our joint ventures. The secured debt is generally non-recourse and bears interest at rates varying from 1.0% to 10.7% per annum (with a weighted average rate of 4.3%) and final maturity dates ranging from March 2009 to November 2022. As of December 31, 2008, $936.9 million of the secured debt obligations bear interest at fixed rates with a weighted average interest rate of 5.8%, while the remaining $586.8 million bear interest at variable rates (with a weighted average interest rate of 2.6%).
 
On February 14, 2007, seven subsidiaries of AMB-SGP, L.P., a Delaware limited partnership, which is one of our subsidiaries, entered into a loan agreement for a $305.0 million secured financing. On the same day, pursuant to the loan agreement, the same seven subsidiaries delivered four promissory notes to the two lenders, each of which matures on March 5, 2012. One note had a principal of $160.0 million and an interest rate that is fixed at 5.29%. The second note had an initial principal borrowing of $40.0 million with a variable interest rate of 81.0 basis points


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above the one-month LIBOR rate. The third note has an initial principal borrowing of $84.0 million and a fixed interest rate of 5.90%. The fourth note had an initial principal borrowing of $21.0 million and bears interest at a variable rate of 135.0 basis points above the one-month LIBOR rate.
 
On September 4, 2008, the operating partnership entered into a $230.0 million secured term loan credit agreement that matures on September 4, 2010 and had a weighted average interest rate of 4.0% at December 31, 2008. We are the guarantor of the operating partnership’s obligations under the term loan facility. The term loan facility carries a one-year extension option, which the operating partnership may exercise at its sole option so long as the operating partnership’s long-term debt rating is investment grade, among other things, and can be increased up to $300.0 million upon certain conditions. The rate on the borrowings is generally LIBOR plus a margin, which was 130.0 basis points as of December 31, 2008, based on the operating partnership’s long-term debt rating. Subsequent to December 31, 2008, the base rate on the term loan was fixed at 2.7% through December 11, 2009 through interest rate swaps. If the operating partnership’s long-term debt ratings fall below current levels, our cost of debt will increase.
 
As of December 31, 2008, the operating partnership had outstanding an aggregate of $1.2 billion in unsecured senior debt securities, which bore a weighted average interest rate of 6.0% and had an average term of 4.1 years. In May 2008, we sold $325.0 million aggregate principal amount of the operating partnership’s senior unsecured notes under its Series C medium-term note program. We guarantee the operating partnership’s obligations with respect to its unsecured senior debt securities. The unsecured senior debt securities are subject to various covenants. The covenants contain 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.
 
In March 2008, the operating partnership obtained a $325.0 million unsecured term loan facility, which had a balance of $325.0 million outstanding as of December 31, 2008, with a weighted average interest rate of 3.5%. In February 2008, the operating partnership also obtained a $100.0 million unsecured money market loan with a weighted average interest rate of 3.6% and subsequently paid off the entire balance in June 2008. In June 2008, the operating partnership obtained a new $100.0 million unsecured loan with a weighted average interest rate of 3.4% and subsequently paid off the entire balance in September 2008. We guarantee the operating partnership’s obligations with respect to its unsecured debt. The unsecured debt is subject to various covenants. The covenants contain 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.
 
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 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 cash dividends to our stockholders, and the market price of our stock.
 
As of December 31, 2008, we had $392.8 million outstanding in other debt which bore a weighted average interest rate of 3.9% and had an average term of 1.2 years. Other debt also includes a $70.0 million credit facility obtained on August 24, 2007 by AMB Institutional Alliance Fund II, L.P., a subsidiary of the operating partnership, which had a $50.0 million balance outstanding as of December 31, 2008. We also had $342.8 million outstanding in other debt.
 
We may from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
 
Credit Facilities.  The operating partnership has a $550.0 million (includes Euros, Yen, British pounds sterling or U.S. dollar denominated borrowings) unsecured revolving credit facility, which bore a weighted average


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interest rate of 2.85% at December 31, 2008. This facility matures on June 1, 2010. We are a guarantor of the operating partnership’s obligations under the credit facility. The line carries a one-year extension option, which the operating partnership may exercise at its sole option so long as the operating partnership’s long-term debt rating is investment grade, among other things, and the facility can be increased to up to $700.0 million upon certain conditions. The rate on the borrowings is generally LIBOR plus a margin, which was 42.5 basis points as of December 31, 2008, based on the operating partnership’s long-term debt rating, with an annual facility fee of 15.0 basis points. If the operating partnership’s long-term debt ratings fall below current levels, our cost of debt will increase. If the operating partnership’s long-term debt ratings fall below investment grade, the operating partnership will be unable to request money market loans and borrowings in Euros, Yen or British pounds sterling. The four-year credit facility includes a multi-currency component, under which up to $550.0 million can be drawn in Euros, Yen, British pounds sterling or U.S. dollars. The operating partnership uses the credit facility principally for acquisitions, funding development activity and general working capital requirements. As of December 31, 2008, the outstanding balance on this credit facility, using the exchange rate in effect on December 31, 2008, was $243.1 million and the remaining amount available was $281.4 million, net of outstanding letters of credit of $25.5 million. 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 mergers or consolidations.
 
AMB Japan Finance Y.K., a subsidiary of the operating partnership, has a Yen-denominated unsecured revolving credit facility with an initial borrowing limit of 55.0 billion Yen, which, using the exchange rate in effect on December 31, 2008, equaled approximately $606.5 million U.S. dollars and bore a weighted average interest rate of 1.3%. We, along with the operating partnership, guarantee the obligations of AMB Japan Finance Y.K. under the 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 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 credit facility have the option to secure all or a portion of the borrowings under the credit facility with certain real estate assets or equity in entities holding such real estate assets. The credit facility matures in June 2010 and has a one-year extension option, which the operating partnership may exercise at its sole option so long as the operating partnership’s long-term debt rating is investment grade, among other things. The extension option is also subject to the satisfaction of certain other 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 was 42.5 basis points as of December 31, 2008, based on the credit rating of the operating partnership’s long-term debt. If the operating partnership’s long-term debt ratings fall below current levels, our cost of debt will increase. In addition, there is an annual facility fee, payable in quarterly amounts, which is based on the credit rating of the operating partnership’s long-term debt, and was 15.0 basis points of the outstanding commitments under the facility as of December 31, 2008. As of December 31, 2008, the outstanding balance on this credit facility, using the exchange rate in effect on December 31, 2008, was $342.2 million, and the remaining amount available was $264.4 million. The credit agreement 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.
 
On July 16, 2007, certain of our wholly-owned subsidiaries and the operating partnership, each acting as a borrower, with us and the operating partnership as guarantors, entered into a fifth amended and restated revolving credit agreement for a $500.0 million unsecured revolving credit facility that replaced the existing $250.0 million unsecured revolving credit facility. The fifth amended and restated credit facility amends the fourth amended and restated credit facility to, among other things, increase the facility amount to $500.0 million with an option to further increase the facility to $750.0 million, to extend the maturity date to July 2011 and to allow for future borrowing in Indian rupees. We, along with the operating partnership, guarantee the obligations for such subsidiaries and other entities controlled by the operating partnership that are selected by the operating partnership from time to time to be borrowers under and pursuant to our credit facility. Generally, borrowers under the credit facility have the option to secure all or a portion of the borrowings under the credit facility. The credit facility includes a multi-currency component under which up to $500.0 million can be drawn in U.S. dollars, Hong Kong dollars, Singapore dollars, Canadian dollars, British pounds sterling, and Euros with the ability to add Indian rupees.


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The line, which matures in July 2011, carries a one-year extension option, which the operating partnership may exercise at its sole option so long as the operating partnership’s long-term debt rating is investment grade, among other things, and can be increased to up to $750.0 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, which was 60.0 basis points as of December 31, 2008, based on the credit rating of the operating partnership’s senior unsecured long-term debt, with an annual facility fee based on the credit rating of the operating partnership’s senior unsecured long-term debt. If the operating partnership’s long-term debt ratings fall below current levels, our cost of debt will increase. If the operating partnership’s long-term debt ratings fall below investment grade, the operating partnership will be unable to request borrowings in any currency other than U.S. dollars. 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 December 31, 2008, the outstanding balance on this credit facility, using the exchange rates in effect at December 31, 2008, was approximately $335.6 million with a weighted average interest rate of 2.74%, and the remaining amount available was $164.4 million. 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.
 
On June 12, 2007, AMB Europe Fund I, FCP-FIS assumed a 328.0 million Euro facility agreement, and we were released from all of our obligations and liabilities related to this facility agreement. On June 12, 2007, there were 267.0 million Euros (approximately $355.2 million in U.S. dollars, using the exchange rate at June 12, 2007) of term loans and no acquisition loans outstanding under the facility agreement.
 
The table below summarizes our debt maturities, principal payments and capitalization and reconciles our share of total debt to total consolidated debt as of December 31, 2008 (dollars in thousands):
 
                                                                         
    AMB Wholly-Owned     Consolidated Joint Venture                    
    Unsecured                       Total
    Unconsolidated
       
    Senior
    Credit
    Other
    Secured
    Secured
    Other
    Consolidated
    Joint
    Total
 
    Debt     Facilities(1)     Debt     Debt     Debt     Debt     Debt     Venture Debt(2)     Debt  
 
2009
  $ 100,000     $     $ 337,590     $ 257,995     $ 102,452     $     $ 798,037     $ 255,397     $ 1,053,434  
2010
    250,000       585,256       941       306,585       121,245             1,264,027       188,683       1,452,710  
2011
    75,000       335,594       1,014       112,083       75,813             599,504       558,378       1,157,882  
2012
                1,093       2,686       388,378       50,000       442,157       448,299       890,456  
2013
    500,000             920       19,614       42,270             562,804       707,464       1,270,268  
2014
                616       405       2,981             4,002       776,365       780,367  
2015
    112,491             664       16,272       17,610             147,037       274,290       421,327  
2016
                            16,231             16,231       73,040       89,271  
2017
                            1,272             1,272       351,574       352,846  
2018
    125,000                                     125,000             125,000  
Thereafter
                            39,867             39,867       189,038       228,905  
                                                                         
Subtotal
  $ 1,162,491     $ 920,850     $ 342,838     $ 715,640     $ 808,119     $ 50,000     $ 3,999,938     $ 3,822,528     $ 7,822,465  
Unamortized premiums/(discount)
    (8,565 )                 (1,162 )     (26 )           (9,753 )     (4,387 )     (14,140 )
                                                                         
Subtotal
  $ 1,153,926     $ 920,850     $ 342,838     $ 714,478     $ 808,093     $ 50,000     $ 3,990,185