U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

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

AMB PROPERTY CORPORATION

(Exact name of registrant as specified in its charter)

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

Pier 1, Bay 1, San Francisco, California 94111

(Address of principal executive offices) (Zip code)

415-394-9000

(Registrants’ telephone number, including area code)

n/a

(Former name or former address, if changed since last report)

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

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On October 17, 2006, we issued a press release entitled “AMB Property Corporation Announces Third Quarter 2006 Results,” which sets forth disclosure regarding our results of operations for the third quarter of 2006. A copy of the press release is attached hereto as Exhibit 99.1. This section and the attached exhibit are provided under Item 2.02 of Form 8-K and are furnished to, but not filed with, the U.S. Securities and Exchange Commission.

ITEM 8.01 OTHER EVENTS.

On October 17, 2006, we reported results for the quarter and nine-month period ended September 30, 2006.

Funds from operations per fully diluted share and unit was $0.72 for the third quarter of 2006, as compared to $0.50 for the same quarter in 2005. Funds from operations per fully diluted share and unit for the year-to-date period was $2.10, as compared to $1.59 for the same period in 2005.

Net income available to common stockholders per fully diluted share and unit was $0.33 for the third quarter of 2006, as compared to $0.31 for the same quarter in 2005. Net income available to common stockholders per fully diluted share and unit for the year-to-date period was $1.39 as compared to $1.27 for the same period in 2005.

Operating Results

Our industrial operating portfolio occupancy was 95.9% at September 30, 2006, up 50 basis points from June 30, 2006, and 130 basis points from September 30, 2005. Benefiting from occupancy gains and rising rents in many of our markets, cash-basis same store net operating income in the third quarter of 2006 increased 5.8% over the same period in 2005. When the effects of lease termination fees are excluded from this metric, the increase was 5.5%. In the third quarter, rents on lease renewal and rollover in our operating portfolio increased 9.9%, as compared to declines of 0.9% in the prior quarter and 7.6% in the third quarter of 2005.

Investment Activity

New development and renovation starts in the quarter totaled approximately 2.8 million square feet in eight projects in North America, Europe and Asia, with an estimated total investment of $251.2 million. Our industrial development and renovation pipeline totals approximately 13.4 million square feet in 45 projects globally, with an estimated total investment of $1.2 billion scheduled for delivery through 2008. Deliveries slated through the end of 2006 are 66% preleased or under contract for sale.

During the third quarter, we stabilized and completed nine development projects in North America, Europe and Asia. Two projects totaling approximately 181,000 square feet and representing an aggregate investment of $13.0 million were placed in operations, and seven projects totaling approximately 2.7 million square feet and representing an aggregate investment of $199.1 million were made available for sale or contribution.

Our development business includes contribution of stabilized properties to affiliated private capital funds or sale of projects to third parties. During the third quarter, we contributed AMB Narita Distribution Center 1, Buildings A & B, comprising 668,000 square feet in Tokyo, to our Japan Fund I. We sold three development properties to third parties consisting of a 699,000 square foot industrial facility in Los Angeles and two industrial buildings totaling approximately 67,000 square feet in Miami.

During the third quarter, we acquired approximately 1.3 million square feet of distribution facilities in ten buildings at a total acquisition cost of $115.6 million. The acquisitions expanded our presence in the target markets of Chicago, Los Angeles, Minneapolis and Seattle, and included entry into our fourth Mexico target market, Queretaro, the country’s most geographically central distribution hub.

At quarter end, our pipeline of committed developments stood at $1.2 billion, the highest in our history, with 45 projects in nine countries on three continents.

In the third quarter, we completed a sale of one operating building that no longer fits our strategy. The 74,000 square foot building represented approximately $5.2 million in gross disposition proceeds.

Development Joint Venture Formed

Subsequent to quarter end, we entered into a merchant development joint venture with GE Real Estate. The joint venture will have total investment capacity of approximately $500 million to pursue development-for-sale opportunities in U.S. markets other than those we identify as our target markets. GE and we have committed $425 million and $75 million of equity, respectively. We will earn development fees and are entitled to 45% of the development project profits realized by the venture over a 7.25% unleveraged internal rate of return. We expect to contribute several of our land holdings into the venture in the fourth quarter.

Addition of Company Officers

During the quarter, three officers joined us: Dale Valicenti joined the Boston office as senior vice president, director of acquisitions; John Morgan joined the Atlanta office as vice president, development; and Francois Rispe joined in Paris as vice president, director of project development.

Supplemental Earnings Measures

We report funds from operations in accordance with the standards established by the National Association of Real Estate Investment Trusts. Included in the footnotes to our attached financial statements is a discussion of why management believes funds from

operations is a useful supplemental measure of operating performance, ways in which investors might use funds from operations when assessing our financial performance and funds from operations’ limitations as a measurement tool. Reconciliation from net income to funds from operations is provided in the attached tables.

We believe that net income, as defined by GAAP, is the most appropriate earnings measure. However, we consider same store net operating income (SSNOI) to be a useful supplemental measure of its operating performance. Properties that are considered part of the same store pool include all properties that were owned as of the end of both the current and prior year reporting periods and exclude development properties for both the current and prior reporting periods. The same store pool is set annually and excludes properties purchased and developments stabilized after December 31, 2004. In deriving SSNOI, we define NOI as rental revenues (as calculated in accordance with GAAP), including reimbursements, less straight-line rents, property operating expenses and real estate taxes. We exclude straight-line rents in calculating SSNOI because we believe it provides a better measure of actual cash basis rental growth for a year-over-year comparison. In addition, we believe that SSNOI helps the investing public compare our operating performance with that of other companies. While SSNOI is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered as an alternative to those measures in evaluating our liquidity or operating performance. SSNOI also does not reflect general and administrative expenses, interest expenses, depreciation and amortization costs, capital expenditures and leasing costs, or trends in development and construction activities that could materially impact our results from operations. Further, our computation of SSNOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating SSNOI. A reconciliation from net income to SSNOI is provided in the attached tables.

We are a global developer and owner of industrial real estate, focused on major hub and gateway distribution markets throughout North America, Europe and Asia. As of September 30, 2006, we owned, or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 124.8 million square feet (11.6 million square meters) and 1,109 buildings in 42 markets within 11 countries. We invest in properties located predominantly in the infill submarkets of its targeted markets. Our portfolio is comprised of High Throughput Distribution^® facilities—industrial properties built for speed and located near airports, seaports and ground transportation systems.

Forward looking statements

Some of the information included in this report contains forward-looking statements, such as those related to total expected investments in acquisitions and developments; size and timing of deliveries and total investments in development projects; our expected returns under our joint venture with GE and use of private capital funds for planned investment activity, which are made pursuant to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Because these forward-looking

statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future events. The events or circumstances reflected in forward-looking statements might not occur. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of the date of this report or the dates indicated in the statements. We assume no obligation to update or supplement forward-looking statements. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: defaults on or non-renewal of leases by tenants, increased interest rates and operating costs, our failure to obtain necessary outside financing, re-financing risks, difficulties in identifying properties to acquire and in effecting acquisitions, our failure to successfully integrate acquired properties and operations, our failure to divest properties on advantageous terms or to timely reinvest proceeds from any divestitures, risks and uncertainties affecting property development and construction (including construction delays, cost overruns, our inability to obtain necessary permits and public opposition to these activities), our failure to qualify and maintain our status as a real estate investment trust, environmental uncertainties, risks related to natural disasters, changes in general economic conditions or in the real estate sector, changes in real estate and zoning laws or other local, state and federal regulatory requirements, a downturn in the U.S., California, or the global economy, risks related to doing business internationally, losses in excess of our insurance coverage, unknown liabilities acquired in connection with acquired properties or otherwise and increases in real property tax rates. Our success also depends upon economic trends generally, including interest rates, income tax laws, governmental regulation, legislation, population changes, various market conditions and fluctuations and those other risk factors discussed under the heading “Risk Factors” and elsewhere in our most recent annual report on Form 10-K for the year ended December 31, 2005.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

		As of
		September 30, 2006				June 30, 2006				March 31, 2006				December 31, 2005
Assets
Investments in real estate:
Total investments in properties		$	7,553,031			$	7,376,322			$	6,913,524			$	6,798,294
Accumulated depreciation			(821,545	)			(774,528	)			(736,760	)			(697,388	)
Net investments in properties			6,731,486				6,601,794				6,176,764				6,100,906
Investments in unconsolidated joint ventures			116,856				123,107				118,472				118,653
Properties held for contribution, net			184,365				71,981				266,311				32,755
Properties held for divestiture, net			63,402				46,857				31,201				17,936
Net investments in real estate			7,096,109				6,843,739				6,592,748				6,270,250
Cash and cash equivalents			184,230				231,912				168,007				267,233
Mortgages and loans receivable			18,782				18,816				21,589				21,621
Accounts receivable, net			143,594				127,528				148,907				178,682
Other assets			135,646				114,371				112,312				64,953
Total assets		$	7,578,361			$	7,336,366			$	7,043,563			$	6,802,739
Liabilities and stockholders’ equity
Secured debt		$	1,874,887			$	1,829,968			$	1,917,805			$	1,912,526
Unsecured senior debt			1,226,561				1,051,249				950,937				975,000
Unsecured credit facilities			801,656				904,452				734,110				490,072
Other debt			79,894				88,217				63,543				23,963
Accounts payable and other liabilities			297,358				254,223				249,149				263,744
Total liabilities			4,280,356				4,128,109				3,915,544				3,665,305
Minority interests:
Joint venture partners			977,452				950,209				899,658				853,643
Preferred unitholders			180,298				190,198				200,986				278,378
Limited partnership unitholders			79,733				89,705				87,973				89,114
Total minority interests			1,237,483				1,230,112				1,188,617				1,221,135
Stockholders’ equity:
Common equity			1,836,928				1,802,814				1,764,071				1,740,751
Preferred equity			223,594				175,331				175,331				175,548
Total stockholders’ equity			2,060,522				1,978,145				1,939,402				1,916,299
Total liabilities and stockholders’ equity		$	7,578,361			$	7,336,366			$	7,043,563			$	6,802,739

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share data)

		For the Quarters Ended								For the Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues
Rental revenues		$	180,205			$	154,312			$	531,439			$	461,516
Private capital income (1)			7,490				5,764				17,539				12,520
Total revenues			187,695				160,076				548,978				474,036
Costs and expenses
Property operating costs			(45,992	)			(39,842	)			(135,888	)			(119,344	)
Depreciation and amortization			(48,761	)			(40,494	)			(136,160	)			(121,279	)
Impairment losses			—				—				(5,394	)			—
General and administrative			(25,851	)			(16,815	)			(73,850	)			(54,876	)
Other expenses (2)			(893	)			(2,925	)			(1,134	)			(3,663	)
Fund costs			(495	)			(329	)			(1,588	)			(1,073	)
Total costs and expenses			(121,992	)			(100,405	)			(354,014	)			(300,235	)
Other income and expenses
Equity in earnings of unconsolidated joint ventures (3)			2,239				1,529				12,605				9,959
Other income (2)			2,643				2,964				7,641				4,769
Gains from dispositions of real estate, net			—				—				—				18,923
Development profits, net of taxes			23,517				398				69,889				20,322
Interest expense, including amortization			(44,535	)			(37,305	)			(129,627	)			(111,320	)
Total other income and expenses			(16,136	)			(32,414	)			(39,492	)			(57,347	)
Income from operations before minority interests			49,567				27,257				155,472				116,454
Minority interests’ share of income:
Joint venture partners’ share of income			(12,317	)			(8,806	)			(30,145	)			(27,039	)
Joint venture partners’ and limited partnership unitholders’ share of development profits			(1,150	)			(21	)			(2,735	)			(10,136	)
Preferred unitholders			(3,791	)			(5,368	)			(12,816	)			(16,104	)
Limited partnership unitholders			(108	)			(528	)			(1,469	)			(1,505	)
Total minority interests’ share of income			(17,366	)			(14,723	)			(47,165	)			(54,784	)
Income from continuing operations			32,201				12,534				108,307				61,670
Discontinued operations:
Income attributable to discontinued operations, net of minority interests			973				2,204				3,675				7,281
Gain from disposition of real estate, net of minority interests			213				14,330				24,335				47,673
Total discontinued operations			1,186				16,534				28,010				54,954
Net income			33,387				29,068				136,317				116,624
Preferred stock dividends			(3,440	)			(1,783	)			(9,631	)			(5,349	)
Preferred unit redemption discount/(issuance costs)			16				—				(1,004	)			—
Net income available to common stockholders		$	29,963			$	27,285			$	125,682			$	111,275
Net income per common share (diluted)		$	0.33			$	0.31			$	1.39			$	1.27
Weighted average common shares (diluted)			91,058,029				88,373,479				90,458,810				87,424,751

CONSOLIDATED STATEMENTS OF FUNDS FROM OPERATIONS⁽¹⁾

(dollars in thousands, except share data)

		For the Quarters Ended								For the Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net income		$	33,387			$	29,068			$	136,317			$	116,624
Gains from disposition of real estate, net of minority interests			(213	)			(14,330	)			(24,335	)			(66,596	)
Depreciation and amortization:
Total depreciation and amortization			48,761				40,494				136,160				121,279
Discontinued operations’ depreciation			(37	)			4,216				270				12,483
Non-real estate depreciation			(1,001	)			(892	)			(3,069	)			(2,439	)
Adjustments to derive FFO from consolidated JVs:
Joint venture partners’ minority interests (Net income)			12,317				8,806				30,145				27,039
Limited partnership unitholders’ minority interests (Net income)			108				528				1,469				1,505
Limited partnership unitholders’ minority interests (Development profits)			1,086				16				3,260				568
Discontinued operations’ minority interests (Net income)			(18	)			2,226				(278	)			6,850
FFO attributable to minority interests			(24,471	)			(24,944	)			(66,654	)			(72,634	)
Adjustments to derive FFO from unconsolidated JVs:
AMB’s share of net income			(2,239	)			(1,529	)			(12,605	)			(9,959	)
AMB’s share of FFO			4,030				4,592				9,335				11,808
AMB’s share of development profits, net			—				—				—				5,441
Preferred stock dividends			(3,440	)			(1,783	)			(9,631	)			(5,349	)
Preferred unit redemption discount (issuance costs)			16				—				(1,004	)			—
Funds from operations		$	68,286			$	46,468			$	199,380			$	146,620
FFO per common share and unit (diluted)		$	0.72			$	0.50			$	2.10			$	1.59
Weighted average common shares and units (diluted)			95,117,597				93,034,016				94,734,736				92,121,224

The following table reconciles SSNOI from net income for the three months ended September 30, 2006 and 2005 and for the nine months ended September 30, 2006 and 2005 (dollars in thousands):

		For the Quarters Ended								For the Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net income		$	33,387			$	29,068			$	136,317			$	116,624
Private capital income			(7,490	)			(5,764	)			(17,539	)			(12,520	)
Depreciation and amortization			48,761				40,494				136,160				121,279
General and administrative and fund costs			26,346				17,144				75,438				55,949
Total other income and expenses			17,029				35,339				40,626				61,010
Total minority interests’ share of income			17,366				14,723				47,165				54,784
Total discontinued operations			(1,186	)			(16,534	)			(28,010	)			(54,954	)
NOI			134,213				114,470				390,157				342,172
Less non same-store NOI			(21,926	)			(7,896	)			(61,748	)			(20,383	)
Less non cash adjustments (1)			(2,673	)			(2,957	)			(7,379	)			(10,234	)
Cash-basis same-store NOI		$	109,614			$	103,617			$	321,030			$	311,555

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(c)

Exhibits:

Exhibit
Number				Description
	99.1			AMB Property Corporation Press Release dated October 17, 2006.

SIGNATURES

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

Exhibits

Exhibit
Number				Description
	99.1			AMB Property Corporation Press Release dated October 17, 2006.