SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (Date of earliest event reported): December 2, 1998 AMB PROPERTY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 001-13545 94-3281941 - ------------------------------ ------------ ------------------- (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) File Number) Identification No.) 505 MONTGOMERY STREET , SAN FRANCISCO, CA 94111 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip code) (415) 394-9000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) AMB PROPERTY CORPORATION CURRENT REPORT ON FORM 8-K Item 5. Other Events Subsequent to September 30, 1998, AMB Property Corporation (the "Company") has invested approximately $162 million in 40 industrial buildings aggregating 3.5 million rentable square feet and approximately $17 million in one retail center comprised of 0.1 million rentable square feet. The operating properties covered by the attached financial statements were acquired by AMB Property, L.P. and subsidiaries (the "Operating Partnership") from unrelated parties between July 31, 1998, and October 26, 1998. The Company owns a controlling approximate 95.1% general partnership interest in the Operating Partnership as of September 30, 1998. The Company is the sole general partner of the Operating Partnership and has the full, exclusive and complete responsibility and discretion in the management and control of the Operating Partnership. Therefore, the Company consolidates the Operating Partnership for financial reporting purposes. None of the acquisitions were individually material to Operating Partnership. Item 7. Financial Statements and Exhibits. (a) (i) Combined Statements of Revenues and Certain Expenses for the Amberjack Portfolio Report of Independent Public Accountants Combined Statements of Revenues and Certain Expenses for the Amberjack Portfolio for the period from January 1, 1998 to July 31, 1998, (unaudited) and for the year ended December 31, 1997 Notes to Combined Statements of Revenues and Certain Expenses for the Amberjack Portfolio for the period from January 1, 1998 to July 31, 1998, (unaudited) and for the year ended December 31, 1997 (ii) Combined Statements of Revenues and Certain Expenses for the Willow Lake Portfolio Report of Independent Public Accountants Combined Statements of Revenues and Certain Expenses for the Willow Lake Portfolio for the period from January 1, 1998 to September 9, 1998, (unaudited) and for the year ended December 31, 1997 Notes to Combined Statements of Revenues and Certain Expenses for the Willow Lake Portfolio for the period from January 1, 1998 to September 9 1998, (unaudited) and for the year ended December 31, 1997 (iii) Combined Statements of Revenues and Certain Expenses for the Willow Park Portfolio Report of Independent Public Accountants Combined Statements of Revenues and Certain Expenses for the Willow Park Portfolio for the period from January 1, 1998 to September 24, 1998, (unaudited) and for the year ended December 31, 1997 Notes to Combined Statements of Revenues and Certain Expenses for the Willow Park Portfolio for period from January 1, 1998 to September 24, 1998, (unaudited) and for the year ended December 31, 1997 (iv) Combined Statements of Revenues and Certain Expenses for the National Distribution Portfolio Report of Independent Public Accountants Combined Statements of Revenues and Certain Expenses for the National Distribution Portfolio for the period from January 1, 1998 to September 30, 1998, (unaudited) and for the year ended December 31, 1997 2 Notes to Combined Statements of Revenues and Certain Expenses for the National Distribution Portfolio for the period from January 1, 1998 to September 30, 1998, (unaudited) and for the year ended December 31, 1997 3 (v) Combined Statements of Revenues and Certain Expenses for the Mahwah Portfolio Report of Independent Public Accountants Combined Statements of Revenues and Certain Expenses for the Mahwah Portfolio for the period from January 1, 1998 to September 30, 1998 (unaudited) and for the year ended December 31, 1997 Notes to Combined Statements of Revenues and Certain Expenses for the Mahwah Portfolio for the period from January 1, 1998 to September 30, 1998 (unaudited) and for the year ended December 31, 1997 (b) Pro Forma Financial Information for AMB Property Corporation (Unaudited) Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998 Notes and adjustments to Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998 Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1998 Notes and adjustments to Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1998 Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1997 Notes and adjustments to Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1997 4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AMB Property Corporation: We have audited the accompanying combined statement of revenues and certain expenses of the Amberjack Portfolio (as defined in Note 1) for the year ended December 31, 1997. This financial statement is the responsibility of the management of the Amberjack Portfolio. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations, as described in Note 1, and is not intended to be a complete presentation of the revenues and expenses of the Amberjack Portfolio. In our opinion, the combined statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses of the Amberjack Portfolio for the year ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California, July 9, 1998 5 AMBERJACK PORTFOLIO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998 TO JULY 31, 1998 (UNAUDITED) (IN THOUSANDS)
1997 1998 ------ ---------- (UNAUDITED) REVENUES Rental revenues .................... $9,509 $5,908 Other income ....................... 18 16 ------ ------ 9,527 5,924 CERTAIN EXPENSES Property operating expenses ........ 1,898 988 Real estate taxes .................. 1,244 1,163 ------ ------ 3,142 2,151 ------ ------ REVENUES IN EXCESS OF CERTAIN EXPENSES $6,385 $3,773 ====== ======
The accompanying notes are an integral part of these combined financial statements. 6 AMBERJACK PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Properties Acquired The accompanying combined statements of revenues and certain expenses include the combined operations (see "Basis of Presentation" below) of the Amberjack Portfolio (the "Portfolio"). AMB Property Corporation and Subsidiaries (the "Company") acquired the Portfolio, which includes 44 industrial buildings aggregating approximately 2.1 million square feet (unaudited), from an unrelated party on July 31, 1998 for an initial purchase price of approximately $78,500 (unaudited). Basis of Presentation The accompanying combined statements of revenues and certain expenses are not representative of the actual operations of the Portfolio for the periods presented. Certain expenses may not be comparable to the expenses expected to be incurred by the Company in the proposed future operations of the Portfolio; however, the Company is not aware of any material factors relating to the Portfolio that would cause the reported financial information not to be indicative of future operating results. Excluded expenses consist of interest, depreciation and amortization and other costs not directly related to the future operations of the Portfolio. The combined statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations. The financial information presented for the period from January 1, 1998 to July 31, 1998 is unaudited. In the opinion of management, the unaudited financial information contains all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the combined statement of revenues and certain expenses for the Portfolio. Revenue Recognition All leases are classified as operating leases, and rental revenue is recognized on a straight-line basis over the terms of the leases. Uses of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. 2. LEASING ACTIVITY Future minimum rental income due under non-cancelable operating leases with tenants in effect as of December 31, 1997 is as follows: 1998...................................................... $ 7,564 1999...................................................... 5,376 2000...................................................... 3,599 2001...................................................... 2,522 2002...................................................... 1,386 Thereafter................................................ 1,169 -------- Total........................................... $ 21,616 ========
7 AMBERJACK PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 2. LEASING ACTIVITY (CON'T) In addition to minimum rental payments, tenants pay reimbursements for their pro rata share of specified operating expenses, which amounted to $1,287 and $776 for the year ended December 31, 1997 and for the period from January 1, 1998 to July 31, 1998 (unaudited), respectively. Certain leases contain options to renew. 8 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AMB Property Corporation: We have audited the accompanying combined statement of revenues and certain expenses of the Willow Lake Portfolio (as defined in Note 1) for the year ended December 31, 1997. This financial statement is the responsibility of the management of the Willow Lake Portfolio. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations, as described in Note 1, and is not intended to be a complete presentation of the revenues and expenses of the Willow Lake Portfolio. In our opinion, the combined statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses of the Willow Lake Portfolio for the year ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California, July 21, 1998 9 WILLOW LAKE PORTFOLIO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 9, 1998 (UNAUDITED) (IN THOUSANDS)
1997 1998 ------ ---------- (UNAUDITED) REVENUES Rental revenues .................... $6,249 $4,493 Other income ....................... 19 8 ------ ------ 6,268 4,501 CERTAIN EXPENSES Property operating expenses ........ 760 457 Real estate taxes .................. 716 569 ------ ------ 1,476 1,026 ------ ------ REVENUES IN EXCESS OF CERTAIN EXPENSES $4,792 $3,475 ====== ======
The accompanying notes are an integral part of these combined financial statements. 10 WILLOW LAKE PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Properties Acquired The accompanying combined statements of revenues and certain expenses include the operations of the Willow Lake Portfolio (the "Portfolio") acquired by AMB Property Corporation and Subsidiaries (the "Company") from an unrelated party on September 9, 1998 for an initial purchase price of approximately $60,500 (unaudited), which includes the assumption of mortgages payable (see Note 3). The Portfolio is located in the Memphis and Nashville, Tennessee and includes 12 industrial buildings comprising approximately 1.4 million rentable square feet (unaudited). Basis of Presentation The accompanying combined statements of revenues and certain expenses are not representative of the actual operations of the Portfolio for the periods presented. Certain expenses may not be comparable to the expenses expected to be incurred by the Company in the proposed future operations of the Portfolio; however, the Company is not aware of any material factors relating to the Portfolio that would cause the reported financial information not to be indicative of future operating results. Excluded expenses consist of interest, depreciation and amortization and other costs not directly related to the future operations of the Portfolio. The combined statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations. The financial information presented for the period from January 1, 1998 to September 9, 1998 is unaudited. In the opinion of management, the unaudited financial information contains all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the combined statement of revenues and certain expenses for the Portfolio. Revenue Recognition All leases are classified as operating leases, and rental revenue is recognized on a straight-line basis over the terms of the leases. Uses of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. 2. LEASING ACTIVITY Future minimum rental income due under non-cancelable operating leases with tenants in effect as of December 31, 1997 is as follows:
YEAR AMOUNT - ---- ------- 1998................................................. $ 6,423 1999................................................. 5,694 2000................................................. 4,547 2001................................................. 3,276 2002................................................. 1,315 Thereafter........................................... 2,798 ------- Total...................................... $24,053 =======
11 WILLOW LAKE PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 2. LEASING ACTIVITY (CON'T) In addition to minimum rental payments, tenants pay reimbursements for their pro rata share of specified operating expenses, which amounted to $798 and $423 for the year ended December 31, 1997 and for the period from January 1, 1998 to September 9, 1998 (unaudited), respectively. Certain leases contain options to renew. 3. MORTGAGES PAYABLE In connection with the purchase of the Portfolio, the Company assumed certain mortgages payable with an aggregate principal value of $38,055 as of December 31, 1997. The mortgages payable require monthly principal and interest payments and are secured by deeds of trust on certain of the Portfolio properties. The mortgages payable bear interest at fixed rates ranging from 7.87% to 9.00% and are due between October 2002 and January 2011. The mortgages payable have various financial and non-financial covenants. The weighted-average fixed interest rate on this secured debt at December 31, 1997 was 8.10%. The scheduled maturities of the mortgages as of December 31, 1997 are as follows: 1998........................................ $ 121 1999........................................ 511 2000........................................ 555 2001........................................ 602 2002........................................ 9,241 Thereafter.................................. 27,025 -------- Total............................. $ 38,055 ========
12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AMB Property Corporation: We have audited the accompanying combined statement of revenues and certain expenses of the Willow Park Portfolio (as defined in Note 1) for the year ended December 31, 1997. This financial statement is the responsibility of the management of the Willow Park Portfolio. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations, as described in Note 1, and is not intended to be a complete presentation of the revenues and expenses of the Willow Park Portfolio. In our opinion, the combined statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses of the Willow Park Portfolio for the year ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California, June 8, 1998 13 WILLOW PARK PORTFOLIO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 24, 1998 (UNAUDITED) (IN THOUSANDS)
1997 1998 ------- ---------- (UNAUDITED) REVENUES Rental revenues .................... $10,119 $ 9,610 CERTAIN EXPENSES Property operating expenses ........ 443 328 Real estate taxes .................. 1,770 1,649 ------- ------- 2,213 1,977 ------- ------- REVENUES IN EXCESS OF CERTAIN EXPENSES $ 7,906 $ 7,633 ======= =======
The accompanying notes are an integral part of these combined financial statements. 14 WILLOW PARK PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Properties Acquired The accompanying combined statements of revenues and certain expenses include the operations of the Willow Park Portfolio (the "Portfolio") acquired by AMB Property Corporation and Subsidiaries (the "Company") from an unrelated party on September 24, 1998 for an initial purchase price of approximately $100,400 (unaudited), including the assumption of mortgages payable (see Note 3). The Portfolio is located in the San Francisco Bay Area and includes 21 industrial buildings comprising approximately 1.0 million rentable square feet (unaudited). Basis of Presentation The accompanying combined statements of revenues and certain expenses are not representative of the actual operations of the Portfolio for the periods presented. Certain expenses may not be comparable to the expenses expected to be incurred by the Company in the proposed future operations of the Portfolio; however, the Company is not aware of any material factors relating to the Portfolio that would cause the reported financial information not to be indicative of future operating results. Excluded expenses consist of interest, depreciation and amortization and other costs not directly related to the future operations of the Portfolio. The combined statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations. The combined financial information presented for the period from January 1, 1998 to September 24, 1998 is unaudited. In the opinion of management, the unaudited financial information contains all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the combined statement of revenues and certain expenses for the Portfolio. Revenue Recognition All leases are classified as operating leases, and rental revenue is recognized on a straight-line basis over the terms of the leases. Uses of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. 2. LEASING ACTIVITY Future minimum rental income due under non-cancelable operating leases with tenants in effect as of December 31, 1997 is as follows:
YEAR AMOUNT - ---- ------- 1998.............................................. $ 8,707 1999.............................................. 8,291 2000.............................................. 7,579 2001.............................................. 6,976 2002.............................................. 5,358 Thereafter........................................ 3,387 -------- Total................................... $ 40,298 ========
15 WILLOW PARK PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 2. LEASING ACTIVITY (CON'T) In addition to minimum rental payments, tenants pay reimbursements for their pro rata share of specified operating expenses, which amounted to $1,589 and $1,717 for the year ended December 31, 1997 and for the period from January 1, 1998 to September 24, 1998 (unaudited), respectively. Certain leases contain options to renew. 3. MORTGAGES PAYABLE In connection with the purchase of the Portfolio, the Company assumed certain mortgages payable with an aggregate principal value of $33,451 as of December 31, 1997. The mortgages payable require monthly principal and interest payments and are secured by deeds of trust on certain of the Portfolio properties. The mortgages payable bear interest at rates ranging from 7.85% to 8.59% and are due between August 2000 and May 2007. The mortgages payable have various financial and non-financial covenants. The weighted-average fixed interest rate on secured debt at December 31, 1997 was 8.33%. The scheduled maturities of the mortgages payable as of December 31, 1997 are as follows: 1998.............................................. $ 366 1999.............................................. 1,793 2000.............................................. 7,455 2001.............................................. 910 2002.............................................. 998 Thereafter........................................ 21,929 -------- Total................................... $ 33,451 ========
16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AMB Property Corporation: We have audited the accompanying combined statement of revenues and certain expenses of the National Distribution Portfolio (as defined in Note 1) for the year ended December 31, 1997. This financial statement is the responsibility of the management of the National Distribution Portfolio. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations, as described in Note 1, and is not intended to be a complete presentation of the revenues and expenses of the National Distribution Portfolio. In our opinion, the combined statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses of the National Distribution Portfolio for the year ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California, July 31, 1998 17 NATIONAL DISTRIBUTION PORTFOLIO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 1998 (UNAUDITED) (IN THOUSANDS)
1997 1998 ------ ---------- (UNAUDITED) REVENUES Rental revenues .................... $8,633 $7,433 Other income ....................... 47 36 ------ ------ 8,680 7,469 CERTAIN EXPENSES Property operating expenses ........ 811 878 Real estate taxes .................. 1,116 804 ------ ------ 1,927 1,682 ------ ------ REVENUES IN EXCESS OF CERTAIN EXPENSES $6,753 $5,787 ====== ======
The accompanying notes are an integral part of these financial statements. 18 NATIONAL DISTRIBUTION PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Properties Acquired The accompanying combined statements of revenues and certain expenses include the operations (see "Basis of Presentation" below) of the National Distribution Portfolio (the "Portfolio"). AMB Property Corporation (the "Company") acquired the Portfolio, which includes 24 industrial buildings aggregating 2.2 million square feet (unaudited), from an unrelated party on October 26, 1998 for an initial purchase price of approximately $92,500 (unaudited), which includes the assumption of mortgages payable (see Note 3). Basis of Presentation The accompanying statements of revenues and certain expenses are not representative of the actual operations of the Portfolio for the periods presented. Certain expenses may not be comparable to the expenses expected to be incurred by the Company in the proposed future operations of the Portfolio; however, the Company is not aware of any material factors relating to the Portfolio that would cause the reported financial information not to be indicative of future operating results. Excluded expenses consist of interest, depreciation and amortization and other costs not directly related to the future operations of the Portfolio. The combined statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations. The financial information presented for the nine months ended September 30, 1998 is unaudited. In the opinion of management, the unaudited financial information contains all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the combined statement of revenues and certain expenses for the Portfolio. Revenue Recognition All leases are classified as operating leases, and rental revenue is recognized on a straight-line basis over the terms of the leases. Uses of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. 2. LEASING ACTIVITY Future minimum rental income due under non-cancelable operating leases with tenants in effect as of December 31, 1997 is as follows: YEAR AMOUNT - ---- ------- 1998.............................................. $ 8,298 1999.............................................. 7,807 2000.............................................. 5,897 2001.............................................. 4,470 2002.............................................. 3,167 Thereafter........................................ 5,747 -------- Total................................... $ 35,386 ========
19 NATIONAL DISTRIBUTION PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 2. LEASING ACTIVITY (CON'T) In addition to minimum rental payments, tenants pay reimbursements for their pro rata share of specified operating expenses, which amounted to $1,010 and $926 for the year ended December 31, 1997 and for the nine months ended September 30, 1998 (unaudited), respectively. Certain leases contain options to renew. 3. MORTGAGES PAYABLE In connection with the purchase of the Portfolio, the Company assumed certain mortgages payable with an aggregate principal value of $28,991 as of December 31, 1997. The mortgages payable require monthly principal and interest payments and are secured by deeds of trust on certain of the Portfolio properties. The mortgages payable bear interest at rates ranging from 7.20% to 8.45% and are due between January 2003 and December 2007. The mortgages payable have various financial and non-financial covenants. The weighted-average fixed interest rate on secured debt at December 31, 1997 was 7.97%. The scheduled maturities of the mortgages payable as of December 31, 1997 are as follows: 1998.............................................. $ 577 1999.............................................. 625 2000.............................................. 677 2001.............................................. 733 2002.............................................. 794 Thereafter........................................ 25,585 -------- Total................................... $ 28,991 ========
20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AMB Property Corporation: We have audited the accompanying combined statement of revenues and certain expenses of the Mawah Portfolio (as defined in Note 1) for the year ended December 31, 1997. This financial statement is the responsibility of the management of the Mawah Portfolio. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenues and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations, as described in Note 1, and is not intended to be a complete presentation of the revenues and expenses of the Mawah Portfolio. In our opinion, the combined statement of revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses of the Mawah Portfolio for the year ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California, July 31, 1998 21 MAWAH PORTFOLIO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 1998 (UNAUDITED) (IN THOUSANDS)
1997 1998 ------ ------ (UNAUDITED) REVENUES Rental revenues .................... $4,094 $3,111 Other income ....................... 293 171 ------ ------ 4,387 3,282 CERTAIN EXPENSES Property operating expenses ........ 195 131 Real estate taxes .................. 190 143 ------ ------ 385 274 ------ ------ REVENUES IN EXCESS OF CERTAIN EXPENSES $4,002 $3,008 ====== ======
The accompanying notes are an integral part of these combined financial statements. 22 MAWAH PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Properties Acquired The accompanying combined statements of revenues and certain expenses include the combined operations (see "Basis of Presentation" below) of the Mawah Portfolio (the "Property"). AMB Property Corporation and Subsidiaries (the "Company") acquired the Property from an unrelated party on October 8, 1998 for an initial purchase price of approximately $41,900 (unaudited). The Property is located in Mawah, New Jersey, and includes seven industrial buildings aggregating 579,029 rentable square feet (unaudited). Basis of Presentation The accompanying combined statements of revenues and certain expenses are not representative of the actual operations of the Property for the periods presented. Certain expenses may not be comparable to the expenses expected to be incurred by the Company in the proposed future operations of the Property; however, the Company is not aware of any material factors relating to the Property that would cause the reported financial information not to be indicative of future operating results. Excluded expenses consist of interest, depreciation and amortization and other costs not directly related to the future operations of the Property. The combined statements of revenues and certain expenses have been prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission's rules and regulations. The financial information presented for the nine months ended September 30, 1998 is not audited. In the opinion of management, the unaudited financial information contains all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the combined statement of revenues and certain expenses for the Property. Revenue Recognition All leases are classified as operating leases, and rental revenue is recognized on a straight-line basis over the terms of the leases. Uses of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. 2. LEASING ACTIVITY Future minimum rental income due under non-cancelable operating leases with tenants in effect as of December 31, 1997 is as follows: 1998...................................................... $ 4,031 1999...................................................... 4,128 2000...................................................... 4,044 2001...................................................... 3,964 2002...................................................... 3,889 Thereafter................................................ 11,165 -------- Total........................................... $ 31,221 ========
23 MAWAH PORTFOLIO NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (DOLLARS IN THOUSANDS) 2. LEASING ACTIVITY (CON'T) In addition to minimum rental payments, tenants pay reimbursements for their pro rata share of specified operating expenses, which amounted to $293 and $171 for the year ended December 31, 1997 and for the nine months ended September 30, 1998 (unaudited), respectively. Certain leases contain options to renew. 24 AMB PROPERTY CORPORATION PRO FORMA FINANCIAL INFORMATION (UNAUDITED) BACKGROUND The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 1998 has been prepared to reflect: (i) the acquisition of properties subsequent to September 30, 1998, (ii) the sale of Series B Preferred Units and the application of the net proceeds therefrom and (iii) the sale of Series C Preferred Units and the application of the net proceeds therefrom as if such transactions and adjustments had occurred on September 30, 1998. The accompanying unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1997 and the nine months ended September 30, 1998 have been prepared to reflect: (i) the incremental effect of the acquisition of properties during 1998 and 1997, (ii) the incremental effect of the disposition or partial disposition of properties during 1997, (iii) the IPO and Formation Transactions, (iv) pro forma debt and other adjustments resulting from the sale of Senior Debt Securities, the sale of Series A Preferred Shares, the sale of Series B Preferred Units and the sale of Series C Preferred Units and the application of the resulting net proceeds and (v) certain other adjustments as if such transactions and adjustments had occurred on January 1, 1997 and were carried forward through September 30, 1998. These unaudited pro forma condensed consolidated statements should be read in connection with the historical consolidated financial statements and notes thereto included in AMB Property Corporation's December 31, 1997 Form 10-K and September 30, 1998 Form 10-Q. In the opinion of management, the pro forma condensed consolidated financial information provides for all adjustments necessary to reflect the effects of the IPO and Formation Transactions, the sale of Senior Debt Securities, the sale of Series A Preferred Shares, the sale of Series B Preferred Units and the sale of Series C Preferred Units and the application of the resulting net proceeds therefrom, property acquisitions and dispositions and certain other transactions. The pro forma information is unaudited and is not necessarily indicative of the consolidated results that would have occurred if the transactions and adjustments reflected therein had been consummated in the period or on the date presented, or on any particular date in the future, nor does it purport to represent the financial position, results of operations or changes in cash flows for future periods. 25 AMB PROPERTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 (UNAUDITED, IN THOUSANDS)
PREFERRED PROPERTY UNIT COMPANY(1) ACQUISITIONS(2) OFFERINGS(3) PRO FORMA ---------- --------------- ------------ ---------- ASSETS Investments in real estate, net ....... $3,247,217 $ 190,628 $ -- $3,437,845 Cash and cash equivalents ............. 33,206 (7,294) -- 25,912 Other assets .......................... 46,850 -- -- 46,850 ---------- ---------- ---------- ---------- Total assets ................. $3,327,273 $ 183,334 $ -- $3,510,607 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Secured debt .......................... $ 701,602 $ 52,068 $ -- $ 753,670 Unsecured credit facilities ........... 205,000 119,633 (169,825) 154,808 Senior debt securities ................ 400,000 -- -- 400,000 Other liabilities ..................... 109,606 -- -- 109,606 ---------- ---------- ---------- ---------- Total liabilities ............ 1,416,208 171,701 (169,825) 1,418,084 ---------- ---------- ---------- ---------- Minority interests .................... 144,389 11,633 169,825 325,847 ---------- ---------- ---------- ---------- Stockholders' Equity Series A Preferred Stock ............ 96,100 -- -- 96,100 Common Shares ....................... 859 -- -- 859 Additional paid-in capital .......... 1,669,717 -- -- 1,669,717 Retained earnings ................... -- -- -- -- ---------- ---------- ---------- ---------- Total equity ................. 1,766,676 -- -- 1,766,676 ---------- ---------- ---------- ---------- Total liabilities and stockholder's equity ....... $3,327,273 $ 183,334 $ -- $3,510,607 ========== ========== ========== ==========
26 AMB PROPERTY CORPORATION NOTES AND ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 (UNAUDITED, DOLLARS IN THOUSANDS) 1. Reflects the historical consolidated balance sheet of AMB Property Corporation as of September 30, 1998. See the historical consolidated financial statements and notes thereto included in AMB Property Corporation's September 30, 1998 Form 10-Q. 2. Reflects property acquisitions subsequent to September 30, 1998 for an estimated total purchase price of approximately $190,628, including estimated acquisition costs. The Company has funded these acquisitions through (i) borrowings under its Credit Facility of approximately $119,633 (ii) cash on hand of approximately $7,294, (iii) the assumption of approximately $52,068 in secured debt and (iv) joint venture co-investment contributions of $11,633. Property acquisitions include the following properties:
PROPERTY NAME ACQUISITION PRICE - ------------- ----------------- Porete Avenue Warehouse................... $ 15,624 Mawah Portfolio........................... 41,876 National Distribution Portfolio........... 92,465 South Point Business Park................. 23,266 Around Lenox.............................. 17,397 -------- $190,628 ========
3. Reflects the effect of (i) the sale of Series B Preferred Units by AMB Property, L.P. (the "Operating Partnership") in the amount of $65,000, resulting in net proceeds of approximately $63,075 after payment of approximately $1,925 of offering and commission costs, (ii) the sale of Series C Preferred Units by AMB Property II, L.P. (owned 99% by the Operating Partnership and 1% by a wholly owned subsidiary of the Company) in the amount of $110,000, resulting in net proceeds of approximately $106,750 after payment of approximately $3,250 of offering and commission costs and (iii) the repayment of borrowings under the Credit Facility of approximately $169,825 using the net proceeds of the sale of the Series B Preferred Units and Series C Preferred Units. 27 AMB PROPERTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1998 PROPERTY PREFERRED COMPANY(1) ACQUISITIONS(2) OFFERINGS(3) PRO FORMA ------------ ------------ ------------ ------------ REVENUES Rental revenue .......................... $ 251,844 $ 51,071 $ -- $ 302,915 Interest and other income ............... 3,016 2,988 -- 6,004 ------------ ------------ ------------ ------------ Total revenues ................ 254,860 54,059 -- 308,919 ------------ ------------ ------------ ------------ OPERATING EXPENSES Real estate taxes and property operating expenses ...................... 67,637 11,723 -- 79,360 Interest expense ........................ 47,105 -- 19,207 66,312 Depreciation and amortization ........... 40,052 7,507 -- 47,559 General, administrative and other . ..... 8,694 -- -- 8,694 ------------ ------------ ------------ ------------ Total operating expenses ...... 163,488 19,230 19,207 201,925 ------------ ------------ ------------ ------------ Income from operations before minority interests ...................... 91,372 34,829 (19,207) 106,994 Minority interests' share of net income ................................ (6,615) (2,384) (11,423) (20,422) ------------ ------------ ------------ ------------ Net income .................... 84,757 32,445 (30,630) 86,572(4) Preferred stock dividends ............... (1,514) -- (4,861) (6,375) ------------ ------------ ------------ ------------ Net income available to common stockholders .......................... $ 83,243 $ 32,445 $ (35,491) $ 80,197 ============ ============ ============ ============ Net income per common share Basic ................................. $ 0.97 $ 0.93 ============ ============ Diluted ............................... $ 0.97 $ 0.93 ============ ============ Weighted average common shares outstanding Basic ................................. 85,874,513 85,874,513 ============ ============ Diluted ............................... 86,252,923 86,252,923 ============ ============
28 AMB PROPERTY CORPORATION NOTES AND ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1. Reflects the historical consolidated operations of AMB Property Corporation for the nine months ended September 30, 1998. See the historical consolidated financial statements and notes thereto included in AMB Property Corporation's September 30, 1998 Form 10-Q. 2. The following reflects the incremental effects of properties acquired subsequent to December 31, 1997 based on the historical operations of such properties for the periods prior to acquisition by the Company:
REAL ESTATE TAXES REVENUES IN AND PROPERTY EXCESS OF RENTAL AND OPERATING CERTAIN OTHER REVENUES EXPENSES EXPENSES -------------- ----------------- --------- Cascade .............................. $ 44 $ (11) $ 33 Wilsonville .......................... 167 (41) 126 Atlanta South Phase II ............... 116 (30) 86 Boston Industrial Portfolio .......... 2,853 (108) 2,745 Mansfield Industrial Portfolio ....... 71 (2) 69 Orlando Central Park ................. 804 (260) 544 Jamesburg Property ................... 1,466 (543) 923 Corporate Park Industrial ............ 757 (130) 627 Minneapolis Industrial Portfolio...... 592 (230) 362 Houston Service Center ............... 706 (249) 457 Meadowridge Business Park ............ 1,058 (238) 820 Northwest Business Center ............ 323 (75) 248 Forbes ............................... -- -- -- Southfield ........................... -- -- -- Crysen Corridor Warehouse ............ 247 (63) 184 Garland Industrial Portfolio ......... 1,966 (412) 1,554 Suffolk .............................. 165 (42) 123 Minnetonka Industrial Portfolio ...... 2,022 (768) 1,254 Alsip Industrial ..................... 374 (106) 268 Suffolk Industrial ................... 444 (112) 332 Chemway Industrial ................... 688 (140) 548 Amberjack Portfolio................... 5,924 (2,151) 3,773 Willow Lake Portfolio ................ 4,501 (1,026) 3,475 Willow Park Portfolio ................ 9,610 (1,977) 7,633 Porete Avenue Warehouse............... 1,318 (263) 1,055 Mawah Portfolio ...................... 3,282 (274) 3,008 National Distribution Portfolio ...... 7,469 (1,682) 5,787 South Point Business Park............. 1,764 (170) 1,594 Northridge ........................... 108 (43) 65 Totem Lake Malls ..................... 758 (277) 481 Around Lenox ......................... 1,474 (300) 1,174 -------- --------- -------- $ 51,071 $ (11,723) $ 39,348 ======== ========= ========
29 Five of the property acquisitions, Jamesburg Property, Corporate Park Industrial, Garland Industrial Portfolio, Minnetonka Industrial Portfolio and South Point Business Park, represent a joint venture with a client of AMB Investment Management in which the Company owns a controlling 50.0005% interest. The joint venture acquisitions are accounted for on a consolidated basis and, accordingly, minority interest of $2,384 has been reflected relative to these acquisitions. Two of the acquisitions above, Forbes and Southfield, represent the purchase of vacant buildings which are in the process of being leased. As such, no property operations have been reflected in the accompanying pro forma statement of operations relative to these acquisitions. Also reflects the acquisition of a non-controlling unconsolidated limited partnership interest in an existing real estate joint venture which owns the DuPage Elk Grove Property. As such, the Company's incremental share of equity in earnings of this joint venture of $2,988 is included in interest and other income in the accompanying pro forma statement of operations. Also reflects the estimated incremental depreciation and amortization of the 1998 property acquisitions based on estimated useful lives of 40 years. 3. Reflects an adjustment to derive pro forma interest expense, which is based upon the pro forma debt balances as of September 30, 1998. The calculation of pro forma interest expense is as follows:
Secured debt, pro forma balance of $737,752 (before premium of $15,918), assumed interest rate of 7.90% .... $ 43,712 Credit Facility, pro forma balance of $154,808, assumed interest rate of 6.53% .................................. 7,582 Senior Debt Securities, pro forma balance of $400,000, weighted average interest rate of 7.175% ................ 21,525 Amortization of debt premium, actual amounts amortized during the period ....................................... (2,664) Amortization of deferred financing costs, $6,434 balance, 3 to 17 year terms ...................................... 743 Unused Credit Facility fees, unused pro forma balance of $345,192, fee of 0.15% .................................. 388 Capitalized interest, actual amounts capitalized during the period .............................................. (4,974) -------- Pro forma interest expense ................................ $ 66,312 ========
The net change in interest expense is the result of the repayment of borrowings on the Credit Facility of approximately $394,466 with the net proceeds from the sale of the Senior Debt Securities (see below) and approximately $267,000 from the sale of Series A Preferred Shares, the sale of Series B Preferred Units and sale of the Series C Preferred Units offset by borrowings on the Credit Facility related to property acquisitions and the assumption of secured debt in connection with property acquisitions. In June 1998, the Operating Partnership issued $400,000 aggregate principal amount of unsecured notes ("Senior Debt Securities") in an underwritten public offering, of which the net proceeds of approximately $394,466 were contributed to the Operating Partnership and used to repay amounts outstanding under the Credit Facility. The Senior Debt Securities mature in June 2008. June 2015 and June 2018 and bear interest at a weighted average rate of 7.18%. Also reflects the payment of pro forma Series A Preferred Stock dividends at a dividend rate of 8.5%, Series B Preferred Unit distributions at a distribution rate of 8.625% and Series C Preferred Unit distributions at a distribution rate of 8.75%. 4. The pro forma taxable income of the Company for the twelve months ended September 30, 1998 is approximately $108,919, which is based upon pro forma income from operations of approximately $115,847, plus book depreciation and amortization of approximately $58,401 less other book/tax differences of approximately $7,409 and less tax depreciation and amortization of approximately $57,920 30 AMB PROPERTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AMB IPO AND CONTRIBUTED 1997 PROPERTY 1997 PROPERTY FORMATION COMPANY(1) PROPERTIES(2) ACQUISITIONS(3) DISPOSITIONS(4) TRANSACTIONS(5) ------------ ------------- -------------- --------------- -------------- REVENUES Rental revenue .............. $ 26,465 $ 207,391 $ 47,554 $( 1,200) $ 2,455 Interest and other income ... 29,597 1,217 176 -- (28,981) ------------ ------------ ------------ ------------ ------------ Total revenues ...... 56,062 208,608 47,730 (1,200) (26,526) ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES Real estate taxes and property operating expenses .................. 8,899 72,452 10,815 (363) (10,325) Interest expense ............ 3,528 45,009 -- (75) (3,033) Depreciation and amortization .............. 4,195 32,616 -- (157) 9,232 General, administrative and other ..................... 20,555 823 -- -- (13,400) ------------ ------------ ------------ ------------ ------------ Total operating expenses .......... 37,177 150,900 10,815 (595) (17,526) ------------ ------------ ------------ ------------ ------------ Income from operations before disposal of real estate and minority interests ........ 18,885 57,708 36,915 (605) (9,000) Gain on disposal of real estate .................... -- 360 -- (360) -- ------------ ------------ ------------ ------------ ------------ Income from operations before minority interests ........ 18,885 58,068 36,915 (965) (9,000) Minority interests' share of net income ................ (657) (884) (296) -- (2,558) ------------ ------------ ------------ ------------ ------------ Net income .................. 18,228 57,184 36,619 (965) (11,558) Preferred Stock Dividends ... -- -- -- -- ------------ ------------ ------------ ------------ ------------ Net income available to common stockholders ....... $ 18,228 $ 57,184 $ 36,619 $ (965) $ (11,558) ============ ============ ============ ============ ============ Net income per common share Basic ..................... $ 1.39 ============ Diluted ................... $ 1.38 ============ Weighted average common shares outstanding Basic ..................... 13,140,218 ============ Diluted ................... 13,168,036 ============
1997 AS 1998 PROPERTY PREFERRED ADJUSTED ACQUISITIONS(6) OFFERINGS(7) PRO FORMA ------------ -------------- ------------ ------------ REVENUES Rental revenue............. $ 282,665 $100,261 $ -- $ 382,926 Interest and other income.. 2,009 5,086 -- 7,095 ------------ -------- -------- ------------ Total revenues..... 284,674 105,347 -- 390,021 ------------ -------- -------- ------------ OPERATING EXPENSES Real estate taxes and property operating expenses................. 81,478 24,508 -- 105,986 Interest expense........... 45,429 -- 46,076 91,505 Depreciation and amortization............. 45,886 15,674 -- 61,560 General, administrative and other.................... 7,978 -- -- 7,978 ------------ -------- -------- ------------ Total operating expenses......... 180,771 40,182 46,076 267,029 ------------ -------- -------- ------------ Income from operations before disposal of real estate and minority interests....... 103,903 65,165 (46,076) 122,992 Gain on disposal of real estate................... -- -- -- -- ------------ -------- -------- ------------ Income from operations before minority interests....... 103,903 65,165 (46,076) 122,992 Minority interests' share of net income............... (4,395) (5,996) (15,231) (25,622) ------------ -------- -------- ------------ Net income................. 99,508 59,169 (61,307) 97,370 Preferred Stock Dividends.. -- -- (8,500) (8,500) ------------ -------- -------- ------------ Net income available to common stockholders...... $ 99,508 $ 59,169 $(69,807) $ 88,870 ============ ======== ======== ============ Net income per common share Basic.................... $ 1.16 $ 1.03 ============ ============ Diluted.................. $ 1.15 $ 1.03 ============ ============ Weighted average common shares outstanding Basic.................... 85,874,513 85,874,513 ============ ============ Diluted.................. 86,156,556 86,156,556 ============ ============
31 AMB PROPERTY CORPORATION NOTES AND ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1. Reflects the historical consolidated operations of AMB Property Corporation (the "Company") for the period from November 26, 1997 to December 31, 1997 and the historical operations of AMB Institutional Realty Advisors, Inc. ("AMB") for the period January 1, 1997 to November 25, 1997. See the historical consolidated financial statements and notes included in the Company's December 31, 1997, Form 10-K thereto of AMB Property Corporation included elsewhere in this Prospectus. 2. Reflects the historical combined operations of the AMB Contributed Properties for the period from January 1, 1997 to November 25, 1997. 3. Reflects the incremental effects of properties acquired during the year ended December 31, 1997 based on the historical operations of such properties for periods prior to acquisition by the Company or the owners of the AMB Contributed Properties. Below is a summary of the incremental effect of such properties:
REAL ESTATE TAXES AND PROPERTY REVENUES IN RENTAL OPERATING EXCESS OF PROPERTY ACQUIRED REVENUES EXPENSES CERTAIN EXPENSES - ----------------- -------- ------------ ---------------- Shady Oak ..................... $ 326 $ (70) $ 256 Metric Center ................. 635 (50) 585 Southfield .................... 171 (40) 131 Atlanta South Phase II ........ 109 (57) 52 O'Hare Industrial Portfolio (Ardmore) ................... 265 (74) 191 Windsor Court ................. 151 (53) 98 Beacon Building 8 ............. 765 (180) 585 Greenleaf ..................... 177 (74) 103 Boulden ....................... 1,070 (269) 801 Mid-Atlantic Business Center... 1,537 (414) 1,123 Brittania Business Park ....... 1,058 (212) 846 Rockford Road ................. 64 (6) 58 Patuxent ...................... 509 (113) 396 Executive ..................... 588 (175) 413 Acer Distribution ............. 716 (129) 587 Cabot Industrial Portfolio .... 22,995 (4,775) 18,220 Cabot Business Park ........... 4,734 (895) 3,839 Manhattan Village ............. 5,467 (1,928) 3,539 Weslayan Plaza ................ 3,259 (990) 2,269 Silicon Valley R&D Portfolio... 2,958 (311) 2,647 -------- -------- -------- $ 47,554 $(10,815) $ 36,739 ======== ======== ========
One of the acquisitions above, Manhattan Village, represents the acquisition of a property and the formation of several joint ventures that own the property, in which the Company owns a 90% interest. The joint venture is accounted for on a consolidated basis, and accordingly, a 10% minority interest has been reflected relative to this acquisition. 4. Reflects the incremental effects of the disposition or partial disposition of properties during 1997, based upon the historical operations of such properties. 5. Reflects the effects of the application of purchase accounting as a result of the IPO and Formation Transactions, resulting in pro forma expense adjustments as follows: (i) an increase in depreciation expense of $9,232, (ii) the reclassification of certain property-related expenses from general and administrative expense to property operating expense (due to the internalization of management) of approximately $5,196 and (iii) a net 32 increase in general, administrative and other expenses of $5,958, after reclassification of property-related expenses. Such changes are based upon actual expenses incurred during 1997 adjusted for (a) the estimated changes in costs due to operating as a public entity including investor relations, accounting and legal fees and other costs related to the internalization of management and (b) certain reclassifications to reflect the Company's new organizational structure as a result of the IPO. Estimated depreciation and amortization has been based upon asset lives of 5 to 40 years. Also reflects the elimination of advisory fees charged by the Company's predecessor, AMB, to the owners of the AMB Contributed Properties of $15,521 (excluding approximately $2,027 in real estate acquisition fees paid to AMB which have been accounted for as acquisition costs by the owners of the AMB Contributed Properties and accordingly capitalized as investments in real estate). Also reflects the elimination of investment management and advisory fees earned by AMB of $28,756 and related expenses of $19,358 resulting from the change in the Company's operations from an investment manager to a real estate operating company. Also reflects an adjustment to historical interest expense to derive 1997 as adjusted interest expense, which is based upon the Company's debt balances as of December 31, 1997. The calculation of 1997 as adjusted interest expense is as follows: Secured debt, balance of $517,366 (before premium of $18,286), assumed interest rate of 7.82% .................................. $ 40,458 Credit Facility, balance of $150,000, assumed interest rate of 6.90% ............................................................. 10,350 Amortization of debt premium, $18,286 balance, 8 year term .................. (2,924) Amortization of financing costs, $900 balance, 3 year term .................. 300 Unused Credit Facility fees, unused balance of $350,000, fee of 0.20% .................................................... 700 Capitalized interest, average historical construction in process of $48,303, overall weighted average interest rate of 7.5% .... (3,455) -------- 1997 as adjusted interest expense ........................................... $ 45,429 ========
Also reflects an adjustment to record rental revenues on a straight-line basis for the Properties from January 1, 1997, the assumed date of acquisition by the Company. Rental income has not been included for any properties for periods prior to completion of their construction and availability for occupancy. The pro forma straight-line rent adjustment for the year ended December 31, 1997 is calculated as the difference between (i) pro forma straight-line rental revenues of $5,447 and (ii) historical straight-line rental revenues of $2,992. Also reflects an adjustment to reflect the incremental effect of establishing the Company's investment in AMB Investment Management, the income from which is included in interest and other income. The pro forma operations of AMB Investment Management and the Company's share of AMB Investment Management's net income based upon its 95% economic interest are as follows: Advisory revenues............................ $ 5,487 General and administrative expenses.......... (4,465) Depreciation and amortization................ (72) -------- Income before income taxes................... 950 Income taxes (at assumed effective tax rate of 40%).............................. (380) -------- Income before minority interest.............. 570 Minority interest............................ (17) -------- Net income................................... $ 553 -------- Company's share of net income................ $ 525 ========
Advisory revenues consist of actual fees earned by AMB for the period from January 1, 1997 to November 25, 1997 from the assets that are managed by AMB Investment Management and the actual results of AMB Investment Management for the period from November 26, 1997 to December 31, 1997. General and administrative expenses consist of direct costs and indirect costs allocated to AMB Investment Management by the Company. Such indirect costs have been allocated based upon the percentage of total assets managed by AMB Investment Management. 33 In addition to its share of AMB Investment Management's net income, the Company received an acquisition fee for acquisition services provided to AMB Investment Management in 1997. The pro forma fee for 1997 amounts to $750. 6. The following reflects the incremental effects of properties acquired subsequent to December 31, 1997 based on the historical operations of such properties for the periods prior to acquisitions by the Company:
REAL ESTATE TAXES REVENUES IN AND PROPERTY EXCESS OF RENTAL AND OPERATING CERTAIN OTHER REVENUES EXPENSES EXPENSES -------------- ----------------- -------- Cascade ................................. $ 1,065 $ (259) $ 806 Wilsonville ............................. 2,026 (500) 1,526 Atlanta South Phase II .................. 773 (200) 573 Boston Industrial Portfolio ............. 10,403 (802) 9,601 Mansfield Industrial Portfolio .......... 343 (12) 331 Orlando Central Park .................... 3,249 (1,069) 2,180 Jamesburg Property ...................... 6,774 (2,510) 4,264 Corporate Park Industrial ............... 3,241 (572) 2,669 Minneapolis Industrial Portfolio . ...... 2,468 (881) 1,587 Houston Service Center .................. 2,739 (965) 1,774 Meadowridge Business Park ............... 4,105 (923) 3,182 Northwest Business Center ............... 1,253 (292) 961 Forbes .................................. -- -- -- Southfield .............................. -- -- -- Crysen Corridor Warehouse ............... 536 (113) 423 Garland Industrial Portfolio ............ 4,159 (961) 3,198 Suffolk ................................. 655 (221) 434 Minnetonka Industrial Portfolio ......... 4,294 (1,622) 2,672 Alsip Industrial ........................ 725 (204) 521 Suffolk Industrial ...................... 853 (214) 639 Chemway Industrial ...................... 1,391 (242) 1,149 Amberjack Portfolio ..................... 9,527 (3,142) 6,385 Willow Lake Portfolio ................... 6,268 (1,476) 4,792 Willow Park Portfolio ................... 10,119 (2,213) 7,906 Porete Avenue Warehouse ................. 1,756 (350) 1,406 Mawah Portfolio ......................... 4,387 (385) 4,002 National Distribution Portfolio ......... 8,680 (1,927) 6,753 South Point Business Park ............... 2,352 (227) 2,125 Northridge .............................. 1,332 (534) 798 Totem Lake Malls ........................ 2,822 (1,292) 1,530 Around Lenox ............................ 1,966 (400) 1,566 -------- -------- -------- $100,261 $(24,508) $ 75,753 ======== ======== ========
Five of the property acquisitions, Jamesburg Property, Corporate Park Industrial, Garland Industrial Portfolio, Minnetonka Industrial Portfolio and South Point Business Park, represent joint ventures with a client of AMB Investment Management in which the Company owns a controlling 50.0005% interest. The joint venture acquisitions are accounted for on a consolidated basis and, accordingly, a minority interest of $5,996 has been reflected relative to these acquisitions. Also reflects the acquisition of a non-controlling limited partnership interest in an existing real estate joint venture which owns the DuPage Elk Grove Property. As such, the Company's share of equity in earnings of this joint venture of $5,086 is included in interest and other income in the accompanying pro forma statement of operations. 34 Also reflects estimated incremental depreciation and amortization of the 1998 property acquisitions based on estimated useful lives of 40 years. 7. Reflects an adjustment to derive pro forma interest expense, which is based upon the pro forma debt balances as of September 30, 1998. The calculation of pro forma interest expense is as follows: Secured debt, pro forma balance of $737,752 (before premium of $15,918), assumed interest rate of 7.90% ............. $ 58,282 Credit Facility, pro forma balance of $154,808, assumed interest Rate of 6.53% .......................................... 10,109 Senior Debt Securities, pro forma balance of $400,000, weighted average interest rate of 7.175% ........................ 28,700 Amortization of deferred financing costs, $6,434 balance, 3 to 17 year terms ............................................. 990 Amortization of debt premium, $15,918 balance, 8 year term ........ (2,976) Unused Credit Facility fees, unused pro forma balance of $345,192, fee of 0.15% .......................................... 518 Capitalized interest, actual amounts capitalized during the period ...................................................... (4,118) -------- Pro forma interest expense ...................................... $ 91,505 ========
The net change in interest expense is the result of the repayment of borrowings on the Credit Facility of approximately $394,466 with the net proceeds from the sale of Senior Debt Securities (see below) and approximately $267,000 from the sale of Series A Preferred Shares, Series B Preferred Units and sale of the Series C Preferred Units offset by borrowings on the Credit Facility related to property acquisitions and the assumption of secured debt in connection with the property acquisitions. In June 1998, the Operating Partnership issued $400,000 aggregate principal amount of unsecured notes ("Senior Debt Securities") in an underwritten public offering, the net proceeds of $394,466 were contributed to the Operating Partnership and used to repay amounts outstanding under the Credit Facility. The Senior Debt Securities mature in June 2008, June 2015 and June 2018 and bear interest at a weighted average rate of 7.18% Also reflects the payment of pro forma Series A Preferred Stock dividends at a dividend rate of 8.5%, the Series B Preferred Unit distributions as a distribution rate of 8.625% and Series C Preferred Unit distributions at a distribution rate of 8.75%. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMB PROPERTY CORPORATION (Registrant) Date: December 1, 1998 By: /s/ MICHAEL A. COKE ---------------- -------------------------------- Michael A. Coke Senior Vice President and Director of Financial Management and Reporting (Principal Accounting Officer) 36