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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-13545
AMB PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 94-3281941
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
505 MONTGOMERY ST., SAN FRANCISCO, 94111
CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 394-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
As of April 30, 1999, there were 86,031,121 shares of the Registrant's
common stock, $0.01 par value per share, outstanding.
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AMB PROPERTY CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999 (unaudited).................................. 1
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1999 (unaudited)................... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999 (unaudited)................... 3
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 1999 (unaudited)..................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risks....................................................... 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 24
Item 2. Changes in Securities....................................... 24
Item 3. Defaults Upon Senior Securities............................. 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
Item 5. Other Information........................................... 24
Item 6. Exhibits and Reports on Form 8-K............................ 28
i
PART I
ITEM 1. FINANCIAL STATEMENTS
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
Investments in real estate:
Land and improvements..................................... $ 740,680 $ 618,355
Buildings and improvements................................ 2,445,104 1,932,509
Construction in progress.................................. 183,276 181,800
---------- ----------
Total investments in properties................... 3,369,060 2,732,664
Accumulated depreciation and amortization................... (58,404) (54,760)
---------- ----------
Net investments in properties..................... 3,310,656 2,677,904
Investment in unconsolidated joint venture.................. 57,655 57,697
Properties held for divestiture, net........................ 115,050 871,665
---------- ----------
Net investments in real estate.................... 3,483,361 3,607,266
Cash and cash equivalents................................... 25,137 29,165
Other assets................................................ 54,387 60,187
---------- ----------
Total assets...................................... $3,562,885 $3,696,618
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Secured debt.............................................. $ 734,196 $ 770,429
Unsecured senior debt securities.......................... 400,000 400,000
Unsecured credit facility................................. 234,000 316,000
---------- ----------
Total debt........................................ 1,368,196 1,486,429
Other liabilities........................................... 104,305 123,796
---------- ----------
Total liabilities................................. 1,472,501 1,610,225
Commitments and contingencies............................... -- --
Minority interests.......................................... 325,024 324,860
Stockholders' equity:
Series A preferred stock, cumulative, redeemable, $0.01
par value, 100,000,000 shares authorized, 4,000,000
shares issued and outstanding, $100,000 liquidation
preference............................................. 96,100 96,100
Common stock, $0.01 par value, 500,000,000 shares
authorized, 85,917,520 and 86,026,271 issued and
outstanding............................................ 859 860
Additional paid-in capital................................ 1,668,401 1,664,573
Retained earnings......................................... -- --
---------- ----------
Total stockholders' equity........................ 1,765,360 1,761,533
---------- ----------
Total liabilities and stockholders' equity........ $3,562,885 $3,696,618
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
1
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
----------- -----------
REVENUES
Rental revenues........................................... $ 74,602 $ 107,657
Equity in earnings of unconsolidated joint venture........ -- 1,151
Investment management and other income.................... 1,183 764
----------- -----------
Total revenues.................................... 75,785 109,572
OPERATING EXPENSES
Property operating expenses............................... 10,004 14,499
Real estate taxes......................................... 10,248 15,035
General and administrative................................ 2,718 4,072
Interest, including amortization.......................... 11,841 22,967
Depreciation and amortization............................. 11,786 18,424
----------- -----------
Total operating expenses.......................... 46,597 74,997
----------- -----------
Income from operations before minority
interests...................................... 29,188 34,575
Minority interests' share of net income................... (1,282) (6,561)
----------- -----------
Net income........................................ 27,906 28,014
Series A preferred stock dividends........................ -- (2,125)
----------- -----------
Net income available to common stockholders....... $ 27,906 $ 25,889
=========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic..................................................... $ 0.32 $ 0.30
=========== ===========
Diluted................................................... $ 0.32 $ 0.30
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 85,874,513 86,001,104
=========== ===========
Diluted................................................... 86,284,736 86,020,680
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 27,906 $ 28,014
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 11,786 18,424
Straight-line rents....................................... (2,825) (2,688)
Amortization of debt premiums and financing costs......... (669) (727)
Minority interests' share of net income................... 1,282 6,561
Equity in earnings of AMB Investment Management........... (126) (578)
Equity in earnings of unconsolidated joint venture........ -- (1,151)
Changes in assets and liabilities:
Other assets.............................................. (4,512) (2,834)
Other liabilities......................................... 1,978 19,491
--------- ---------
Net cash provided by operating activities......... 34,820 64,512
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... (149,874) (70,100)
Additions to land, building, development costs, and
improvements.............................................. (11,575) (31,208)
Distribution received from unconsolidated joint venture..... -- 1,109
Reduction of payable to affiliates in connection with
Formation Transactions.................................... (38,071) --
--------- ---------
Net cash used in investing activities............. (199,520) (100,199)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................... -- 391
Borrowings on unsecured credit facility..................... 162,000 82,000
Borrowings on secured debt.................................. 1,118 303
Payments on secured debt.................................... (9,429) (8,316)
Payments of financing fees.................................. -- (92)
Dividends paid to common and preferred stockholders......... -- (31,552)
Distributions to minority interests......................... (373) (3,019)
--------- ---------
Net cash provided by financing activities......... 153,316 39,715
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (11,384) 4,028
Cash and cash equivalents at beginning of period............ 39,968 25,137
--------- ---------
Cash and cash equivalents at end of period.................. $ 28,584 $ 29,165
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 13,457 $ 15,312
========= =========
Non-cash transactions:
Acquisitions of properties................................ $ 296,143 $ 113,881
Assumption of debt........................................ (83,515) (43,756)
Minority interest's contribution, including units
issued................................................. (62,754) (25)
--------- ---------
Net cash paid..................................... $ 149,874 $ 70,100
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS)
COMMON STOCK
SERIES A ------------------- ADDITIONAL
PREFERRED NUMBER PAID-IN RETAINED
STOCK OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ---------- ------ ---------- -------- ----------
BALANCE AT DECEMBER 31, 1998..... $96,100 85,917,520 $859 $1,668,401 $ -- $1,765,360
Net income..................... 2,125 -- -- -- 25,889 28,014
Issuance of restricted stock,
net......................... -- 100,000 1 206 -- 207
Exercise of stock options...... -- 8,751 -- 186 -- 186
Reallocation of Limited
Partners' interests in
Operating Partnership....... -- -- -- -- -- --
Dividends...................... (2,125) -- -- (4,220) (25,889) (32,234)
------- ---------- ---- ---------- -------- ----------
BALANCE AT MARCH 31, 1999........ $96,100 86,026,271 $860 $1,664,573 $ -- $1,761,533
======= ========== ==== ========== ======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
1. ORGANIZATION AND FORMATION
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "IPO") on November 26, 1997. The
Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"),
commencing with its taxable year ended December 31, 1997, and believes its
current organization and method of operation will enable it to maintain its
status as a REIT. The Company, through its controlling interest in its
subsidiary, AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of industrial buildings and community
shopping centers in target markets nationwide. Unless the context otherwise
requires, the "Company" means AMB Property Corporation, the Operating
Partnership and its other controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the IPO. AMB Institutional Realty Advisors, Inc., a California
corporation and registered investment advisor (the "Predecessor") formed AMB
Property Corporation, a wholly owned subsidiary, and merged with and into the
Company (the "Merger") in exchange for 4,746,616 shares of the Company's Common
Stock (the "Common Stock"). In addition, the Company and the Operating
Partnership acquired, through a series of mergers and other transactions, 31.8
million rentable square feet of industrial property and 6.3 million rentable
square feet of retail property in exchange for 65,022,185 shares of the
Company's Common Stock, 2,542,163 limited partner interests ("LP Units") in the
Operating Partnership, the assumption of debt and, to a limited extent, cash.
The net assets of the Predecessor and the properties acquired with Common Stock
were contributed to the Operating Partnership in exchange for 69,768,801 LP
Units. The purchase method of accounting was applied to the acquisition of the
properties. Collectively, the Merger and the other formation transactions
described above are referred to as the "Formation Transactions."
On November 26, 1997, the Company completed its IPO of 16,100,000 shares of
Common Stock, $0.01 par value per share for $21.00 per share, resulting in gross
offering proceeds of approximately $338,100. The net proceeds of approximately
$300,032 were used to repay indebtedness, to purchase interests from certain
investors who elected not to receive Common Stock or LP Units in connection with
the Formation Transactions, to fund property acquisitions, and for general
corporate working capital requirements.
As of March 31, 1999, the Company owned an approximate 95.1% general
partner interest in the Operating Partnership, excluding preferred units. The
remaining 4.9% limited partner interest is owned by nonaffiliated investors. For
local law purposes, properties in certain states are owned through limited
partnerships and limited liability companies owned 99% by the Operating
Partnership and 1% by a wholly owned subsidiary of the Company. The ownership of
such properties through such entities does not materially affect the Company's
overall ownership of the interests in the properties. As the sole general
partner of the Operating Partnership, the Company has the full, exclusive and
complete responsibility and discretion in the day-to-day management and control
of the Operating Partnership.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership purchased 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain current and former executive officers of the Company and an
officer of AMB Investment Management collectively purchased 100% of AMB
Investment Management's voting common stock (representing a 5% economic interest
therein). AMB Investment Management was formed to succeed to the Predecessor's
investment management business of providing real estate investment management
services on a fee basis to clients. The Operating Partnership also owns 100% of
the non-voting preferred stock of Headlands Realty Corporation, a Maryland
corporation (representing a 95% economic interest
5
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
therein). Certain executive officers of the Company and an officer of Headlands
Realty Corporation collectively own 100% of the voting common stock of Headlands
Realty Corporation (representing a 5% economic interest therein). Headlands
Realty Corporation invests in properties and interests in entities that engage
in the management, leasing and development of properties and similar activities.
The Operating Partnership accounts for its investment in AMB Investment
Management and Headlands Realty Corporation using the equity method of
accounting.
As of March 31, 1999, the Company owned 615 industrial buildings (the
"Industrial Properties") and 38 retail centers (the "Retail Properties") located
in 30 markets throughout the United States. The Industrial Properties,
principally warehouse distribution buildings, encompass approximately 58.9
million rentable square feet and, as of March 31, 1999, were 95.4% leased to
over 1,900 tenants. The Retail Properties, principally grocer-anchored community
shopping centers, encompass approximately 7.1 million rentable square feet and,
as of the same date, were 95.0% leased to over 900 tenants. The Industrial
Properties and the Retail Properties collectively are referred to as the
"Properties."
2. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated financial
statements for prior periods have been reclassified to conform to current
classifications with no effect on results of operations. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, of a normal recurring nature, necessary for a fair presentation
of the Company's consolidated financial position and results of operations for
the interim periods.
The interim results of the three months ended March 31, 1999 and 1998 are
not necessarily indicative of the results expected for the entire year. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
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 assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. REAL ESTATE ACQUISITION AND DEVELOPMENT ACTIVITY
During the first quarter, the Company invested $109,078 in operating
properties, consisting of 36 industrial buildings aggregating 1.7 million square
feet. The Company also initiated two new development projects aggregating
approximately 0.2 million square feet during the quarter, with a total estimated
cost of $14,600 upon completion. As of March 31, 1999, the Company had 15
industrial projects aggregating approximately 3.7 million square feet in its
development pipeline with a total estimated investment of $179,500 upon
completion and three retail projects aggregating approximately 0.6 million
square feet in its development pipeline representing an estimated investment of
$84,700 upon completion. As of March 31, 1999, approximately $135,100 had been
funded and approximately $129,100 is estimated to be required to complete
projects currently under construction or for which we have committed to
complete.
6
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
4. PROPERTY HELD FOR DIVESTITURE AND PROPERTY DIVESTITURE
On March 9, 1999, the Operating Partnership signed a series of definitive
agreements with BPP Retail, LLC ("BPP Retail"), a co-investment entity between
Burnham Pacific Properties ("BPP") and the California Public Employees'
Retirement System ("CalPERS"), pursuant to which, if fully consummated, BPP
Retail will acquire up to 28 of our retail shopping centers, totaling 5.1
million square feet, for an aggregate price of $663,400. BPP will acquire the
centers in separate transactions, which were originally expected to close on or
about April 30, 1999, July 31, 1999 and December 1, 1999. In addition, the
Operating Partnership has entered into a definitive agreement, subject to a
financing condition, with BPP, pursuant to which, if fully consummated, BPP will
acquire up to six additional retail centers, totaling 1.5 million square feet,
for $284,400. Assuming satisfaction or waiver of this condition, this
transaction is currently expected to close by December 31, 1999. Under the
agreements, the Operating Partnership has the right to extend the closing dates
for a period of up to either 20 or 50 days. The Operating Partnership has
exercised this right with respect to the first closing, which is now expected to
occur on or about June 15, 1999. In connection with these transactions, the
Company has granted to CalPERS an option to purchase up to 2,000,000 original
issue shares of the Company's Common Stock for an exercise price of $25 per
share that may be exercised on or before March 31, 2000. As of March 31, 1999,
the net carrying value of the properties held for divestiture was $823,452.
Certain of the properties included in these transactions are subject to
indebtedness which totaled $178,263 as of March 31, 1999. The Company intends to
use the proceeds of $947,800 from these transactions to pay expenses incurred in
connection with the divestitures, to repay the secured debt related to the
properties divested, to partially pay down the unsecured credit facility, for
potential acquisitions and for general corporate purposes.
Although none of the transactions has a discretionary due diligence period
(other than the transaction with BPP, which has a fully discretionary financing
contingency), all of the transactions are subject to certain customary closing
conditions, which are generally applied on a property-by-property basis. While
BPP Retail has posted certain initial deposits aggregating $25,000 on the
transactions, BPP Retail's liability in the event of its default under a
definitive agreement is limited to its deposit. Additionally, the sale of five
of the centers is subject to the consent of our joint venture partners.
Accordingly, the transactions might not close as scheduled or close at all, and
it is possible that the transactions may close with respect to just a portion of
the properties currently subject to the agreements.
In addition to the 34 retail centers, the Company has decided to divest
itself of 17 industrial buildings which are not in its core markets and which do
not meet its strategic objectives. As of March 31, 1999, the divestiture of the
properties is subject to negotiation of acceptable terms and conditions. As of
March 31,1999, the net carrying value of the industrial buildings held for
divestiture was $48,213.
The following summarizes the condensed results of operations of the
properties held for divestiture for the quarter ended March 31, 1998 and 1999:
PROPERTIES HELD FOR DIVESTITURE
-------------------------------------------------------
INDUSTRIAL RETAIL TOTAL
--------------- ----------------- -----------------
1998 1999 1998 1999 1998 1999
------ ------ ------- ------- ------- -------
Income............................. $1,511 $1,409 $25,793 $27,900 $27,304 $29,309
Property Operating Expenses........ 333 322 6,928 7,572 7,261 7,894
------ ------ ------- ------- ------- -------
Net Operating Income............... $1,178 $1,087 $18,865 $20,328 $20,043 $21,415
====== ====== ======= ======= ======= =======
On February 26, 1999, the Company divested itself of one retail center
located in Miami, Florida, aggregating 83,108 square feet. The center was sold
at a gross sales price of $9,775 and the related secured debt of $5,742 was paid
down at the time of the closing of the transaction.
7
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
5. DEBT
As of December 31, 1998 and March 31, 1999, debt consisted of the
following:
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
Secured debt, varying interest rates from 4.00% to
10.38% due April 1999 to April 2014................... $ 718,979 $ 754,746
Unsecured senior debt securities, weighted average
interest rate of 7.18%, due June 2008, June 2015 and
June 2018............................................. 400,000 400,000
Unsecured credit facility, variable interest at LIBOR
plus 90 to 120 basis points (6.10% at March 31, 1999),
due November 2000..................................... 234,000 316,000
---------- ----------
Subtotal........................................... 1,352,979 1,470,746
Unamortized premiums............................... 15,217 15,683
---------- ----------
Total consolidated debt....................... $1,368,196 $1,486,429
========== ==========
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain Properties. As of March
31, 1999, the total gross investment value of those Properties secured by debt
was $1,432,595. All of the secured debt bears interest at fixed rates, except
for two loans with an aggregate principal amount of $9,466 which bear interest
at a variable rate. The secured debt has various financial and non-financial
covenants. Additionally, certain of the secured debt is cross-collateralized. In
the first quarter of 1999, as part of a property acquisition transaction, the
Company assumed $43,800 of secured debt at a weighted average interest rate of
7.91%, maturing between May, 2000 and March, 2010.
Interest on the senior debt securities is payable semiannually in each June
and December commencing December 1998. The 2015 notes are putable and callable
in June 2005. The senior debt securities are subject to various financial and
non-financial covenants.
The Company has a $500,000 unsecured revolving credit agreement (the
"Credit Facility") with Morgan Guaranty Trust Company of New York, as agent, and
a syndicate of twelve other banks. The Credit Facility has an original term of
three years and is subject to a fee that accrues on the daily average undrawn
funds, which varies between 15 and 25 basis points of the undrawn funds based on
the Company's credit rating. The Credit Facility has various financial and
non-financial covenants.
Capitalized interest related to construction projects for the three months
ended March 31, 1998 and 1999 was $1,253 and $2,583, respectively.
The scheduled maturities of the Company's total debt, excluding unamortized
debt premiums, as of March 31, 1999 are as follows:
UNSECURED
SENIOR UNSECURED
SECURED DEBT CREDIT
DEBT SECURITIES FACILITY TOTAL
-------- ---------- --------- ----------
1999 (nine months).................... $ 13,184 $ -- $ -- $ 13,184
2000.................................. 33,527 -- 316,000 349,527
2001.................................. 43,484 -- -- 43,484
2002.................................. 66,375 -- -- 66,375
2003.................................. 133,295 -- -- 133,295
Thereafter............................ 464,881 400,000 -- 864,881
-------- -------- -------- ----------
$754,746 $400,000 $316,000 $1,470,746
======== ======== ======== ==========
8
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
6. MINORITY INTERESTS IN CONSOLIDATED JOINT VENTURE
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties (some of which are Institutional Alliance Partners) in 21 real estate
joint ventures that are consolidated for financial reporting purposes. Such
investments are consolidated because (i) the Company owns a majority interest or
(ii) the Company holds significant control over the entity through a 50% or
greater ownership interest combined with the ability to control major operating
decisions such as approval of budgets, selection of property managers and
changes in financing.
The following table distinguishes the minority interest ownership held by
certain Joint Venture Partners, Institutional Alliance Partners, the limited
partners in the Operating Partnership, the Series B Preferred Unit holders
interest in the Operating Partnership, and the Series C Preferred Unit holders
interest in a subsidiary of the Operating Partnership, as of and for the quarter
ended March 31, 1999.
MINORITY
MINORITY INTEREST INTEREST SHARE
LIABILITY OF NET INCOME
----------------- -----------------
Joint Venture Partners.................................. $ 17,974 $ 356
Institutional Alliance Partners......................... 52,279 1,059
Limited Partners in the Operating Partnership........... 86,420 1,338
Series B Preferred Units (liquidation preference of
$65,000).............................................. 62,319 1,402
Series C Preferred Units (liquidation preference of
$110,000)............................................. 105,868 2,406
-------- ------
$324,860 $6,561
======== ======
7. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The Company has a 56.1% non-controlling limited partnership interest in one
unconsolidated equity investment joint venture which was purchased in June,
1998. The joint venture owns 36 industrial buildings totaling approximately 4.0
million square feet in the Chicago market. For the three month period ended
March 31, 1999, the Company's share of net operating income was $1,151 and, as
of March 31, 1999, the Company's share of the unconsolidated joint venture debt
was $19,831, which had a weighted average interest rate of 6.49%.
8. STOCKHOLDERS' EQUITY
On March 5, 1999, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.35 per share of common stock and operating
partnership unit, for the quarter ending March 31, 1999, payable on April 15,
1999, to stockholders and unitholders of record as of March 31, 1999. On March
5, 1999, the Company declared a cash dividend of $0.53125 per share on its
Series A Preferred Stock, and the Operating Partnership declared a cash
distribution of $0.53125 per unit on its Series A Preferred Units, for the three
month period ending April 14, 1999, payable on April 15, 1999, to stockholders
and unitholders of record as of March 31, 1999.
9. INCOME PER SHARE
The Company's only dilutive securities outstanding for the three months
ended March 31, 1998 and 1999 were stock options issued under its stock
incentive plan. The effect of the stock options was to increase weighted average
shares outstanding by 410,223 and 19,576 shares for the three months ended March
31, 1998 and 1999, respectively. Such dilution was computed using the treasury
stock method.
9
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
10. SEGMENT INFORMATION
The Company has two reportable segments: Industrial Properties and Retail
Properties. The Industrial Properties consist primarily of warehouse
distribution facilities suitable for single or multiple tenants and are
typically comprised of multiple buildings and are leased to tenants engaged in
various types of businesses. The Retail Properties are generally leased to one
or more anchor tenants, such as grocery and drug stores, and various retail
businesses. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based upon property net operating income from the combined
properties in each segment. The Company's properties are managed separately
because each segment requires different operating, pricing and leasing
strategies. Significant information used by the Company for the reportable
segments is as follows:
INDUSTRIAL RETAIL TOTAL
PROPERTIES PROPERTIES PROPERTIES
---------- ---------- ----------
RENTAL REVENUES:
For the three months ended:
March 31, 1998................................. $ 48,665 $ 25,937 $ 74,602
March 31, 1999................................. 79,686 27,971 107,657
PROPERTY NET OPERATING INCOME AND CONTRIBUTION TO
FFO(1):
For the three months ended:
March 31, 1998................................. 35,513 18,837 54,350
March 31, 1999................................. 58,050 20,073 78,123
INVESTMENT IN PROPERTIES:
As of:
December 31, 1998(2)........................... 2,574,940 794,120 3,369,060
March 31, 1999(3).............................. 2,690,481 42,183 2,732,664
- ---------------
(1) Property net operating income (NOI) is defined as rental revenue, including
reimbursements and straight-line rents, less property level operating
expenses, including allocated asset management costs and excluding
depreciation, amortization and interest expense.
(2) Excludes net properties held for divestiture of $21,434, $93,616 and
$115,050 for Industrial, Retail and Total Properties, respectively.
(3) Excludes net properties held for divestiture of $48,213, $823,452 and
$871,665 for Industrial, Retail and Total Properties, respectively. See Note
4.
10
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
The Company uses property net operating income and FFO as operating
performance measures. The following two tables are reconciliations between total
reportable segment revenue, property net operating income and funds from
operations ("FFO") contribution to consolidated revenues, net income and FFO.
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1999
-------- ---------
REVENUES
Total rental revenues for reportable segments............... $74,602 $107,657
Investment management and other income...................... 1,183 1,915
------- --------
Total consolidated revenues................................. $75,785 $109,572
======= ========
NET INCOME
Property net operating income for reportable segments....... $54,350 $ 78,123
Equity in earnings of unconsolidated joint venture.......... -- 1,151
Investment management and other income...................... 1,183 764
Less:
General and administrative................................ (2,718) (4,072)
Interest expense.......................................... (11,841) (22,967)
Depreciation and amortization............................. (11,786) (18,424)
Minority interests........................................ (1,282) (6,561)
------- --------
Net income.................................................. $27,906 $ 28,014
======= ========
FFO(1)
Net income.................................................. $27,906 $ 28,014
Minority interests' share of net income..................... 1,282 6,561
Real estate depreciation and amortization:
Total depreciation and amortization....................... 11,786 18,424
Furniture, fixtures, and equipment depreciation........... (104) (114)
FFO attributable to minority interests(2):
Institutional Alliance Partners........................... -- (1,474)
Other joint venture partners.............................. (575) (551)
Adjustment to derive FFO in unconsolidated joint venture(3):
Company's share of net income............................. -- (1,151)
Company's share of FFO.................................... -- 1,645
Series A preferred stock dividends.......................... -- (2,125)
Series B & C preferred unit distributions................... -- (3,808)
------- --------
FFO......................................................... $40,295 $ 45,421
======= ========
- ---------------
(1) Funds from Operations ("FFO") is defined as income from operations before
minority interest, gains or losses from sale of real estate and
extraordinary losses plus real estate depreciation and adjustment to derive
the Company's pro rata share of the FFO of unconsolidated joint ventures,
less minority interests' pro rata share of the FFO of consolidated joint
ventures and perpetual preferred stock dividends. In accordance with NAREIT
White Paper on FFO, the Company includes the effects of straight-line rents
in FFO. Further, the Company does not adjust FFO to eliminate the effects of
non-recurring charges.
(2) Represents FFO attributable to minority interests in consolidated joint
ventures for the periods presented, which has been computed as minority
interests' share of net income before disposal of properties plus minority
interests' share of real estate-related depreciation and amortization of the
consolidated joint ventures for such periods. Such minority interests are
not exchangeable into shares of Common Stock.
(3) Represents our pro rata share of FFO in unconsolidated joint ventures for
the periods presented, which has been computed as our share of net income
plus our share of real estate-related depreciation and amortization of the
unconsolidated joint venture for such periods.
11
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, from time to time, the Company is
involved in legal actions relating to the ownership and operations of its
Properties. In management's opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to have a materially
adverse effect on the consolidated financial position, results of operations, or
cash flows of the Company.
Environmental Matters
The Company follows the policy of monitoring its properties for the
presence of hazardous or toxic substances. The Company is not aware of any
environmental liability with respect to the Properties that would have a
material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability would have an adverse effect on the Company's results of operations
and cash flow.
General Uninsured Losses
The Company carries comprehensive liability, fire, flood, environmental,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses that may be either uninsurable, or not
economically insurable. Certain of the Properties are located in areas that are
subject to earthquake activity; the Company has therefore obtained limited
earthquake insurance. Should an uninsured loss occur, the Company could lose its
investment in, and anticipated profits and cash flows, from a property.
12. SUBSEQUENT EVENTS
On April 30, 1999, the Operating Partnership issued an aggregate of 390,633
LP Units with an aggregate value of approximately $9,400 to two corporations and
twelve individuals in partial consideration for the acquisition of certain
industrial properties with a purchase price of $40,217. Holders of LP Units may
redeem part or all of their LP Units for cash, or at the election of the
Company, exchange their LP Units for shares of Common Stock on a one-for-one
basis.
On May 5, 1999, one of the Company's subsidiaries issued and sold 1,595,337
7.75% Series D Cumulative Redeemable Preferred Units at a price of $50.00 per
unit in a private placement. Distributions are cumulative from the date of
original issuance and are payable quarterly in arrears at a rate per unit equal
to $3.875 per annum. The Series D Preferred Units are redeemable by the
subsidiary on or after May 5, 2004, subject to certain conditions, for cash at a
redemption price equal to $50.00 per unit, plus accumulated and unpaid
distributions thereon, if any, to the redemption date. The Series D Preferred
Units are exchangeable, at specified times and subject to certain conditions, on
a one-for-one basis, for shares of the Company's Series D Preferred Stock. The
subsidiary used the proceeds to make a loan to the Operating Partnership and to
purchase an unconsolidated joint venture interest from the Operating
Partnership. The Operating Partnership used the funds to repay borrowings under
the credit facility and for general corporate purposes.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of the consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward looking statements. 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 involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, our failure to divest of properties we have
contracted to sell or to timely reinvest proceeds from any such 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 under the
Internal Revenue Code of 1986, as amended, environmental uncertainties, risks
related to natural disasters, financial market fluctuations, changes in real
estate and zoning laws and increases in real property tax rates. Our success
also depends upon economic trends generally, including interest rates, income
tax laws, governmental regulation, legislation, population changes and those
risk factors discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Business Risks" in
our Annual Report on Form 10-K for fiscal year ended December 31, 1998. 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.
Unless we indicate otherwise or unless the context requires otherwise, all
references in this report to "AMB" mean AMB Property Corporation and all
references to the "operating partnership" mean AMB Property, L.P. Unless we
indicate otherwise or unless the context requires otherwise, all references in
this prospectus to "we," "us," or "our" mean AMB and its subsidiaries, including
the operating partnership and its subsidiaries.
THE COMPANY
As of March 31, 1999, we owned and operated industrial buildings and retail
centers totaling 66.0 million square feet located in 30 markets nationwide. As
of March 31, 1999, we owned 615 industrial buildings, principally warehouse
distribution buildings, aggregating 58.9 million rentable square feet, which
were 95.4% leased, and 38 retail centers, principally grocer-anchored community
shopping centers, aggregating 7.1 million rentable square feet, which were 95.0%
leased. In addition, as of the same date we had an interest in an unconsolidated
joint venture that owns 36 industrial buildings aggregating 4.0 million square
feet and we operated properties aggregating 4.5 million square feet of property
on behalf of investment management clients.
On March 9, 1999, the operating partnership, in which AMB is the sole
general partner, signed a series of definitive agreements with BPP Retail, LLC,
a co-investment entity between Burnham Pacific Properties and the California
Public Employees' Retirement System ("CalPERS"), pursuant to which, if fully
consummated, BPP Retail will acquire up to 28 of our retail shopping centers,
totaling 5.1 million square feet, for an aggregate price of $663.4 million.
Burnham Pacific will acquire the centers in separate transactions, which we
originally expected to close on or about April 30, 1999, July 31, 1999 and
December 1, 1999. In addition, the operating partnership has entered into a
definitive agreement, subject to a financing condition, with Burnham Pacific,
pursuant to which, if fully consummated, Burnham Pacific will acquire up to six
additional retail
13
centers, totaling 1.5 million square feet, for $284.4 million. Assuming
satisfaction or waiver of this condition, we currently expect this transaction
to close by December 31, 1999. Under the agreements, the operating partnership
has the right to extend the closing dates for a period of up to either 20 or 50
days. The operating partnership has exercised this right with respect to the
first closing, which is now expected to occur on or about June 15, 1999. In
connection with these transactions, AMB has granted to CalPERS an option to
purchase up to 2,000,000 shares of AMB's common stock for an exercise price of
$25 per share that CalPERS may exercise on or before March 31, 2000. We have
agreed to register the resale of the shares issuable upon exercise of the
option. We intend to use the proceeds of $947.8 million from these transactions
to pay expenses incurred in connection with the divestitures, to repay the
secured debt related to the properties divested, to partially pay down the
unsecured credit facility, for potential acquisitions and for general corporate
purposes.
Although none of the transactions has a discretionary due diligence period
(other than the transaction with Burnham Pacific, which has a fully
discretionary financing contingency), all of the transactions are subject to
certain customary closing conditions, which are generally applied on a
property-by-property basis. While BPP Retail has posted certain initial deposits
aggregating $25 million on the transactions, BPP Retail's liability in the event
of its default under a definitive agreement is limited to its deposit.
Additionally, the sale of five of the centers is subject to the consent of our
joint venture partners. Accordingly, the transactions might not close as
scheduled or close at all, and it is possible that the transactions may close
with respect to just a portion of the properties currently subject to the
agreements.
INDUSTRIAL AND RETAIL PROPERTIES BY REGION
AS OF MARCH 31, 1999
INDUSTRIAL PROPERTIES RETAIL PROPERTIES TOTAL
------------------------------ --------------------------- ---------------------------------
NUMBER RENTABLE NUMBER RENTABLE NUMBER RENTABLE
OF SQUARE % OF OF SQUARE % OF OF BUILDINGS SQUARE % OF
REGION BUILDINGS FEET TOTAL CENTERS FEET TOTAL AND CENTERS FEET TOTAL
------ --------- ---------- ----- ------- --------- ----- ------------ ---------- -----
Eastern.............. 135 13,877,869 23.6% 4 1,282,140 18.1% 139 15,160,009 23.0%
Midwestern........... 108 12,137,590 20.6 5 803,283 11.4 113 12,940,873 19.6
Southern............. 194 17,846,453 30.3 12 1,975,312 27.9 206 19,821,765 30.0
Western.............. 178 15,028,232 25.5 17 3,013,060 42.6 195 18,041,292 27.4
--- ---------- ----- -- --------- ----- --- ---------- -----
Total............ 615 58,890,144 100.0% 38 7,073,795 100.0% 653 65,963,939 100.0%
=== ========== ===== == ========= ===== === ========== =====
ACQUISITION AND DEVELOPMENT ACTIVITY
During the first quarter, we invested $109.1 million in operating
properties, consisting of 36 industrial buildings aggregating 1.7 million square
feet. We also initiated two new development projects aggregating approximately
0.2 million square feet during the quarter, with a total estimated cost of $14.6
million upon completion. As of March 31, 1999, we had 15 industrial projects
aggregating approximately 3.7 million square feet in our development pipeline
with a total estimated investment of $179.5 million upon completion and three
retail projects aggregating approximately 0.6 million square feet in our
development pipeline representing an estimated investment of $84.7 million upon
completion.
STRATEGIC ALLIANCE PROGRAMS
We believe that our strategy of forming strategic alliances with local and
regional real estate experts improves our operating efficiency and flexibility,
strengthens our customer satisfaction and retention and provides us with
attractive growth opportunities. Additionally, our strategic alliances with
institutional investors enhance our access to private capital and our ability to
finance transactions.
The following are trademarks of AMB: Strategic Alliance Programs,
Development Alliance Program, UPREIT Alliance Program, Institutional Alliance
Program, Management Alliance Program, Customer Alliance Program and Broker
Alliance Program.
14
Our six Strategic Alliance Programs can be grouped into two categories:
- Operating Alliances, which allow us to form relationships with local or
regional real estate experts, thereby becoming their ally rather than
their competitor; and
- Investment Alliances, which allow us to establish relationships with a
variety of capital sources.
OPERATING ALLIANCES
MANAGEMENT ALLIANCE PROGRAM: Our strategy for the Management Alliance
Program is to develop close relationships with and outsource property management
to local property managers that we believe to be among the best in their
respective markets. Our alliances with local property managers increase our
flexibility, reduce our overhead expenses and improve our customer service. In
addition, these alliances provide us with local market information related to
tenant activity and acquisition opportunities.
CUSTOMER ALLIANCE PROGRAM: Through our Customer Alliance Program, we seek
to build long-term working relationships with major tenants. We are committed to
working with our tenants, particularly our larger tenants with multi-site
requirements, to make their property searches as efficient as possible. During
the first quarter of 1999, we acquired one industrial building aggregating
350,000 square feet sourced through our Customer Alliance Program.
BROKER ALLIANCE PROGRAM: Through our Broker Alliance Program, we work
closely with top local leasing companies in each of our markets, which brokers
provide us with access to high quality tenants and local market knowledge.
INVESTMENT ALLIANCES
DEVELOPMENT ALLIANCE PROGRAM: Our strategy for our Development Alliance
Program is to form alliances with development firms with a strong local presence
and expertise. Through our Development Alliance Program, during the first
quarter of 1999, we initiated one development project aggregating an estimated
78,000 square feet at completion. As of March 31, 1999, over 80% of our
development projects were managed by our Development Alliance Partners.
UPREIT ALLIANCE PROGRAM: Through our UPREIT Alliance Program, we issue
limited partnership units in the operating partnership to certain property
owners in exchange for properties, thus providing additional growth for our
portfolio. During the first quarter of 1999, we acquired a portion of the
Manekin Portfolio through our UPREIT Alliance Program, which consists of 35
buildings aggregating 1.3 million square feet, for a purchase price of $99.1
million. In addition, on April 30, 1999, we acquired an additional portion of
the Manekin Portfolio, through our UPREIT Alliance Program, which consists of
nine buildings aggregating 381,074 square feet, for a purchase price of $40.2
million.
INSTITUTIONAL ALLIANCE PROGRAM: Our strategy for our Institutional Alliance
Program is to form alliances with institutional investors. Our alliances with
institutional investors provide us with access to private capital, including
during those times when the public markets are less attractive, as well as
providing us with a source of incremental fee income and investment returns.
RESULTS OF OPERATIONS
The analysis below shows changes in our results of operations for the three
months ended March 31, 1999 and 1998 which includes changes attributable to
acquisitions and development activity, and the changes resulting from properties
that we owned during both the current and prior year reporting periods,
excluding development properties prior to being stabilized (95% leased) for both
the current and prior periods (the "same store properties"). For the comparison
between the three month periods ended March 31, 1999 and 1998, the same store
properties consist of properties aggregating 42.1 million square feet. Our
future financial condition and results of operations, including rental revenues,
may be impacted by the acquisition of additional properties. Our future revenues
and expenses may vary materially from their historical rates.
15
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $33.1 million, or
44.3%, for the three months ended March 31, 1999, to $107.7 million, as compared
with the same period in 1998. Approximately $4.6 million, or 13.9% of this
increase, was attributable to same store properties, with the remaining $28.5
million attributable to properties acquired between January 1, 1998 and March
31, 1999. The growth in rental revenues in same store properties resulted
primarily from the incremental effect of cash rental rate increases and changes
in occupancy and reimbursement of expenses, offset by a decrease in
straight-line rents. During the trailing 12 months ended March 31, 1999, the
same store properties increase in base rents (cash basis) was 10.7% on 6.2
million square feet leased.
Other revenues. Other revenues, including equity in earnings of
unconsolidated joint venture, investment management income, and interest income,
totaled $1.9 and $1.2 million for the three months ended March 31, 1999 and
1998, respectively. The $0.7 million, or 58.3%, increase in other revenues was
primarily attributable to the earnings from our equity investment in our
unconsolidated joint venture which was purchased in June 1998.
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, increased by
$9.2 million, or 45.3%, for the three months ended March 31, 1999, to $29.5
million as compared with the same period in 1998. Same store properties
operating expenses increased by approximately $0.8 million for the three months
ended March 31, 1999, while operating expenses attributable to properties
acquired between January 1, 1998 through March 31, 1999 added $8.5 million. The
change in same store properties operating expenses primarily relates to
increases in same store properties real estate taxes of approximately $0.8
million for the three months ended March 31, 1999.
General and administrative expenses. General and administrative expenses
were $4.1 and $2.7 million for the three months ended March 31, 1999 and 1998.
The $1.4 million, or 49.8%, increase in general and administrative expenses, is
primarily attributable to additional staffing that resulted from the growth in
our portfolio. The remainder of the increase is due to the change in our
accounting policy for internal acquisition costs. During the first quarter of
1998, we capitalized $0.3 million of internal acquisition costs. Effective April
1998, we changed our policy to expense all internal costs.
LIQUIDITY AND CAPITAL RESOURCES
We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of properties
will include cash flow from operations, borrowings under our unsecured credit
facility, other forms of secured or unsecured financing, proceeds from equity or
debt offerings by AMB or the operating partnership (including issuances of
limited partnership units in the operating partnership) and net proceeds from
divestitures of properties. We presently believe that our sources of working
capital and our ability to access private and public debt and equity capital are
adequate for us to continue to meet our liquidity requirements for the
foreseeable future.
CAPITAL RESOURCES
Property divestitures. On March 9, 1999, we signed a series of definitive
agreements with BPP Retail, a co-investment entity between Burnham Pacific and
CalPERS, pursuant to which, if fully consummated, BPP Retail will acquire up to
28 of our retail shopping centers, totaling 5.1 million square feet, for an
aggregate price of $663.4 million. If fully consummated, BPP Retail will acquire
the centers in separate transactions, which we originally expected to close on
or about April 30, 1999, July 31, 1999 and December 1, 1999. Under the
agreements, we have the right to extend the closing dates for a period of up to
either 20 or 50 days. We have exercised this right with respect to the first
closing, which we now expect to occur on or about June 15, 1999. In addition, we
have entered into a definitive agreement, subject to a financing condition, with
Burnham Pacific, pursuant to which, if fully consummated, Burnham Pacific will
acquire up to six additional retail centers, totaling 1.5 million square feet,
for $284.4 million. Assuming satisfaction or waiver of this condition,
16
we currently expect this transaction to close by December 31, 1999. As of March
31, 1999, the net carrying value of the properties held for divestiture was
$823.5 million. Certain of the properties included in these transactions are
subject to indebtedness totaling $178.3 million as of March 31, 1999. We intend
to use the proceeds of $947.8 million from these transactions to pay expenses
incurred in connection with the divestitures, to repay the secured debt related
to the properties divested, to partially pay down the unsecured credit facility,
for potential acquisitions and for general corporate purposes.
On February 26, 1999, we divested one retail center located in Miami,
Florida, aggregating 83.1 million square feet. The center was sold at a gross
sales price of $9.8 million and the related secured debt of $5.7 million was
paid down at the time of the transaction. We used the net proceeds of $3.5
million to partially fund a property acquisition during the first quarter of
1999.
Credit facility. We have a $500 million unsecured revolving credit
agreement with Morgan Guaranty Trust Company of New York, as agent, and a
syndicate of twelve other banks. The credit facility has a term of three years
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points (currently 15 basis points) of the undrawn
funds based on our credit rating. We use the credit facility principally for
acquisitions and for general working capital requirements. Borrowings under the
credit facility bear interest at LIBOR plus 90 to 120 basis points (currently
LIBOR plus 90 basis points), depending our debt rating at the time of the
borrowings. As of March 31, 1999, the outstanding balance on the credit facility
was $316.0 million and it bore interest at 5.84%. Monthly debt service payments
on the credit facility are interest only. The credit facility matures in
November 2000. The total amount available under the credit facility fluctuates
based upon the borrowing base, as defined in the agreement governing the credit
facility. At March 31, 1999, the remaining amount available under the credit
facility was approximately $184.0 million.
Debt and equity financing. In June 1998, the operating partnership issued
$400.0 million aggregate principal amount of senior, unsecured debt securities
in an underwritten public offering. The operating partnership used the net
proceeds 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 7.175%, which is payable in June and December of each
year, commencing in December 1998. The 2015 notes are putable and callable in
June 2005. We received credit ratings for our unsecured debt of Baa1 from
Moody's Investors Service, BBB from Standard & Poor's Corporation and BBB+ from
Duff & Phelps Credit Rating Co. As a result of the receipt of the
investment-grade credit ratings, the interest rate on the credit facility was
reduced by 20 basis points to the current rate of LIBOR plus 90 basis points.
In July 1998, AMB sold 4,000,000 shares of 8.5% Series A Cumulative
Redeemable Preferred Stock at a price of $25.00 per share in an underwritten
public offering. AMB contributed the net proceeds of $96.1 million to the
operating partnership in exchange for 4,000,000 Series A Preferred Units with
terms identical to the Series A Preferred Stock. The operating partnership used
these proceeds to repay borrowings under the credit facility incurred in
connection with property acquisitions and for general corporate purposes.
In November 1998, the operating partnership issued and sold 1,300,000
8.625% Series B Cumulative Redeemable Preferred Units at a price of $50.00 per
unit in a private placement. Distributions are cumulative from the date of
original issuance and are payable quarterly in arrears at a rate per unit equal
to $4.3125 per annum. The Series B Preferred Units are redeemable by the
operating partnership on or after November 12, 2003, subject to certain
conditions, for cash at a redemption price equal to $50.00 per unit, plus
accumulated and unpaid distributions thereon, if any, to the redemption date.
The Series B Preferred Units are exchangeable, at specified times and subject to
certain conditions, on a one-for-one basis, for shares of AMB's Series B
Preferred Stock. The operating partnership used the net proceeds of
approximately $63.3 million to repay borrowings under the credit facility, for
property acquisitions and for general purposes.
In November 1998, AMB Property II, L.P., one of our subsidiaries, issued
and sold 2,200,000 8.75% Series C Cumulative Redeemable Preferred Limited
Partnership Units at a price of $50.00 per unit in a private placement.
Distributions are cumulative from the date of issuance and payable quarterly in
arrears at a rate per unit equal to $4.375 per annum. The Series C Preferred
Units are redeemable by AMB Property II, L.P. on or after November 24, 2003,
subject to certain conditions, for cash at a redemption price
17
equal to $50.00 per unit, plus accumulated and unpaid distributions thereon, if
any, to the redemption date. The Series C Preferred Units are exchangeable, at
specified times and subject to certain conditions, on a one-for-one basis, for
shares of AMB's Series C Preferred Stock. AMB Property II, L.P. used the net
proceeds of approximately $107.2 million to make a loan to the operating
partnership, which used the funds to repay borrowings under the credit facility.
The loan bears interest at a rate of 7.0% per annum and is payable upon demand.
On May 5, 1999, AMB Property II, L.P. issued and sold 1,595,337 7.75%
Series D Cumulative Redeemable Preferred Limited Partnership Units at a price of
$50.00 per unit in a private placement. Distributions are cumulative from the
date of original issuance and are payable quarterly in arrears at a rate per
unit equal to $3.875 per annum. The Series D Preferred Units are redeemable by
AMB Property II, L.P. on or after May 5, 2004, subject to certain conditions,
for cash at a redemption price equal to $50.00 per unit, plus accumulated and
unpaid distributions thereon, if any, to the redemption date. The Series D
Preferred Units are exchangeable, at specified times and subject to certain
conditions, on a one-for-one basis, for shares of AMB's Series D Preferred
Stock. AMB Property II, L.P. used the net proceeds of approximately $77.8
million to make a loan to the operating partnership in the amount of
approximately $20.1 million and to purchase an unconsolidated joint venture
interest for a price of approximately $57.7 million from the operating
partnership. The loan bears interest at a rate of 7.0% per annum and is payable
upon demand. The operating partnership used the funds to repay borrowings under
the credit facility and for general corporate purposes.
Market capitalization. In connection with our formation transactions and
property acquisitions consummated after our formation transactions, we have
assumed various mortgages and other secured debt. As of March 31, 1999, the
aggregate principal amount of this secured debt was $754.7 million, excluding
unamortized debt premiums of $15.7 million. The secured debt bears interest at
rates varying from 4.0% to 10.4% per annum (with a weighted average of 7.9%) and
final maturity dates ranging from April 1999 to April 2014. We believe the
carrying value of the debt approximates its fair value on March 31, 1999.
As of March 31, 1999, our total outstanding debt was approximately $1.5
billion, including unamortized debt premiums of approximately $15.7 million. See
Note 5 to our Consolidated Financial Statements. The total amount of debt that
we must repay during the remainder of 1999 is approximately $13.2 million,
including scheduled principal amortization of approximately $9.6 million.
In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, we presently intend to operate with
a debt-to-total market capitalization ratio of approximately 45% or less.
Additionally, we presently intend to continue to structure our balance sheet in
order to maintain an investment grade rating on our senior unsecured debt.
18
The tables below summarize our debt maturities and capitalization as of
March 31, 1999 (in thousands, except share amounts and percentages).
DEBT
- --------------------------------------------------------------------------------
UNSECURED
INDUSTRIAL RETAIL SENIOR UNSECURED
SECURED SECURED DEBT CREDIT
DEBT DEBT SECURITIES FACILITY TOTAL
---------- -------- ---------- --------- ----------
1999 (nine months)................. $ 9,947 $ 3,237 $ -- $ -- $ 13,184
2000............................... 25,576 7,951 -- 316,000 349,527
2001............................... 12,563 30,921 -- -- 43,484
2002............................... 27,512 38,863 -- -- 66,375
2003............................... 57,001 76,294 -- -- 133,295
2004............................... 91,283 722 -- -- 92,005
2005............................... 68,810 779 100,000 -- 169,589
2006............................... 116,396 11,581 -- -- 127,977
2007............................... 38,053 458 -- -- 38,511
2008............................... 120,277 7,465 175,000 -- 302,742
Thereafter......................... 9,057 -- 125,000 -- 134,057
-------- -------- -------- -------- ----------
Subtotal......................... 576,475 178,271 400,000 316,000 1,470,746
Unamortized premiums............. 10,620 5,063 -- -- 15,683
-------- -------- -------- -------- ----------
Total consolidated
debt................... 587,095 183,334 400,000 316,000 1,486,429
Our share of unconsolidated JV
debt............................. 19,831 -- -- -- 19,831
-------- -------- -------- -------- ----------
Total debt............... $606,926 $183,334 $400,000 $316,000 $1,506,260
======== ======== ======== ======== ==========
JV partners' share of consolidated
JV debt.......................... (39,818)
----------
Our share of total
debt................... $1,466,442
==========
MARKET EQUITY
- --------------------------------------------------------------------------------
SHARES
SECURITY OUTSTANDING MARKET PRICE MARKET VALUE
-------- ----------- ------------ ------------
Common stock...................................... 86,026,271 $20.75 $1,785,045
Limited partnership units......................... 4,448,873 20.75 92,314
---------- ----------
Total................................... 90,475,144 $1,877,359
========== ==========
PREFERRED STOCK AND UNITS
- --------------------------------------------------------------------------------
LIQUIDATION REDEMPTION
SECURITY DIVIDEND RATE PREFERENCE PROVISIONS
-------- ------------- ----------- -------------
Series A preferred stock...................... 8.50% $100,000 July 2003
Series B preferred units...................... 8.63% 65,000 November 2003
Series C preferred units...................... 8.75% 110,000 November 2003
---- --------
Weighted Average/Total.............. 8.66% $275,000
==== ========
CAPITALIZATION RATIOS
- --------------------------------------------------------------------------------
Total debt-to-total market capitalization................... 41.2%
Our share of total debt-to-total market capitalization...... 40.1%
Total debt plus preferred-to-total market capitalization.... 48.7%
Our share of total debt plus preferred-to-total market
capitalization............................................ 48.1%
19
LIQUIDITY
As of March 31, 1999, we had approximately $29.2 million in cash and cash
equivalents and $184.0 million of additional available borrowings under the
credit facility. We intend to use cash from operations, borrowings under the
credit facility, other forms of secured and unsecured financing, proceeds from
any future debt or equity offerings by AMB or the operating partnership
(including issuances of limited partnership units in the operating partnership
or its subsidiaries), and proceeds from divestitures of properties to fund
acquisitions, development activities and capital expenditures and to provide for
general working capital requirements.
On March 5, 1999, we declared a quarterly cash distribution of $0.35 per
share of common stock and the operating partnership declared a quarterly cash
distribution of $0.35 per operating partnership unit, for the quarter ending
March 31, 1999, payable on April 15, 1999, to stockholders and unitholders of
record as of March 31, 1999. On March 5, 1999, we declared a cash dividend of
$0.53125 per share on our Series A Preferred Stock, and the operating
partnership declared a cash distribution of $0.53125 per unit on its Series A
Preferred Units, for the three month period ending April 14, 1999, payable on
April 15, 1999, to stockholders and unitholders of record as of March 31, 1999.
The anticipated size of our distributions, using only cash from operations,
will not allow us to retire all of our debt as it comes due. Therefore, we
intend to also repay maturing debt with net proceeds from future debt and/or
equity financings. However, we may not be able to obtain future financings on
favorable terms or at all.
CAPITAL COMMITMENTS
In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of March 31, 1999, our development pipeline included 18
projects representing a total estimated investment of $264.2 million upon
completion. Of this total, approximately $135.1 million had been funded as of
March 31, 1999 and approximately $129.1 million is estimated to be required to
complete projects currently under construction or for which we have committed to
complete. We presently expect to fund these expenditures with cash from
operations, borrowings under the credit facility, debt or equity issuances and
net proceeds from property divestitures. Other than these capital items, we have
no material capital commitments.
During the period from January 1, 1999 to March 31, 1999, we invested:
- $109.1 million in 36 industrial buildings, aggregating 1.7 million
rentable square feet, and
- $14.6 million in two new development projects aggregating approximately
0.2 million square feet.
We funded these acquisitions and initiated development projects through
borrowings under the credit facility, cash, debt assumption, and the issuance of
limited partnership units in the operating partnership.
YEAR 2000 COMPLIANCE
Our state of readiness. We utilize a number of computer software programs
and operating systems across our entire organization, including applications
used in financial business systems and various administrative functions. To the
extent that our software applications contain source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification or replacement of such applications will be necessary.
We are currently conducting a company-wide test of our financial and
non-financial systems to ensure that our systems will adequately handle the year
2000 issue. Our current financial system generally provides for a four-digit
year; however, the current system is not fully year 2000 compliant. We expect
that our financial system will be fully year 2000 compliant once we complete a
software upgrade in 1999. We are also currently surveying our property managers
to determine if our non-financial systems (HVAC, security, lighting, and other
building systems) at our properties are year 2000 compliant and to determine the
state of readiness of our tenants regarding their year 2000 compliance. In
addition, we are currently surveying our other third party vendors to determine
if their systems are year 2000 compliant and to determine the state of readiness
regarding their year 2000 compliance.
20
Costs of addressing our year 2000 issues. Given the information known at
this time about our systems, coupled with our ongoing, normal course-of-business
efforts to upgrade or replace critical systems, as necessary, we do not expect
year 2000 compliance costs to have any material adverse impact on our liquidity
or ongoing results of operations. The costs of such assessment will be included
in our general and administrative expenses. Although we can make no assurance,
we currently do not expect that the year 2000 issue will materially affect our
operations due to problems encountered by our suppliers, customers and lenders.
Risks of our year 2000 issues. In light of our assessment and remediation
efforts to date, we believe that any residual year 2000 risk is limited to
non-critical business applications and support hardware. No assurance can be
given, however, that all of our systems will be year 2000 compliant or that
compliance will not have a material adverse effect on our future liquidity,
results of operations or ability to service debt.
Our contingency plans. We are currently developing our contingency plan for
all operations to address the most reasonably likely worst case scenarios
regarding year 2000 compliance. We expect such contingency plans to be completed
before the end of the year.
21
FUNDS FROM OPERATIONS
We believe that Funds from Operations ("FFO"), as defined by NAREIT, is an
appropriate measure of performance for an equity REIT. While FFO is a relevant
and widely used measure of operating performance of REITs, it does not represent
cash flow from operations or net income as defined by GAAP, and it should not be
considered as an alternative to those indicators in evaluating liquidity or
operating performance. Further, FFO as disclosed by other REITs may not be
comparable.
The following table reflects the calculation of our FFO for three months
ended March 31, 1998 and 1999 (dollars in thousands).
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
----------- -----------
Income from operations before minority interests............ $ 29,188 $ 34,575
Real estate related depreciation and amortization:
Total depreciation and amortization....................... 11,786 18,424
Furniture, fixtures, and equipment depreciation........... (104) (114)
FFO attributable to minority interests(1)(2):
Institutional Alliance Partners........................... -- (1,474)
Other joint venture partners.............................. (575) (551)
Adjustments to derive FFO in unconsolidated joint
venture(3):
Our share of net income................................... -- (1,151)
Our share of FFO.......................................... -- 1,645
Series A preferred stock dividends.......................... -- (2,125)
Series B & C preferred unit distributions................... -- (3,808)
---------- ----------
FFO(1)...................................................... $ 40,295 $ 45,421
---------- ----------
FFO per common share and unit:
Basic..................................................... $ 0.46 $ 0.50
========== ==========
Diluted................................................... $ 0.45 $ 0.50
========== ==========
Weighted average common shares and units:
Basic..................................................... 88,428,969 90,449,529
========== ==========
Diluted(4)................................................ 88,839,192 90,469,105
========== ==========
- ---------------
(1) Funds from Operations ("FFO") is defined as income from operations before
minority interest, gains or losses from sale of real estate and
extraordinary losses plus real estate depreciation and adjustment to derive
our pro rata share of the FFO of unconsolidated joint ventures, less
minority interests' pro rata share of the FFO of consolidated joint ventures
and perpetual preferred stock dividends. In accordance with NAREIT White
Paper on FFO, we include the effects of straight-line rents in FFO. Further,
we do not adjust FFO to eliminate the effects of non-recurring changes.
(2) Represents FFO attributable to minority interest in consolidated joint
ventures for the period presented, which has been computed as minority
interests' share of net income plus minority interests' share of real
estate-related depreciation and amortization of the consolidated joint
ventures for such period. These minority interests are not convertible into
shares of common stock.
(3) Represents our pro rata share of FFO in unconsolidated joint ventures for
the period presented, which has been computed as our share of net income
plus our share of real estate-related depreciation and amortization of the
unconsolidated joint venture for such period.
(4) Includes the dilutive effect of stock options.
22
OPERATING AND LEASING STATISTICS SUMMARY
The following summarizes key operating and leasing statistics for the all
of our industrial properties and retail properties as of and for the period
ended March 31, 1999.
INDUSTRIAL RETAIL TOTAL
----------- ---------- -----------
Square feet owned(1)......................... 58,890,144 7,073,795 65,963,939
Occupancy percentage......................... 95.4% 95.0% 95.4%
Lease expirations as percentage of total
square feet (next 12 months)............... 14.6% 7.0% 13.8%
Weighted average lease term.................. 7 years 16 years 8 years
Tenant retention:
Quarter.................................... 73.5% 75.9% 73.6%
Trailing average (1/01/96 to 3/31/99)...... 74.0% 85.4% 74.6%
Rent increases on renewals and rollovers:
Quarter.................................... 12.6% 8.3% 12.1%
Trailing 12 months......................... 11.8% 9.1% 11.5%
Same store cash basis NOI growth(2):
Quarter.................................... 6.7% 2.8% 5.4%
Second generation tenant improvements and
leasing commissions per sq. ft.:
Quarter:
Renewals................................ $ 1.58 $ 1.46 $ 1.57
Re-tenanted............................. 1.80 5.59 2.15
----------- ---------- -----------
Weighted average................... $ 1.58 $ 1.62 $ 1.59
=========== ========== ===========
Trailing average (1/01/96 to 3/31/99)...... $ 1.27 $ 4.16 $ 1.43
=========== ========== ===========
- ---------------
(1) In addition to owned square feet as of March 31, 1999, we managed, through
our subsidiary, AMB Investment Management, 4.0 million, 0.4 million, and 0.1
million additional square feet of industrial, retail, and other properties,
respectively. We also have an investment in 4.0 million square feet of
industrial properties through our investment in an unconsolidated joint
venture.
(2) Consists of industrial buildings and retail centers aggregating 36.3 million
and 5.8 million square feet, respectively, that have been owned by us prior
to January 1, 1998, and excludes development properties prior to
stabilization.
The following summarizes key same store properties' operating statistics
for our industrial properties and retail properties as of and for the period
ending March 31, 1999.
INDUSTRIAL RETAIL TOTAL
----------- ---------- -----------
Square feet in same store pool(1)............ 36,282,521 5,832,434 42,114,955
Occupancy percentage......................... 96.3% 96.8% 96.4%
Tenant retention:
Quarter.................................... 71.0% 78.6% 71.3%
Trailing 12 months......................... 73.1% 81.2% 73.5%
Rent increases on renewals and rollovers:
Quarter.................................... 14.5% 8.4% 13.5%
Trailing 12 months......................... 11.0% 9.2% 10.7%
Cash basis NOI growth % increase:
Quarter:
Revenues................................ 6.1% 3.3% 5.2%
Expenses................................ 4.5% 4.6% 4.6%
NOI..................................... 6.7% 2.8% 5.4%
- ---------------
(1) Same store properties include all properties that were owned during both the
current and prior year reporting periods and excludes development properties
prior to being stabilized for both the current and prior reporting period.
23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Our exposure to market risk includes the rising interest rates in
connection with our unsecured credit facility and other variable rate
borrowings, and our ability to incur more debt without stockholder approval,
thereby increasing our debt service obligations, which could adversely affect
our cash flows. See "Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Capital Resources -- Market Capitalization."
PART II
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1999, there were no pending legal proceedings to which we
are a party or of which any of our properties is the subject, the adverse
determination of which we anticipate would have a material adverse effect upon
our financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES
On February 9, 1999, the operating partnership issued an aggregate of 1,034
limited partnership units with an aggregate value of approximately $24,800 to
two corporations and twelve individuals in partial consideration for the
acquisition of properties. In addition, on April 30, 1999, the operating
partnership issued an aggregate of 390,633 limited partnership units with an
aggregate value of approximately $9.4 million to two corporations and twelve
individuals in partial consideration for the acquisition of properties. Holders
of the limited partnership units may redeem part or all of their limited
partnership units for cash, or at the election of AMB, exchange their limited
partnership units for shares of AMB's common stock on a one-for-one basis.
The issuance of limited partnership units in connection with the
acquisitions discussed above constituted private placements of securities which
were exempt from the registration requirement of the Securities Act of 1933
pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D.
On March 9, 1999, AMB granted CalPERS an option to purchase up to 2,000,000
shares of common stock for an exercise price of $25 per share that CalPERS may
exercise on or before March 31, 2000. The issuance of the option constituted a
private placement of securities that was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act and Rule 506 of Regulation D. AMB has agreed to register the resale of the
shares issuable upon exercise of the option.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On May 5, 1999, AMB Property II, L.P. issued and sold 1,595,337 7.75%
Series D Cumulative Redeemable Preferred Limited Partnership Units at a price of
$50.00 per unit in a private placement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Series D Preferred Units
General. Each Series D Preferred Unit will be entitled to receive
cumulative preferential distributions from May 5, 1999 payable on or before the
25th of March, June, September and December of each year, commencing June 25,
1999, at a rate of 7.75% per annum in preference to any payment made on any
other
24
class or series of partnership interest of AMB Property II, L.P., other than any
class or series of partnership interest expressly designated as ranking on
parity with or senior to the Series D Preferred Units.
Ranking. The Series D Preferred Units will rank on parity with all classes
or series of preferred partnership units designated as ranking on a parity with
the Series D Preferred Units with respect to distributions and rights upon
liquidation, dissolution and winding-up, senior to all classes or series of
preferred partnership units designated as ranking junior to the Series D
Preferred Units and junior to all other classes or series of preferred
partnership units designated as ranking senior to the Series D Preferred Units.
Limited Consent Rights. For so long as any Series D Preferred Units remain
outstanding, AMB Property II, L.P. shall not, without the affirmative vote of
the holders of at least two-thirds of the Series D Preferred Units:
- authorize, create or increase the authorized or issued amount of any
class or series of partnership interests ranking prior to the Series D
Preferred Units with respect to payment of distributions or rights upon
liquidation, dissolution or winding-up or reclassify any partnership
interests of AMB Property II, L.P. into any such partnership interest, or
create, authorize or issue any obligations or security convertible into
or evidencing the right to purchase any such partnership interests,
- authorize or create, or increase the authorized or issued amount of any
preferred units ranking on a parity with the Series D Preferred Units or
reclassify any partnership interest of AMB Property II, L.P. into any
such partnership interest or create, authorize or issue any obligations
or security convertible into or evidencing the right to purchase any such
partnership interests but only to the extent such Parity Preferred Units
are issued to an affiliate of AMB Property II, L.P., other than its
general partner or the operating partnership to the extent the issuance
of such interests was to allow its general partner or the operating
partnership to issue corresponding preferred stock or preferred interests
to persons who are not affiliates of AMB Property II, L.P., or
- either (1) consolidate, merge into or with, or convey, transfer or lease
its assets substantially as an entirety to, any corporation or other
entity or (2) amend, alter or repeal the provisions of AMB Property II,
L.P.'s partnership agreement, whether by merger, consolidation or
otherwise, in each case in a manner that would materially and adversely
affect the powers, special rights, preferences, privileges or voting
power of the Series D Preferred Units or the holders of Series D
Preferred Units.
With respect to the occurrence of any of the events set forth in the third
bullet point above, so long as AMB Property II, L.P. is either the surviving
entity and the Series D Preferred Units remain outstanding with the terms
materially unchanged or the resulting, surviving or transferee entity is a
partnership, limited liability company or like entity organized under the laws
of any state and substitutes for the Series D Preferred Units other partnership
interests having substantially the same terms and rights as the Series D
Preferred Units, the occurrence of any such event will not be considered to
materially and adversely affect rights, preferences, privileges or voting powers
of holders of Series D Preferred Units. Any increase in the amount of
partnership interests or the creation or issuance of any other class or series
of partnership interests, in each case ranking on a parity with or junior to the
Series D Preferred Units will not be considered to materially and adversely
affect such rights, preferences, privileges or voting powers.
Limited Management Rights. If distributions on any Series D Preferred Units
remain unpaid for six or more quarterly periods (whether or not consecutive),
subject to the rights of any holders of future preferred units ranking on a
parity with the Series D Preferred Units, the holders of Series D Preferred
Units may assume certain rights to manage AMB Property II, L.P. for the sole
purpose of enforcing AMB Property II, L.P.'s rights and remedies against
obligees of AMB Property II, L.P. or others from whom AMB Property II, L.P. may
be entitled to receive cash or other assets, until all distributions accumulated
on Series D Preferred Units for all past quarterly period and distributions for
then-current quarterly period have been fully paid or declared and a sum
sufficient for the payment of such dividends irrevocably set aside in trust for
payment in full.
Redemption and Exchange. Beginning May 5, 2004, the Series D Preferred
Units may be redeemed by AMB Property II, L.P. out of proceeds from issuances of
AMB's capital stock at a redemption price equal to
25
$50.00 per unit, plus accrued and unpaid distributions to the date of
redemption. Beginning May 5, 2009, the Series D Preferred Units may be
exchanged, in whole but not in part, into shares of AMB's 7.75% Series D
Cumulative Redeemable Preferred Stock at the option of 51% of the holders. In
addition, the Series D Preferred Units may be exchanged, in whole but not in
part, into shares of Series D Preferred Stock at any time at the option of 51%
of the holders if:
- distributions on the Series D Preferred Units have not been made for six
prior quarterly distribution periods, whether or not consecutive or
- AMB Property Holding Corporation, the general partner of AMB Property II,
L.P., or one of its subsidiaries, takes the position, and a holder or
holders of Series D Preferred Units receive an opinion of independent
counsel that AMB Property II, L.P. is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Internal Revenue Code.
In addition, the Series D Preferred Units may be exchanged, in whole but
not in part, on or after May 5, 2002 and prior to May 5, 2009 if the Series D
Preferred Units would not be considered "stock and securities" for federal
income tax purposes. AMB may, in lieu of exchanging the Series D Preferred Units
for shares of Series D Preferred Stock, elect to redeem all or a portion of the
Series D Preferred Units for cash in an amount equal to $50 per unit plus
accrued and unpaid distributions. The right of the holders of Series D Preferred
Units to exchange the Series D Preferred Units for shares of Series D Preferred
Stock shall in each case be subject to the ownership limitations set forth in
AMB's charter in order for AMB to maintain its qualification as a REIT for
federal income tax purposes.
Series D Preferred Stock
General. Each share of Series D Preferred Stock into which the Series D
Preferred Units may be exchanged will be entitled to receive cumulative
preferential cash dividends from the date of issue (including any accrued but
unpaid distributions in respect of Series D Preferred Units at the time that
such units are exchanged for shares of Series D Preferred Stock) payable on or
before the 15th of January, April, July and October of each year, in cash, at
the rate of 7.75% per annum in preference to any payment made on any other
classes or series of capital stock or other equity securities of AMB, other than
any class or series of equity securities of AMB expressly designated as ranking
on a parity with or senior to the Series D Preferred Stock.
Ranking. The Series D Preferred Stock will rank on parity with AMB's 8.50%
Series A Cumulative Redeemable Preferred Stock, its 8.65% Series B Cumulative
Redeemable Preferred Stock and its 8.75% Series C Cumulative Redeemable
Preferred Stock, if and when issued, and all other classes or series of
preferred stock designated as ranking on a parity with the Series D Preferred
Stock with respect to distributions and rights upon liquidation, dissolution, or
winding-up, senior to all classes or series of preferred stock designated as
ranking junior to the Series D Preferred Stock and junior to all other classes
or series of preferred partnership units designated as ranking senior to Series
D Preferred Stock.
Redemption. The Series D Preferred Stock may be redeemed, at AMB's option,
on and after May 5, 2004, in whole or in part from time to time, at a redemption
price payable in cash equal to $50.00 per share, plus any accrued but unpaid
dividends to the date of redemption. AMB may redeem the Series D Preferred Stock
prior to May 5, 2004 to the extent necessary to maintain its qualification as a
REIT. The redemption price of the Series D Preferred Stock (other than the
portion of the redemption price consisting of accumulated but unpaid dividends)
will be payable solely out of proceeds from issuances of AMB's capital stock.
Limited Voting Rights. If dividends on any of the shares of Series D
Preferred Stock remain unpaid for six or more quarterly periods (whether or not
consecutive), the holders of such shares of Series D Preferred Stock (voting as
a single class with all other shares of preferred stock ranking on a parity with
the Series D Preferred Stock upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors of AMB who will be elected by a plurality of the votes cast in such
election for a one-year term and until their successors are duly elected and
shall qualify (or until such director's right to hold such office terminates,
whichever occurs earlier, subject to such director's earlier death,
26
disqualification, resignation or removal), at a special meeting called by the
holders of at least 20% of the outstanding shares of Series D Preferred Stock or
the holders of shares of any other class or series of preferred stock ranking on
a parity with the Series D Preferred Stock with respect to which dividends are
also accrued and unpaid (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of stockholders)
or, if the request for a special meeting is received by AMB less than 90 days
before the date fixed for the next annual or special meeting of stockholders, at
the next annual or special meeting of stockholders, and at each subsequent
annual meeting until all dividends accumulated on the shares of Series D
Preferred Stock for all past dividend periods and the dividend for the then
current dividend period have been fully paid or declared and a sum sufficient
for the payment of such dividends irrevocably set aside in trust for payment in
full. Upon the payment in full of all such dividends, the holders of Series D
Preferred Stock will be divested of their voting rights and the term of any
member of the board of directors elected by the holders of Series D Preferred
Stock and holders of any other shares of preferred stock ranking on a parity
with the Series D Preferred Stock will terminate.
In addition, for so long as any shares of Series D Preferred Stock are
outstanding, without the consent of two-thirds of the holders of the Series D
Preferred Stock then outstanding, AMB shall not:
- authorize or create or increase the authorized or issued amount of any
shares ranking senior to the Series D Preferred Stock or reclassify any
authorized shares of AMB into any such shares,
- designate or create, or increase the authorized or issued amount of, or
reclassify any authorized shares of AMB into any preferred stock ranking
on a parity with the Series D Preferred Stock, or create, authorize or
issue any obligations or security convertible into or evidencing the
right to purchase any such shares, but only to the extent such preferred
stock ranking on a parity with the Series D Preferred Stock is issued to
an affiliate of AMB, or
- either (1) consolidate, merge into or with, or convey, transfer or lease
its assets substantially as an entirety, to any corporation or other
entity, or (2) amend, alter or repeal the provisions of AMB's Articles of
Incorporation, whether by merger, consolidation or otherwise, in each
case that would materially and adversely affect the powers, special
rights, preferences, privileges or voting power of the Series D Preferred
Stock or the holders of Series D Preferred Stock. The Series D Preferred
Stock will have no voting rights other than as discussed above and as
otherwise provided by applicable law.
With respect to the occurrence of any of the events set forth in the third
bullet point above, so long as AMB is either the surviving entity and shares of
Series D Preferred Stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the Series D Preferred Stock other preferred stock or preferred shares having
substantially the same terms and rights as the Series D Preferred Stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of Series D
Preferred Stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the Series D Preferred Stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
Liquidation Preference. Each share of Series D Preferred Stock is entitled
to a liquidation preference of $50.00 per share, plus any accrued but unpaid
dividends, in preference to any other class or series of capital stock of AMB,
other than any class or series of equity securities of AMB expressly designated
as ranking on a parity with or senior to the Series D Preferred Stock.
27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Articles Supplementary establishing and fixing the rights
and preferences of the 7.75% Series D Cumulative Redeemable
Preferred Stock.
10.1 Fourth Amended and Restated Agreement of Limited Partnership
of AMB Property II, L.P., dated as of May 5, 1999.
27.1 Financial Data Schedule -- AMB Property Corporation
(b) Reports on Form 8-K:
- Current Report on Form 8-K was filed on January 7, 1999, in connection
with the filing by the Company of the Articles Supplementary establishing
and fixing the rights and preferences of the 8.625% Series B Cumulative
Redeemable Preferred Stock and the Articles Supplementary establishing
and fixing the rights and preferences of the 8.75% Series C Cumulative
Redeemable Preferred Stock.
- Current Report on Form 8-K was filed on April 8, 1999, in connection with
reporting the acquisition by BPP Retail, LLC of 28 retail shopping
centers of the Operating Partnership, totaling 5.1 million square feet,
for an aggregate price of $663.4 million and filing financial statements
in connection therewith.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMB PROPERTY CORPORATION
Registrant
Date: May 13, 1999 By: /s/ MICHAEL A. COKE
------------------------------------
Michael A. Coke
Chief Financial Officer and
Senior Vice President
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
29
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Articles Supplementary establishing and fixing the
rights and preferences of the 7.75% Series D Cumulative
Redeemable Preferred Stock.
10.1 Fourth Amdended and Restated Agreement of Limited
Partnership of AMB Property II, L.P. dated May 5, 1999.
27.1 Financial Data Schedule -- AMB Property Corporation