ProLogis Reports Third Quarter Results
- New Date and Time for Conference Call -
- Key Industrial Indicators Showing Improvement -
- Dispositions Ahead of Plan; Support Enhanced Portfolio Quality and Concentration in Major Logistics Corridors -
- Company Provides Dividend and 2011 FFO Outlook -
DENVER, Oct. 25 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), the leading global provider of distribution facilities, today reported third quarter 2010 funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $0.22 per diluted share. Of this amount, approximately $0.07 related to gains from disposition activity and $0.15 per diluted share was from core operations. FFO, including significant non-cash items of $0.01, was $0.21 per diluted share.
For the nine months ended September 30, 2010, FFO, excluding significant non-cash items and year-to-date non-recurring charges, was $0.50 per diluted share, relative to the company's full-year 2010 guidance of $0.70 to $0.78 per diluted share. Core FFO for the nine months was $0.38 per diluted share relative to the company's full-year guidance of $0.53 to $0.56 per diluted share.
The company reported a net loss of $0.03 per diluted share for the third quarter of 2010 and a net loss of $0.27 per diluted share for the nine months ended September 30, 2010.
"During the quarter, we made significant progress on our objective of disposing of non-strategic, direct-owned properties in order to reduce debt and create value through accretive development," said Walter C. Rakowich, chief executive officer. "Our third-quarter dispositions and those we plan to complete in the fourth quarter or in early 2011 support our efforts to shift investment into new development, increase our direct owned portfolio outside the United States and enhance the quality and concentration of our properties within major logistics corridors."
Industrial Fundamentals Showing Improvement
"Industrial operating performance metrics are turning around, although the pace of improvement is more moderate than we have experienced in past recoveries," Rakowich said. "There is a continued lack of new development in our global markets, and the availability of large, modern distribution centers is shrinking. We believe we are nearing a tipping point where even a modest improvement in demand could facilitate a rapid recovery in the industrial market. Among the favorable signs are: positive net absorption in the top 31 North American industrial markets for the second consecutive quarter, stable-to-improving occupancies and rental rate growth in select, supply constrained markets. Overall, fundamentals are headed in the right direction."
The company's total industrial operating portfolio (including completed development and the investment management portfolio) was 89.90 percent leased at the end of the quarter, up 24 basis points from 89.66 percent at June 30, 2010. Leasing in the company's completed development portfolio increased by 122 basis points, or 217 basis points excluding the contribution and sale of fully leased properties during the quarter. Total leasing activity in the third quarter was 27.0 million square feet, in line with historical average quarterly leasing activity.
Customer retention during the quarter remained strong at 70.5 percent within the company's direct owned portfolio and 79.1 percent within its investment management business. In the company's total same-store portfolio, rental rates on turnovers declined 8.5 percent in the third quarter, compared with a rental rate decline of 15.7 percent in the second quarter of 2010. Occupancy increased by 2.1 percent, and net operating income increased 0.27 percent.
Year-to-date and Planned Dispositions to Significantly Exceed Goal
Through the end of the third quarter, the company had completed over $595 million of property dispositions and contributions to funds. In addition, the company recently entered into a definitive agreement with affiliates of Blackstone Real Estate Advisors ("Blackstone") to sell a North American industrial portfolio, its minority interest in a hotel property and ProLogis' interests in three of its property funds for a total purchase price of $1.02 billion. Total gross proceeds from this transaction, year-to-date dispositions and anticipated fourth quarter sales are expected to be approximately $1.65 to $1.7 billion – above the company's initial 2010 gross disposition target of $1.3 to $1.5 billion. Net proceeds from the Blackstone transaction are expected to be approximately $830 million and will be used principally for the repayment of debt and to fund development activity.
In addition, ProLogis is actively pursuing the disposition of certain retail, mixed-use and ground lease assets. The company expects to consummate the disposition of all, or a portion of, these assets in early 2011 and to generate $350 to $550 million in proceeds.
Steady Demand for New Development
In the first three quarters, the company began more than $500 million of new development. Since the end of the quarter, ProLogis has signed three new build-to-suit agreements totaling $62 million of total expected investment, including two in the United States and one in the UK. "We continue to have a robust pipeline of development proposals and expect actual starts this year of $600 to $700 million, with another $48 million of signed development agreements that will begin construction in 2011," said Ted R. Antenucci, president and chief investment officer. "We plan to expand our development business to $800 million to $1 billion of annual starts in 2011. While we anticipate the vast majority will be build-to-suit, we believe improving fundamentals in major logistics corridors will support speculative development in a handful of space-constrained markets. Expanding our development program is an important element of our long-term growth plan and is accretive to net asset value."
Strategic Positioning in Focus for Fourth Quarter
"We are highly focused on implementing a number of strategic initiatives in the fourth quarter, which we believe will position us well for 2011 and beyond," said William E. Sullivan, chief financial officer. The spectrum of initiatives includes, but is not limited to:
-- A strategic decision to more aggressively pursue land sales, wherein we
are undertaking a rigorous evaluation of all land positions and may take
further impairments of our current book basis, which we expect to be in
line with discount ranges presented in our recent investor
presentations, which could be material;
-- A plan to tender for between $1 billion and $2 billion of our public
debt, with the principal intent of further smoothing our annual
maturities, as well as deploying the proceeds from our asset sales
activity into the most accretive debt reduction opportunities;
-- An intent to evaluate the effectiveness of various derivative positions,
in light of the current and anticipated interest rate environment, which
may result in the recording of one-time charges or adjustments;
-- A focus on creating incremental cost savings from structural and
platform efficiencies, and
-- A review of the company's investment in certain non-industrial assets,
which may result in impairments.
"Our 2010 per diluted share guidance for core FFO of $0.53 to $0.56; FFO, excluding significant non-cash items and non-recurring charges, of $0.70 to $0.78; and net earnings of $0.09 to $0.13, remains unchanged. However, we anticipate a variety of one-time charges, some cash and some non-cash, from the fourth quarter strategic positioning activities, which are not included in our guidance."
While the Blackstone transaction will generate sizeable taxable gains, the company expects these gains to be partially offset by losses associated with the intended debt repurchase and other anticipated fourth quarter charges. As a result, the company intends to reduce its fourth quarter dividend to $0.1125 per share, consistent with anticipated taxable income for 2010. "It is our Board's current intent to maintain this level of cash dividend throughout 2011, more in line with our taxable income, and position ourselves to grow the dividend over time as our adjusted FFO grows," said Sullivan.
Expectations for 2011
The company also established an expectation for growth in core FFO per share of 15 percent or more for 2011 and will provide a specific range and business drivers to support that guidance early in the year. "Our growth rate in 2011 will be affected by the dilutive impact of the Blackstone transaction and additional anticipated 2010 and 2011 asset sales, the proceeds of which will initially be used to reduce debt. However, we expect growth from the impact of continued development portfolio leasing, new build-to-suit developments coming on line and higher average occupancies," said Sullivan. "In addition, while we expect FFO gains from development in 2011, we will focus our guidance in 2011 primarily on core FFO."
The company's expected net earnings per share of $0.09 to $0.13 for 2010 would have been a net loss of $0.50 to $0.55 per share prior to anticipated disposition gains. For 2011, the loss per share is expected to decline by roughly 25 percent, prior to any dispositions, acquisitions or other transactions. The primary differences between FFO and earnings per share relates to depreciation and gains and losses on transactions.
Webcast and Conference Call Information
The company will host a webcast/conference call to discuss quarterly results, current market conditions and future outlook on Tuesday, October 26, 2010, at 8:30 a.m. Eastern Time. Interested parties are encouraged to access the live webcast by clicking the microphone icon located near the top of the opening page at http://ir.prologis.com. Interested parties also can participate via conference call by dialing (866) 305-2304 domestically or (660) 422-4873 internationally.
Replay Information
A replay of the conference call will be posted when available. The replay will be available until midnight Eastern Time on Tuesday, November 9, 2010, and can be accessed by dialing (800) 642-1687 domestically or (706) 645-9291 internationally and entering passcode 20289828. A transcript of the call and the webcast replay, including a podcast format, will be posted when available in the "Financial Information" section of the ProLogis Investor Relations website.
About ProLogis
ProLogis is the leading global provider of distribution facilities, with more than 475 million square feet of industrial space owned and managed (44 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,400 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. For additional information about the company, go to www.prologis.com.
Follow ProLogis on Twitter: http://twitter.com/ProLogis
The statements above that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which ProLogis operates, management's beliefs and assumptions made by management, they involve uncertainties that could significantly impact ProLogis' financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future – including statements relating to rent and occupancy growth, development activity and changes in sales or contribution volume of developed properties, general conditions in the geographic areas where we operate and the availability of capital in existing or new property funds – are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, (v) maintenance of real estate investment trust ("REIT") status, (vi) availability of financing and capital, (vii) changes in demand for developed properties, and (viii) those additional factors discussed in reports filed with the Securities and Exchange Commission by ProLogis under the heading "Risk Factors." ProLogis undertakes no duty to update any forward-looking statements appearing in this press release.
Overview
(in thousands, except per share amounts)
Summary of Results
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Revenues $ 270,114 $ 269,291 $ 790,541 $ 960,283
Net earnings (loss) (a) $ (15,052) $ (11,788) $ (129,331) $ 405,809
Net earnings (loss) per share
- Diluted (a) $ (0.03) $ (0.03) $ (0.27) $ 1.06
FFO, including significant
non-cash items (a) $ 104,050 $ 65,187 $ 179,011 $ 444,646
Add (deduct) significant
non-cash items:
Impairment of real estate
properties and other assets 2,929 46,274 3,296 130,492
Net gain related to
disposed assets - China
operations - - - (3,315)
Losses (gains) on early
extinguishment of debt 1,791 (12,010) 16,049 (173,218)
Write-off deferred
extension fees associated
with the Global Line - - 854 -
Our share of certain losses
(gains) recognized by the
property funds - (4,925) 3,575 6,358
Total adjustments for
significant non-cash items 4,720 29,339 23,774 (39,683)
FFO, excluding significant
non-cash items (a) $ 108,770 $ 94,526 $ 202,785 $ 404,963
FFO per share - Diluted,
including significant non-cash
items (a) $ 0.21 $ 0.14 $ 0.37 $ 1.16
Add (deduct) - summarized
significant non-cash
adjustments - per share 0.01 0.07 0.05 (0.10)
FFO per share - Diluted,
excluding significant non-cash
items (a) $ 0.22 $ 0.21 $ 0.42 $ 1.06
(a) These amounts are attributable to common shares.
Footnotes follow Financial Statements
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, December 31,
2010 2009
Assets:
Investments in real estate assets:
Industrial properties:
Core (1) $ 7,580,614 $ 7,436,539
Core - completed development 4,048,846 4,108,962
Properties under development 276,397 191,127
Land held for development 2,380,914 2,569,343
Retail and mixed use properties 304,358 302,838
Land subject to ground leases and other 372,823 373,422
Other investments 162,285 190,352
15,126,237 15,172,583
Less accumulated depreciation 1,883,405 1,671,100
Net investments in real estate assets 13,242,832 13,501,483
Investments in and advances to unconsolidated
investees:
Property funds (1) 2,024,149 1,876,650
Other unconsolidated investees (1) 328,039 275,073
Total investments in and advances to
unconsolidated investees 2,352,188 2,151,723
Cash and cash equivalents 17,799 34,362
Accounts and notes receivable 123,186 91,547
Other assets 1,033,914 1,017,780
Total assets $ 16,769,919 $ 16,796,895
Liabilities and Equity:
Liabilities:
Debt (2) $ 8,170,032 $ 7,977,778
Accounts payable and accrued expenses 397,281 367,399
Other liabilities 519,524 444,432
Total liabilities 9,086,837 8,789,609
Equity:
ProLogis shareholders' equity:
Series C preferred shares at stated liquidation
preference of $50 per share 100,000 100,000
Series F preferred shares at stated liquidation
preference of $25 per share 125,000 125,000
Series G preferred shares at stated liquidation
preference of $25 per share 125,000 125,000
Common shares at $.01 par value per share 4,770 4,742
Additional paid-in capital 8,573,066 8,524,867
Accumulated other comprehensive income 17,392 42,298
Distributions in excess of net earnings (1,279,837) (934,583)
Total ProLogis shareholders' equity 7,665,391 7,987,324
Noncontrolling interests 17,691 19,962
Total equity 7,683,082 8,007,286
Total liabilities and equity $ 16,769,919 $ 16,796,895
Footnotes follow Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Revenues:
Rental income (3) $ 236,068 $ 220,489 $ 695,816 $ 661,252
Property management and other
fees and incentives 29,262 45,792 86,231 111,200
CDFS disposition proceeds (4) - - - 180,237
Development management and
other income 4,784 3,010 8,494 7,594
Total revenues 270,114 269,291 790,541 960,283
Expenses:
Rental expenses 69,095 67,862 201,732 203,325
Investment management
expenses 9,829 10,186 30,079 31,581
General and administrative
(5) 34,959 38,632 115,886 128,325
Reduction in workforce (5) - 415 - 11,745
Impairment of real estate
properties and other assets 2,929 46,274 3,296 130,492
Depreciation and amortization 93,469 79,643 267,018 230,952
Other expenses 5,409 8,405 14,325 19,408
Total expenses 215,690 251,417 632,336 755,828
Operating income 54,424 17,874 158,205 204,455
Other income (expense):
Earnings from unconsolidated
property funds, net 7,455 11,639 13,305 31,135
Earnings (loss) from other
unconsolidated investees, net 1,770 (693) 7,197 2,850
Interest expense (6) (120,233) (89,838) (349,132) (265,819)
Other income (expense), net 7,375 (10,021) 5,833 (5,846)
Net gains on dispositions of
real estate properties (7) 35,922 13,627 58,688 22,419
Foreign currency exchange
gains, net (8) 6,144 13,386 2,626 34,898
Gain (loss) on early
extinguishment of debt, net
(2) (1,791) 12,010 (48,449) 173,218
Total other income (expense) (63,358) (49,890) (309,932) (7,145)
Earnings (loss) before income
taxes (8,934) (32,016) (151,727) 197,310
Current income tax expense
(benefit) (4) 5,499 (4,626) 15,850 30,140
Deferred income tax expense
(benefit) 1,956 (5,088) (40,442) (20,687)
Total income taxes 7,455 (9,714) (24,592) 9,453
Earnings (loss) from
continuing operations (16,389) (22,302) (127,135) 187,857
Discontinued operations (9):
Income (loss) attributable to
disposed properties (130) 2,775 392 23,416
Net gain related to disposed
assets - China operations (4) - - - 3,315
Net gains on dispositions:
Non-development properties 667 14,270 9,729 199,791
Development properties and
land subject to ground
leases 7,359 - 7,424 11,503
Total discontinued
operations 7,896 17,045 17,545 238,025
Consolidated net earnings
(loss) (8,493) (5,257) (109,590) 425,882
Net earnings attributable to
noncontrolling interests (190) (162) (634) (966)
Net earnings (loss)
attributable to controlling
interests (8,683) (5,419) (110,224) 424,916
Less preferred share dividends 6,369 6,369 19,107 19,107
Net earnings (loss)
attributable to common shares $ (15,052) $ (11,788) $ (129,331) $ 405,809
Weighted average common shares
outstanding - Basic 477,028 452,683 476,280 379,421
Weighted average common shares
outstanding - Diluted 477,028 452,683 476,280 382,623
Net earnings (loss) per share
attributable to common shares
- Basic:
Continuing operations $ (0.05) $ (0.07) $ (0.31) $ 0.44
Discontinued operations 0.02 0.04 0.04 0.63
Net earnings (loss) per
share attributable to common
shares - Basic $ (0.03) $ (0.03) $ (0.27) $ 1.07
Net earnings (loss) per share
attributable to common shares
- Diluted:
Continuing operations $ (0.05) $ (0.07) $ (0.31) $ 0.44
Discontinued operations 0.02 0.04 0.04 0.62
Net earnings (loss) per
share attributable to common
shares - Diluted $ (0.03) $ (0.03) $ (0.27) $ 1.06
Footnotes follow Financial
Statements
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Revenues:
Rental income $ 236,252 $ 225,226 $ 697,419 $ 711,681
Property management and other
fees and incentives 29,262 45,792 86,231 111,293
CDFS disposition proceeds (4) - - - 180,237
Development management and
other income 4,784 3,010 8,494 7,594
Total revenues 270,298 274,028 792,144 1,010,805
Expenses:
Rental expense 69,326 68,874 202,607 218,228
Investment management
expenses 9,829 10,186 30,079 31,581
General and administrative
(5) 34,959 38,632 115,886 129,630
Reduction in workforce (5) - 415 - 11,745
Impairment of real estate
properties and other assets 2,929 46,274 3,296 130,492
Depreciation of corporate
assets 3,269 3,982 9,770 12,069
Other expenses 5,409 8,405 14,325 19,414
Total expenses 125,721 176,768 375,963 553,159
Operating FFO 144,577 97,260 416,181 457,646
Other income (expense):
FFO from unconsolidated
property funds 42,315 43,901 116,016 115,518
FFO from other unconsolidated
investees 3,660 947 12,135 8,926
Interest expense (120,233) (89,838) (349,132) (265,649)
Other income (expense), net 7,375 (10,021) 5,833 (5,774)
Net gains on dispositions of
real estate properties, net
of related tax (7)(10) 38,899 12,515 59,150 30,072
Foreign currency exchange
gains (losses), net (694) 318 17 (22,068)
Gain (loss) on early
extinguishment of debt, net
(2) (1,791) 12,010 (48,449) 173,218
Current income tax benefit
(expense) (4)(10) (3,499) 4,626 (12,999) (30,341)
Net gain related to disposed
assets - China operations (4) - - - 3,315
Total other income (expense) (33,968) (25,542) (217,429) 7,217
FFO 110,609 71,718 198,752 464,863
Less preferred share dividends 6,369 6,369 19,107 19,107
Less net earnings attributable
to noncontrolling interests 190 162 634 1,110
FFO attributable to common
shares, including significant
non-cash items $ 104,050 $ 65,187 $ 179,011 $ 444,646
Adjustments for significant
non-cash items 4,720 29,339 23,774 (39,683)
FFO attributable to common
shares, excluding significant
non-cash items $ 108,770 $ 94,526 $ 202,785 $ 404,963
Weighted average common shares
outstanding - Basic 477,028 452,683 476,280 379,421
FFO per share attributable to
common shares, including
significant non-cash items:
Basic $ 0.22 $ 0.14 $ 0.38 $ 1.17
Diluted $ 0.21 $ 0.14 $ 0.37 $ 1.16
FFO per share attributable to
common shares, excluding
significant non-cash items:
Basic $ 0.23 $ 0.21 $ 0.43 $ 1.07
Diluted $ 0.22 $ 0.21 $ 0.42 $ 1.06
Footnotes follow Financial
Statements
Reconciliations of Net Earnings (Loss) to FFO and EBITDA
(in thousands)
Reconciliation of net earnings (loss) to FFO, including significant non-cash
items
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Net earnings (loss) (a) $ (15,052) $ (11,788) $ (129,331) $ 405,809
Add (deduct) NAREIT defined
adjustments:
Real estate related
depreciation and amortization 90,200 75,661 257,248 218,883
Adjustments to gains on
dispositions for depreciation (2,376) (1,001) (4,208) (2,204)
Adjustments to (gains on)
dispositions of
non-development properties (6) (111) 97 (1,646)
Reconciling items attributable
to discontinued operations:
(9)
Gains on dispositions of
non-development properties (667) (14,270) (9,729) (199,791)
Real estate related
depreciation and amortization 83 950 336 11,534
Total discontinued
operations (584) (13,320) (9,393) (188,257)
Our share of reconciling items
from unconsolidated investees:
Real estate related
depreciation and amortization 39,311 37,973 116,143 113,954
Adjustment to gains/losses on
dispositions for depreciation - (1,310) - (7,888)
Other amortization items (3,324) (1,659) (10,313) (7,821)
Total unconsolidated
investees 35,987 35,004 105,830 98,245
Total NAREIT defined
adjustments 123,221 96,233 349,574 125,021
Subtotal-NAREIT defined
FFO 108,169 84,445 220,243 530,830
Add (deduct) our defined
adjustments:
Foreign currency exchange
gains, net (8) (6,838) (13,068) (2,609) (56,897)
Deferred income tax expense
(benefit) 1,956 (5,088) (40,442) (20,699)
Our share of reconciling items
from unconsolidated investees:
Foreign currency exchange
losses (gains), net (8) 350 (556) 2,294 (790)
Unrealized losses (gains) on
derivative contracts, net 1,450 (208) (125) (6,167)
Deferred income tax benefit (1,037) (338) (350) (1,631)
Total unconsolidated
investees 763 (1,102) 1,819 (8,588)
Total our defined
adjustments (4,119) (19,258) (41,232) (86,184)
FFO, including significant
non-cash items (a) $ 104,050 $ 65,187 $ 179,011 $ 444,646
Reconciliation of FFO, including significant non-cash items to FFO, excluding
significant non-cash items
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
FFO, including significant non-cash
items (a) $ 104,050 $ 65,187 $ 179,011 $ 444,646
Add (deduct) significant non-cash
items:
Impairment of real estate
properties and other assets 2,929 46,274 3,296 130,492
Net gain related to disposed
assets - China operations (4) - - - (3,315)
Losses (gains) on early
extinguishment of debt (2) 1,791 (12,010) 16,049 (173,218)
Write-off deferred extension fees
associated with Global Line - - 854 -
Our share of certain net losses
(gains) recognized by the
property funds - (4,925) 3,575 6,358
Total adjustments for
significant non-cash items 4,720 29,339 23,774 (39,683)
FFO, excluding significant non-cash
items (a) $ 108,770 $ 94,526 $ 202,785 $ 404,963
Reconciliation of FFO, excluding significant non-cash items, to EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
FFO, excluding significant non-cash
items (a) $ 108,770 $ 94,526 $ 202,785 $ 404,963
Interest expense 120,233 89,838 348,278 265,649
Depreciation of corporate assets 3,269 3,982 9,770 12,069
Current income tax expense (benefit)
included in FFO (10) 5,499 (4,626) 15,850 30,341
Adjustments to gains on dispositions
for interest capitalized 1,849 4,605 3,119 11,544
Preferred share dividends 6,369 6,369 19,107 19,107
Our share of reconciling items from
unconsolidated investees 45,705 44,241 141,247 130,705
Earnings before interest, taxes,
depreciation, and amortization
(EBITDA) $ 291,694 $ 238,935 $ 740,156 $ 874,378
(a) Attributable to common shares.
See Consolidated Statements of Operations and Consolidated Statements of FFO
Footnotes follow Financial Statements
Calculation of Per Share Amounts
(in thousands, except per share amounts)
Net Earnings (Loss) Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
2010 (a) 2009 (a) 2010 (a) 2009
Net earnings (loss) - Basic (b) $ (15,052) $ (11,788) $ (129,331) $ 405,809
Noncontrolling interest
attributable to convertible
limited partnership units (c) - - - 966
Adjusted net earnings (loss) -
Diluted (b) $ (15,052) $ (11,788) $ (129,331) $ 406,775
Weighted average common shares
outstanding - Basic 477,028 452,683 476,280 379,421
Incremental weighted average
effect of conversion of limited
partnership units (c) - - - 1,192
Incremental weighted average
effect of stock awards - - - 2,010
Weighted average common shares
outstanding - Diluted (d) 477,028 452,683 476,280 382,623
Net earnings (loss) per share -
Diluted (b) $ (0.03) $ (0.03) $ (0.27) $ 1.06
FFOPer Share, including significant non-cash items
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
FFO - Basic, including significant
non-cash items (b) $ 104,050 $ 65,187 $ 179,011 $ 444,646
Interest expense for convertible debt
to common shares (d) 4,216 - - -
Noncontrolling interest attributable
to convertible limited partnership
units (c) 157 - - 966
FFO - Diluted, including significant
non-cash items (b) $ 108,423 $ 65,187 $ 179,011 $ 445,612
Weighted average common shares
outstanding - Basic 477,028 452,683 476,280 379,421
Incremental weighted average effect of
conversion of limited partnership
units (c) 760 - - 1,192
Incremental weighted average effect of
conversion of certain convertible debt
(d) 26,611 - - -
Incremental weighted average effect of
stock awards 3,275 2,388 3,355 2,010
Weighted average common shares
outstanding - Diluted 507,674 455,071 479,635 382,623
FFO per share - Diluted, including
significant non-cash items (b) $ 0.21 $ 0.14 $ 0.37 $ 1.16
FFO Per Share, excluding significant non-cash items
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
FFO - Basic, including significant
non-cash items (b) $ 104,050 $ 65,187 $ 179,011 $ 444,646
Adjustments for significant non-cash
items 4,720 29,339 23,774 (39,683)
Interest expense for convertible debt
to common shares (d) 4,216 - - -
Noncontrolling interest attributable
to convertible limited partnership
units (c) 157 162 - 966
FFO - Diluted, excluding significant
non-cash items (b) $ 113,143 $ 94,688 $ 202,785 $ 405,929
Weighted average common shares
outstanding - Basic 477,028 452,683 476,280 379,421
Incremental weighted average effect
of conversion of limited partnership
units (c) 760 1,110 - 1,192
Incremental weighted average effect
of conversion of certain convertible
debt (d) 26,611 - - -
Incremental weighted average effect
of stock awards 3,275 2,388 3,355 2,010
Weighted average common shares
outstanding - Diluted 507,674 456,181 479,635 382,623
FFO per share - Diluted, excluding
significant non-cash items (b) $ 0.22 $ 0.21 $ 0.42 $ 1.06
(a) In periods with a net loss, the inclusion of any incremental shares is
anti-dilutive, and therefore, both basic and diluted shares are the same.
(b) Attributable to common shares.
(c) If the impact of the conversion of limited partnership units is
anti-dilutive, the income and shares of the limited partnerships are not
included in the diluted per share calculation.
(d) Relates to the convertible debt issued in March 2010. If the impact of the
conversion of the convertible debt is anti-dilutive, the expense associated
with the debt and the related shares are not included in the diluted per share
calculation.
Notes of Financial Statements
Please refer to our annual and quarterly financial statements filed with the Securities and Exchange Commission on Forms 10-K and 10-Q for further information about us and our business. Certain amounts from previous periods presented in this document have been reclassified to conform to the 2010 presentation.
Our direct owned segment represents the direct, long-term ownership of industrial properties. Our investment strategy in this segment focuses primarily on the ownership and leasing of industrial properties in key distribution markets. We consider these properties to be our Core Portfolio. Also included in this segment are operating properties we developed that we refer to as Completed Development Properties. Our intent is to hold and use the Core and Development properties, however, depending on market and other conditions, we may contribute either Core or Development properties to the property funds or sell to third parties. When we contribute or sell Development properties, we recognize FFO to the extent the proceeds received exceed our original investment (i.e. prior to depreciation) and present the results as Net Gains on Dispositions. In addition, we have industrial properties that are currently under development and land available for development that are part of this segment as well. We may develop the land or sell to third parties, depending on market and other conditions. The investment management segment represents the investment management of unconsolidated property funds and joint ventures and the properties they own.
(1) On October 18, 2010, we announced that we had entered into a definitive agreement to sell a portfolio of industrial properties and several equity method investments to a single buyer for approximately $1.02 billion. The industrial portfolio includes approximately 180 properties with 23 million square feet that were 95.6% leased at September 30, 2010 and had net operating income of approximately $19.1 million for the three months ended September 30, 2010. The equity method investments include our 20% ownership interest in three property funds (ProLogis North American Properties Fund VI-VIII) and an investment in an unconsolidated joint venture that owns a hotel property and adjacent land. We expect the sale, which is subject to customary closing conditions, to close later in the fourth quarter and result in an approximate $200 million net gain for GAAP earnings purposes. We will continue to provide property management services for the industrial properties that were previously owned directly by us and by the property funds.
(2) During the three and nine months ended September 30, 2010 and 2009, in connection with our announced initiatives to stagger and extend our debt maturities and reduce debt, we repurchased portions of several series of senior and convertible senior notes outstanding with maturities in 2012, 2013, 2015 and 2016. In addition, in the first and third quarters of 2010, we repaid certain secured mortgage debt in connection with the sale of two properties in Japan. The repurchase activity is summarized as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Convertible Senior Notes (a):
Original principal amount $ 103,000 $ 15,000 $ 842,642 $ 536,257
Cash purchase price $ 97,181 $ 13,028 $ 791,603 $ 351,106
Senior Notes:
Original principal amount $ 33,539 $ 20,000 $ 456,015 $ 363,192
Cash purchase price $ 33,102 $ 19,925 $ 482,484 $ 322,015
Secured Mortgage Debt:
Original principal amount $ 89,581 $ 227,017 $ 134,721 $ 227,017
Cash repayment price $ 90,402 $ 227,017 $ 137,061 $ 227,017
Total:
Original principal amount $ 226,120 $ 262,017 $ 1,433,378 $ 1,126,466
Cash purchase / repayment
price $ 220,685 $ 259,970 $ 1,411,148 $ 900,138
Gain (loss) on early
extinguishment of debt, net
(b) $ (1,791) $ 12,010 $ (48,449) $ 173,218
(a) Although the cash purchase price is less than the principal amount
outstanding, the repurchase of these notes resulted in a non-cash loss in
2010 due to the non-cash discount. Therefore, we adjusted for this non-cash
loss to arrive at FFO, excluding significant non-cash items.
(b) Represents the difference between the recorded debt (including
unamortized related debt issuance costs, premiums and discounts) and the
consideration we paid to retire the debt. Of the loss referred to above, the
non-cash loss of $1.8 million and $16.0 million for the three and nine
months ended September 30, 2010, respectively, are adjusted back to arrive
at FFO, excluding significant non-cash items.
(3) In our Consolidated Statements of Operations, rental income includes the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Rental income $ 177,012 $ 165,385 $ 513,023 $ 487,443
Rental expense recoveries 50,169 47,278 152,418 147,522
Straight-lined rents 8,887 7,826 30,375 26,287
$ 236,068 $ 220,489 $ 695,816 $ 661,252
(4) On February 9, 2009, we sold our operations in China and our property fund interests in Japan to affiliates of GIC Real Estate, the real estate investment company of the Government of Singapore Investment Corporation, for total cash consideration of $1.3 billion ($845 million related to China and $500 million related to the Japan investments).
In connection with the sale of our investments in the Japan property funds, we recognized a gain of $180.2 million. The gain is reflected as CDFS Proceeds in our Consolidated Statements of Operations and FFO, as it represents previously deferred gains on the contribution of development properties to the property funds based on our ownership interest in the property funds at the time of original contribution. We also recognized $20.5 million in current income tax expense related to the Japan portion of the transaction. We continued to manage the Japan properties until July 2009 at which time we earned a termination fee of $16.3 million that is included in Property Management and Other Fees and Incentives in our Consolidated Statements of Operations and FFO.
(5) In the fourth quarter of 2008, in response to the difficult economic climate, we initiated general and administrative expense ("G&A") reductions. These initiatives included a Reduction in Workforce ("RIF") program and reductions to other expenses through various cost savings measures. Lower gross G&A and less development activity has resulted in lower capitalized G&A. Our G&A included in our Statements of Operations consisted of the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Gross G&A expense $ 59,795 $ 65,060 $ 190,529 $ 212,221
Reported as rental expense (4,988) (4,872) (14,822) (14,660)
Reported as investment
management expenses (9,829) (10,186) (30,079) (31,581)
Capitalized amounts (10,019) (11,370) (29,742) (37,655)
Net G&A $ 34,959 $ 38,632 $ 115,886 $ 128,325
(6) The following table presents the components of Interest Expense as reflected in our Consolidated Statements of Operations (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Gross interest expense $ 114,291 $ 91,349 $ 332,525 $ 281,585
Amortization of discount, net 10,880 15,706 38,412 51,049
Amortization of deferred loan
costs 6,110 4,941 20,027 11,191
Interest expense before
capitalization 131,281 111,996 390,964 343,825
Capitalized amounts (11,048) (22,158) (41,832) (78,006)
Net interest expense $ 120,233 $ 89,838 $ 349,132 $ 265,819
Gross interest expense increased in 2010 from 2009 due to increased borrowing rates. The decrease in capitalized amounts in 2010 from 2009 is due to less development activity.
(7) Included in Net Gains on Dispositions of Real Estate Properties for the three and nine months ended September 30, 2010 are gains of $6.5 million and $7.6 million, respectively, from the sale of real estate properties that were previously impaired.
(8) Included in Foreign Currency Exchange Gains (Losses), Net, for the nine months ended September 30, 2010 and 2009, are net foreign currency exchange gains or losses from the remeasurement of inter-company loans between the U.S. and our consolidated subsidiaries in Japan and Europe due to the fluctuations in the exchange rates of U.S. dollars to the yen, the euro and pound sterling between January 1st and September 30th of the applicable years. We do not include the gains and losses related to inter-company loans in our calculation of FFO.
(9) The operations of the properties held for sale and properties that are disposed of to third parties during a period, including the aggregate net gains recognized upon their disposition, are presented as discontinued operations in our Consolidated Statements of Operations for all periods presented.
During the nine months ended September 30, 2010, we disposed of 13 properties to third parties aggregating 1.4 million square feet, 2 of which were development properties. During all of 2009, other than our China operations, we disposed of land subject to ground leases and 140 properties aggregating 14.8 million square feet to third parties, 3 of which were development properties.
The income attributable to these properties and our China operations was as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Rental income $ 184 $ 4,737 $ 1,603 $ 50,429
Rental expenses (231) (1,012) (875) (14,903)
Depreciation and amortization (83) (950) (336) (11,534)
Other expenses, net - - - (576)
Income (loss) attributable to disposed
properties $ (130) $ 2,775 $ 392 $ 23,416
For purposes of our Consolidated Statements of FFO, we do not segregate discontinued operations. In addition, we include the gains from disposition of land parcels and Completed Development Properties in the calculation of FFO, including those classified as discontinued operations.
(10) The net gains on dispositions of real estate properties presented in our Consolidated Statements of FFO are net of related taxes of $2.0 million and $2.9 million for the three and nine months ended September 30, 2010, respectively.
SOURCE ProLogis
Released October 25, 2010