ProLogis Reports Second Quarter Results
- Total Operating Portfolio Leasing Improves Driven by Development Portfolio -
- Build-to-Suit Development and Land Monetization Ahead of Plan -
- Company Reiterates Full-year Guidance -
DENVER, July 22 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities, today reported second quarter 2010 funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $0.15 per diluted share. Of this amount, approximately $0.02 related to gains on contributions and $0.13 per diluted share was from core operations. FFO, including significant non-cash items of $0.01, was $0.14 per diluted share.
For the six months ended June 30, 2010, FFO, excluding significant non-cash items and first quarter non-recurring charges, was $0.28 per diluted share, relative to the company’s full-year 2010 guidance of $0.70 - $0.78 per diluted share. Core FFO for the first half was $0.24 relative to the company’s full-year guidance of $0.55 - $0.60 per diluted share.
The company reported a net loss of $0.05 per diluted share for the second quarter of 2010 and a net loss of $0.24 per diluted share for the six months ended June 30, 2010.
Industrial Fundamentals Remain Mixed
“Economic growth forecasts have been tempered in recent weeks, and for the most part, industrial market conditions are tracking with the expectations of a more moderate pace of recovery,” said Walter C. Rakowich, chief executive officer. “Despite these indications of slower growth, we are seeing steady activity levels with modest occupancy increases in some markets and believe rental rates have bottomed in the majority of them. For the first time since October 2007, we saw positive net absorption in the top 31 North American industrial markets of approximately 11 million square feet. In addition, customers remain focused on improving supply chain efficiencies, and with limited new supply, those with targeted requirements are increasingly pursuing build-to-suits.”
For the quarter, the company’s total industrial operating portfolio (including completed development) was 89.7 percent leased, up from 89.2 percent in the first quarter of 2010, principally driven by a 480 basis point increase in completed development leasing. Total leasing activity was 28.3 million square feet in the second quarter of 2010, in line with average leasing over the past year of 29.4 million square feet per quarter.
Customer retention during the quarter remained strong at 78.1 percent in the company’s direct owned portfolio and 81.8 percent within its property funds. In addition, more than 76 percent of the company’s new development portfolio leases were signed with repeat customers, including Emerson Electric in North America, SONY in Europe and Hitachi Transport System in Asia.
Rental rates on turnovers in the same-store portfolio declined 15.7 percent in the second quarter, with less than three percent of the transactions representing 420 basis points of the decline and the remaining 97 percent of the transactions having a weighted average rental rate decline of 11.5 percent. Occupancy in the same-store portfolio increased by 1.8 percent, while same-store net operating income declined 3.4 percent.
“We are encouraged by our increased occupancy levels and the activity we see in our markets; however, we expect rent growth comparisons to remain negative over the coming quarters, driven by turnover of leases that were put in place at or near peak rental rates,” Rakowich added.
Steady Demand for New Development
“We continued to see steady demand for new development during the quarter and made significant progress toward our goals of starting $700 to $800 million of development and monetizing $350 to $400 million of land this year,” said Ted R. Antenucci, president and chief investment officer. “During the quarter, we started $196 million of new development, which when combined with two additional build-to-suit agreements signed early in the third quarter, brings the company’s year-to-date total development starts to more than $470 million. With the addition of year-to-date third-party land sales, these activities monetize approximately $184 million of land.”
Further Improvements in Valuations Support Disposition Goal
“Valuations have continued to improve, driven by significant institutional investor demand and a favorable interest rate environment. These factors support some of the most attractive investment spreads in recent years,” Rakowich said. “We are in discussions on transactions that support our goal of $1.3 to $1.5 billion of gross proceeds from contributions and dispositions. We believe this is an excellent time to pursue our objective of selling primarily non-strategic U.S. properties, enabling us to focus on industrial real estate while enhancing the geographic diversification of our direct owned portfolio. We intend to utilize the proceeds principally to de-lever and match our development funding requirements later this year and into 2011.”
No Changes to Guidance
“Our guidance for 2010 remains unchanged, with a continued expectation of improving net operating income from our core development portfolio in addition to greater development management fees and gains to be recognized in the second half of the year. We intend to continue to pursue sales of land and non-strategic operating properties, which may create additional impairments in the second half of the year and into 2011. Consistent with our definitions of core FFO and FFO, excluding significant non-cash items, our guidance does not include the impact from any potential impairments,” said William E. Sullivan, chief financial officer.
Additional Information
Copies of ProLogis’ second quarter 2010 supplemental information are available from the company’s website at http://ir.prologis.com in the “Annual & Supplemental Reports” section. The company will host a webcast/conference call on Thursday, July 22, 2010, at 10:00 a.m. Eastern Time. The live webcast as well as the subsequent replay, including in a podcast format, will be available from the company’s website at http://ir.prologis.com.
About ProLogis
ProLogis is a 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 Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Revenues $ 260,731 $ 258,479 $ 520,697 $ 691,203
Net earnings (loss) (a) $ (23,150) $ 238,865 $ (114,279) $ 417,597
Net earnings (loss) per share
- Diluted (a) $ (0.05) $ 0.58 $ (0.24) $ 1.21
FFO, including significant
non-cash items (a) $ 67,844 $ 137,194 $ 74,961 $ 379,459
Add (deduct) significant
non-cash items :
Impairment of real estate
properties 367 84,218 367 84,218
Net gain related to
disposed assets - China
operations - - - (3,315)
Losses (gains) on early
extinguishment of debt (975) (143,280) 14,258 (161,208)
Write-off deferred
extension fees associated
with the Global Line 854 - 854 -
Our share of certain
losses recognized by the
property funds 3,000 - 3,575 11,283
Total adjustments for
significant non-cash items 3,246 (59,062) 19,054 (69,022)
FFO, excluding significant
non-cash items (a) $ 71,090 $ 78,132 $ 94,015 $ 310,437
FFO per share - Diluted,
including significant
non-cash items (a) $ 0.14 $ 0.34 $ 0.16 $ 1.10
Add (deduct) - summarized
significant non-cash
adjustments - per share 0.01 (0.15) 0.04 (0.20)
FFO per share - Diluted,
excluding significant
non-cash items (a) $ 0.15 $ 0.19 $ 0.20 $ 0.90
(a) These amounts are attributable to common shares.
Footnotes follow Financial Statements
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, December 31,
2010 2009
Assets:
Investments in real estate assets:
Industrial properties:
Core $ 7,486,076 $ 7,436,539
Core - completed development 4,002,407 4,108,962
Properties under development 199,434 191,127
Land held for development 2,282,223 2,569,343
Retail and mixed use properties 303,428 302,838
Land subject to ground leases and other 430,349 373,422
Other investments 249,643 233,665
14,953,560 15,215,896
Less accumulated depreciation 1,801,602 1,671,100
Net investments in real estate assets 13,151,958 13,544,796
Investments in and advances to unconsolidated
investees:
Property funds 1,776,646 1,876,650
Other unconsolidated investees 280,166 275,073
Total investments in and advances to
unconsolidated investees 2,056,812 2,151,723
Cash and cash equivalents 25,102 34,362
Accounts and notes receivable 153,193 136,754
Other assets 1,011,414 1,017,780
Total assets $ 16,398,479 $ 16,885,415
Liabilities and Equity:
Liabilities:
Debt (1) $ 8,176,178 $ 7,977,778
Accounts payable and accrued expenses 397,685 455,919
Other liabilities 465,250 444,432
Total liabilities 9,039,113 8,878,129
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 4,767 4,742
Additional paid-in capital 8,566,388 8,524,867
Accumulated other comprehensive income (loss)
(2) (386,546) 42,298
Distributions in excess of net earnings (1,192,677) (934,583)
Total ProLogis shareholders' equity 7,341,932 7,987,324
Noncontrolling interests 17,434 19,962
Total equity 7,359,366 8,007,286
Total liabilities and equity $ 16,398,479 $ 16,885,415
Footnotes follow Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Revenues:
Rental income (3) $ 229,790 $ 224,882 $ 460,018 $ 440,974
Property management and other
fees and incentives 28,307 31,774 56,969 65,408
CDFS disposition proceeds (4) - - - 180,237
Development management and
other income 2,634 1,823 3,710 4,584
Total revenues 260,731 258,479 520,697 691,203
Expenses:
Rental expenses 65,274 68,884 132,851 135,600
Investment management
expenses 9,931 10,819 20,250 21,395
General and administrative
(5) 38,921 41,450 80,927 89,693
Reduction in workforce (5) - 6,868 - 11,330
Impairment of real estate
properties 367 84,218 367 84,218
Depreciation and amortization 87,476 76,941 173,675 151,391
Other expenses 4,649 4,584 8,916 11,003
Total expenses 206,618 293,764 416,986 504,630
Operating income 54,113 (35,285) 103,711 186,573
Other income (expense):
Earnings (loss) from
unconsolidated property
funds, net (44) 17,398 5,850 19,496
Earnings from other
unconsolidated investees, net 3,348 1,342 5,427 3,543
Interest expense (6) (118,920) (83,049) (228,899) (175,981)
Other income (expense), net (1,370) 859 (1,542) 4,175
Net gains on dispositions of
real estate properties (7) 10,959 7,904 22,766 8,792
Foreign currency exchange
gains (losses), net (8) (7,206) (9,025) (3,518) 21,512
Gain (loss) on early
extinguishment of debt, net
(1) 975 143,280 (46,658) 161,208
Total other income (expense) (112,258) 78,709 (246,574) 42,745
Earnings (loss) before income
taxes (58,145) 43,424 (142,863) 229,318
Current income tax expense
(4) 598 12,577 10,351 34,766
Deferred income tax benefit (40,847) (8,771) (42,398) (15,599)
Total income taxes (40,249) 3,806 (32,047) 19,167
Earnings (loss) from
continuing operations (17,896) 39,618 (110,816) 210,151
Discontinued operations (9):
Income attributable to
disposed properties 327 8,897 592 20,649
Net gain related to disposed
assets - China operations (4) - - - 3,315
Net gains on dispositions:
Non-development properties 979 185,521 9,062 185,521
Development properties and
land subject to ground
leases - 11,692 65 11,503
Total discontinued
operations 1,306 206,110 9,719 220,988
Consolidated net earnings
(loss) (16,590) 245,728 (101,097) 431,139
Net earnings attributable to
noncontrolling interests (191) (494) (444) (804)
Net earnings (loss)
attributable to controlling
interests (16,781) 245,234 (101,541) 430,335
Less preferred share dividends 6,369 6,369 12,738 12,738
Net earnings (loss)
attributable to common shares $ (23,150) $ 238,865 $ (114,279) $ 417,597
Weighted average common shares
outstanding - Basic 476,791 406,539 475,898 342,183
Weighted average common shares
outstanding - Diluted 476,791 409,504 475,898 345,106
Net earnings (loss) per share
attributable to common shares
- Basic:
Continuing operations $ (0.05) $ 0.08 $ (0.26) $ 0.57
Discontinued operations - 0.51 0.02 0.65
Net earnings (loss) per
share attributable to common
shares - Basic $ (0.05) $ 0.59 $ (0.24) $ 1.22
Net earnings (loss) per share
attributable to common shares
- Diluted:
Continuing operations $ (0.05) $ 0.08 $ (0.26) $ 0.57
Discontinued operations - 0.50 0.02 0.64
Net earnings (loss) per
share attributable to common
shares - Diluted $ (0.05) $ 0.58 $ (0.24) $ 1.21
Footnotes follow Financial
Statements
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Revenues:
Rental income $ 230,249 $ 242,920 $ 461,167 $ 486,455
Property management and other
fees and incentives 28,307 31,774 56,969 65,501
CDFS disposition proceeds (4) - - - 180,237
Development management and
other income 2,634 1,823 3,710 4,584
Total revenues 261,190 276,517 521,846 736,777
Expenses:
Rental expense 65,395 73,985 133,281 149,354
Investment management
expenses 9,931 10,819 20,250 21,395
General and administrative
(5) 38,921 41,450 80,927 90,998
Reduction in workforce (5) - 6,868 - 11,330
Impairment of real estate
properties 367 84,218 367 84,218
Depreciation of corporate
assets 3,106 3,969 6,501 8,087
Other expenses 4,649 4,584 8,916 11,009
Total expenses 122,369 225,893 250,242 376,391
Operating FFO 138,821 50,624 271,604 360,386
Other income (expense):
FFO from unconsolidated
property funds 39,665 34,874 73,701 71,617
FFO from other unconsolidated
investees 4,843 2,966 8,475 7,979
Interest expense (118,920) (83,049) (228,899) (175,811)
Other income (expense), net (1,370) 859 (1,542) 4,247
Net gains on dispositions of
real estate properties (7)
(10) 10,756 15,986 20,251 17,557
Foreign currency exchange
gains (losses), net 232 (8,906) 711 (22,386)
Gain (loss) on early
extinguishment of debt, net
(1) 975 143,280 (46,658) 161,208
Current income tax expense
(4)(10) (598) (12,577) (9,500) (34,967)
Net gain related to disposed
assets - China operations (4) - - - 3,315
Total other income (expense) (64,417) 93,433 (183,461) 32,759
FFO 74,404 144,057 88,143 393,145
Less preferred share dividends 6,369 6,369 12,738 12,738
Less net earnings attributable
to noncontrolling interests 191 494 444 948
FFO attributable to common
shares, including significant
non-cash items $ 67,844 $ 137,194 $ 74,961 $ 379,459
Adjustments for significant
non-cash items 3,246 (59,062) 19,054 (69,022)
FFO attributable to common
shares, excluding significant
non-cash items $ 71,090 $ 78,132 $ 94,015 $ 310,437
Weighted average common shares
outstanding - Basic 476,791 406,539 475,898 342,183
FFO per share attributable to
common shares, including
significant non-cash items:
Basic $ 0.14 $ 0.34 $ 0.16 $ 1.11
Diluted $ 0.14 $ 0.34 $ 0.16 $ 1.10
FFO per share attributable to
common shares, excluding
significant non-cash items:
Basic $ 0.15 $ 0.19 $ 0.20 $ 0.91
Diluted $ 0.15 $ 0.19 $ 0.20 $ 0.90
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 Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Net earnings (loss) (a) $ (23,150) $ 238,865 $ (114,279) $ 417,597
Add (deduct) NAREIT defined
adjustments:
Real estate related
depreciation and amortization 84,370 72,972 167,174 143,304
Adjustments to gains on
dispositions for depreciation (203) (452) (1,832) (1,203)
Adjustments to (gains on)
dispositions of
non-development properties - (3,158) 103 (1,535)
Reconciling items
attributable to discontinued
operations: (9)
Gains on dispositions of
non-development properties (979) (185,521) (9,062) (185,521)
Real estate related
depreciation and
amortization 11 4,040 127 10,502
Total discontinued
operations (968) (181,481) (8,935) (175,019)
Our share of reconciling
items from unconsolidated
investees:
Real estate related
depreciation and
amortization 39,191 37,664 76,832 75,981
Adjustment to gains/losses
on dispositions for
depreciation - (6,578) - (6,578)
Other amortizations items (3,515) (2,571) (6,989) (6,161)
Total unconsolidated
investees 35,676 28,515 69,843 63,242
Total NAREIT defined
adjustments 118,875 (83,604) 226,353 28,789
Subtotal-NAREIT defined
FFO 95,725 155,261 112,074 446,386
Add (deduct) our defined
adjustments:
Foreign currency exchange
losses (gains), net (8) 7,438 119 4,229 (43,829)
Deferred income tax benefit (40,847) (8,771) (42,398) (15,611)
Our share of reconciling
items from unconsolidated
investees:
Foreign currency exchange
losses (gains), net (8) 2,731 (1,885) 1,944 (234)
Unrealized losses (gains) on
derivative contracts, net 2,485 (4,105) (1,575) (5,959)
Deferred income tax expense
(benefit) 312 (3,425) 687 (1,294)
Total unconsolidated
investees 5,528 (9,415) 1,056 (7,487)
Total our defined
adjustments (27,881) (18,067) (37,113) (66,927)
FFO, including significant
non-cash items (a) $ 67,844 $ 137,194 $ 74,961 $ 379,459
Reconciliation of FFO, including significant non-cash items to FFO, excluding
significant non-cash items
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
FFO, including significant non-cash
items (a) $ 67,844 $ 137,194 $ 74,961 $ 379,459
Add (deduct) significant non-cash
items:
Impairment of real estate
properties 367 84,218 367 84,218
Net gain related to disposed
assets - China operations (4) - - - (3,315)
Losses (gains) on early
extinguishment of debt (1) (975) (143,280) 14,258 (161,208)
Write-off deferred extension fees
associated with Global Line 854 - 854 -
Our share of certain losses
recognized by the property funds 3,000 - 3,575 11,283
Total adjustments for significant
non-cash items 3,246 (59,062) 19,054 (69,022)
FFO, excluding significant non-cash
items (a) $ 71,090 $ 78,132 $ 94,015 $ 310,437
Reconciliation of FFO, excluding significant non-cash items, to EBITDA
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
FFO, excluding significant non-cash
items (a) $ 71,090 $ 78,132 $ 94,015 $ 310,437
Interest expense 118,066 83,049 228,045 175,811
Depreciation of corporate assets 3,106 3,969 6,501 8,087
Current income tax expense included
in FFO 598 12,577 10,351 34,967
Adjustments to gains on dispositions
for interest capitalized 677 4,181 1,270 6,939
Preferred share dividends 6,369 6,369 12,738 12,738
Our share of reconciling items from
unconsolidated investees 44,075 34,576 95,542 86,464
Earnings before interest, taxes,
depreciation, and amortization
(EBITDA) $ 244,981 $ 222,853 $ 448,462 $ 635,443
(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 Six Months Ended
June 30, June 30,
2010 (a) 2009 2010 (a) 2009
Net earnings (loss) - Basic (b) $ (23,150) $ 238,865 $ (114,279) $ 417,597
Noncontrolling interest
attributable to convertible limited
partnership units (c) - 494 - 804
Adjusted net earnings (loss) -
Diluted (b) $ (23,150) $ 239,359 $ (114,279) $ 418,401
Weighted average common shares
outstanding - Basic 476,791 406,539 475,898 342,183
Incremental weighted average effect
of conversion of limited
partnership units (c) - 1,235 - 1,235
Incremental weighted average effect
of stock awards (d) - 1,730 - 1,688
Weighted average common shares
outstanding - Diluted (e) 476,791 409,504 475,898 345,106
Net earnings (loss) per share -
Diluted (b) $ (0.05) $ 0.58 $ (0.24) $ 1.21
FFO Per Share, including significant non-cash items
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
FFO - Basic, including significant
non-cash items (b) $ 67,844 $ 137,194 $ 74,961 $ 379,459
Noncontrolling interest attributable
to convertible limited partnership
units (c) - - - 804
FFO - Diluted, including significant
non-cash items (b) $ 67,844 $ 137,194 $ 74,961 $ 380,263
Weighted average common shares
outstanding - Basic 476,791 406,539 475,898 342,183
Incremental weighted average effect of
conversion of limited partnership
units (c) - - - 1,235
Incremental weighted average effect of
stock awards (d) 2,876 1,730 3,045 1,688
Weighted average common shares
outstanding - Diluted (e) 479,667 408,269 478,943 345,106
FFO per share - Diluted, including
significant non-cash items (b) $ 0.14 $ 0.34 $ 0.16 $ 1.10
FFO Per Share, excluding significant non-cash items
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
FFO - Basic, including significant
non-cash items (b) $ 67,844 $ 137,194 $ 74,961 $ 379,459
Adjustments for significant non-cash
items 3,246 (59,062) 19,054 (69,022)
Noncontrolling interest attributable
to convertible limited partnership
units (c) - - - 804
FFO - Diluted, excluding significant
non-cash items (b) $ 71,090 $ 78,132 $ 94,015 $ 311,241
Weighted average common shares
outstanding - Basic 476,791 406,539 475,898 342,183
Incremental weighted average effect
of conversion of limited partnership
units (c) - - - 1,235
Incremental weighted average effect
of stock awards (d) 2,876 1,730 3,045 1,688
Weighted average common shares
outstanding - Diluted (e) 479,667 408,269 478,943 345,106
FFO per share - Diluted, excluding
significant non-cash items (b) $ 0.15 $ 0.19 $ 0.20 $ 0.90
(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) Total weighted average potentially dilutive awards outstanding were 11,382
and 12,147 for the three months ended June 30, 2010 and 2009,
respectively, and 11,213 and 12,101 for the six months ended June 30, 2010 and
2009, respectively. Of the potentially dilutive instruments,
5,645 and 8,252 were anti-dilutive for the three months ended June 30, 2010 and
2009, respectively, and 5,143 and 8,699 were anti-dilutive
for the six months ended June 30, 2010 and 2009, respectively. During a loss
period, the effect of stock awards is not included as the impact
is anti-dilutive.
(e) The shares underlying the convertible debt have not been included because
the impact would be anti-dilutive.
Notes to 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. 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, to the extent there is fund capacity, or sell them 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. The investment management segment represents the investment management of unconsolidated property funds and joint ventures and the properties they own. (1) During the three and six months ended June 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 and 2013. In addition, in the first quarter of 2010 we repaid certain secured mortgage debt in connection with the sale of a property in Japan. The repurchase activity is summarized as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Convertible Senior Notes (a):
Original principal amount $ 249,603 $ 473,057 $ 739,642 $ 521,257
Cash purchase price $ 229,328 $ 313,256 $ 694,422 $ 338,077
Senior Notes:
Original principal amount $ - $ 343,192 $ 422,476 $ 343,192
Cash purchase price $ - $ 302,090 $ 449,382 $ 302,090
Secured Mortgage Debt:
Original principal amount $ - $ - $ 45,140 $ -
Cash repayment price $ - $ - $ 46,659 $ -
Total:
Original principal amount $ 249,603 $ 816,249 $ 1,207,258 $ 864,449
Cash purchase / repayment price $ 229,328 $ 615,346 $ 1,190,463 $ 640,167
Gain (loss) on early
extinguishment of debt, net (b) $ 975 $ 143,280 $ (46,658) $ 161,208
(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 the first quarter of 2010 due to the non-cash discount. Therefore, we
adjusted for this non-cash loss of $15.2 million 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.
(2) The net losses recognized in Accumulated Other Comprehensive Income (Loss)
for the six months ended June 30, 2010 in our Consolidated
Balance Sheet are principally the result of the strengthening of the U.S.
dollar against the euro and pound sterling, offset slightly by the weakening
of the U.S. dollar against the yen. The strengthening of the U.S. dollar
against these currencies results in less reported net assets upon translation
of our international operations into U.S. dollars.
(3) In our Consolidated Statements of Operations, rental income includes the
following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Rental income $ 167,970 $ 162,900 $ 336,189 $ 322,222
Rental expense recoveries 51,613 52,218 102,335 100,298
Straight-lined rents 10,207 9,764 21,494 18,454
$ 229,790 $ 224,882 $ 460,018 $ 440,974
(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.
(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 Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Gross G&A expense $ 63,577 $ 69,320 $ 130,733 $ 147,160
Reported as rental expense (4,831) (4,852) (9,833) (9,787)
Reported as investment
management expenses (9,931) (10,819) (20,250) (21,395)
Capitalized amounts (9,894) (12,199) (19,723) (26,285)
Net G&A $ 38,921 $ 41,450 $ 80,927 $ 89,693
(6) The following table presents the components of interest expense as
reflected in our Consolidated Statements of Operations (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Gross interest expense $ 113,225 $ 88,377 $ 218,234 $ 190,237
Amortization of discount, net 12,198 16,630 27,532 35,343
Amortization of deferred loan
costs 7,435 2,873 13,917 6,249
Interest expense before
capitalization 132,858 107,880 259,683 231,829
Capitalized amounts (13,938) (24,831) (30,784) (55,848)
Net interest expense $ 118,920 $ 83,049 $ 228,899 $ 175,981
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
six months ended June 30, 2010 is a gain of $1.1 million from the sale of
land
during the first quarter of 2010 that was previously impaired.
(8) Included in Foreign Currency Exchange Gains (Losses), Net, for the six
months ended June 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 June
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, unless the property was developed under a pre-sale agreement.
During the six months ended June 30, 2010, we disposed of 9 properties to
third parties aggregating 0.7 million square feet, none 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 Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Rental income $ 459 $ 18,038 $ 1,149 $ 45,481
Rental expenses (121) (5,101) (430) (13,754)
Depreciation and amortization (11) (4,040) (127) (10,502)
Other expenses, net - - - (576)
Income attributable to disposed
properties $ 327 $ 8,897 $ 592 $ 20,649
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 properties presented in our
Consolidated Statements of FFO are net of related taxes
of $0.9 million from the sale of a building during the first quarter of
2010.
SOURCE ProLogis
Released July 22, 2010