ProLogis Reports Third Quarter 2009 Results
- Major Elements of De-leveraging Plan Complete -
- Significant Progress on Development Portfolio Leasing -
- $325 Million in Equity Raised Through 'At the Market' Program -
DENVER, Oct. 22 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities, today reported funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $0.21 per diluted share for the third quarter of 2009, compared with $0.59 per diluted share in the third quarter of 2008. Significant non-cash items of $0.07 per diluted share for the third quarter of 2009 included impairment of real estate properties and other assets, which were partially offset by gains from early extinguishment of debt. FFO, including significant non-cash items, was $0.14 per diluted share for the third quarter of 2009; there were no significant non-cash items reported in the same period in 2008. Also embedded in the $0.21 per diluted share of FFO, excluding significant non-cash items, was approximately $0.03 per diluted share of non-recurring charges associated with write-offs of certain corporate assets and costs associated with the company's workforce reduction.
The company reported a net loss of $0.03 per diluted share for the third quarter of 2009, compared with net earnings of $0.12 per diluted share in the third quarter of 2008.
FFO, excluding significant non-cash items, was $1.06 per diluted share for the nine months ended September 30, 2009, compared with $2.95 per diluted share in 2008. FFO, including significant non-cash items, was $1.16 per diluted share for the same period in 2009; there were no significant non-cash items reported in the nine months ended September 30, 2008. Net earnings per diluted share for the nine months ended September 30, 2009 were $1.06 per diluted share, compared with $1.57 per diluted share in the same period of 2008.
Early Signs of Stabilization in Property Market Fundamentals
"During the third quarter, we began to see signs that demonstrate industrial property market fundamentals are firming up," said Walter C. Rakowich, chief executive officer. "While there continues to be pressure on market rental rates, overall market occupancies seem to be stabilizing, with an increase in customer activity. Some supply chain reconfiguration plans that were postponed are coming off the shelf, and there is growing customer interest in new build-to-suit development in global markets where there is a lack of appropriate supply.
"Throughout ProLogis' portfolio, occupancies increased for the first time in two years," Rakowich added. ProLogis' non-development portfolio was 92.7 percent leased at the end of the third quarter, an increase of 20 basis points over 92.5 percent leased at June 30. In addition, the company's static development portfolio (in place at December 31, 2008) was 61.7 percent leased at the end of the third quarter, up from 54.1 percent at June 30, 2009 and 41.4 percent at December 31, 2008.
"While one quarter does not signal a trend, we are feeling cautiously optimistic that market occupancies have stabilized and are pleased to have already reached the lower end of our goal to be 60 to 70 percent leased in our static development portfolio by year end. As global economies continue to show signs of improvement, we believe a corresponding increase in demand, combined with virtually non-existent new supply, should support stronger market occupancies in 2010," Rakowich said.
ProLogis' same-store net operating income as adjusted (excluding same-store assets associated with the company's development portfolio) decreased 4.3 percent, primarily reflecting year-over-year occupancy declines, offset by reduced rental expenses in the same-store pool. Continued pressure on market rents led to negative rent growth of 14.7 percent for the quarter on turnover of 20.2 million square feet, or 5.2 percent, of the adjusted same-store pool.
Beginning to Reduce Land Position Through Pre-leased Development and Sales
"One of our primary goals is to reduce risk by decreasing the amount of non-income producing assets on our balance sheet," said Ted R. Antenucci, chief investment officer. "Through land sales and pre-leased developments, we have begun to monetize nearly $120 million of land year to date. The developments started in the third quarter include two in Japan for Kirin Logistics and Senko and two in Europe for LG/Hi-Logistics and a major UK retailer. These projects demonstrate our new approach to development, whereby we generate returns from our land bank, and when possible, invest our development capital alongside that of our partners and customers. Going forward, we plan to focus more on these types of build-to-suit transactions and fee development management opportunities, such as the previously announced project we are doing for The Royal Mail in the UK."
Also during the third quarter, ProLogis completed gross asset sales and property fund contributions of $241.0 million. "Earlier in the year, we outlined our expectation for a total of $1.5 - $1.7 billion of contributions and asset sales, excluding the sale of our China operations and our property fund interests in Japan," Antenucci said. "With $1.2 billion of sales and contributions completed year to date, we are comfortable with meeting this target."
De-leveraging Plan Essentially Complete
"The third quarter also was notable for the completion of the remaining major elements associated with our de-leveraging plan," said William E. Sullivan, chief financial officer. "We successfully issued $350 million of senior notes, amended and extended our global line of credit to August 2012 and completed a bondholder consent solicitation that simplifies and improves transparency related to our bond covenants. We also took advantage of the REIT rally to issue equity through our at the market equity issuance program at average pricing of $11.15 per share, generating net proceeds of $325 million on approximately 29.8 million shares sold. These actions provide us with further flexibility and the liquidity to withstand pressure from today's challenging market conditions, while positioning us to consider opportunities that may emerge as global economies recover."
Through a combination of asset sales and fund contributions, common equity issuances and repurchases of debt at a discount, the company has reduced its direct debt by over $3.0 billion since December 31, 2008, while funding nearly $600 million of costs associated with its development portfolio.
"In addition to addressing ProLogis' direct debt maturities for 2009 and well into 2010, we also made substantial progress with the refinancing and repayment of property fund debt. Since the start of the year, we have completed over 1.6 billion of secured financings and loan extensions on behalf of our funds, of which approximately 1.2 billion was executed upon in the third quarter," said Sullivan.
Commentary on Guidance
"We are narrowing our full-year 2009 guidance to $1.39 to $1.43 per share of FFO, excluding significant non-cash items and non-recurring charges, and $0.96 to $1.00 in earnings per share. We will continue to monitor market conditions and their impact on expected results for next year and will provide the market with detailed guidance for 2010 in January prior to the release of fourth quarter results," Sullivan added.
Copies of ProLogis' third quarter 2009 supplemental information will be available from the company's website at http://ir.prologis.com in the "Annual & Supplemental Reports" section before open of market on Thursday, October 22, 2009. The company will host a webcast/conference call on Thursday, October 22, 2009, at 10:00 a.m. Eastern Time. The live webcast and the replay will be available on the company's website at http://ir.prologis.com. Additionally, a podcast of the company's conference call will be available on the company's website as well as on the REITCafe website located at www.REITCafe.com/reitcalls.
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 4,500 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.
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,
------------- -------------
2009 2008 (1) 2009 2008 (1)
---- ------- ---- -------
Revenues (9) $273,932 $988,890 $973,679 $4,106,441
Net earnings (loss) (a) $(11,788) $32,153 $405,809 $422,006
Net earnings (loss)
per share - Diluted (a) $(0.03) $0.12 $1.06 $1.57
FFO, including
significant non-cash
items (a) $65,187 $157,994 $444,646 $793,936
Add (deduct) significant
non-cash items:
Impairment of real
estate properties
and other assets 46,274 - 130,492 -
Net gain related
to disposed assets
- China operations - - (3,315) -
Gains on early
extinguishment of debt (12,010) - (173,218) -
Our share of
certain (gains)
losses recognized
by the property funds (4,925) - 6,358 -
------ --- ----- ---
Total adjustments for
significant non-cash
items 29,339 - (39,683) -
------ --- ------- ---
FFO, excluding significant
non-cash items (a) $94,526 $157,994 $404,963 $793,936
======= ======== ======== ========
FFO per share - Diluted,
including significant
non-cash items (a) $0.14 $0.59 $1.16 $2.95
Add (deduct) - summarized
significant non-cash
adjustments - per share 0.07 - (0.10) -
---- --- ----- ---
FFO per share -
Diluted, excluding
significant non-cash
items (a) $0.21 $0.59 $1.06 $2.95
===== ===== ===== =====
Distributions per
common share (b) $0.15 $0.5175 $0.55 $1.5525
===== ======= ===== =======
----
(a) These amounts are attributable to common shares.
(b) In April 2009, our Board of Trustees ("Board") set our quarterly
distribution at $0.15 per common share. The payment of distributions,
including the composition between cash and stock, is subject to
authorization by the Board out of funds legally available for the payment
of distributions, market conditions, our financial condition and Real
Estate Investment Trust ("REIT") distribution requirements and may be
adjusted at the discretion of the Board during the year.
Footnotes follow Financial Statements
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, December 31,
2009 2008 (1)
---- --------
Assets:
Investments in real estate assets (1):
Industrial properties:
Core $7,441,065 $7,924,507
Completed development 4,094,702 3,031,449
Properties under development 354,885 1,181,344
Land held for development 2,694,925 2,482,582
Retail and mixed use properties 388,008 358,992
Land subject to ground leases and
other 416,577 425,001
Other investments 240,533 321,397
------- -------
15,630,695 15,725,272
Less accumulated depreciation 1,606,533 1,583,299
--------- ---------
Net investments in real estate
assets 14,024,162 14,141,973
Investments in and advances to
unconsolidated investees:
Property funds (2) 1,838,797 1,957,977
Other unconsolidated investees 366,451 312,016
------- -------
Total investments in and
advances to unconsolidated
investees 2,205,248 2,269,993
Cash and cash equivalents 41,542 174,636
Accounts and notes receivable 147,921 244,778
Other assets (1) 1,027,410 1,126,993
Discontinued operations - assets held
for sale (2) - 1,310,754
--- ---------
Total assets $17,446,283 $19,269,127
=========== ===========
Liabilities and Equity:
Liabilities:
Debt (1)(2)(3)(4) $7,706,105 $10,711,368
Accounts payable and accrued expenses 611,408 658,868
Other liabilities 556,957 751,238
Discontinued operations - assets
held for sale (2) - 389,884
--- -------
Total liabilities 8,874,470 12,511,358
--------- ----------
Equity (5):
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 4,732 2,670
Additional paid-in capital (1) 8,524,988 7,070,108
Accumulated other comprehensive
income (loss) (6) 125,594 (29,374)
Distributions in excess of net
earnings (1) (455,109) (655,513)
-------- --------
Total ProLogis shareholders'
equity 8,550,205 6,737,891
Noncontrolling interests (7) 21,608 19,878
------ ------
Total equity 8,571,813 6,757,769
--------- ---------
Total liabilities and equity $17,446,283 $19,269,127
=========== ===========
Footnotes follow Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Revenues:
Rental income (8) $225,130 $225,501 $674,648 $707,245
Property management
and other fees and
incentives (2) 45,792 35,125 111,200 97,195
CDFS disposition
proceeds (9):
Developed and
repositioned
properties (2) - 613,443 180,237 3,013,511
Acquired property
portfolios - 107,063 - 270,238
Development
management and
other income 3,010 7,758 7,594 18,252
----- ----- ----- ------
Total revenues 273,932 988,890 973,679 4,106,441
------- ------- ------- ---------
Expenses:
Rental expenses (10) 69,498 68,551 208,195 219,402
Investment
management
expenses (10) 10,186 13,456 31,581 38,417
Cost of CDFS
dispositions (1)(9):
Developed and
repositioned
properties - 543,118 - 2,465,550
Acquired property
portfolios - 107,063 - 270,238
General and
administrative (10)(11) 38,632 46,651 128,325 140,363
Reduction in
workforce (11) 415 - 11,745 -
Impairment of
real estate
properties and
other assets (12) 46,274 - 130,492 -
Depreciation and
amortization 80,484 74,515 233,872 220,896
Other expenses 8,405 3,495 19,408 10,658
----- ----- ------ ------
Total expenses 253,894 856,849 763,618 3,365,524
------- ------- ------- ---------
Operating income 20,038 132,041 210,061 740,917
Other income (expense):
Earnings from
unconsolidated
property funds, net (13) 11,639 17,918 31,135 35,904
Earnings (loss) from
other unconsolidated
investees, net (693) 5,208 2,850 12,429
Interest expense (1)(14) (89,838) (94,290) (265,819) (284,752)
Other income
(expense), net (10,021) 868 (5,846) 13,996
Net gains on
dispositions of
real estate
properties (9) 13,627 1,152 22,419 5,816
Foreign currency
exchange gains
(losses), net (15) 13,386 (10,073) 34,898 (32,977)
Gains on early
extinguishment
of debt (3) 12,010 - 173,218 -
------ --- ------- ---
Total other income
(expense) (49,890) (79,217) (7,145) (249,584)
------- ------- ------ --------
Earnings before
income taxes (29,852) 52,824 202,916 491,333
Current income tax
expense (benefit) (2) (4,626) 10,938 30,140 47,717
Deferred income tax
expense (benefit) (5,088) 10,706 (20,687) 19,403
------ ------ ------- ------
Total income taxes (9,714) 21,644 9,453 67,120
------ ------ ----- ------
Earnings (loss) from
continuing operations (20,138) 31,180 193,463 424,213
Discontinued operations (16):
Income attributable to
disposed properties 611 6,133 17,810 10,136
Net gain related to
disposed assets -
China operations (2) - - 3,315 -
Net gains on dispositions:
Non-development
properties 14,270 2,492 199,791 8,161
Development properties
and land subject to
ground leases (2) - 108 11,503 2,232
- --- ------ -----
Total discontinued
operations 14,881 8,733 232,419 20,529
------ ----- ------- ------
Consolidated net
earnings (loss) (5,257) 39,913 425,882 444,742
Net earnings
attributable to
noncontrolling
interests (7) (162) (1,427) (966) (3,665)
---- ------ ---- ------
Net earnings (loss)
attributable to
controlling
interests (1) (5,419) 38,486 424,916 441,077
Less preferred share
dividends 6,369 6,333 19,107 19,071
----- ----- ------ ------
Net earnings (loss)
attributable to common
shares $(11,788) $32,153 $405,809 $422,006
======== ======= ======== ========
Weighted average
common shares
outstanding - Basic (5) 452,683 263,139 379,421 261,665
Weighted average
common shares
outstanding - Diluted (5) 452,683 266,133 382,623 270,665
Net earnings (loss) per
share attributable to
common shares - Basic:
Continuing operations $(0.06) $0.09 $0.46 $1.53
Discontinued operations 0.03 0.03 0.61 0.08
---- ---- ---- ----
Net earnings (loss) per
share attributable to
common shares - Basic $(0.03) $0.12 $1.07 $1.61
====== ===== ===== =====
Net earnings (loss) per
share attributable to
common shares -Diluted:
Continuing operations $(0.06) $0.09 $0.45 $1.49
Discontinued operations 0.03 0.03 0.61 0.08
---- ---- ---- ----
Net earnings (loss) per
share attributable to
common shares -Diluted $(0.03) $0.12 $1.06 $1.57
====== ===== ===== =====
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,
------------- -------------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Revenues:
Rental income $225,226 $253,580 $711,681 $785,557
Property management
and other
fees and incentives (2) 45,792 35,502 111,293 97,572
CDFS disposition
proceeds (9):
Developed and
repositioned
properties (2) - 617,133 180,237 3,032,408
Acquired property
portfolios - 190,711 - 353,886
Development management
and other income 3,010 7,991 7,594 18,522
----- ----- ----- ------
Total revenues 274,028 1,104,917 1,010,805 4,287,945
------- --------- --------- ---------
Expenses:
Rental expenses (10) 68,874 79,589 218,228 245,632
Investment management
expenses (10) 10,186 13,456 31,581 38,417
Cost of CDFS
dispositions (1)(9):
Developed and
repositioned
properties - 546,700 - 2,483,925
Acquired property
portfolios - 190,711 - 353,886
General and
administrative (10) 38,632 50,842 129,630 153,178
Reduction in workforce
(11) 415 - 11,745 -
Impairment of real
estate properties and
other assets (12) 46,274 - 130,492 -
Depreciation of
corporate assets 3,982 4,004 12,069 12,155
Other expenses 8,405 3,689 19,414 11,792
----- ----- ------ ------
Total expenses 176,768 888,991 553,159 3,298,985
------- ------- ------- ---------
97,260 215,926 457,646 988,960
Other income (expense):
FFO from
unconsolidated
property funds (13) 43,901 50,067 115,518 128,454
FFO from other
unconsolidated
investees 947 4,824 8,926 5,304
Interest expense (1) (89,838) (93,839) (265,649) (284,128)
Other income
(expense), net (10,021) 1,822 (5,774) 17,082
Net gains on
dispositions of real
estate properties (9) 12,515 - 30,072 -
Foreign currency
exchange gains
(losses), net 318 (3,927) (22,068) (7,732)
Gains on early
extinguishment of
debt (3) 12,010 - 173,218 -
Current income tax
benefit (expense)
(2)(17) 4,626 (11,577) (30,341) (39,443)
Net gain related to
disposed assets -
China operations (2) - - 3,315 -
------- ------- ----- --------
Total other income
(expense) (25,542) (52,630) 7,217 (180,463)
------- ------- ----- --------
FFO 71,718 163,296 464,863 808,497
Less preferred share
dividends 6,369 6,333 19,107 19,071
Less net earnings (loss)
attributable to
noncontrolling interests (7) 162 (1,031) 1,110 (4,510)
--- ------ ----- ------
FFO attributable to
common shares, including
significant non-cash items $65,187 $157,994 $444,646 $793,936
Adjustments for significant
non-cash items 29,339 - (39,683) -
------ --- ------- ---
FFO attributable to
common shares, excluding
significant non-cash
items $94,526 $157,994 $404,963 $793,936
======= ======== ======== ========
Weighted average common
shares outstanding -
Basic (5) 452,683 263,139 379,421 261,665
FFO per share
attributable to common
shares, including
significant non-cash items:
Basic $0.14 $0.60 $1.17 $3.03
===== ===== ===== =====
Diluted $0.14 $0.59 $1.16 $2.95
===== ===== ===== =====
FFO per share attributable
to common shares,
excluding significant
non-cash items:
Basic $0.21 $0.60 $1.07 $3.03
===== ===== ===== =====
Diluted $0.21 $0.59 $1.06 $2.95
===== ===== ===== =====
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,
------------- -------------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Net earnings (loss) (a) $(11,788) $32,153 $405,809 $422,006
Add (deduct) NAREIT
defined adjustments:
Real estate related
depreciation and
amortization 76,502 70,511 221,803 208,741
Adjustments to gains
on dispositions for
depreciation (1,001) - (2,204) (1,710)
Gains on dispositions
of non-development/
non-CDFS properties (111) (1,152) (1,646) (5,814)
Reconciling items
attributable to
discontinued
operations (16):
Gains on dispositions
of non-development/
non-CDFS properties (14,270) (2,492) (199,791) (8,161)
Real estate related
depreciation and
amortization 109 7,415 8,614 23,633
--- ----- ----- ------
Total discontinued
operations (14,161) 4,923 (191,177) 15,472
Our share of reconciling
items from
unconsolidated
investees:
Real estate related
depreciation and
amortization 37,973 37,596 113,954 103,908
Adjustment to gains/
losses on dispositions
for depreciation (1,310) 2 (7,888) (163)
Other amortization items (1,659) (4,433) (7,821) (12,503)
------ ------ ------ -------
Total unconsolidated
investees 35,004 33,165 98,245 91,242
------ ------- ------- -------
Total NAREIT
defined adjustments 96,233 107,447 125,021 307,931
------ ------- ------- -------
Subtotal-NAREIT
defined FFO 84,445 139,600 530,830 729,937
Add (deduct) our defined
adjustments:
Foreign currency
exchange losses
(gains), net (15) (13,068) 6,417 (56,897) 27,218
Current income tax
expense (17) - - - 9,658
Deferred income tax
expense (benefit) (5,088) 10,742 (20,699) 19,478
Our share of reconciling
items from unconsolidated
investees:
Foreign currency
exchange losses
(gains), net (15) (556) 953 (790) 2,413
Unrealized losses
(gains) on derivative
contracts, net (208) 183 (6,167) 4,998
Deferred income tax
expense (benefit) (338) 99 (1,631) 234
---- --- ------ ---
Total unconsolidated
investees (1,102) 1,235 (8,588) 7,645
------ ----- ------ -----
Total our defined
adjustments (19,258) 18,394 (86,184) 63,999
------- ------ ------- ------
FFO, including significant
non-cash items (a) $65,187 $157,994 $444,646 $793,936
======= ======== ======== ========
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,
------------- -------------
2009 2008 (1) 2009 2008 (1)
---- ------- ---- -------
FFO, including significant
non-cash items (a) $65,187 $157,994 $444,646 $793,936
Add (deduct) significant
non-cash items:
Impairment of real
estate properties
and other assets (12) 46,274 - 130,492 -
Net gain related to
disposed assets -
China operations (2) - - (3,315) -
Gains on early
extinguishment of
debt (3) (12,010) - (173,218) -
Our share of certain
(gains) losses
recognized by the
property funds (4,925) - 6,358 -
------ --- ------- ---
Total adjustments
for significant
non-cash items 29,339 - (39,683) -
------ --- ------- ---
FFO, excluding significant
non-cash items (a) $94,526 $157,994 $404,963 $793,936
======= ======== ======== ========
Reconciliation of FFO, excluding significant non-cash items, to EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 (1) 2009 2008 (1)
---- ------- ---- -------
FFO, excluding significant
non-cash items (a) $94,526 $157,994 $404,963 $793,936
Interest expense 89,838 93,839 265,649 284,128
Depreciation of
corporate assets 3,982 4,004 12,069 12,155
Current income tax
expense (benefit)
included in FFO (4,626) 11,577 30,341 39,443
Adjustments to gains
on dispositions for
interest capitalized 4,605 12,195 11,544 44,995
Preferred share
dividends 6,369 6,333 19,107 19,071
Share of reconciling
items from
unconsolidated
investees 44,241 52,554 130,705 140,088
------ ------ ------- -------
Earnings before
interest, taxes,
depreciation and
amortization (EBITDA) $238,935 $338,496 $874,378 $1,333,816
======== ======== ======== ==========
See Consolidated Statements of Operations and Consolidated Statements
of FFO.
Footnotes follow Financial Statements
(a) Attributable to common shares.
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,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Net earnings (loss) - Basic (a) $(11,788) $32,153 $405,809 $422,006
Noncontrolling interest
attributable to convertible
limited partnership units (b) - - 966 3,665
--- --- --- -----
Adjusted net earnings (loss) -
Diluted (a) $(11,788) $32,153 $406,775 $425,671
======== ======= ======== ========
Weighted average common shares
outstanding - Basic 452,683 263,139 379,421 261,665
Incremental weighted average
effect of conversion of limited
partnership units (b) - - 1,192 5,088
Incremental weighted average
effect of stock awards (c) - 2,994 2,010 3,912
--- ----- ----- -----
Weighted average common shares
outstanding - Diluted 452,683 266,133 382,623 270,665
======= ======= ======= =======
Net earnings (loss) per share -
Diluted (a) $(0.03) $0.12 $1.06 $1.57
====== ===== ===== =====
FFO Per Share, including significant non-cash items
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
FFO - Basic, including
significant non-cash items (a) $65,187 $157,994 $444,646 $793,936
Noncontrolling interest
attributable to convertible
limited partnership units (b) - 1,427 966 3,665
--- ----- --- -----
FFO - Diluted, including
significant non-cash items (a) $65,187 $159,421 $445,612 $797,601
======= ======== ======== ========
Weighted average common shares
outstanding - Basic 452,683 263,139 379,421 261,665
Incremental weighted average
effect of conversion of limited
partnership units (b) - 5,146 1,192 5,088
Incremental weighted average
effect of stock awards (c) 2,388 2,994 2,010 3,912
----- ----- ----- -----
Weighted average common shares
outstanding - Diluted 455,071 271,279 382,623 270,665
======= ======= ======= =======
FFO per share - Diluted,
including significant non-cash
items (a) $0.14 $0.59 $1.16 $2.95
===== ===== ===== =====
FFO Per Share, excluding significant non-cash items
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
FFO - Basic, including
significant non-cash items (a) $65,187 $157,994 $444,646 $793,936
Adjustments for significant non-
cash items 29,339 - (39,683) -
Noncontrolling interest
attributable to convertible
limited partnership units 162 1,427 966 3,665
--- ----- --- -----
FFO - Diluted, excluding
significant non-cash items (a) $94,688 $159,421 $405,929 $797,601
======= ======== ======== ========
Weighted average common shares
outstanding - Basic 452,683 263,139 379,421 261,665
Incremental weighted average
effect of conversion of limited
partnership units 1,110 5,146 1,192 5,088
Incremental weighted average
effect of stock awards (c) 2,388 2,994 2,010 3,912
----- ----- ----- -----
Weighted average common shares
outstanding - Diluted 456,181 271,279 382,623 270,665
======= ======= ======= =======
FFO per share - Diluted,
excluding significant non-cash
items (a) $0.21 $0.59 $1.06 $2.95
===== ===== ===== =====
(a) Attributable to common shares.
(b) If the impact of the conversion of limited partnership units is
anti-dilutive, the income and shares are not included in the diluted
per share calculation.
(c) Total weighted average potentially dilutive awards outstanding were
11,470 and 9,603 for the three months ended September 30, 2009 and
2008, respectively, and 11,739 and 9,993 for the nine months ended
September 30, 2009 and 2008, respectively. Of the potentially
dilutive instruments, 6,062 and 3,112, were anti-dilutive for the
three months ended September 30, 2009 and 2008, respectively, and
6,875 and 1,769, were anti-dilutive for the nine months ended
September 30, 2009 and 2008. During a loss period, the impact from
convertible partnership units and stock awards are not included as the
impact is anti-dilutive.
Notes to Financial Statements
Please also 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 2008 amounts included in our financial statements have been reclassified to conform to the 2009 presentation.
(1) In May 2008, the Financial Accounting Standards Board ("FASB") issued a new standard that requires separate accounting for the debt and equity components of convertible debt. The value assigned to the debt component is the estimated fair value of a similar bond without the conversion feature at the time of issuance, which would result in the debt being recorded at a discount. The resulting debt discount is amortized through the first redeemable option date as additional non-cash interest expense. We adopted this standard on January 1, 2009, as required, on a retroactive basis to the convertible notes we issued in 2007 and 2008. As a result, we restated our 2008 results to reflect the additional interest expense and the additional capitalized interest related to our development activities for both properties we currently own, as well as properties that were contributed during the applicable periods. This restatement impacted earnings and FFO.
The following tables illustrate the impact of the restatement on our Consolidated Balance Sheets and Consolidated Statements of Operations and FFO for these periods (in thousands):
As of December 31, 2008
-----------------------
New Standard
As Reported Adjustments As Adjusted
----------- ----------- -----------
Consolidated Balance Sheet:
---------------------------
Net investments in real
estate assets $15,706,172 $19,100 $15,725,272
Other assets $1,129,182 $(2,189) $1,126,993
Debt $11,007,636 $(296,268) $10,711,368
Additional paid in
capital $6,688,615 $381,493 $7,070,108
Distributions in excess
of net earnings $(587,199) $(68,314) $(655,513)
For the three months ended, September 30, 2008
----------------------------------------------
New Standard
As Reported Adjustments (a) As Adjusted
----------- -------------- -----------
(before 2009
discontinued
operations
adjustment)
Consolidated Statements of
Operations:
--------------------------
Cost of CDFS dispositions $733,022 $807 $733,829
Interest expense, net of
capitalization $83,327 $10,512 $93,839
Net earnings attributable to
controlling interests $49,805 $(11,319) $38,486
For the nine months ended, September 30, 2008
---------------------------------------------
New Standard
As Reported Adjustments (a) As Adjusted
----------- -------------- -----------
(before 2009
discontinued
operations
adjustment)
Consolidated Statements of
Operations:
--------------------------
Cost of CDFS dispositions $2,818,114 $1,322 $2,819,436
Interest expense, net of
capitalization $252,587 $31,541 $284,128
Net earnings attributable
to controlling interests $473,940 $(32,863) $441,077
--------
(a) The adjustments are the same in our Consolidated Statements of FFO.
(2) 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 ("GIC RE"), for total cash consideration of $1.3 billion ($845 million related to China and $500 million related to the Japan investments). We used the proceeds primarily to pay down borrowings on our credit facilities.
All of the assets and liabilities associated with our China operations were classified as Assets and Liabilities Held for Sale in our accompanying Consolidated Balance Sheet as of December 31, 2008. In the fourth quarter of 2008, based on the carrying values of these assets and liabilities, as compared with the estimated sales proceeds less costs to sell, we recognized an impairment of $198.2 million. In connection with the sale in the first quarter of 2009, we recognized a $3.3 million gain on sale. In addition, the results of our China operations are presented as discontinued operations in our accompanying Consolidated Statements of Operations for all periods. All operating information presented throughout this report excludes China operations.
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 properties to the property funds based on our ownership interest in the property funds at the time of original contribution of properties. We also recognized $20.5 million in current income tax expense related to the Japan portion of the transaction. In April 2009, we sold one property in Japan to GIC RE for $128.1 million, resulting in a gain on sale of $13.1 million that is reflected as Discontinued Operations - Net Gains on Dispositions of Development Properties and Land Subject to Ground Leases and as Net Gains on Dispositions of Real Estate Properties in our Consolidated Statements of Operations and FFO, respectively. The building and related borrowings were classified as held for sale at December 31, 2008.
We continued to manage the Japan properties until July 2009. In connection with the termination of the management agreement, 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.
(3) During the three and nine months ended September 30, 2009, in connection with our announced initiatives to reduce debt, we repurchased several series of notes outstanding at a discount and extinguished some secured debt prior to maturity, which resulted in the recognition of gains and is summarized, as follows (in thousands):
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2009 2009
-------------- --------------
Convertible Senior Notes:
Original principal amount $15,000 $536,257
Cash purchase price $13,028 $351,105
Senior Notes (a):
Original principal amount $20,000 $363,192
Cash purchase price $19,925 $322,015
Secured Debt:
Original principal amount (b) $227,017 $227,017
Cash extinguishment price $227,017 $227,017
Total:
Original principal amount $262,017 $1,126,466
Cash purchase/ extinguishment price $259,970 $900,137
Gain on early extinguishment of debt (c) $12,010 $173,218
--------
(a) Included in the nine months ended September 30, 2009 is the
repurchase of euro 97.7 million ($136.0 million) original principal
amount of our Euro senior notes for euro 82.6 million ($115.1
million).
(b) Amount excludes premium of $11.4 million that was recorded upon
acquisition.
(c) Represents the difference between the recorded debt (net of the
discount or premium) and the consideration we paid to retire the debt.
(4) In July 2009, we exercised our option to extend the maturity of our global line of credit (the "Global Line") to October 6, 2010. In August 2009, we amended the Global Line, extending the maturity to August 21, 2012 and reducing the size of our aggregate commitments to $2.25 billion after October 2010. The Global Line will continue to have a capacity of $3.6 billion until October 2010. We may draw funds from a syndicate of banks in US dollars, euros, Japanese yen, British pound sterling and Canadian dollars and until October 2010, South Korean won. Lenders who did not participate in the amended and extended facility will be subject to the existing pricing structure through October 2010, while the new pricing structure is effective for continuing lenders.
In connection with the amendment of the Global Line, we repaid the balance outstanding and terminated our existing multi-currency credit facility, which was scheduled to mature on October 6, 2009, with borrowings under the Global Line.
In August 2009, we issued $350 million of senior notes with a stated interest rate of 7.625% and a maturity of August 2014. We used the proceeds primarily to repay borrowings under our Global Line and other debt.
(5) On April 14, 2009, we completed a public offering of 174.8 million common shares at a price of $6.60 per share and received net proceeds of $1.1 billion that were used to repay borrowings under our credit facilities. During the third quarter, we issued 29.8 million shares and received gross proceeds of $331.9 million and paid offering expenses of approximately $6.9 million under our at the market share issuance plan.
(6) The net gains recognized in Accumulated Other Comprehensive Income (Loss) in the nine months ended September 30, 2009 in our Consolidated Balance Sheet are principally the result of the strengthening of the euro, yen and pound sterling against the U.S. dollar, offset somewhat by the sale of our China operations and investments in the Japan property funds in February 2009. The strengthening of these currencies against the U.S. dollar results in greater net assets upon translation of our international operations into U.S. dollars.
(7) On January 1, 2009, we adopted the provisions of a new accounting standard that requires noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity and changes the accounting for transactions with noncontrolling interest holders.
(8) In our Consolidated Statements of Operations, rental income includes the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Rental income $168,562 $164,710 $496,270 $517,864
Rental expense recoveries 48,598 51,970 151,753 165,129
Straight-lined rents 7,970 8,821 26,625 24,252
----- ----- ------ ------
$225,130 $225,501 $674,648 $707,245
======== ======== ======== ========
The decrease in rental income is generally due to the contributions and
sale of properties, offset somewhat by increased leasing in our
development properties.
(9) In response to market conditions, during the fourth quarter of 2008 we modified our business strategy. As a result, as of December 31, 2008, we have two operating segments - Direct Owned and Investment Management, and we no longer have a CDFS Business segment. We presented the results of operations of our CDFS Business segment separately in 2008.
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 with the intent to contribute the properties to an unconsolidated property fund that we previously referred to as our "CDFS Pipeline" and, beginning December 31, 2008, we now refer to as our Completed Development Portfolio. Our intent is to hold and use the Core and Development properties, however, 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). However, beginning January 1, 2009, we now present the results as Net Gains on Dispositions, rather than as CDFS Disposition Proceeds and Cost of CDFS Dispositions. In addition, we have industrial properties that are currently under development (also included in our Development Portfolio) 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. See note 16 for information on properties sold to third parties.
(10) Beginning in 2009, we are reporting the direct costs associated with our investment management segment for all periods presented as a separate line item "Investment Management Expenses" in our Consolidated Statements of Operations and FFO. These costs include the property management expenses associated with the property-level management of the properties owned by the property funds (previously included in Rental Expenses) and the investment management expenses associated with the asset management of the property funds (previously included in General and Administrative Expenses). In order to allocate the property management expenses between the properties owned by us and the properties owned by the property funds and joint ventures, we use the square feet owned at the beginning of the period by the respective portfolios. See note 2 related to the Japan properties that we no longer manage.
(11) As we previously announced in the fourth quarter of 2008, in response to the difficult economic climate, we initiated general and administrative expense ("G&A") reductions with a near-term target of a 20 to 25% reduction in G&A prior to capitalization or allocation. These initiatives include a Reduction in Workforce ("RIF") and reductions to other expenses through various cost savings measures. Due to the changes in our business strategy in the fourth quarter of 2008, we have halted the majority of our new development activities, which, along with lower gross G&A, 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,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Gross G&A expense $65,060 $94,486 $212,221 $289,464
Capitalized amounts
and amounts reported
as rental and
investment management
expenses (26,428) (47,835) (83,896) (149,101)
------- ------- ------- ---------
Net G&A $38,632 $46,651 $128,325 $140,363
======= ======= ======== ========
In the fourth quarter of 2008 and the nine months ended September 30,
2009, we recognized $23.1 million and $11.7 million, respectively, of
expenses related to the RIF program.
(12) During the three and nine months ended September 30, 2009, we recorded impairment charges of our real estate properties of $39.7 million and $123.9 million, respectively, related primarily to completed development properties in Europe that have been or we expect to contribute or sell during the remainder of 2009. The charges represent the difference between the estimated proceeds and our cost basis at the time of contribution/sale and may vary depending on market conditions. In addition, we recorded impairment charges of other assets of $6.6 million, which related primarily to intangible assets that were acquired in 2007.
(13) The following table represents our share of income (loss) recognized by the property funds related to derivative activity and the sale of real estate properties (in thousands).
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Included in Earnings from
Unconsolidated Property
Funds in our Consolidated
Statements of Operations:
Derivative loss: $(2,890) $(2,447) $(7,700) $(13,089)
Gain (loss) from the
sale of properties and
(impairment charges): $(1,496) $1,302 $(5,777) $1,467
Included in FFO from
Unconsolidated
Property Funds in
our Consolidated
Statements of FFO:
Derivative loss: $(3,099) $(2,265) $(13,867) $(8,092)
Gain (loss) from the
sale of properties and
(impairment charges): $(2,544) $1,304 $(13,403) $1,304
(14) 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,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Interest expense $91,349 $120,014 $281,585 $360,820
Amortization of
discount, net 15,706 18,243 51,049 45,225
Amortization of
deferred loan costs 4,941 3,044 11,191 8,765
----- ----- ------ -----
Interest expense
before capitalization 111,996 141,301 343,825 414,810
Capitalized amounts (22,158) (47,011) (78,006) (130,058)
------- ------- ------- ---------
Net interest expense $89,838 $94,290 $265,819 $284,752
======= ======= ======== ========
The decrease in interest expense in 2009 over 2008 is due to
significantly lower debt levels, offset by lower capitalization due to
less development activity.
(15) Included in Foreign Currency Exchange Gains (Losses), Net, for the nine months ended September 30, 2009 and 2008, are net foreign currency exchange gains and losses, respectively, related to 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 December 31st 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.
(16) The operations of the properties held for sale or disposed of to third parties and 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.
As discussed in Note 2 above, all of the assets and liabilities associated with our China operations were classified as Assets and Liabilities Held for Sale in our accompanying Consolidated Balance Sheet as of December 31, 2008, as well as one property in Japan that we sold to GIC RE in April 2009.
During the first nine months of 2009, other than our China operations, we disposed of 128 properties to third parties aggregating 13.7 million square feet, 3 of which were development properties. This includes a portfolio of 90 properties aggregating 9.6 million square feet that were sold to a single venture in which we retained a 5% interest and for which we will continue to manage the properties. During all of 2008, we disposed of 15 properties to third parties, 6 of which were development properties, as well as land subject to ground leases.
The income attributable to these properties was as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Rental income $96 $28,079 $37,033 $78,312
Rental expenses 624 (11,038) (10,033) (26,230)
Depreciation and amortization (109) (7,415) (8,614) (23,633)
Other expenses, net - (3,493) (576) (18,313)
--- ------ ---- -------
Income attributable to disposed
properties $611 $6,133 $17,810 $10,136
==== ====== ======= =======
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 (2009) and CDFS properties (2008) in the calculation of FFO, including those classified as discontinued operations.
(17) In connection with purchase accounting, we record all of the acquired assets and liabilities at the estimated fair values at the date of acquisition. For our taxable subsidiaries, we recognize the deferred tax liabilities that represent the tax effect of the difference between the tax basis carried over and the fair values at the date of acquisition. As taxable income is generated in these subsidiaries, we recognize a deferred tax benefit in earnings as a result of the reversal of the deferred tax liability previously recorded at the acquisition date and we record current income tax expense representing the entire current income tax liability. In our calculation of FFO, we only include the current income tax expense to the extent the associated income is recognized for financial reporting purposes.
SOURCE ProLogis
Released October 22, 2009