ProLogis Reports Second Quarter 2009 Results
- Significant Progress on De-leveraging Plan -
- Solid Pipeline Leasing Despite Weakening Property Market Fundamentals -
DENVER, July 23 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities, today reported funds from operations as defined by ProLogis (FFO), including significant non-cash items, for the second quarter of 2009 of $0.34 per diluted share, compared with $1.02 per diluted share in the second quarter of 2008. FFO, excluding significant non-cash items, was $0.19 per diluted share, compared with $1.02 per diluted share in the same period in 2008. Significant non-cash items per diluted share for the second quarter of 2009 included $0.35 of gains from early extinguishment of debt, which were partially offset by $0.20 related to impairment of real estate properties. Also embedded in the $0.19 per diluted share of FFO, excluding significant non-cash items, was approximately $0.06 of non-recurring charges associated with ProLogis' share of a loss on the sale of assets by ProLogis European Properties, realized losses on foreign currency transactions and costs associated with the company's workforce reduction.
Net earnings for the second quarter in 2009 were $0.58 per diluted share, compared with $0.76 per diluted share in 2008. Included in net earnings per diluted share for the second quarter of 2009 were $0.46 of additional gains, primarily associated with the sale of non-development properties, which are not included in FFO, compared with $0.02 of similar gains in 2008. Both net earnings and FFO per diluted share, as previously reported for the second quarter of 2008, were reduced by $0.04 per diluted share for the company's retroactive adoption of APB 14-1 (also known as ASC 470-20) and related additional interest expense.
FFO, including significant non-cash items, for the six months ended June 30, 2009 was $1.10 per diluted share, compared with $2.36 per diluted share in 2008. FFO, excluding significant non-cash items, was $0.90 per diluted share for the same period in 2009, compared with $2.36 per diluted share in the first six months of 2008. Net earnings per diluted share for the six months ended June 30, 2009 were $1.21 per diluted share, compared with $1.45 per diluted share in the same period of 2008.
Significant Progress on Plan
"During the second quarter, ProLogis made significant progress on the strategy we laid out last year to strengthen our balance sheet and increase liquidity in response to deteriorating global economic conditions. Our accomplishments have put the company on much firmer financial footing," said Walter C. Rakowich, chief executive officer. "However, the industry is facing declining rents, and we expect the challenging leasing environment will persist. While no one can be certain about the timing of a recovery, with our strengthened financial condition and quality portfolio, we are well positioned to work our way through any additional challenges in the road ahead.
"Over the near term, we will continue to enhance liquidity and reduce risk as we focus on further lease-up of our development portfolio, land monetization and addressing both on-balance sheet and fund debt maturities as appropriate," Rakowich said.
Property Market Fundamentals Softened Further
"Property fundamentals continue to mirror global economic weakness, characterized by reductions in market rental rates and an increase in leasing concessions," Rakowich added. "However, we are seeing some improvement, as the rate of decline in occupancies appears to be leveling off. Our non-development portfolio was 92.5 percent leased at the end of the second quarter, representing a decline of approximately 50 basis points from 93.0 percent at March 31, while the decrease in the previous quarter was approximately 170 basis points. We also continue to see strong customer retention and sharply reduced levels of new supply, with new development starts in the industry in 2009 expected to be at the lowest level in over 25 years."
ProLogis' same-store net operating income as adjusted (excluding same-store assets associated with the company's development portfolio) decreased 0.4 percent, primarily reflecting occupancy declines, offset by reduced rental expenses due to decreases in property taxes and bad debt expense when compared with the prior year. Including development portfolio assets, same-store net operating income for the period increased 2.7 percent. Recent pressure on market rents led to negative rent growth of 12.6 percent for the quarter on turnover of 19.1 million square feet (or 5.0 percent) of the adjusted same-store pool.
Balance Sheet Bolstered by Capital Markets Activity
In November 2008, ProLogis outlined a series of actions to reduce direct debt by roughly $2 billion by the end of 2009 and to reduce risk in the company's development portfolio and land bank. Through a combination of asset sales and fund contributions, a common equity offering, repurchases of debt at a discount and reductions in business expenditures, the company has reduced its direct debt by $2.9 billion.
"We have substantially exceeded our 2009 de-levering goal and will continue to focus efforts on further debt repayment through incremental asset sales and contributions, which will be partially offset by funding the remaining costs associated with our development activities," William E. Sullivan, chief financial officer said. "Contributing to the de-levering process during the quarter was the repurchase of $816.2 million of notional debt at a discount, resulting in $143.3 million in gains from early extinguishment of debt."
In other direct debt-related activity, ProLogis successfully completed $391.7 million of secured financings during the quarter. The company also has made significant progress on the extension and amendment of the company's existing $3.64 billion Global Senior Credit Facility, originally scheduled to mature on October 6, 2009. ProLogis has exercised its extension option on the existing credit facility to October 6, 2010 and has secured written commitments of approximately $2.0 billion for its amended credit facility. The company is awaiting receipt of between $100 and $300 million in additional commitments. All commitments will be subject to the execution of definitive documentation. The amended line will have a three-year maturity from the date of closing.
Accelerated Development Portfolio Leasing
The company's static development portfolio (in place at December 31, 2008) was 54.1 percent leased at the end of the second quarter, up from 46.4 percent at March 31, 2009, an increase of nearly 800 basis points. "During the quarter, leasing in our development portfolio exceeded our expectations, given the difficult environment. As a result, we remain comfortable with our goal of achieving leasing of 60 - 70 percent in our static development portfolio by the end of 2009," said Ted R. Antenucci, president and chief investment officer.
Commentary on Guidance
During the second quarter, ProLogis completed gross asset sales and contributions of $840 million, generating $783 million of net proceeds after fund and joint venture co-investments. These transactions included the previously announced sale of North American assets, European property fund contributions and the sale of an asset in Japan. "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 $976 million of sales and contributions completed year to date, we have made excellent progress and are on track to achieve this goal by the end of 2009."
"We established a guidance range for 2009 FFO of between $1.31 and $1.48 per diluted share during our first quarter conference call. We believe this range is still appropriate when FFO is adjusted for the significant non-cash items and other non-recurring charges that have been, and may be, incurred in 2009," noted Sullivan. "As we work through the remaining asset sales and contributions, as well as additional activities related to our debt instruments, it is probable that additional gains and charges will be realized in 2009." The company also provided adjusted guidance for 2009 net earnings of $1.10 to $1.20 per diluted share after including the impairments and other charges reported in the second quarter.
Copies of ProLogis' second 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, July 23, 2009. The company will host a webcast/conference call on Thursday, July 23, 2009, at 10:00 a.m. Eastern Time. The live webcast and 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.
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 "Item 1A. Risk Factors" of ProLogis' Annual Report on Form 10-K for the year ended December 31, 2008. 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,
-------- --------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Revenues - see note 8 $263,416 $1,490,646 $700,663 $3,119,154
Net earnings (a) $238,865 $206,332 $417,597 $389,853
Net earnings per share
- Diluted (a) $0.58 $0.76 $1.21 $1.45
FFO, including
significant non-cash
items (a) $137,194 $277,305 $379,459 $635,942
Add (deduct)
significant non-cash
items:
Our share of
losses on
derivative
activity
recognized by the
property funds - - 11,283 -
Impairment of real
estate properties 84,218 - 84,218 -
Net gain related
to disposed assets
- China
operations - - (3,315) -
Gain on early
extinguishment of
debt (143,280) - (161,208) -
-------- --- -------- ---
Total
adjustments for
significant non-
cash items (59,062) - (69,022) -
------- --- ------- ---
FFO, excluding
significant non-cash
items (a) $78,132 $277,305 $310,437 $635,942
======= ======== ======== ========
FFO per share -
Diluted, including
significant non-cash
items (a) $0.34 $1.02 $1.10 $2.36
Deduct - summarized
significant non-cash
adjustments - per
share (0.15) - (0.20) -
----- --- ----- ---
FFO per share -
Diluted, excluding
significant non-cash
items (a) $0.19 $1.02 $0.90 $2.36
===== ===== ===== =====
Distributions per
common share (b) $0.15 $0.5175 $0.40 $1.035
===== ======= ===== ======
----
(a) These amounts are attributable to common shares.
(b) In April 2009, our Board of Trustees ("Board") set our 2009
annualized distribution level at $0.70 per common share (including
the $0.25 per share paid in the first quarter of 2009). 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 and is subject
to 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)
June 30, December 31,
2009 2008 (1)
---- --------
Assets:
Investments in real estate assets (1):
Industrial properties:
Core $7,446,493 $7,924,507
Completed development 3,973,690 3,031,449
Properties under development 281,007 1,181,344
Land held for development 2,710,867 2,482,582
Retail and mixed use properties 386,940 358,992
Land subject to ground leases and other 416,028 425,001
Other investments 256,114 321,397
------- -------
15,471,139 15,725,272
Less accumulated depreciation 1,545,883 1,583,299
--------- ---------
Net investments in real estate assets 13,925,256 14,141,973
Investments in and advances to
unconsolidated investees:
Property funds (2) 1,670,608 1,957,977
Other unconsolidated investees 326,989 312,016
------- -------
Total investments in and advances to
unconsolidated investees 1,997,597 2,269,993
Cash and cash equivalents 74,183 174,636
Accounts and notes receivable 153,922 244,778
Other assets (1) 1,043,889 1,126,993
Discontinued operations - assets held for
sale (2) - 1,310,754
--- ---------
Total assets $17,194,847 $19,269,127
=========== ===========
Liabilities and Equity:
Liabilities:
Debt (1)(2)(3) $7,886,025 $10,711,368
Accounts payable and accrued expenses 544,846 658,868
Other liabilities 654,342 751,238
Discontinued operations - assets held
for sale (2) - 389,884
--- -------
Total liabilities 9,085,213 12,511,358
--------- ----------
Equity (4):
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 4,428 2,670
Additional paid-in capital (1) 8,193,881 7,070,108
Accumulated other comprehensive
loss (5) (84,055) (29,374)
Distributions in excess of net
earnings (1) (375,783) (655,513)
-------- --------
Total ProLogis shareholders' equity 8,088,471 6,737,891
Noncontrolling interests (6) 21,163 19,878
------ ------
Total equity 8,109,634 6,757,769
--------- ---------
Total liabilities and equity $17,194,847 $19,269,127
=========== ===========
Footnotes follow Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Revenues:
Rental income (7) $229,819 $238,207 $450,434 $483,347
Property management and
other fees and incentives 31,774 32,580 65,408 62,070
CDFS disposition proceeds (8):
Developed and repositioned
properties (2) - 1,136,655 180,237 2,400,068
Acquired property
portfolios - 79,843 - 163,175
Development management and
other income 1,823 3,361 4,584 10,494
----- ----- ----- ------
Total revenues 263,416 1,490,646 700,663 3,119,154
------- --------- ------- ---------
Expenses:
Rental expenses (9) 70,716 72,758 139,375 151,280
Investment management
expenses (9) 10,819 12,177 21,395 24,962
Cost of CDFS dispositions
(1)(8):
Developed and
repositioned properties - 936,999 - 1,922,432
Acquired property
portfolios - 79,843 - 163,175
General and administrative
(9)(10) 41,450 49,004 89,693 93,712
Reduction in workforce (10) 6,868 - 11,330 -
Impairment of real estate
properties (11) 84,218 - 84,218 -
Depreciation and
amortization 77,973 76,686 153,759 146,813
Other expenses 4,584 4,693 11,003 7,163
----- ----- ------ -----
Total expenses 296,628 1,232,160 510,773 2,509,537
------- --------- ------- ---------
Operating income (33,212) 258,486 189,890 609,617
Other income (expense):
Earnings from
unconsolidated property
funds, net (12) 17,398 36,553 19,496 17,986
Earnings from other
unconsolidated investees,
net 1,342 5,251 3,543 7,221
Interest expense (1)(13) (83,049) (94,835) (175,981) (190,462)
Interest and other income,
net 859 8,395 4,175 13,128
Net gains on dispositions
of real estate properties (8) 7,904 4,664 8,792 4,664
Foreign currency exchange
gains (losses), net (14) (9,025) 12,949 21,512 (22,904)
Gains on early
extinguishment of debt (3) 143,280 - 161,208 -
------- --- ------- ---
Total other income
(expense) 78,709 (27,023) 42,745 (170,367)
------ ------- ------ --------
Earnings before income taxes 45,497 231,463 232,635 439,250
Current income tax expense (2) 12,577 12,374 34,766 36,779
Deferred income tax expense
(benefit) (8,771) 6,197 (15,599) 8,697
------ ----- ------- -----
Total income taxes 3,806 18,571 19,167 45,476
----- ------ ------ ------
Earnings from continuing
operations 41,691 212,892 213,468 393,774
Discontinued operations (15):
Income (loss) attributable
to disposed properties 6,824 (2,939) 17,332 3,262
Net gain related to
disposed assets - China
operations (2) - - 3,315 -
Net gains on dispositions:
Non-development properties 185,521 1,856 185,521 5,669
Development properties
and land subject to
ground leases (2) 11,692 1,994 11,503 2,124
------ ----- ------ -----
Total discontinued
operations 204,037 911 217,671 11,055
------- --- ------- ------
Consolidated net earnings 245,728 213,803 431,139 404,829
Net earnings attributable to
noncontrolling interests (6) (494) (1,087) (804) (2,238)
---- ------ ---- ------
Net earnings attributable to
controlling interests (1) 245,234 212,716 430,335 402,591
Less preferred share dividends 6,369 6,384 12,738 12,738
----- ----- ------ ------
Net earnings attributable to
common shares $238,865 $206,332 $417,597 $389,853
======== ======== ======== ========
Weighted average common
shares outstanding - Basic (4) 406,539 262,715 342,183 260,827
Weighted average common
shares outstanding -
Diluted (4) 409,504 272,317 345,106 270,370
Net earnings per share
attributable to common shares
- Basic:
Continuing operations $0.09 $0.79 $0.58 $1.45
Discontinued operations 0.50 - 0.64 0.04
---- --- ---- ----
Net earnings per share
attributable to common
shares - Basic $0.59 $0.79 $1.22 $1.49
===== ===== ===== =====
Net earnings per share
attributable to common shares
- Diluted:
Continuing operations $0.08 $0.76 $0.58 $1.41
Discontinued operations 0.50 - 0.63 0.04
---- --- ---- ----
Net earnings per share
attributable to common
shares - Diluted $0.58 $0.76 $1.21 $1.45
===== ===== ===== =====
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,
-------- --------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Revenues:
Rental income $242,920 $262,501 $486,455 $531,977
Property management and
other fees and incentives 31,774 32,580 65,501 62,070
CDFS disposition
proceeds (8):
Developed and
repositioned
properties (2) - 1,151,862 180,237 2,415,275
Acquired property
portfolios - 79,843 - 163,175
Development management and
other income 1,823 3,374 4,584 10,531
----- ----- ----- ------
Total revenues 276,517 1,530,160 736,777 3,183,028
------- --------- ------- ---------
Expenses:
Rental expenses (9) 73,985 80,518 149,354 166,042
Investment management
expenses (9) 10,819 12,177 21,395 24,962
Cost of CDFS dispositions
(1)(8):
Developed and
repositioned properties - 951,922 - 1,937,225
Acquired property
portfolios - 79,843 - 163,175
General and administrative
(9)(10) 41,450 52,822 90,998 102,336
Reduction in workforce (10) 6,868 - 11,330 -
Impairment of real estate
properties (11) 84,218 - 84,218 -
Depreciation of corporate
assets 3,969 4,731 8,087 8,151
Other expenses 4,584 5,633 11,009 8,103
----- ----- ------ -----
Total expenses 225,893 1,187,646 376,391 2,409,994
------- --------- ------- ---------
50,624 342,514 360,386 773,034
Other income (expense):
FFO from unconsolidated
property funds (12) 34,874 41,075 71,617 78,387
FFO from other
unconsolidated
investees 2,966 (4,685) 7,979 480
Interest expense (1) (83,049) (94,807) (175,811) (190,289)
Interest and other income,
net 859 9,644 4,247 15,260
Net gains on
dispositions
of real estate
properties (8) 15,986 - 17,557 -
Foreign currency exchange
losses, net (8,906) (1,945) (22,386) (3,805)
Gains on early
extinguishment of
debt (3) 143,280 - 161,208 -
Current income tax expense
(2)(16) (12,577) (12,692) (34,967) (27,866)
Net gain related to
disposed assets - China
operations (2) - - 3,315 -
------ ------- ------ --------
Total other income
(expense) 93,433 (63,410) 32,759 (127,833)
------ ------- ------ --------
FFO 144,057 279,104 393,145 645,201
Less preferred share dividends 6,369 6,384 12,738 12,738
Less net earnings
(loss)attributable to
noncontrolling interests (6) 494 (4,585) 948 (3,479)
--- ------ --- ------
FFO attributable to common
shares, including significant
non-cash items $137,194 $277,305 $379,459 $635,942
-------- -------- -------- --------
Adjustments for significant
non-cash items (59,062) - (69,022) -
------- --- ------- ---
FFO attributable to common
shares, excluding significant
non-cash items $78,132 $277,305 $310,437 $635,942
======= ======== ======== ========
Weighted average common
shares outstanding - Basic
(4) 406,539 262,715 342,183 260,827
FFO per share attributable to
common shares, including
significant non-cash items:
Basic $0.34 $1.06 $1.11 $2.44
===== ===== ===== =====
Diluted $0.34 $1.02 $1.10 $2.36
===== ===== ===== =====
FFO per share attributable to
common shares, excluding
significant non-cash items:
Basic $0.19 $1.06 $0.91 $2.44
===== ===== ===== =====
Diluted $0.19 $1.02 $0.90 $2.36
===== ===== ===== =====
Footnotes follow Financial Statements
Reconciliations of Net Earnings to FFO and EBITDA
(in thousands)
Reconciliation of net earnings to FFO, including significant non-cash
items
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
Net earnings (a) $238,865 $206,332 $417,597 $389,853
Add (deduct) NAREIT defined
adjustments:
Real estate related
depreciation and
amortization 74,004 71,955 145,672 138,662
Adjustments to gains on
dispositions for depreciation (452) (1,710) (1,203) (1,710)
Gains on dispositions of
non-development/ non-CDFS
properties (3,158) (4,662) (1,535) (4,662)
Reconciling items attributable
to discontinued
operations (15):
Gains on dispositions of
non-development/ non-CDFS
properties (185,521) (1,856) (185,521) (5,669)
Real estate related
depreciation and
amortization 3,008 8,335 8,134 15,786
----- ----- ----- ------
Total discontinued
operations (182,513) 6,479 (177,387) 10,117
Our share of reconciling
items from unconsolidated
investees:
Real estate related
depreciation and
amortization 37,664 33,494 75,981 66,312
Adjustment to gains/losses
on dispositions for
depreciation (6,578) (111) (6,578) (165)
Other amortization items (2,571) (3,860) (6,161) (8,070)
------ ------ ------ ------
Total unconsolidated
investees 28,515 29,523 63,242 58,077
------- ------- ------ -------
Total NAREIT defined
adjustments (83,604) 101,585 28,789 200,484
------- ------- ------ -------
Subtotal-
NAREIT
defined
FFO 155,261 307,917 446,386 590,337
Add (deduct) our defined
adjustments:
Foreign currency exchange
losses (gains), net (14) 119 (14,040) (43,829) 20,801
Current income tax
expense (16) - - - 9,658
Deferred income tax
expense (benefit) (8,771) 6,236 (15,611) 8,736
Our share of reconciling
items from unconsolidated
investees:
Foreign currency exchange
losses (gains), net (14) (1,885) 943 (234) 1,460
Unrealized losses (gains)
on derivative contracts,
net (4,105) (23,817) (5,959) 4,815
Deferred income tax
expense (benefit) (3,425) 66 (1,294) 135
------ --- ------ ---
Total
unconsolidated
investees (9,415) (22,808) (7,487) 6,410
------ ------- ------ -----
Total our defined
adjustments (18,067) (30,612) (66,927) 45,605
------- ------- ------- ------
FFO, including significant
non-cash items (a) $137,194 $277,305 $379,459 $635,942
======== ======== ======== ========
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,
-------- --------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
FFO, including significant
non-cash items (a) $137,194 $277,305 $379,459 $635,942
Add (deduct) significant
non-cash items:
Our share of losses on
derivative activity
recognized by the
property funds (12) - - 11,283 -
Impairment of real estate
properties (11) 84,218 - 84,218 -
Gain related to disposed
assets - China
operations (2) - - (3,315) -
Gains on early extinguishment
of debt (3) (143,280) - (161,208) -
-------- --- -------- ---
Total adjustments for
significant non-cash
items (59,062) - (69,022) -
------- --- ------- ---
FFO, excluding significant
non-cash items (a) $78,132 $277,305 $310,437 $635,942
======= ======== ======== ========
Reconciliation of FFO, excluding significant non-cash items, to EBITDA
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 (1) 2009 2008 (1)
---- -------- ---- --------
FFO, excluding
significant non-cash
items (a) $78,132 $277,305 $310,437 $635,942
Interest expense 83,049 94,807 175,811 190,289
Depreciation of corporate
assets 3,969 4,731 8,087 8,151
Current income tax expense
included in FFO 12,577 12,692 34,967 27,866
Adjustments to gains on
dispositions for interest
capitalized 4,181 16,134 6,939 32,800
Preferred share dividends 6,369 6,384 12,738 12,738
Share of reconciling items
from unconsolidated
investees 34,576 47,131 86,464 87,534
------ ------ ------ ------
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) $222,853 $459,184 $635,443 $995,320
======== ======== ======== ========
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 Per Share
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Net earnings -
Basic (a) $238,865 $206,332 $417,597 $389,853
Noncontrolling
interest
attributable
to convertible
limited
partnership
units 494 1,087 804 2,238
--- ----- --- -----
Adjusted net
earnings -
Diluted (a) $239,359 $207,419 $418,401 $392,091
======== ======== ======== ========
Weighted
average common
shares
outstanding -
Basic 406,539 262,715 342,183 260,827
Incremental
weighted
average effect
of conversion
of limited
partnership
units 1,235 5,053 1,235 5,053
Incremental
weighted
average effect
of stock
awards (b) 1,730 4,549 1,688 4,490
----- ----- ----- -----
Weighted
average common
shares
outstanding -
Diluted 409,504 272,317 345,106 270,370
======= ======= ======= =======
Net earnings
per share -
Diluted (a) $0.58 $0.76 $1.21 $1.45
===== ===== ===== =====
FFO Per Share, including significant non-cash items
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
FFO - Basic,
including
significant
non-cash items
(a) $137,194 $277,305 $379,459 $635,942
Noncontrolling
interest
attributable
to convertible
limited
partnership
units - 1,087 804 2,238
--- ----- --- -----
FFO - Diluted,
including
significant
non-cash items
(a) $137,194 $278,392 $380,263 $638,180
======== ======== ======== ========
Weighted
average common
shares
outstanding -
Basic 406,539 262,715 342,183 260,827
Incremental
weighted
average effect
of conversion
of limited
partnership
units - 5,053 1,235 5,053
Incremental
weighted
average effect
of stock
awards (b) 1,730 4,549 1,688 4,490
----- ----- ----- -----
Weighted
average common
shares
outstanding -
Diluted 408,269 272,317 345,106 270,370
======= ======= ======= =======
FFO per share -
Diluted,
including
significant
non-cash
items (a) $0.34 $1.02 $1.10 $2.36
===== ===== ===== =====
FFO Per Share, excluding significant non-cash items
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
FFO - Basic,
including
significant
non-cash
items (a) $137,194 $277,305 $379,459 $635,942
Noncontrolling
interest
attributable
to convertible
limited
partnership
units - 1,087 804 2,238
Adjustments
for
significant
non-cash items (59,062) - (69,022) -
------- --- ------- ---
FFO - Diluted,
excluding
significant
non-cash
items (a) $78,132 $278,392 $311,241 $638,180
======= ======== ======== ========
Weighted
average common
shares
outstanding -
Basic 406,539 262,715 342,183 260,827
Incremental
weighted
average effect
of conversion
of limited
partnership
units - 5,053 1,235 5,053
Incremental
weighted
average effect
of stock
awards (b) 1,730 4,549 1,688 4,490
----- ----- ----- -----
Weighted
average common
shares
outstanding -
Diluted 408,269 272,317 345,106 270,370
======= ======= ======= =======
FFO per share -
Diluted,
excluding
significant
non-cash
items (a) $0.19 $1.02 $0.90 $2.36
===== ===== ===== =====
---------------
(a) Attributable to common shares.
(b) Total weighted average potentially dilutive awards
outstanding were 12,147 and 10,276 for the three months
ended June 30, 2009 and 2008, respectively, and 12,101 and
10,453 for the six months ended June 30, 2009 and 2008,
respectively. Of the potentially dilutive instruments,
8,252 were anti-dilutive for the three months ended
June 30, 2009 while substantially all were dilutive for the
three months ended June 30, 2008, and 8,699 were anti-dilutive
for the six months ended June 30, 2009 while substantially
all were dilutive for the six months ended June 30, 2008.
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 FASB Staff Position APB 14-1 "Accounting for Convertible Debt
Instruments that May Be Settled in Cash Upon Conversion (Including
Partial Cash Settlement)" also known as FASB Accounting Standards
Codification ("ASC") 470-20 Debt with Conversion and Other Options
("ASC 470-20"), 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 ASC 470-20 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
-----------------------
ASC 470-20
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, June 30, 2008
-----------------------------------------
As Adjusted
(before 2009
discontinued
ASC 470-20 operations
As Reported Adjustments (a) adjustment)
----------- --------------- -----------
Consolidated Statements of
Operations:
--------------------------
Cost of CDFS dispositions $1,016,453 $389 $1,016,842
Interest expense, net of
capitalization $84,136 $10,671 $94,807
Net earnings attributable to
controlling interests $223,776 $(11,060) $212,716
For the six months ended, June 30, 2008
---------------------------------------
As Adjusted
(before 2009
discontinued
ASC 470-20 operations
As Reported Adjustments (a) adjustment)
----------- --------------- -----------
Consolidated Statements of
Operations:
Cost of CDFS dispositions $2,085,092 $515 $2,085,607
Interest expense, net of
capitalization $169,260 $21,029 $190,289
Net earnings attributable
to controlling interests $424,135 $(21,544) $402,591
(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.
(3) During the first and second quarters of 2009, in connection
with our announced initiatives to reduce debt, we repurchased
several series of notes outstanding at a discount, which resulted
in a gain, as follows (in thousands):
For the Three For the Six
Months Ended Months Ended
June 30, 2009 June 30, 2009
------------- -------------
Convertible Senior Notes
Original principal amount $473,057 $521,257
Cash purchase price $313,256 $338,077
Senior Notes (a)
Original principal amount $343,192 $343,192
Cash purchase price $302,090 $302,090
Total
Original principal amount $816,249 $864,449
Cash purchase price $615,346 $640,167
Gain on early extinguishment of debt(b) $143,280 $161,208
(a) Included in the three and six months ended June 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) Represents the difference between the recorded debt (net of
the discount) and the consideration we paid to retire the
convertible debt.
(4) 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.
(5) The additional losses recognized in Accumulated Other Comprehensive
Loss in the first half of 2009 in our Consolidated Balance Sheet are
principally the result of the sale of our China operations and
investments in the Japan property funds in February 2009 and the
strengthening of the U.S. dollar against the euro and yen, offset
somewhat by the strengthening of the pound sterling to the U.S.
dollar during this time. The strengthening U.S. dollar results in
lower net assets upon translation of our international operations
into U.S. dollars.
(6) We adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 160 "Noncontrolling Interests in Consolidated
Financial Statements - An Amendment of ARB No. 51" ("SFAS 160") also
known as FASB ASC 810-10 Consolidation ("ASC 810-10") on January 1,
2009. ASC 810-10 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.
(7) In our Consolidated Statements of Operations, rental income
includes the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Rental income $166,259 $170,621 $328,420 $354,301
Rental expense
recoveries 53,627 58,784 103,359 113,585
Straight-lined rents 9,933 8,802 18,655 15,461
----- ----- ------ ------
$229,819 $238,207 $450,434 $483,347
======== ======== ======== ========
The decrease in rental income is generally due to the contribution
and sale of properties.
(8) 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 15 for information on properties sold to third
parties.
(9) 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, we use the square feet owned at the beginning of the period
by the respective portfolios.
(10) 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 Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Gross G&A expense $69,320 $99,605 $147,160 $194,979
Capitalized amounts
and amounts
reported as rental
and investment
management
expenses (27,870) (50,601) (57,467) (101,267)
-------- ------- ------- ---------
Net G&A $41,450 $49,004 $89,693 $93,712
======= ======= ======= =======
In the fourth quarter of 2008 and the first half of 2009, we
recognized $23.1 million and $11.3 million, respectively, of
expenses related to the RIF program.
(11) During the second quarter of 2009, we recorded impairment charges
of $84.2 million related primarily to completed development
properties that 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.
(12) The following table represents our share of income (loss) recognized
by the property funds related to derivative activity (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Included in Earnings
from Unconsolidated
Property Funds in our
Consolidated Statements
of Operations : $4,920 $20,977 $(4,810) $(10,642)
Included in FFO from
Unconsolidated Property
Funds in our
Consolidated Statements
of FFO : $815 $(2,840) $(10,769) $(5,827)
In addition, we recognized losses of $4.9 million and $11.3 million
in our Consolidated Statements of Operations and FFO, respectively,
representing our share of the losses recognized by ProLogis European
Properties ("PEPR") from the sale of properties in the second
quarter of 2009.
(13) 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,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Interest expense $88,377 $118,835 $190,237 $240,806
Amortization of
discount, net 16,630 13,815 35,343 26,982
Amortization of
deferred loan costs 2,873 2,913 6,249 5,722
----- ----- ----- -----
Interest expense before
capitalization 107,880 135,563 231,829 273,510
Capitalized amounts (24,831) (40,728) (55,848) (83,048)
-------- ------- ------- -------
Net interest expense $83,049 $94,835 $175,981 $190,462
======= ======= ======== ========
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.
(14) Included in Foreign Currency Exchange Gains (Losses), Net, for
the first half of 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 June 30th
of the applicable years. We do not include these gains and losses
related to inter-company loans in our calculation of FFO.
(15) 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 six months of 2009, other than our China
operations, we disposed of 125 properties to third parties
aggregating 13.1 million square feet, three of which were
development properties. This includes a portfolio of 90 properties
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 (loss) attributable to these properties was as
follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Rental income $13,101 $24,294 $36,021 $48,630
Rental expenses (3,269) (7,760) (9,979) (14,762)
Depreciation and amortization (3,008) (8,335) (8,134) (15,786)
Other expenses, net - (11,138) (576) (14,820)
--- ------- ---- -------
Income (loss) attributable to
disposed properties $6,824 $(2,939) $17,332 $3,262
====== ======= ======= ======
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.
(16) 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 July 23, 2009