ProLogis Reports Fourth Quarter and Full-Year 2008 Results
- FFO, Excluding Significant Non-cash Items, In line with Guidance -
- Closes Asia Transaction -
- First Quarter Dividend to be Paid in Cash -
- Company Outlines Expectations for 2009 Results -
DENVER, Feb. 9 /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 $3.68 per diluted share for the year ended December 31, 2008, compared with $4.61 per share in 2007. FFO, including significant non-cash items, was $0.68 per share, compared with $4.61 in 2007. For 2008, the company reported a net loss of $1.65 per diluted share, compared with net earnings of $3.94 in 2007.
For the fourth quarter ended December 31, 2008, FFO, excluding significant non-cash items, was $0.61 per share, compared with $0.79 in 2007. FFO, including significant non-cash items, for the fourth quarter of 2008 was a net loss of $2.43 per diluted share, compared with a net gain of $0.79 in the fourth quarter of 2007. The company reported a net loss of $3.34 per diluted share for the fourth quarter of 2008, compared with net earnings of $0.43 per diluted share for the fourth quarter of 2007.
"After a thorough review of the assets on our balance sheet and in our unconsolidated investees, we recognized impairment charges where appropriate, given the current economic climate and our long-term intent for the properties," said Walter C. Rakowich, chief executive officer. "Excluding these adjustments, our results were in line with expectations, and these non-cash charges do not affect our liquidity or our conviction in the long-term value of our global portfolio."
Fundamentals Held Up in Fourth Quarter but Now Seeing Softening
"Our operating fundamentals held up reasonably well in the fourth quarter, with essentially flat same-store net operating income, stable levels of leasing activity and above-average customer retention, despite a decrease in activity levels toward the end of the year," Rakowich added.
"Companies are dealing with capital limitations and the uncertainties of the current economic environment and are therefore hesitant to incur the cost to relocate their facilities. As a result, our customer retention is healthy, but lease-up of newly developed inventory space is tepid. Fortunately, most markets are not significantly oversupplied, and new development deliveries in 2009 are expected to be at the lowest level in decades. We continue to closely monitor market conditions and believe that the quality of our people and strength of our customer relationships will help us maintain better leasing levels than overall market averages during these difficult times."
Disposition and Contribution Activity Supports De-leveraging Goal
In November 2008, ProLogis outlined a series of actions to achieve a reduction of roughly $2 billion in direct debt during 2009. The plan includes reducing the company's development pipeline through fund contributions, asset sales and a halt in all but previously committed development starts.
During the fourth quarter, ProLogis completed total dispositions with aggregate proceeds of $1.33 billion, including contributions to ProLogis property funds of $1.25 billion. Ted R. Antenucci, chief investment officer, said, "We pulled several development projects in the fourth quarter that were previously included in our year-to-date new construction starts, resulting in a reduction of over $345 million. For the full year, new development starts were just $2.1 billion in 2008, down by more than half from our initial expectation of $4.4 to $4.8 billion, in light of the rapidly deteriorating economic environment in the fourth quarter of 2008.
"While we have an additional $885 million of costs associated with completing and leasing our development pipeline, we do not anticipate significant commitments beyond that level because we intend to pursue development management opportunities and projects funded by venture partners that enable us to leverage our development infrastructure and monetize land. Between the reduction in new development spending, the sale of our China operations and 2008 disposition activity, we have reduced our development pipeline to just over $5 billion, from nearly $8 billion at the end of the third quarter."
Summary of Impairments and Non-cash Adjustments
In total, the company recorded impairments and non-cash adjustments of approximately $811 million.
Components of the non-cash charges recognized in the fourth quarter are as follows:
-- Impairment of goodwill and other assets of $320.6 million;
-- Impairment of land and operating properties of $274.7 million;
-- Impairment related to assets held for sale - China operations of
$198.2 million;
-- ProLogis' share of losses and impairments in property funds of $108.2
million; and
-- Gain on early extinguishment of debt of $90.7 million.
The company also recognized a charge of $26.4 million, or $0.10 per diluted share, in the fourth quarter related to its reduction in workforce. This amount is reflected in FFO, excluding significant non-cash items.
Asia Transaction Closed
Additionally, the company said that it has closed the previously announced sale of its operations in China and property fund interests in Japan to affiliates of GIC Real Estate (GIC RE), the real estate investment arm of the Government of Singapore Investment Corporation. Total cash consideration for the transaction is $1.3 billion, which will be used to reduce debt and for general corporate purposes. The funding will occur in two phases; $500 million was received by ProLogis upon closing and the remaining $800 million will be funded upon completion of year-end audits of certain entities, which the company expects to provide as soon as possible, but no later than early in the second quarter.
GIC RE has assumed all liabilities associated with the properties acquired. In addition, GIC RE will reimburse ProLogis approximately $45 million of development funding expended by the company in China since November 1, 2008.
While the impairment charge of $198 million associated with the sale of the company's China operations is included in the non-cash charges taken in 2008 outlined above, the gain of approximately $140 million associated with the sale of the company's property fund interests in Japan will be recognized in 2009. As a result of the Asia transaction, ProLogis' development pipeline is reduced by $1.0 billion, including over $200 million in costs to complete development of the assets previously owned directly and within ProLogis' development joint ventures in China.
First Quarter Dividend to be Paid in Cash
William E. Sullivan, chief financial officer, added, "With our recently closed sale of certain Asian operations for $1.3 billion and other initiatives, we are making significant progress toward our de-leveraging goal. Additionally, the ProLogis Board has declared the company's first quarter dividend of $0.25 per common share, which will be paid in cash."
The company noted that it is the ProLogis Board's intent to pay regular quarterly dividends in cash; however, it reserves the right to review this decision in light of overall credit availability and the company's liquidity position each quarter. The $0.25 per share first quarter common dividend will be payable on February 27, 2009, to shareholders of record on February 19, 2009.
Business Drivers Support 2009 Guidance
Additionally, the company provided revised 2009 guidance of $1.85 to $2.05 in FFO per share and $1.05 to $1.15 in earnings per share. "With economic weakness anticipated to persist through 2009, we are focused on our core industrial business in our existing markets. Our guidance reflects that focus; however, sizeable asset sales or other corporate actions could alter our expectations, which we will reflect in future guidance," Sullivan added. For details on the key business drivers and assumptions that support the company's 2009 guidance, please use this link: http://ir.prologis.com/investors/business_drivers.cfm or visit the company's website at http://ir.prologis.com.
Selected Financial and Operating Information
-- Same-store net operating income in the quarter was essentially flat.
Average full-year, same-store net operating income grew by 1.62
percent with a 0.84 percent increase in same-store leasing and 2.81
percent same-store rent growth on turnovers.
-- Reported leasing of 94.7 percent in the direct owned, non-development
portfolio, compared with 95.2 percent at December 31, 2007.
-- Recycled a total of $4.9 billion of capital through contributions and
dispositions during the year. Post-deferral, post-tax margins for
all CDFS dispositions averaged 10.6 percent for the fourth quarter and
16.0 percent for full year 2008.
-- Grew income from ProLogis' Investment Management business by 20.7
percent, to $306.6 million for the year, before our share of losses in
ProLogis European Properties, compared with $254.1 million in 2007.
-- Ended the year with total liquidity of $1.25 billion, including cash
and availability under the company's global lines of credit.
Copies of ProLogis' fourth quarter/year-end 2008 supplemental information will be available from the company's website at http://ir.prologis.com. The supplemental information also is available on the SEC's website at http://www.sec.gov. The related conference call will be available via a live webcast on the company's website at http://ir.prologis.com at 10:00 a.m. Eastern Time on Tuesday, February 10, 2009. A replay of the webcast will be available on the company's website until February 24, 2009. 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 http://www.REITcafe.com.
About ProLogis
ProLogis is a leading global provider of distribution facilities, with more than 475 million square feet of industrial space (44 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,000 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 http://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' Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and in "Item 1A -Risk Factors" in ProLogis' Annual Report on Form 10-K for the year ended December 31, 2007. 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 Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Revenues $1,492,246 $794,803 $5,654,826 $6,188,672
Net earnings (loss) (a) $(887,065) $113,278 $(432,196) $1,048,917
Net earnings (loss) per
share - Diluted (a) $(3.34) $0.43 $(1.65) $3.94
FFO, including significant
non-cash items (a) $(645,929) $211,235 $180,870 $1,227,008
Add (deduct) significant
non-cash items:
Impairment of goodwill
and other assets 320,636 - 320,636 -
Impairment related to
assets held for sale -
China operations 198,236 - 198,236 -
Impairment of real
estate properties 274,705 - 274,705 -
Our share of the
loss/impairment
recorded by PEPR 108,195 - 108,195 -
Gain on early
extinguishment of debt (90,719) - (90,719) -
Total adjustments for
significant non-cash
items 811,053 - 811,053 -
FFO, excluding significant
non-cash items (a) $165,124 $211,235 $991,923 $1,227,008
FFO per share - Diluted,
including significant non-
cash items (a) $(2.43) $0.79 $0.68 $4.61
Add back - summarized
significant non-cash
adjustments - per share 3.04 - 3.00 -
FFO per share - Diluted,
excluding significant non-
cash items (a) $0.61 $0.79 $3.68 $4.61
Distributions per common
share (b) $0.5175 $0.45 $2.07 $1.80
(a) These amounts are attributable to common shares.
(b) The annual distribution rate for 2008 was $2.07 per common share. In
November 2008, the Board of Trustees set the distribution for 2009 at
$1.00 per common share, subject to market conditions and Real Estate
Investment Trust ("REIT") distribution requirements. The payment of
common share distributions and its composition between cash and stock
is dependent upon our financial condition and operating results and
may be adjusted at the discretion of the Board of Trustees during the
year.
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, December 31,
2008 (1) 2007
Assets:
Investments in real estate assets:
Industrial properties:
Core $7,925,019 $8,149,392
Completed development 3,031,449 2,850,687
Properties under development 1,163,610 1,986,285
Land held for development 2,481,216 2,152,960
Retail and mixed use properties 358,992 336,279
Land subject to ground leases
and other 424,489 450,923
Other investments 321,397 652,319
15,706,172 16,578,845
Less accumulated depreciation 1,583,299 1,368,458
Net investments in real
estate assets 14,122,873 15,210,387
Investments in and advances to
unconsolidated investees:
Property funds 1,957,977 1,755,113
Other investees 312,016 590,164
Total investments in and
advances to unconsolidated
investees 2,269,993 2,345,277
Cash and cash equivalents 174,636 399,910
Accounts and notes receivable 244,778 340,039
Other assets 1,129,182 1,408,814
Discontinued operations - assets
held for sale (1) 1,310,754 19,607
Total assets $19,252,216 $19,724,034
Liabilities and Shareholders' Equity:
Liabilities:
Debt $11,007,636 $10,506,068
Accounts payable and accrued
expenses 658,868 933,075
Other liabilities 751,238 769,408
Discontinued operations -
assets held for sale (1) 389,884 424
Total liabilities 12,807,626 12,208,975
Minority interest 19,878 78,661
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 2,670 2,577
Additional paid-in capital 6,688,615 6,412,473
Accumulated other comprehensive
(loss) income (29,374) 275,322
(Distributions in excess of net
earnings) retained earnings (587,199) 396,026
Total shareholders' equity 6,424,712 7,436,398
Total liabilities and
shareholders' equity $19,252,216 $19,724,034
Footnotes follow Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Revenues:
Rental income (2) $239,107 $253,798 $1,002,493 $1,052,219
CDFS disposition proceeds:
Developed and
repositioned properties 1,192,935 438,296 4,206,446 2,530,377
Acquired property
portfolios 18,781 68,240 289,019 2,475,035
Property management and
other fees and incentives 33,815 32,040 131,011 104,719
Development management and
other income 7,608 2,429 25,857 26,322
Total revenues 1,492,246 794,803 5,654,826 6,188,672
Expenses:
Rental expenses 73,236 69,070 325,049 284,421
Cost of CDFS dispositions:
Developed and
repositioned properties 1,083,272 346,931 3,547,500 1,835,274
Acquired property
portfolios 18,781 68,240 289,019 2,406,426
General and
administrative (3) 43,592 53,602 204,300 193,204
Reduction in workforce (3) 23,131 - 23,131 -
Impairment of real estate
properties (4) 274,705 - 274,705 12,600
Depreciation and
amortization (5) 103,290 81,835 339,491 302,413
Other expenses 17,446 3,479 28,104 12,363
Total expenses 1,637,453 623,157 5,031,299 5,046,701
Operating income (loss) (145,207) 171,646 623,527 1,141,971
Other income (expense):
Earnings (loss) from
unconsolidated property
funds, net (6) (105,024) 12,997 (69,116) 94,453
Earnings (loss) from other
unconsolidated investees,
net 914 (1,424) 13,342 4,573
Interest expense (7) (88,737) (81,087) (341,305) (368,512)
Impairment of goodwill and
other assets (4) (320,636) - (320,636) -
Gain on early
extinguishment of debt (8) 90,719 - 90,719 -
Interest and other income,
net 2,526 331 16,522 32,129
Total other income
(expense) (420,238) (69,183) (610,474) (237,357)
Earnings (loss) before
minority interest (565,445) 102,463 13,053 904,614
Minority interest share in
income (172) (1,403) (3,837) (4,814)
Earnings (loss) before
certain net gains (565,617) 101,060 9,216 899,800
Gains recognized on
dispositions of certain
non-CDFS business assets (9) 5,853 1,293 11,668 146,667
Foreign currency exchange
gains (losses), net (10) (115,303) (3,141) (148,281) 8,132
Earnings (loss) before
income taxes (675,067) 99,212 (127,397) 1,054,599
Income taxes:
Current income tax expense 15,726 8,768 63,441 66,339
Deferred income tax
expense (benefit) (14,834) (5,090) 4,570 516
Total income taxes 892 3,678 68,011 66,855
Earnings (loss) from
continuing operations (675,959) 95,534 (195,408) 987,744
Discontinued operations:
Income (loss) attributable
to assets held for sale
and disposed properties
(1)(11) (15,626) 3,874 (32,630) 5,099
Impairment related to
assets held for sale -
China operations (1) (198,236) - (198,236) -
Gains recognized on
dispositions:
Non-CDFS business assets 1,557 14,044 9,718 52,776
CDFS business assets 7,551 6,184 9,783 28,721
Total discontinued
operations (204,754) 24,102 (211,365) 86,596
Net earnings (loss) (880,713) 119,636 (406,773) 1,074,340
Less preferred share
dividends 6,352 6,358 25,423 25,423
Net earnings (loss)
attributable to common
shares $(887,065) $113,278 $(432,196) $1,048,917
Weighted average common
shares outstanding - Basic 265,898 258,110 262,729 256,873
Weighted average common
shares outstanding -
Diluted 265,898 268,293 262,729 267,226
Net earnings (loss) per
share attributable to
common shares - Basic:
Continuing operations $(2.57) $0.35 $(0.85) $3.74
Discontinued operations (0.77) 0.09 (0.80) 0.34
Net earnings (loss) per
share attributable to
common shares - Basic $(3.34) $0.44 $(1.65) $4.08
Net earnings (loss) per
share attributable to
common shares - Diluted:
Continuing operations $(2.57) $0.34 $(0.85) $3.62
Discontinued operations (0.77) 0.09 (0.80) 0.32
Net earnings (loss) per
share attributable to
common shares - Diluted $(3.34) $0.43 $(1.65) $3.94
Footnotes follow Financial Statements
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Revenues:
Rental income $249,778 $259,781 $1,035,335 $1,079,960
CDFS disposition proceeds:
Developed and
repositioned
properties 1,239,378 470,772 4,271,786 2,736,151
Acquired property
portfolios 18,781 68,240 372,667 2,475,035
Property management and
other fees and incentives 34,466 32,040 132,038 104,719
Development management and
other income 7,822 2,734 26,344 26,670
Total revenues 1,550,225 833,567 5,838,170 6,422,535
Expenses:
Rental expenses 79,488 70,432 343,192 292,064
Cost of CDFS dispositions:
Developed and
repositioned
properties 1,123,320 375,836 3,605,923 2,018,523
Acquired property
portfolios 18,781 68,240 372,667 2,406,426
General and
administrative (3) 52,498 57,585 226,021 204,558
Reduction in workforce (3) 26,431 - 26,431 -
Impairment of real estate
properties (4) 274,705 - 274,705 12,600
Depreciation of corporate
assets 4,177 2,885 16,332 10,882
Other expenses 21,400 3,479 33,192 12,363
Total expenses 1,600,800 578,457 4,898,463 4,957,416
(50,575) 255,110 939,707 1,465,119
Other income (expense):
FFO from unconsolidated
property funds (6) (62,039) 45,600 66,415 149,400
FFO from other
unconsolidated investees 858 6,307 6,162 18,991
Interest expense (89,109) (80,810) (341,696) (368,065)
Impairment related to
assets held for sale -
China operations (1) (198,236) - (198,236) -
Impairment of goodwill and
other assets (4) (320,636) - (320,636) -
Gain on early
extinguishment of debt (8) 90,719 - 90,719 -
Interest and other income,
net 3,724 1,479 20,806 34,001
Foreign currency exchange
gains (losses), net 723 2,559 (7,009) 24,299
Current income tax
expense (12) (16,727) (9,400) (56,170) (65,311)
Total other income
(expense) (590,723) (34,265) (739,645) (206,685)
FFO, including significant
non-cash items (641,298) 220,845 200,062 1,258,434
Less preferred share
dividends 6,352 6,358 25,423 25,423
Less minority interest share
in income (loss) (1,721) 3,252 (6,231) 6,003
FFO attributable to common
shares, including
significant non-cash items $(645,929) $211,235 $180,870 $1,227,008
Adjustments for significant
non-cash items 811,053 - 811,053 -
FFO attributable to common
shares, excluding
significant non-cash items $165,124 $211,235 $991,923 $1,227,008
Weighted average common
shares outstanding - Basic 265,898 258,110 262,729 256,873
FFO per share attributable
to common shares, including
significant non-cash items:
Basic $(2.43) $0.82 $0.69 $4.78
Diluted $(2.43) $0.79 $0.68 $4.61
FFO per share attributable
to common shares, excluding
significant non-cash items:
Basic $0.62 $0.82 $3.78 $4.78
Diluted $0.61 $0.79 $3.68 $4.61
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 Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Net earnings (loss) (a) $(887,065) $113,278 $(432,196) $1,048,917
Add (deduct) NAREIT
defined adjustments:
Real estate related
depreciation and
amortization 99,113 78,950 323,159 291,531
Adjustments to gains
on CDFS dispositions
for depreciation (1,156) (2,613) (2,866) (6,196)
Gains recognized on
dispositions of
certain non-CDFS
business assets (5,806) (1,293) (11,620) (146,667)
Reconciling items
attributable to
discontinued
operations (11):
Gains recognized on
dispositions of non-
CDFS business assets (1,557) (14,044) (9,718) (52,776)
Real estate related
depreciation and
amortization 3,157 2,586 11,485 9,454
Total discontinued
operations 1,600 (11,458) 1,767 (43,322)
Our share of
reconciling items
from unconsolidated
investees:
Real estate related
depreciation and
amortization 51,159 35,357 155,067 99,026
Gains on dispositions
of non-CDFS business
assets (329) (1,181) (492) (35,672)
Other amortization
items (3,337) (2,355) (15,840) (8,731)
Total unconsolidated
investees 47,493 31,821 138,735 54,623
Total NAREIT
defined
adjustments 141,244 95,407 449,175 149,969
Subtotal-NAREIT
defined FFO (745,821) 208,685 16,979 1,198,886
Add (deduct) our
defined adjustments:
Foreign currency
exchange losses, net 117,145 4,789 144,364 16,384
Current income tax
expense (12) - - 9,656 3,038
Deferred income tax
expense (benefit) (15,406) (5,160) 4,073 550
Our share of
reconciling items
from unconsolidated
investees:
Foreign currency
exchange losses
(gains), net (82) (4,005) 2,331 1,823
Unrealized losses on
derivative
contracts, net 18,007 - 23,005 -
Deferred income tax
expense (benefit) (19,772) 6,926 (19,538) 6,327
Total unconsolidated
investees (1,847) 2,921 5,798 8,150
Total our defined
adjustments 99,892 2,550 163,891 28,122
FFO, including
significant non-cash
items (a) $(645,929) $211,235 $180,870 $1,227,008
Reconciliation of FFO, including significant non-cash items, to FFO,
excluding significant non-cash items
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
FFO, including
significant non-cash
items (a) $(645,929) $211,235 $180,870 $1,227,008
Add (deduct)
significant non-cash
items:
Impairment of goodwill
and other assets (4) 320,636 - 320,636 -
Impairment related to
assets held for sale
- China operations (1) 198,236 - 198,236 -
Impairment of real
estate properties (4) 274,705 - 274,705 -
Our share of the
loss/impairment
recorded by PEPR (6) 108,195 - 108,195 -
Gain on early
extinguishment of
debt (8) (90,719) - (90,719) -
Total adjustments for
significant non-cash
items 811,053 - 811,053 -
FFO, excluding
significant non-cash
items (a) $165,124 $211,235 $991,923 $1,227,008
Reconciliation of FFO, excluding significant non-cash items, to EBITDA
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
FFO, excluding
significant non-cash
items (a) $165,124 $211,235 $991,923 $1,227,008
Interest expense 89,109 80,810 341,696 368,065
Depreciation of
corporate assets 4,177 2,885 16,332 10,882
Current income tax
expense included in
FFO 16,727 9,400 56,170 65,311
Adjustments to CDFS
gains on dispositions
for interest
capitalized 12,637 11,036 57,632 43,669
Preferred share
dividends 6,352 6,358 25,423 25,423
Reconciling items
attributable to
discontinued
operations 372 (277) 391 (447)
Impairment charges - 659 - 13,259
Share of reconciling
items from
unconsolidated
investees 33,812 43,393 173,900 127,558
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) $328,310 $365,499 $1,663,467 $1,880,728
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 Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Net earnings (loss) -
Basic (a) $(887,065) $113,278 $(432,196) $1,048,917
Minority interest attributable
to convertible limited
partnership units (b) - 1,404 - 4,813
Adjusted net earnings (loss) -
Diluted (a) $(887,065) $114,682 $(432,196) $1,053,730
Weighted average common shares
outstanding - Basic 265,898 258,110 262,729 256,873
Incremental weighted average
effect of conversion of
limited partnership units (b) - 5,053 - 5,078
Incremental weighted average
effect of stock awards (b) - 5,130 - 5,275
Weighted average common shares
outstanding - Diluted 265,898 268,293 262,729 267,226
Net earnings (loss) per share
- Diluted (a) $(3.34) $0.43 $(1.65) $3.94
FFO Per Share, including significant non-cash items
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
FFO - Basic, including
significant non-cash
items (a) $(645,929) $211,235 $180,870 $1,227,008
Minority interest
attributable to
convertible limited
partnership units (b) - 1,404 - 4,813
FFO - Diluted,
including significant
non-cash items (a) $(645,929) $212,639 $180,870 $1,231,821
Weighted average
common shares
outstanding - Basic 265,898 258,110 262,729 256,873
Incremental weighted
average effect of
conversion of limited
partnership units (b) - 5,053 - 5,078
Incremental weighted
average effect of
stock awards (b) - 5,130 3,372 5,275
Weighted average
common shares
outstanding - Diluted 265,898 268,293 266,101 267,226
FFO per share -
Diluted, including
significant non-cash
items (a) $(2.43) $0.79 $0.68 $4.61
FFO Per Share, excluding significant non-cash items
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
FFO - Basic, including
significant non-cash
items (a) $(645,929) $211,235 $180,870 $1,227,008
Adjustments for
significant non-cash
items 811,053 - 811,053 -
Minority interest
attributable to
convertible limited
partnership units 172 1,404 3,837 4,813
FFO - Diluted,
excluding significant
non-cash items (a) $165,296 $212,639 $995,760 $1,231,821
Weighted average
common shares
outstanding - Basic 265,898 258,110 262,729 256,873
Incremental weighted
average effect of
conversion of limited
partnership units 2,551 5,053 4,447 5,078
Incremental weighted
average effect of
stock awards 1,527 5,130 3,372 5,275
Weighted average
common shares
outstanding - Diluted 269,976 268,293 270,548 267,226
FFO per share -
Diluted, excluding
significant non-cash
items (a) $0.61 $0.79 $3.68 $4.61
(a) Attributable to common shares.
(b) 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 2007 amounts in our financial statements have been reclassified to conform to the 2008 presentation.
Due to recent economic conditions and the resulting changes in our near- term business strategy, we have reorganized our business segments. As a result, as of December 31, 2008, we have two operating segments- Direct Owned and Investment Management, and we no longer include any assets in the CDFS Business segment. We have continued to present the results of operations of our CDFS Business segment separately.
Our direct owned segment represents the direct, long-term ownership of industrial distribution properties. Our investment strategy in this segment focuses primarily on the ownership and leasing of industrial distribution 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 we now refer to as our Completed Development Portfolio. Due to the current economic conditions, there is uncertainty regarding future contributions to the property funds. We may contribute either Core or Development properties to the property funds or sell them to third parties. If we contribute or sell Development properties in the future, we expect to recognize FFO to the extent the proceeds received exceed our original investment (i.e. prior to depreciation). In addition, we have industrial distribution properties that are currently under development (also included in our Development Portfolio) and land available for development that is part of this segment as well. The investment management segment represents the investment management of unconsolidated property funds and joint ventures and the properties they own.
(1) On December 23, 2008, we announced the signing of a binding
agreement to sell our operations in China and our property fund
interests in Japan, to affiliates of GIC Real Estate (GIC RE), the
real estate investment company of the Government of Singapore
Investment Corporation, for total cash consideration of
$1.3 billion.
Of the total cash consideration, $800 million was related to the
China operations. The sale of operations in China includes all our
assets and liabilities, including real estate, investments in joint
ventures and a property fund, as well as the assumption of all
liabilities. The total consideration will be adjusted for
development funding we made for the China operations after November
1, 2008 and through the date of closing. In accordance with
Statement of Financial Accounting Standards (''SFAS'') 144,
''Accounting for the Impairment or Disposal of Long-Lived Assets"
(''SFAS 144''), we have classified all of the assets and liabilities
associated with our China operations as Assets and Liabilities Held
for Sale in our accompanying Consolidated Balance Sheet as of
December 31, 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 that is
included in Discontinued Operations in the fourth quarter of 2008.
In addition, the results of our China operations are presented as
discontinued operations in our accompanying Consolidated Statements
of Operations for all periods. As we include discontinued operations
in our calculations of FFO, the results of our China operations are
included in the appropriate line items for our Consolidated
Statements of FFO. The 2008 operating information presented
throughout this report does not include China.
The sale closed on February 9, 2009 and the funding will occur in
two phases; we received $500 million upon closing and the remaining
$800 million will be funded upon completion of year-end audits of
certain entities, which the company expects to provide as soon as
possible, but no later than early in the second quarter. While the
impairment charge of $198.2 million associated with the sale of our
China operations is included in 2008, the gain of approximately
$140 million associated with the sale of our property fund interests
in Japan will be recognized in 2009.
In addition, we have entered into an agreement to sell one property
in Japan to GIC RE. This property has been classified as Held for
Sale in our accompanying Consolidated Balance Sheet as of December
31, 2008, and its operations have been included in Discontinued
Operations for all periods presented in our accompanying
Consolidated Statements of Operations. See note 11 for more
information on this and other properties classified as discontinued
operations.
(2) In our Consolidated Statements of Operations, rental income includes
the following (in thousands):
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Rental income $175,644 $188,663 $736,765 $791,100
Rental expense
recoveries 53,923 54,799 231,809 217,022
Straight-lined
rents 9,540 10,336 33,919 44,097
$239,107 $253,798 $1,002,493 $1,052,219
(3) As we have previously announced in the fourth quarter of 2008, in
response to the difficult economic climate, we initiated G&A expense
reductions with a near-term target of a 20 to 25 % reduction. These
initiatives include a Reduction in Workforce ("RIF") and reductions
to other expenses. In December, we implemented a RIF program with a
total cost of the program of $26.4 million, included in our
Statements of FFO, which includes $3.3 million for China that is
presented as discontinued operations in our Statements of
Operations. In addition, we have implemented various cost savings
measures in an effort to reduce G&A. We may incur RIF charges in
2009 for additional employees identified due to our change in
business strategy.
(4) The global financial markets have undergone pervasive and
fundamental disruptions. The credit crisis, and the impact to us,
worsened during the fourth quarter of 2008. As a result of these
significant adverse changes in market conditions, we reviewed our
assets for potential impairment under the appropriate accounting
literature and considering current market conditions, as well as our
intent with regard to owning or disposing of the asset. In
connection with that review, in the fourth quarter of 2008, we
recorded the following impairment charges (in millions):
Included in "Impairment of Real Estate Properties":
Land Held for Development $194.2
Completed Development Properties 34.8
Other Real Estate Investments 45.7
Total Impairment of Real Estate Properties 274.7
Total Impairment of Goodwill and Other Assets 320.6
Total direct owned impairment charges included
in continuing operations $595.3
(5) As of September 30, 2008, we had classified a group of properties
that we had developed or acquired with the intent to contribute to a
property fund or sell to a third party as our "CDFS Pipeline". Our
policy is to not depreciate these properties during the period from
completion until their contribution provided they meet certain
criteria. With the reorganization of our business segments and the
uncertainty as to when, or if, these properties will be contributed,
in the fourth quarter we recorded an adjustment of $30.9 million to
depreciate these buildings from the date of stabilization
through December 31, 2008.
(6) In December 2008, we purchased units in ProLogis European Properties
Fund II ("PEPF II") from ProLogis European Properties ("PEPR") that
represented an approximate 20% interest in PEPF II for €43 million
($61.1 million). The units were purchased at a discount to net asset
value due to PEPR's current financial situation. As a result of this
transaction and contributions made in December, as of December 31,
2008, we own a 34.3% direct interest in PEPF II and have assumed
€348 million of PEPR's future equity commitments related to these
units. PEPR owns a 10.4% interest in PEPF II and as a result of our
ownership in PEPR, we own an additional 2.6% of PEPF II indirectly
(combined direct and indirect ownership in PEPF II at December 31,
2008 was 36.9%).
In January 2009, PEPR received offers for their remaining 10.4%
interest in PEPF II for €10.5 million. As a result of the sale of
its PEPF II units to us and the impairment of their remaining
ownership (based on offers received), PEPR recognized a total loss
of €310.9 million in the fourth quarter of 2008. Our share of this
loss, reflected as FFO/Earnings (Loss) from Unconsolidated Property
Funds in our consolidated financial statements, was $108.2 million.
In connection with our purchase of PEPR's interest in PEPF II, PEPR
has a 12-month option to repurchase the 20% interest from us at our
cost per unit (including any capital contributions we have made
related to these units).
(7) The following table presents the components of interest expense as
reflected in our Consolidated Statements of Operations (in
thousands):
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Gross interest
expense $117,114 $119,351 $477,933 $487,410
Amortization
of discount
(premium), net 891 (984) (702) (7,797)
Amortization of
deferred loan
costs 3,619 2,728 12,759 10,555
Interest
expense
before
capitalization 121,624 121,095 489,990 490,168
Less: capitalized
amounts 32,887 40,008 148,685 121,656
Net interest
expense $88,737 $81,087 $341,305 $368,512
In May 2008, the Financial Accounting Standards Board issued Staff
Position No. APB 14-1 "Accounting for Convertible Debt Instruments
that May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)" 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, which would result in the debt being
recorded at a discount. The resulting debt discount would be
amortized over the expected period outstanding (i.e., through the
first optional redemption date) as additional non-cash interest
expense. The effective date of the change is January 1, 2009 with
the application of the new accounting applied retrospectively to
both new and existing convertible instruments, including the notes
issued in 2007 and 2008. As a result of the new accounting,
beginning in 2009, we will recognize additional non-cash interest
expense of between $73 million and $83 million per annum, prior to
the capitalization of interest due to our development activities.
Prior periods will be restated for the partial year impact.
(8) During the fourth quarter of 2008, we began a tender offer to
purchase certain of our unsecured senior notes. We completed the
tender offer in December 2008 by purchasing $309.7 million principal
amount of 5.25 percent unsecured notes due November 15, 2010 for
$216.8 million. We utilized cash on hand and borrowings under our
global lines of credit to fund the tender offer. This represents
approximately 62 percent of the principal amount of this series of
notes outstanding prior to the tender offer. In connection with this
transaction, we recognized a gain of $90.7 million that is reported
as "Gain on Early Extinguishment of Debt" in our Consolidated
Statements of Operations and FFO.
(9) During 2008, we contributed one non-CDFS property to the ProLogis
Mexico Industrial Fund and one non-CDFS property to the North
American Industrial Fund. During 2007, we contributed 66 non-CDFS
properties to ProLogis North American Industrial Fund and 11 non-
CDFS properties to ProLogis Mexico Industrial Fund. The gains
related to the dispositions of non-CDFS properties were included in
earnings but not included in our calculation of FFO.
(10) During the fourth quarter of 2008, we recognized net foreign
currency exchange losses 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 both the yen and the euro between September 30, 2008
and December 31, 2008. These losses are not included in our
calculation of FFO.
(11) 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. During
2008, we disposed of 15 properties to third parties, six of which
were CDFS properties, as well as land subject to a ground lease.
During 2007, we disposed of 80 properties to third parties, five of
which were CDFS properties, as well as land subject to ground
leases.
We had two properties classified as held for sale on our
Consolidated Balance Sheet, as of December 31, 2007, which were sold
during the first quarter of 2008. See also note 1 above for a
discussion of the China operations and one property in Japan that
are classified as held for sale at December 31, 2008.
The income (loss) attributable to these properties (excluding the
results of our China operations) are as follows (in thousands):
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
Rental income $997 $1,753 $2,330 $14,384
Rental expenses 124 (661) (1,208) (5,080)
Depreciation and
amortization (39) (519) (1,988) (4,405)
Income (loss)
attributable
to disposed
properties $1,082 $573 $(866) $4,899
For purposes of our Consolidated Statements of FFO, we do not
segregate discontinued operations. In addition, we include the
disposition proceeds and the cost of dispositions for all CDFS
properties disposed of during the period in the calculation of FFO,
including those classified as discontinued operations.
(12) 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 generally
recognize the deferred tax liabilities that represent the tax effect
of the difference between the tax basis carried over and the fair
values of these assets 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 February 9, 2009