ProLogis Reports Third Quarter FFO of $0.63 Per Share
DENVER, Oct. 23 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), the world's largest owner, manager and developer of distribution facilities, today reported funds from operations as defined by ProLogis (FFO) for the quarter ended September 30, 2008, of $0.63 per diluted share, compared with $1.41 in 2007. Growth in income from the company's Investment Management segment was offset by lower Property Operations and a lower level of development dispositions compared with the third quarter of 2007. The third quarter of 2007 also included $0.36 per share from gains related to the acquisition of shares of Macquarie ProLogis Trust and subsequent contribution of those assets into a newly formed property fund. Net earnings per diluted share for the quarter were $0.16, down from $1.12 in 2007, due to the factors affecting FFO, as well as a higher level of dispositions of non-CDFS properties in 2007 that are not included in FFO.
For the nine months ended September 30, 2008, FFO was $3.07 per diluted share, compared with $3.81 in the first nine months of 2007, while net earnings per diluted share were $1.69, compared with $3.51 for the nine months ended September 30, 2007, primarily due to the items noted above.
"Third quarter property market fundamentals held up reasonably well, notwithstanding the current credit crisis, which has negatively affected the global economy and our business," said Jeffrey H. Schwartz, ProLogis chairman and chief executive officer. "Despite this economic turmoil, we believe ProLogis is well positioned to weather the storm and take advantage of opportunities that may eventually arise."
During the third quarter, the company maintained a high level of leasing activity and achieved growth in net operating income and rental rates on turnovers within its same store pool. "While our operating results for the quarter were in line with our expectations, since the worst of the financial crisis has been felt in recent weeks, we are now seeing customers deferring decisions while assessing the impact of current market conditions on their businesses. Additionally, development margins have come under pressure due to rising cap rates, and we expect this trend to persist into early 2009," Schwartz said.
"As we continue to focus on managing the business for the long-term, our first and foremost objective in these turbulent times is to preserve our balance sheet strength and maintain financial flexibility," Schwartz added. "Our investment strategy over the near term will be governed by extremely conservative capital deployment. As a result of this focus, near-term earnings will be negatively impacted; we believe, however, this is the most appropriate response to today's market conditions."
Market Turmoil Prompts Guidance Revision
"As a result of the substantial dislocation in the credit markets and the related economic turmoil since our previous guidance, we are lowering our guidance for full-year 2008 FFO to a range of $3.60 to $3.70 per share," said William E. Sullivan, chief financial officer. "We are assuming the current economic malaise persists throughout 2009, further impacting cap rates and leasing momentum in those markets where liquidity has been most impacted. Given the turbulent environment, we will revise and update 2009 guidance as we develop more clarity but no later than reporting of fourth quarter results." In connection with the company's reduction in FFO per share guidance, net earnings are anticipated to be $1.75 to $1.85 per share for 2008. The company will expand upon its outlook for the business on its third quarter results webcast/conference call to be held today at 10:00 a.m. ET (see below).
Changing Market Dynamics Impact New Development
ProLogis began construction of $528 million of new development during the third quarter and contributed assets with an aggregate cost of $681 million to its property funds, which together with a strengthening U.S. dollar reduced the company's total CDFS asset pipeline to $8.2 billion at September 30, 2008. "During the quarter we achieved an increase of 530 basis points in leasing of our overall CDFS Asset Pipeline, driven by improved activity in Asia and 65 percent of third quarter starts being preleased," said Ted R. Antenucci, ProLogis president and chief investment officer. "Given today's challenging market conditions, we have decided not to move forward with some early-stage projects and now anticipate development starts for full-year 2008 will be between $2.7 and $2.9 billion," Antenucci added.
During the quarter, the company signed 34.6 million square feet of leases worldwide, bringing total year-to-date leasing activity to 95.4 million square feet. One-third of that total, or 31.6 million square feet, was new CDFS leases, including those for build-to-suit projects under development.
Operating Property Performance Relatively Stable Despite Difficult Economic Conditions
"At September 30, 2008, our stabilized portfolio was 93.4 percent leased, well above market averages," said Diane S. Paddison, executive director of global operations. "Customer relationships are critical in times of economic uncertainty, and our focus in this area is demonstrated by tenant retention during the quarter of nearly 83 percent. We also expanded our relationships with Procter & Gamble, Kraft Foods and CEVA Logistics with additional leases during the quarter. We anticipate fundamentals, particularly in the U.S. and Europe, to weaken further in the coming months but also expect our portfolio to continue to outperform the overall market due to the quality and location of our facilities as well as our commitment to customer service."
Selected Financial and Operating Information
-- Increased same-store net operating income in the quarter by
1.85 percent, resulting from 0.55 percent growth in average leasing and
rent growth on turnovers of 2.73 percent in the pool. For the first
nine months, same-store net operating income increased 2.26 percent,
resulting from a 1.17 percent increase in average leasing and rent
growth on turnovers of 4.09 percent.
-- Reported leasing in the stabilized portfolio of 93.4 percent.
-- Recycled a total of $839.6 million of capital through contributions and
dispositions during the quarter. Of the total, $828.4 million was from
CDFS dispositions, with $190.7 million of that from acquired property
portfolios. The remaining $11.2 million was from non-CDFS dispositions.
Year-to-date total dispositions were $3.60 billion, with $3.53 billion
from CDFS dispositions.
-- Realized FFO from CDFS dispositions of $71.2 million for the quarter.
Pre-deferral, post-tax margins for developed and repositioned
properties during the third quarter averaged 15.5 percent, while
post-tax, post-deferral margins were 10.9 percent.
-- Increased total assets owned and under management to $40.8 billion, up
from $36.3 billion at December 31, 2007, a year-to-date increase of
12.4 percent.
-- Grew ProLogis' share of FFO from property funds to $50.1 million for
the quarter, compared with $39.9 million for the third quarter of 2007,
an increase of 25.6 percent.
-- Recognized fee income from property funds of $35.5 million, compared
with $27.1 million for the third quarter of 2007, an increase of
31.0 percent.
Reconciliation of Guidance for FFO from Net Income for 2008
Low High
Projected earnings attributable to common shares $1.75 $1.85
Depreciation and amortization 1.17 1.17
Deferred taxes 0.14 0.14
Gain on sale of non-CDFS assets (0.07) (0.07)
Foreign currency exchange gains/(losses) 0.10 0.10
ProLogis' share of reconciling items from
unconsolidated entities 0.51 0.51
Projected FFO per share $3.60 $3.70
Copies of ProLogis' third quarter 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 Thursday, October 23, 2008. A replay of the webcast will be available on the company's website until December 31, 2008. 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 the world's largest owner, manager and developer of distribution facilities, with operations in 136 markets across North America, Europe and Asia. The company has $40.8 billion of assets owned, managed and under development, comprising 548 million square feet (51 million square meters) in 2,898 facilities as of September 30, 2008. ProLogis' customers include manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. Headquartered in Denver, Colorado, ProLogis employs over 1,500 people worldwide.
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 under "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.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Selected Financial Information
(in thousands, except per share amounts and percentages)
Three Months Ended Nine Months Ended
SUMMARY OF RESULTS September 30, September 30,
2008 2007 2008 2007
Net earnings attributable to
common shares:
Net earnings attributable to
common shares $43,472 $299,444 $454,869 $935,639
Net earnings per share
attributable to common
shares - diluted $0.16 $1.12 $1.69 $3.51
FFO:
FFO attributable to common
shares $169,313 $376,155 $826,799 $1,015,773
FFO per share attributable
to common shares - diluted $0.63 $1.41 $3.07 $3.81
Distributions declared per
common share (1) $0.5175 $0.46 $1.5525 $1.38
OPERATING METRICS Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Same Store:
NOI + 1.85% + 5.38% + 2.26% + 5.67%
Rental Rates + 2.73% + 9.61% + 4.09% + 8.35%
Average Leasing + 0.55% + 2.21% + 1.17% + 2.68%
Total Expected Investment of
Development Starts $527,601 $797,851 $2,470,332 $2,101,262
See our definition of FFO and our definition of EBITDA.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Consolidated Statements of Earnings
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues:
Rental income (2) (3) $253,499 $280,514 $784,223 $807,677
CDFS disposition proceeds:
Developed and
repositioned properties 613,443 735,428 3,013,511 2,092,081
Acquired property
portfolios (3) 190,711 2,406,795 353,886 2,406,795
Property management and
other fees and incentives 35,502 27,095 97,572 72,679
Development management and
other income 7,991 10,321 18,522 23,936
Total revenues 1,101,146 3,460,153 4,267,714 5,403,168
Expenses:
Rental expenses 85,822 74,835 262,710 216,658
Cost of CDFS dispositions:
Developed and
repositioned properties 542,311 572,668 2,464,228 1,488,343
Acquired property
portfolios (3) 190,711 2,338,186 353,886 2,338,186
General and administrative
(4) 57,836 50,208 173,523 146,973
Depreciation and
amortization 81,889 71,852 243,893 223,610
Other expenses 3,689 3,550 11,792 21,484
Total expenses 962,258 3,111,299 3,510,032 4,435,254
Operating income 138,888 348,854 757,682 967,914
Other income (expense):
Earnings from
unconsolidated property
funds (5) 18,299 46,688 36,285 81,456
(Losses) earnings from CDFS
joint ventures and other
unconsolidated investees 2,192 4,679 (1,414) 6,996
Interest expense (6) (83,327) (107,964) (252,587) (287,255)
Interest and other income,
net 1,822 11,613 17,082 32,522
Total other income
(expense) (61,014) (44,984) (200,634) (166,281)
Earnings before minority
interest 77,874 303,870 557,048 801,633
Minority interest share in
loss (income) 1,031 (1,855) 4,510 (2,751)
Earnings before certain net
gains 78,905 302,015 561,558 798,882
Gains recognized on
dispositions of certain non-
CDFS business assets (7) 1,152 21,289 5,814 145,374
Foreign currency exchange
gains (losses), net (10,344) 991 (34,950) 10,145
Earnings before income taxes 69,713 324,295 532,422 954,401
Income taxes:
Current income tax expense 11,577 14,204 49,101 58,949
Deferred income tax expense 10,742 11,892 19,478 5,710
Total income taxes 22,319 26,096 68,579 64,659
Earnings from continuing
operations 47,394 298,199 463,843 889,742
Discontinued operations (8):
(Loss) income attributable
to disposed properties and
assets held for sale (189) 992 (296) 3,693
Gains recognized on
dispositions:
Non-CDFS business assets 2,492 6,607 8,161 38,732
CDFS business assets 108 - 2,232 22,537
Total discontinued
operations 2,411 7,599 10,097 64,962
Net earnings 49,805 305,798 473,940 954,704
Less preferred share
dividends 6,333 6,354 19,071 19,065
Net earnings attributable to
common shares $43,472 $299,444 $454,869 $935,639
Weighted average common shares
outstanding - Basic 263,139 257,435 261,665 256,270
Weighted average common shares
outstanding - Diluted 266,133 267,871 270,665 267,177
Net earnings per share
attributable to
common shares - Basic:
Continuing operations $0.16 $1.13 $1.70 $3.40
Discontinued operations 0.01 0.03 0.04 0.25
Net earnings per share
attributable to common
shares - Basic $0.17 $1.16 $1.74 $3.65
Net earnings per share
attributable to
common shares - Diluted:
Continuing operations $0.15 $1.09 $1.65 $3.27
Discontinued operations 0.01 0.03 0.04 0.24
Net earnings per share
attributable to common
shares - Diluted $0.16 $1.12 $1.69 $3.51
Calculation of Net Earnings per Share Attributable to Common Shares -
Diluted
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Net earnings attributable to common
shares - Basic $43,472 $299,444 $454,869 $935,639
Minority interest (a) - 947 3,665 3,409
Adjusted net earnings attributable
to common shares - Diluted $43,472 $300,391 $458,534 $939,048
Weighted average common shares
outstanding - Basic 263,139 257,435 261,665 256,270
Incremental weighted average effect
of conversion of limited
partnership units (b) - 5,011 5,088 5,086
Incremental weighted average effect
of potentially dilutive
instruments (c) 2,994 5,425 3,912 5,821
Weighted average common shares
outstanding - Diluted 266,133 267,871 270,665 267,177
Net earnings per share attributable
to common shares - Diluted $0.16 $1.12 $1.69 $3.51
COMMENTS
(a) Includes only the minority interest related to the convertible limited
partnership units.
(b) For the three months ended September 30, 2008, the impact of the
limited partnership units is anti-dilutive and, therefore, not
reflected in weighted average common shares outstanding - diluted.
(c) Total weighted average potentially dilutive instruments outstanding
were 9,603 and 10,062 for the three months ended September 30, 2008
and 2007, respectively, and 9,993 and 10,393 for the nine months ended
September 30, 2008 and 2007, respectively. Of the potentially
dilutive instruments, 3,112 and 1,769, respectively, were
anti-dilutive for the three and nine months ended September 30, 2008.
In 2007, the majority of potentially dilutive instruments were
dilutive for both periods.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues:
Rental income (3) $253,580 $283,127 $785,557 $820,179
CDFS disposition proceeds:
Developed and
repositioned properties 617,133 735,428 3,032,408 2,265,379
Acquired property
portfolios (3) 190,711 2,406,795 353,886 2,406,795
Property management and
other fees and incentives 35,502 27,095 97,572 72,679
Development management and
other income 7,991 10,321 18,522 23,936
Total revenues 1,104,917 3,462,766 4,287,945 5,588,968
Expenses:
Rental expenses 86,051 75,804 263,704 221,632
Cost of CDFS dispositions:
Developed and
repositioned properties 545,893 573,914 2,482,603 1,642,687
Acquired property
portfolios (3) 190,711 2,338,186 353,886 2,338,186
General and administrative
(4) 57,836 50,208 173,523 146,973
Depreciation of corporate
assets 4,004 2,706 12,155 7,997
Other expenses 3,689 3,550 11,792 21,484
Total expenses 888,184 3,044,368 3,297,663 4,378,959
216,733 418,398 990,282 1,210,009
Other income (expense):
FFO from unconsolidated
property funds (5) 50,067 39,931 128,454 103,800
FFO from CDFS joint
ventures and other
unconsolidated investees 4,824 6,628 5,304 12,684
Interest expense (6) (83,327) (107,964) (252,587) (287,255)
Interest and other income,
net 1,822 11,613 17,082 32,522
Foreign currency exchange
gains (losses), net (3) (3,927) 29,962 (7,732) 21,740
Current income tax expense (11,577) (14,204) (39,443) (55,911)
Total other income
(expense) (42,118) (34,034) (148,922) (172,420)
FFO 174,615 384,364 841,360 1,037,589
Less preferred share
dividends 6,333 6,354 19,071 19,065
Less minority interest share
in (loss) income (1,031) 1,855 (4,510) 2,751
FFO attributable to common
shares $169,313 $376,155 $826,799 $1,015,773
Weighted average common
shares outstanding - Basic 263,139 257,435 261,665 256,270
Weighted average common
shares outstanding -
Diluted 271,279 267,871 270,665 267,177
FFO per share attributable
to common shares:
Basic $0.64 $1.46 $3.16 $3.96
Diluted $0.63 $1.41 $3.07 $3.81
Calculation of FFO per Share Attributable to Common Shares - Diluted
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
FFO attributable to common
shares - Basic $169,313 $376,155 $826,799 $1,015,773
Minority interest attributable
to convertible limited
partnership units 1,427 947 3,665 3,409
FFO attributable to common
shares - Diluted $170,740 $377,102 $830,464 $1,019,182
Weighted average common shares
outstanding - Basic 263,139 257,435 261,665 256,270
Incremental weighted average
effect of conversion of
limited partnership units 5,146 5,011 5,088 5,086
Incremental weighted average
effect of potentially dilutive
instruments 2,994 5,425 3,912 5,821
Weighted average common shares
outstanding - Diluted 271,279 267,871 270,665 267,177
FFO per share attributable to
common shares - Diluted $0.63 $1.41 $3.07 $3.81
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
See our definition of FFO and our definition of EBITDA.
Definition of FFO
FFO is a non-Generally Accepted Accounting Principles (GAAP) measure that
is commonly used in the real estate industry. The most directly comparable
GAAP measure to FFO is net earnings. Although the National Association of
Real Estate Investment Trusts (NAREIT) has published a definition of FFO,
modifications to the NAREIT calculation of FFO are common among REITs, as
companies seek to provide financial measures that meaningfully reflect
their business. FFO, as we define it, is presented as a supplemental
financial measure. FFO is not used by us as, nor should it be considered
to be, an alternative to net earnings computed under GAAP as an indicator
of our operating performance or as an alternative to cash from operating
activities computed under GAAP as an indicator of our ability to fund our
cash needs.
FFO is not meant to represent a comprehensive system of financial
reporting and does not present, nor do we intend it to present, a complete
picture of our financial condition and operating performance. We believe
that GAAP net earnings remains the primary measure of performance and that
FFO is only meaningful when it is used in conjunction with GAAP net
earnings. Further, we believe that our consolidated financial statements,
prepared in accordance with GAAP, provide the most meaningful picture of
our financial condition and our operating performance.
NAREIT's FFO measure adjusts GAAP net earnings to exclude historical cost
depreciation and gains from the sale of previously depreciated properties.
In addition to the NAREIT adjustments, we exclude additional items from
GAAP net earnings, although not infrequent or unusual, that are subject to
significant fluctuations from period to period that cause both positive
and negative effects on our results of operations, in inconsistent and
unpredictable directions, such as deferred income tax, current income tax
related to the reversal of any acquired tax liabilities in an acquisition,
foreign currency exchange gains/losses related to certain debt
transactions and gains/losses from remeasurement of certain derivative
instruments. We include gains from dispositions of properties acquired or
developed in our CDFS business segment in our definition of FFO. We
calculate FFO from our unconsolidated investees on the same basis.
We believe our adjustments to GAAP net earnings that are included in
arriving at our FFO measure are helpful to management in making real
estate investment decisions and evaluating our current operating
performance. We believe these adjustments are also helpful to industry
analysts, potential investors and shareholders in their understanding and
evaluation of our performance on the key measures of net asset value and
current operating returns generated on real estate investments. While we
believe that our defined FFO measure is an important supplemental measure,
neither NAREIT's nor our measure of FFO should be used alone because they
exclude significant economic components of GAAP net earnings and are,
therefore, limited as an analytical tool.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Reconciliations of Net Earnings to FFO
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Reconciliation of net earnings
to FFO:
Net earnings attributable to
common shares $43,472 $299,444 $454,869 $935,639
Add (deduct) NAREIT defined
adjustments:
Real estate related
depreciation and
amortization 77,885 69,146 231,738 215,613
Adjustments to gains on CDFS
dispositions for
depreciation - (1,246) (1,710) (3,583)
Gains recognized on
dispositions of certain non-
CDFS business assets (1,152) (21,289) (5,814) (145,374)
Reconciling items
attributable to discontinued
operations (8):
Gains recognized on
dispositions of non-CDFS
business assets (2,492) (6,607) (8,161) (38,732)
Real estate related
depreciation and
amortization 41 652 636 3,835
Total discontinued
operations (2,451) (5,955) (7,525) (34,897)
Our share of reconciling
items from unconsolidated
investees:
Real estate related
depreciation and
amortization 37,596 24,460 103,908 63,669
(Gains) adjustments on
dispositions of non-CDFS
business assets 2 (32,603) (163) (34,491)
Other amortization items (4,433) (2,427) (12,503) (6,376)
Total unconsolidated
investees 33,165 (10,570) 91,242 22,802
Total NAREIT defined
adjustments 107,447 30,086 307,931 54,561
Subtotal-NAREIT
defined FFO 150,919 329,530 762,800 990,200
Add (deduct) our defined
adjustments:
Foreign currency exchange
losses, net 6,417 28,971 27,218 11,595
Current income tax expense(9) - - 9,658 3,038
Deferred income tax expense 10,742 11,892 19,478 5,710
Our share of reconciling
items from unconsolidated
investees:
Foreign currency exchange
losses, net 953 6,002 2,413 5,829
Unrealized losses on
derivative contracts, net(5) 183 - 4,998 -
Deferred income tax expense
(benefit) 99 (240) 234 (599)
Total unconsolidated
investees 1,235 5,762 7,645 5,230
Total our defined
adjustments 18,394 46,625 63,999 25,573
FFO attributable to common
shares $169,313 $376,155 $826,799 $1,015,773
See Consolidated Statements of Earnings, Consolidated Statements of FFO
and the definition of FFO.
See our definition of FFO and our definition of EBITDA.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Reconciliations of Net Earnings to EBITDA
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Reconciliation of net earnings
to EBITDA:
Net earnings attributable to
common shares $43,472 $299,444 $454,869 $935,639
Add (deduct):
NAREIT defined
adjustments to compute
FFO 107,447 30,086 307,931 54,561
Our defined adjustments
to compute FFO 18,394 46,625 63,999 25,573
Add:
Interest expense 83,327 107,964 252,587 287,255
Depreciation of corporate
assets 4,004 2,706 12,155 7,997
Current income tax
expense included in FFO 11,577 14,204 39,443 55,911
Adjustments to CDFS gains
on dispositions for
interest capitalized 12,195 14,458 44,995 32,632
Preferred share dividends 6,333 6,354 19,071 19,065
Impairment charges - - - 12,600
Share of reconciling
items from
unconsolidated investees 52,554 34,188 140,088 84,165
EBITDA $339,303 $556,029 $1,335,138 $1,515,398
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
See our definition of FFO and our definition of EBITDA.
Definition of EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization):
We use earnings before interest, taxes, depreciation and amortization, preferred dividends, unrealized foreign currency exchange gains/losses, impairment charges and non-CDFS gains, or EBITDA, to measure both our operating performance and liquidity. In addition, we adjust the gains from the contributions and sales of developed properties recognized as CDFS income to reflect these gains as if no interest cost had been capitalized during the development of the properties. EBITDA of our unconsolidated investees is calculated on the same basis. We consider EBITDA to provide investors relevant and useful information because it permits fixed income investors to view income from operations on an unleveraged basis before the effects of non-operating related items.
By excluding interest expense, EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allows for a more meaningful comparison of our operating performance between periods and to compare our operating performance to that of other companies. We consider EBITDA to be a useful supplemental measure for reviewing our comparative performance with other companies because, by excluding non-cash depreciation expense, EBITDA can help the investing public compare the performance of a real estate company to that of companies in other industries. As a liquidity measure, we believe that EBITDA helps investors to analyze our ability to meet debt service obligations and to make quarterly distributions.
We use EBITDA when measuring our operating performance and liquidity; specifically when assessing our operating performance, and comparing that performance to other companies, both in the real estate industry and in other industries, and when evaluating our ability to meet debt service obligations and to make quarterly share distributions. We believe investors should consider EBITDA, which has limitations as an analytical tool, in conjunction with net income (the primary measure of our performance) and other GAAP measures of our performance and liquidity, to improve their understanding of our operating results and liquidity, and to make more meaningful comparisons of the performance of our assets between periods and against other companies.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, December 31,
2008 2007
Assets:
Investments in real estate assets:
Industrial operating properties $11,356,918 $11,046,331
Retail operating properties 330,681 328,420
Land subject to ground leases
and other 404,422 412,530
Properties under development
(including cost of land) 1,871,141 1,986,285
Land held for development 2,712,379 2,152,960
Other investments 610,043 652,319
17,285,584 16,578,845
Less accumulated depreciation 1,523,778 1,368,458
Net investments in real
estate assets 15,761,806 15,210,387
Investments in and advances to
unconsolidated investees:
Property funds 1,865,609 1,755,113
CDFS joint ventures and other
unconsolidated investees 704,962 590,164
Total investments in and
advances to unconsolidated
investees 2,570,571 2,345,277
Cash and cash equivalents 341,087 399,910
Accounts and notes receivable 301,116 340,039
Other assets 1,490,996 1,408,814
Discontinued operations - assets
held for sale (8) 1,487 19,607
Total assets $20,467,063 $19,724,034
Liabilities and Shareholders' Equity:
Liabilities:
Lines of credit $2,979,643 $2,564,360
Senior notes and other unsecured
debt 4,290,929 4,281,884
Convertible debt 2,884,055 2,332,905
Secured debt and assessment
bonds 943,274 1,326,919
Accounts payable and accrued
expenses 925,365 933,075
Other liabilities 759,887 769,408
Discontinued operations - assets
held for sale (8) 38 424
Total liabilities 12,783,191 12,208,975
Minority interest 111,615 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 2,627 2,577
Additional paid-in capital 6,660,352 6,412,473
Accumulated other comprehensive
income 122,619 275,322
Retained earnings 436,659 396,026
Total shareholders' equity 7,572,257 7,436,398
Total liabilities and
shareholders' equity $20,467,063 $19,724,034
Footnotes follow Consolidated Balance Sheets.
ProLogis
Third Quarter 2008
Unaudited Financial Results
Notes to Consolidated 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 included in this Supplemental Information package have been
reclassified to conform to the 2008 presentation.
(1) The annual distribution rate for 2008 is $2.07 per common share. The
payment of common share distributions is dependent upon our financial
condition and operating results and may be adjusted at the discretion
of the Board of Trustees during the year. In September 2008, the Board
of Trustees increased the distribution for 2009 to $2.28 per common
share.
(2) In our Consolidated Statements of Earnings, rental income includes the
following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Rental income $186,906 $212,196 $579,196 $611,233
Rental expense recoveries 57,684 57,790 180,366 162,655
Straight-lined rents 8,909 10,528 24,661 33,789
$253,499 $280,514 $784,223 $807,677
(3) In the third quarter of 2007, we acquired all of the units in
Macquarie ProLogis Trust, an Australian listed property trust ("MPR"),
which had an 88.7% ownership interest in ProLogis North American
Properties Fund V. The total consideration was approximately $2.0
billion consisting of cash in the amount of $1.2 billion and assumed
liabilities of $0.8 billion. We entered into foreign currency forward
contracts to economically hedge the purchase price of MPR. As this
type of contract does not qualify for hedge accounting treatment, we
recognized a gain of $26.6 million upon settlement, which is included
in Foreign Currency Exchange Gains and Losses, Net in our Consolidated
Statements of Earnings and FFO in 2007.
As a result of the MPR transaction, we owned 100% and consolidated the
results of the assets for approximately two months, at which time the
lender converted certain of the bridge debt into equity of a new
property fund, ProLogis North American Industrial Fund II, in which we
currently have a 36.9% equity interest. Upon conversion by the lender
in the third quarter of 2007, we recognized net gains of $68.6 million
that are reflected as Proceeds and Costs of CDFS Acquired Property
Portfolios.
(4) During the first nine months of 2008 and 2007, we recorded $6.3
million and $8.0 million, respectively, of employee departure costs.
In 2008, these costs relate to the planned retirement of our Chief
Operating Officer in January 2009. In 2007, these costs include $5.0
million related to the departure of our Chief Financial Officer in
March 2007 and $3.0 million related to other employees.
(5) In the third quarter of 2007, PEPR disposed of 47 properties resulting
in a net gain. We recognized our proportionate share of the gain,
which amounted to additional earnings of $38.2 million and additional
FFO of $8.0 million.
In 2007, certain property funds in North America issued short-term
bridge financing to finance their acquisitions of properties from us
and third parties and entered into interest rate swap contracts that
were designated as cash flow hedges to mitigate the volatility in
interest rates. Based on the anticipated refinancing of the bridge
financings with long-term debt issuances, certain of these derivative
contracts no longer met the requirements for hedge accounting during
2008 and, therefore, the change in the fair value of these contracts
was recorded through earnings, along with the gain or loss on
settlement of the contracts. Included in earnings from unconsolidated
property funds, in our Consolidated Statements of Earnings for the
three and nine months ended September 30, 2008, are losses of $0.7
million and $15.4 million, respectively, representing our share of the
remeasurement and settlement gains or losses. When the contracts are
settled, we include the realized gain or loss in our calculation of
FFO, which amounted to losses of $2.3 million and $8.1 million during
the three and nine months ended September 30, 2008, respectively.
In Japan, the property funds may enter into swap contracts that fix
the interest rate of their variable rate debt. As these contracts did
not qualify for hedge accounting, any change in value of these
contracts is recognized as an unrealized gain or loss on
remeasurement. These contracts have no cash settlement at the end of
the contract, and therefore, no impact on FFO. Included in earnings
from unconsolidated property funds, in our Consolidated Statements of
Earnings, are remeasurement losses of $1.7 million and gains of $2.3
million for the three and nine months ended September 30, 2008,
respectively, representing our share of the remeasurement gains or
losses of these contracts.
(6) The following table presents the components of interest expense as
reflected in our Consolidated Statements of Earnings (in thousands).
The decrease in interest expense before capitalization is primarily
the result of additional interest costs in 2007 related to the MPR
transaction discussed in note 3 above offset with increased borrowing
(a function of increased development activities, partially offset by
contribution activity) at lower rates due to the issuance of $2.9
billion of convertible debt in 2007 and 2008. The increase in
development activities also accounts for the increased capitalized
interest.
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Gross interest expense $122,170 $137,262 $367,215 $370,138
Net premium amortization 957 (1,126) (1,593) (6,813)
Amortization of deferred
loan costs 3,187 2,536 9,140 7,827
Interest expense before
capitalization 126,314 138,672 374,762 371,152
Less: capitalized amounts (42,987) (30,708) (122,175) (83,897)
Net interest expense $83,327 $107,964 $252,587 $287,255
In May 2008, the Financial Accounting Standards Board 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 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 an additional non-
cash interest expense, for purposes of calculating earnings, of
between $64 million and $82 million per annum, prior to the
capitalization of interest due to our development activities. Prior
periods will be restated for the partial year impact.
(7) In addition to contributions of CDFS properties, from time to time, we
contribute properties from our property operations segment to
unconsolidated property funds in which we have continuing interests
through our equity ownership. During the nine months ended September
30, 2008, we contributed one such property to the ProLogis Mexico
Industrial Fund. During the nine months ended September 30, 2007, we
contributed 66 non-CDFS properties to ProLogis North American
Industrial Fund. The gains related to the dispositions of properties
from our property operations segment are included in earnings but are
not included in our calculation of FFO. See our definition of FFO.
(8) 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 Earnings for all periods presented, unless the property
was developed under a pre-sale agreement. During the first nine months
of 2008, we disposed of nine properties to third parties, two of which
were CDFS properties, as well as land subject to a ground lease.
During the full year of 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 one property and two properties classified as
held for sale on our Consolidated Balance Sheets as of September 30,
2008 and December 31, 2007, respectively. The two properties
classified as held for sale at December 31, 2007 were sold during the
first quarter of 2008.
The components that are presented as discontinued operations
(excluding the gains recognized upon disposition) are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Rental income $81 $2,613 $1,334 $12,502
Rental expenses (229) (969) (994) (4,974)
Depreciation and amortization (41) (652) (636) (3,835)
$(189) $992 $(296) $3,693
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.
(9) 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 October 23, 2008