ProLogis Reports Year-Over-Year Growth in FFO per Share of 24.6 Percent for 2007
- Solid Property Fundamentals, Strong Development Profits and Significant Increase in Assets Owned, Managed and Under Development Drive Results -
DENVER, Feb. 7 /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 year ended December 31, 2007 of $4.61 per diluted share, up 24.6 percent from $3.70 in 2006. For the year, net earnings per diluted share were $3.94, an increase of 18.7 percent compared with $3.32 in 2006.
For the fourth quarter ended December 31, 2007, FFO was $0.79 per diluted share, compared with $1.11 in the fourth quarter of 2006. Net earnings per diluted share were $0.43 for the fourth quarter of 2007, compared with $1.28 in the fourth quarter of 2006. Both net earnings and FFO for the fourth quarter of 2006 included a $0.42 per share incentive return associated with the Initial Public Offering of ProLogis European Properties Fund (PEPR). Fourth quarter 2006 earnings also included $0.35 per share associated with gains from dispositions of assets that were not recognized in FFO, while fourth quarter 2007 earnings included $0.06 per share from this type of disposition activity.
"Our financial and operating results for the fourth quarter and full year reflect the strong market fundamentals that continued throughout 2007," said Jeffrey H. Schwartz, ProLogis chairman and chief executive officer. "We maintained high occupancy levels with solid rent growth, achieved above-average CDFS margins and substantially grew income and fees from our Investment Management business."
Schwartz noted that growth in global trade and ongoing reconfiguration of supply chains continue to support demand for distribution space in major logistics markets. "Globally, customers continue to seek solutions for more efficient distribution. The persistent lack of modern distribution facilities throughout Europe and Asia creates opportunities to deepen our presence in existing markets, while the breadth of our international operations enables us to deploy capital in those markets exhibiting the strongest demand for new space.
"In the United States, property market fundamentals remain stable, with supply and demand generally in balance, and new speculative starts have been disciplined thus far. However, we are cautious with respect to the U.S. economy and continue to closely monitor market conditions. We anticipate that 80 to 85 percent of our new development in 2008 will be outside the United States, positioning us for future growth and mitigating the impact of a more pronounced domestic downturn," Schwartz said.
Business Drivers Support 2008 Guidance
Additionally, the company provided details for the key business drivers and assumptions that support its previously announced 2008 guidance of $4.65 to $4.85 in FFO per share and $3.15 to $3.35 in earnings per share. Please see http://ir.prologis.com/investors/business_drivers.cfm for additional information.
Walter C. Rakowich to Retire in 2009
Also today, the company announced the planned retirement of Walter C. Rakowich as president and chief operating officer, effective January 2, 2009. "It has been my great pleasure to have worked with Walt from the earliest days of the company's formation," said Schwartz. "He has been a great partner and will always be a great friend. We have worked closely for the last year in planning his succession and the transition toward his planned pursuit of civic and philanthropic endeavors. He will continue to be actively engaged, as usual, this year in driving our business forward."
"For the past 15 years, I have dedicated myself to the growth of our company. I have been immensely gratified to see ProLogis evolve into a truly global real estate enterprise and have never been more confident about its prospects for continued success," said Rakowich. "I plan to leave ProLogis at the beginning of next year to focus my time on family affairs and global philanthropy. I would like to thank the ProLogis Board, our shareholders and my colleagues at ProLogis for the opportunity to be a part of building one of the great global enterprises operating today. I look forward to helping to make it even stronger this year."
Expanded Investment Management Business will be Key Driver of Growth
During the year, the company grew its Investment Management business from $12.3 billion to $19.0 billion of assets under management in property funds and significantly expanded the capacity of this business segment with the repositioning of one fund and the formation of four new property funds. These new funds, together with capacity in ProLogis' existing funds, will allow the company to grow assets under management to $33 billion over the next two to three years, driving growth in ProLogis' share of income from funds and management fees.
International Expansion and Build-to-Suit Opportunities Support Development Targets
"In North America, net absorption in the top 30 logistics markets declined slightly but remained healthy at roughly 26 million square feet during the fourth quarter," Rakowich said. "While vacancies in these 30 markets edged up to 7.8 percent from 7.5 percent last quarter, ProLogis' stabilized portfolio in North America is well leased at 95.9 percent and rents continue to grow. Given our more cautious outlook for the U.S. market, we have enhanced our focus on build-to-suit business and expect as much as 30 to 35 percent of our 2008 U.S. starts will be on a pre-committed basis, thereby minimizing exposure to softer market conditions.
"We also are seeing increased demand for build-to-suit development outside the United States," said Ted R. Antenucci, ProLogis chief investment officer. "During the year, we successfully increased our build-to-suit activity in markets such as the United Kingdom, Germany, France and Japan. In emerging markets such as China, South Korea and Central Europe, increasing domestic consumption continues to support strong demand for distribution space, and our inventory developments in these markets are leasing up quickly."
During 2007, ProLogis began construction of $4.1 billion of new development, including $111 million of development within its industrial joint ventures and $169 million of retail and mixed use development, including $113 million within joint ventures. The company's total CDFS asset pipeline reached $7.6 billion at the end of the quarter. Of this amount, total expected investment in projects currently under construction is $3.9 billion, while the remaining $3.7 billion of completed developments and repositioned properties was 62.2 percent leased at quarter end.
"Leasing in our pipeline of recently completed projects and properties under development remains stable with the majority of projects reaching full occupancy well within our targeted timeframes," Antenucci said. "Due to the opportunities we continue to see in many of the world's key distribution markets, we plan to begin new development of $4.4 to $4.8 billion in 2008, including retail and industrial joint venture developments."
During the year, the company signed approximately 32.9 million square feet of new CDFS leases, including those with repeat customers such as: Yamato Logistics in Tokyo, Japan; Yum! Brands in Qingdao, China; Wincanton Logistics in Strasbourg, France and Pactiv Corporation in Chicago, Illinois. "Repeat business continues to drive leasing in our new development, as 54 percent of the new CDFS leases signed during the year were with existing customers," said William E. Sullivan, chief financial officer.
Selected Financial and Operating Information
-- Increased same-store net operating income in the quarter by 4.0 percent
driven by 2.3 percent growth in average same-store occupancies and
same-store rent growth of 5.6 percent on turnovers. Grew average
full-year, same-store net operating income by 5.2 percent with a 2.9
percent increase in same-store occupancies and 8.0 percent same-store
rent growth on turnovers.
-- Maintained strong occupancy in the stabilized portfolio of
95.6 percent, compared with 95.5 percent at September 30, 2007.
-- Recycled a total of $6.1 billion of capital through contributions and
dispositions during the year. Of that, $5.4 billion was from CDFS
dispositions with $2.5 billion of that from acquired property
portfolios. The remaining $648.9 million was from non-CDFS
dispositions.
-- Realized FFO from CDFS dispositions of $786.2 million for the full
year, up from $326.9 million in 2006. Full year, post-deferral,
post-tax margins for all CDFS dispositions averaged 17.1 percent, with
developed and repositioned properties averaging 34.0 percent and
acquired property portfolios averaging 2.9 percent.
-- Grew ProLogis' share of FFO from property funds to $149.4 million for
the year, compared with $127.9 million in 2006, which included
$27.9 million from the recapitalization of North American Funds II -
IV. Excluding the fund transaction, FFO for funds increased by
49.4 percent.
-- Recognized fee income from property funds for the year of
$104.7 million, compared with $211.9 million in 2006, which included
incentive fees of $131.2 million from the PEPR IPO and North American
fund transaction noted above. Excluding these items, fee income
increased 29.7 percent for the year.
-- Increased total assets owned and under management to $36.3 billion, up
from $26.7 billion at December 31, 2006, an increase of 36.0 percent.
Copies of ProLogis' fourth quarter/year-end 2007 supplemental information will be available from the company's website at http://ir.prologis.com or by request at 800-820-0181. 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, February 7, 2008. A replay of the webcast will be available on the company's website until February 21, 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 118 markets across North America, Europe and Asia. The company has $36.3 billion of assets owned, managed and under development, comprising 508.8 million square feet (47.3 million square meters) in 2,766 properties as of December 31, 2007. 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 approximately 1,535 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, 2006.
ProLogis
Fourth Quarter 2007
Unaudited Financial Results
Selected Financial Information
(in thousands, except per share amounts and percentages)
Three Months Ended Twelve Months Ended
SUMMARY OF RESULTS December 31, December 31,
2007 2006 2007 2006
Net earnings attributable
to common shares:
Net earnings attributable
to common shares $113,278 $331,090 $1,048,917 $848,951
Net earnings per share
attributable to common
shares - diluted $ 0.43 $ 1.28 $ 3.94 $ 3.32
FFO and FFO, as adjusted:
FFO attributable to
common shares $211,235 $288,885 $1,227,008 $945,148
FFO attributable to
common shares, as
adjusted (1) $211,235 $288,885 $1,227,008 $947,871
FFO per share
attributable to common
shares, as adjusted -
diluted $ 0.79 $ 1.11 $ 4.61 $ 3.70
Distributions declared
per common share (2) $ 0.46 $ 0.40 $ 1.84 $ 1.60
OPERATING METRICS Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Increases in:
Same Store NOI 4.01% 2.67% 5.21% 3.07%
Same Store Rent 5.62% 5.80% 7.98% 2.60%
Same Store Average
Occupancy 2.33% 1.25% 2.90% 2.55%
Total Expected
Investment of
Development Starts $2,056,429 $786,131 $4,119,380 $2,515,385
See our definition of FFO and our definition of EBITDA.
Footnotes follow Consolidated Balance Sheets.
ProLogis
Fourth Quarter 2007
Unaudited Financial Results
Consolidated Statements of Earnings
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Revenues:
Rental income(6) $ 258,563 $239,821 $1,067,865 $ 910,202
CDFS disposition proceeds:
Developed and repositioned
properties 438,296 236,137 2,530,377 1,286,841
Acquired property
portfolios(5) 68,240 - 2,475,035 -
Property management and
other fees and incentives(7) 32,040 132,611 104,719 211,929
Development management and
other income 2,734 10,895 26,670 37,420
Total revenues 799,873 619,464 6,204,666 2,446,392
Expenses:
Rental expenses 70,100 64,484 288,569 239,221
Cost of CDFS dispositions:
Developed and repositioned
properties 346,931 172,872 1,835,274 993,926
Acquired property
portfolios(5) 68,240 - 2,406,426 -
General and
administrative(1)(8) 57,585 44,932 204,558 153,516
Depreciation and amortization 84,358 79,558 308,971 286,807
Other expenses(9) 3,479 4,089 24,963 13,013
Total expenses 630,693 365,935 5,068,761 1,686,483
Operating income 169,180 253,529 1,135,905 759,909
Other income (expense):
Earnings from unconsolidated
property funds(10) 12,997 14,426 94,453 93,055
Earnings from CDFS joint
ventures and other
unconsolidated investees 4,169 3,692 11,165 50,703
Interest expense(11) (80,810) (77,470) (368,065) (294,403)
Interest and other income,
net 1,479 11,146 34,001 34,978
Total other income
(expense) (62,165) (48,206) (228,446) (115,667)
Earnings before minority
interest 107,015 205,323 907,459 644,242
Minority interest (3,252) (916) (6,003) (3,457)
Earnings before certain net
gains 103,763 204,407 901,456 640,785
Gains recognized on
dispositions of certain
non-CDFS business assets(12) 1,293 67,761 146,667 81,470
Foreign currency exchange gains
(losses), net(5) (2,230) 4,637 7,915 21,086
Earnings before income taxes 102,826 276,805 1,056,038 743,341
Income taxes:
Current income tax expense 9,400 8,337 68,349 84,250
Deferred income tax
(benefit) expense (5,160) (36,942) 550 (53,722)
Total income taxes 4,240 (28,605) 68,899 30,528
Earnings from continuing
operations 98,586 305,410 987,139 712,813
Discontinued operations(13):
Income attributable to
disposed properties and
assets held for sale 822 5,006 5,704 24,311
Gains recognized on
dispositions:
Non-CDFS business assets 14,044 23,692 52,776 103,729
CDFS business assets 6,184 3,336 28,721 33,514
Total discontinued
operations 21,050 32,034 87,201 161,554
Net earnings 119,636 337,444 1,074,340 874,367
Less preferred share dividends 6,358 6,354 25,423 25,416
Net earnings attributable to
common shares $ 113,278 $331,090 $1,048,917 $ 848,951
Weighted average common shares
outstanding - Basic 258,110 249,021 256,873 245,952
Weighted average common shares
outstanding - Diluted 268,293 260,218 267,226 256,852
Net earnings per share
attributable to common shares
- Basic:
Continuing operations $ 0.36 $ 1.20 $ 3.74 $ 2.79
Discontinued operations 0.08 0.13 0.34 0.66
Net earnings per share
attributable to common
shares - Basic $ 0.44 $ 1.33 $ 4.08 $ 3.45
Net earnings per share
attributable to common shares
- Diluted:
Continuing operations $ 0.35 $ 1.16 $ 3.61 $ 2.69
Discontinued operations 0.08 0.12 0.33 0.63
Net earnings per share
attributable to common
shares - Diluted $ 0.43 $ 1.28 $ 3.94 $ 3.32
Footnotes follow Consolidated Balance Sheets.
Calculation of Net Earnings per Share Attributable to Common Shares - Diluted
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Net earnings attributable to
common shares - Basic $ 113,278 $ 331,090 $1,048,917 $ 848,951
Minority interest (a) 1,404 916 4,813 3,457
Adjusted net earnings
attributable to common shares
- Diluted $ 114,682 $ 332,006 $1,053,730 $ 852,408
Weighted average common shares
outstanding - Basic 258,110 249,021 256,873 245,952
Incremental weighted average
effect of conversion of limited
partnership units 5,053 5,139 5,078 5,198
Incremental weighted average
effect of potentially dilutive
instruments (b) 5,130 6,058 5,275 5,702
Weighted average common shares
outstanding - Diluted 268,293 260,218 267,226 256,852
Net earnings per share
attributable to common shares
- Diluted $ 0.43 $ 1.28 $ 3.94 $ 3.32
COMMENTS
(a) Includes only the minority interest related to the convertible
limited partnership units.
(b) Total weighted average potentially dilutive instruments outstanding
were 9,775 and 10,679 for the three months ended December 31, 2007
and 2006, respectively, and 10,098 and 10,909 for the twelve months
ended December 31, 2007 and 2006 respectively. Substantially all
were dilutive for both periods.
ProLogis
Fourth Quarter 2007
Unaudited Financial Results
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Revenues:
Rental income $ 259,781 $ 249,706 $1,079,960 $ 973,062
CDFS disposition proceeds:
Developed and
repositioned properties 470,772 259,024 2,736,151 1,532,807
Acquired property
portfolios(5) 68,240 - 2,475,035 -
Property management and
other fees and
incentives(7) 32,040 132,611 104,719 211,929
Development management and
other income 2,734 10,895 26,670 37,420
Total revenues 833,567 652,236 6,422,535 2,755,218
Expenses:
Rental expenses 70,432 67,603 292,064 265,361
Cost of CDFS dispositions:
Developed and repositioned
properties 375,836 192,423 2,018,523 1,205,912
Acquired property
portfolios(5) 68,240 - 2,406,426 -
General and
administrative(1)(8) 57,585 44,932 204,558 153,516
Depreciation of corporate
assets 2,885 2,310 10,882 9,326
Other expenses(9) 3,479 4,089 24,963 13,013
Total expenses 578,457 311,357 4,957,416 1,647,128
255,110 340,879 1,465,119 1,108,090
Other income (expense):
FFO from unconsolidated
property funds(10) 45,600 29,438 149,400 127,905
FFO from CDFS joint ventures
and other unconsolidated
investees 6,307 6,302 18,991 57,853
Interest expense(11) (80,810) (77,470) (368,065) (295,277)
Interest and other income,
net 1,479 11,146 34,001 34,978
Foreign currency exchange
gains (losses), net(5) 2,559 (5,803) 24,299 1,531
Current income tax expense (9,400) (8,337) (65,311) (61,059)
Total other income
(expense) (34,265) (44,724) (206,685) (134,069)
FFO 220,845 296,155 1,258,434 974,021
Less preferred share dividends 6,358 6,354 25,423 25,416
Less minority interest 3,252 916 6,003 3,457
FFO attributable to common
shares $ 211,235 $ 288,885 $1,227,008 $ 945,148
Weighted average common shares
outstanding - Basic 258,110 249,021 256,873 245,952
Weighted average common shares
outstanding - Diluted 268,293 260,218 267,226 256,852
FFO per share attributable to
common shares:
Basic $ 0.82 $ 1.16 $ 4.78 $ 3.84
Diluted $ 0.79 $ 1.11 $ 4.61 $ 3.69
Calculation of FFO per Share Attributable to Common Shares - Diluted
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
FFO attributable to common
shares - Basic $ 211,235 $ 288,885 $1,227,008 $ 945,148
Minority interest attributable
to convertible limited
partnership units 1,404 916 4,813 3,457
FFO attributable to common
shares - Diluted 212,639 289,801 1,231,821 948,605
Merger integration and
relocation expenses(1) - - - 2,723
FFO attributable to common
shares, as adjusted
- Diluted $ 212,639 $ 289,801 $1,231,821 $ 951,328
Weighted average common shares
outstanding - Diluted 268,293 260,218 267,226 256,852
FFO per share attributable to
common shares - Diluted $ 0.79 $ 1.11 $ 4.61 $ 3.69
FFO per share attributable to
common shares, as adjusted
- Diluted $ 0.79 $ 1.11 $ 4.61 $ 3.70
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
Footnotes follow Consolidated Balance Sheets.
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 foreign currency exchange gains/losses from remeasurement
of 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
Fourth Quarter 2007
Unaudited Financial Results
Reconciliations of Net Earnings to FFO
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Reconciliation of net earnings
to FFO:
Net earnings attributable to
common shares $ 113,278 $ 331,090 $1,048,917 $ 848,951
Add (deduct) NAREIT defined
adjustments:
Real estate related
depreciation and
amortization 81,473 77,248 298,089 277,481
Adjustments to CDFS
dispositions for
depreciation (2,613) - (6,196) 466
Gains recognized on
dispositions of certain
non-CDFS business assets(12) (1,293) (67,761) (146,667) (81,470)
Reconciling items
attributable to discontinued
operations(13):
Gains recognized on
dispositions of non-CDFS
business assets (14,044) (23,692) (52,776) (103,729)
Real estate related
depreciation and
amortization 63 1,760 2,896 11,535
Total discontinued
operations (13,981) (21,932) (49,880) (92,194)
Our share of reconciling
items from unconsolidated
investees:
Real estate related
depreciation and
amortization 35,357 20,317 99,026 68,151
Gains on dispositions of
non-CDFS business assets (1,181) (371) (35,672) (7,124)
Other amortization items (2,355) (1,801) (8,731) (16,000)
Total unconsolidated
investees 31,821 18,145 54,623 45,027
Total NAREIT defined
adjustments 95,407 5,700 149,969 149,310
Subtotal-NAREIT
defined FFO 208,685 336,790 1,198,886 998,261
Add (deduct) our defined
adjustments:
Foreign currency exchange
losses (gains), net 4,789 (10,440) 16,384 (19,555)
Current income tax expense - - 3,038 23,191
Deferred income tax expense
(benefit) (5,160) (36,942) 550 (53,722)
Our share of reconciling
items from unconsolidated
investees:
Foreign currency exchange
losses (gains), net (4,005) (175) 1,823 (45)
Deferred income tax expense
(benefit) 6,926 (348) 6,327 (2,982)
Total unconsolidated
investees 2,921 (523) 8,150 (3,027)
Total our defined
adjustments 2,550 (47,905) 28,122 (53,113)
FFO attributable to common
shares $211,235 $288,885 $1,227,008 $945,148
See Consolidated Statements of Earnings, Consolidated Statements of FFO
and the definition of FFO.
Footnotes follow Consolidated Balance Sheets.
ProLogis
Fourth Quarter 2007
Unaudited Financial Results
Reconciliations of Net Earnings to EBITDA
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Reconciliation of net earnings
to EBITDA:
Net earnings attributable to
common shares $ 113,278 $ 331,090 $1,048,917 $ 848,951
Add (deduct):
NAREIT defined adjustments
to compute FFO 95,407 5,700 149,969 149,310
Our defined adjustments to
compute FFO 2,550 (47,905) 28,122 (53,113)
Add:
Interest expense 80,810 77,470 368,065 294,403
Depreciation of corporate
assets 2,885 2,310 10,882 9,326
Current income tax expense
included in FFO 9,400 8,337 65,311 61,059
Adjustments to CDFS gains
on dispositions for
interest capitalized 11,036 3,164 43,669 28,591
Preferred share dividends 6,358 6,354 25,423 25,416
Reconciling items
attributable to
discontinued operations - - - 874
Impairment charges(9) 659 1,947 13,259 6,121
Share of reconciling items
from unconsolidated
investees 43,393 22,910 127,558 76,841
EBITDA $ 365,776 $ 411,377 $1,881,175 $1,447,779
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
Footnotes follow Consolidated Balance Sheets.
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
Fourth Quarter 2007
Unaudited Financial Results
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, December 31,
2007(3) 2006
Assets:
Investments in real estate assets:
Industrial operating properties $11,000,079 $10,345,705
Retail operating properties 328,420 305,188
Land subject to ground leases
and other 458,782 472,412
Properties under development
(including cost of land) 1,986,285 964,842
Land held for development 2,152,960 1,397,081
Other investments 652,319 411,863
16,578,845 13,897,091
Less accumulated depreciation 1,368,458 1,264,227
Net investments in real
estate assets 15,210,387 12,632,864
Investments in and advances to
unconsolidated investees:
Property funds(4)(5) 1,755,113 981,840
CDFS joint ventures and other
unconsolidated investees 590,164 317,857
Total investments in and
advances to unconsolidated
investees 2,345,277 1,299,697
Cash and cash equivalents 418,991 475,791
Accounts and notes receivable 340,039 439,791
Other assets 1,389,733 998,224
Discontinued operations - assets
held for sale(13) 19,607 57,158
Total assets $19,724,034 $15,903,525
Liabilities and Shareholders' Equity:
Liabilities:
Lines of credit $ 1,955,138 $ 2,462,796
Senior notes and other unsecured
debt 4,891,106 4,445,092
Convertible debt 2,332,905 -
Secured debt and assessment
bonds 1,326,919 1,478,998
Accounts payable and accrued
expenses 933,075 518,651
Other liabilities 769,408 546,129
Discontinued operations - assets
held for sale(13) 424 1,012
Total liabilities 12,208,975 9,452,678
Minority interest 78,661 52,268
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 2,577 2,509
Additional paid-in capital 6,412,473 6,000,119
Accumulated other comprehensive income 275,322 216,922
Retained earnings/(distributions
in excess of net earnings) 396,026 (170,971)
Total shareholders' equity 7,436,398 6,398,579
Total liabilities and
shareholders' equity $19,724,034 $15,903,525
Footnotes follow Consolidated Balance Sheets.
ProLogis
Fourth Quarter 2007
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 on ProLogis and our business. Certain
2006 amounts included in this Supplemental Information package have
been reclassified to conform to the 2007 presentation.
(1) In September 2005, we completed a merger with Catellus Development
Corporation and incurred certain costs including merger integration,
employee transition costs and severance costs for certain of our
employees whose responsibilities became redundant after the merger.
In February 2006, we moved our corporate headquarters, which is
located in Denver, to a recently constructed building. Relocation
costs included moving, temporary facility costs and accelerated
depreciation associated with non-real estate assets whose useful
life was shortened due to the relocation.
These amounts, which total $2.7 million, are included in General and
Administrative Expenses in our 2006 Consolidated Statements of
Earnings and FFO. In our calculation of 2006 "FFO, as adjusted", we
have removed these expenses. There were no adjustments made to FFO
in 2007.
(2) The annual distribution rate for 2007 was $1.84 per common share. In
December 2007, the Board of Trustees increased the distribution for
2008 to $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.
(3) In February 2007, we purchased the industrial business and made an
investment in the retail business of Parkridge Holdings Limited
("Parkridge"), a European developer. The total purchase price was
$1.3 billion.
(4) During 2007, we repositioned one property fund (see note 5 below)
and formed four new property funds in North America, Europe and
Asia. We will serve as external manager of these funds, receive
property and asset management fees and have the potential to receive
incentive performance fees.
(5) On July 11, 2007, we closed on the acquisition of 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 in
2007 upon settlement.
As a result of the MPR transaction, we owned 100% 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.
(6) In our Consolidated Statements of Earnings, Rental Income includes
the following (in thousands):
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Rental income $193,143 $180,658 $805,787 $694,366
Rental expense recoveries 55,062 48,786 217,840 179,967
Straight-lined rents 10,358 10,377 44,238 35,869
$258,563 $239,821 $1,067,865 $910,202
(7) Included in 2006 are $22.0 million of performance incentive fees we
recognized in the first quarter related to the termination of three
of our property funds. On January 4, 2006, we purchased the 80%
ownership interests in these property funds from our fund partner
and on March 1, 2006, we contributed substantially all of the assets
and associated liabilities to the newly formed ProLogis North
American Industrial Fund (see also note 10). Also included in 2006
is an incentive return that we recognized related to the initial
public offering of ProLogis European Properties Fund ("PEPR"). As
the manager of the property fund, we were entitled to an incentive
return of $109.2 million that we recognized in the fourth quarter of
2006 and which we received in cash and ordinary units from the
pre-IPO unitholders.
(8) During the first quarter of 2007, we recorded $8.0 million of
employee departure costs, including $5.0 million related to the
departure of our Chief Financial Officer in March 2007 and $3.0
million related to employees whose responsibilities became redundant
after the acquisition of Parkridge.
(9) During 2007, we recognized impairment charges of $13.3 million
principally related to certain properties in our property operations
segment.
(10) In July 2007, PEPR sold a portfolio of 47 properties. Our share of
the gain recognized by PEPR was $38.2 million for earnings and $8.0
million for FFO. Included in 2006 is our share of the earnings and
gain recognized by the termination of three of our property funds in
the first quarter of 2006 of $37.1 million in earnings and $27.9
million in FFO.
(11) The following table presents the components of interest expense as
reflected in our Consolidated Statements of Earnings (in thousands).
The increase in interest expense before capitalization is primarily
the result of increased debt levels due to the acquisitions of
Parkridge, MPR and other property acquisitions, as well as our
increased development activities, which also accounts for the
increase in capitalized interest.
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Gross interest expense $120,551 $106,060 $490,689 $397,888
Net premium recognized (984) (3,285) (7,797) (13,861)
Amortization of deferred
loan costs 2,728 2,191 10,555 7,673
Interest expense before
capitalization 122,295 104,966 493,447 391,700
Less: capitalized amounts (41,485) (27,496) (125,382) (97,297)
Net interest expense $80,810 $77,470 $368,065 $294,403
(12) In addition to contributions of CDFS properties, we occasionally
contribute properties from our property operations segment to
unconsolidated property funds in which we have continuing interests
through our equity ownership. During 2007, we contributed
11 properties to ProLogis Mexico Industrial Fund and 66 properties
to ProLogis North American Industrial Fund, as well as recognized
previously deferred proceeds related to properties sold to a third
party by a property fund. During 2006, we contributed 39 properties
to unconsolidated property funds. 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.
(13) The operations of the properties held for sale or disposed of to
third parties, including land subject to ground leases, and the
aggregate net gains recognized upon their disposition are presented
as discontinued operations in our Consolidated Statements of
Earnings for all periods presented. During 2007, we disposed of
80 properties to third parties, five of which were CDFS properties.
During 2006, we disposed of 89 properties to third parties, 15 of
which were CDFS properties. As of December 31, 2007 and 2006, we
had two and eight properties, respectively, that were classified as
held for sale and accordingly, the respective assets and liabilities
are presented separately in our Consolidated Balance Sheets.
The components that are presented as discontinued operations
(excluding the gains recognized upon disposition) are as follows (in
thousands):
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Rental income $1,217 $9,885 $12,095 $62,860
Rental expenses (332) (3,119) (3,495) (26,140)
Depreciation and amortization (63) (1,760) (2,896) (11,535)
Interest expense - - - (874)
$ 822 $5,006 $5,704 $24,311
For purposes of our Consolidated Statements of FFO, we do not
segregate discontinued operations. In addition, in the calculation
of FFO we include the disposition proceeds and the cost of
dispositions for all CDFS properties disposed of during the period,
including those classified as discontinued operations.
SOURCE ProLogis
Released February 7, 2008