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