ProLogis Reports First Quarter Growth in FFO and Earnings Per Share
- Record Development Profits, Improving Operating Fundamentals and Continued Growth in Property Funds Drive 38.9 Percent Increase in FFO per Share -
DENVER, May 1 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), the world's largest owner, manager and developer of distribution facilities, today reported first quarter funds from operations as defined by ProLogis (FFO) of $1.25 per diluted share, up 38.9 percent from $0.90 in the same period in 2006. Net earnings per diluted share were $0.89 for the first quarter of 2007, compared with $0.72 for the same period in 2006.
"Our first quarter results reflect continued strong global market demand and solid improvement in all our business segments," said Jeffrey H. Schwartz, chief executive officer. "Growth in international trade continues to drive customer requirements for modern, well-located logistics facilities at key nodes along the transportation infrastructure. Our focus on investing near major seaports, airports and intermodal terminals provides our customers with efficient supply-chain solutions, while supporting higher average occupancies and excellent long-term rent growth potential."
Schwartz noted that institutional interest in industrial property continues to be strong, leading to further cap rate compression in many parts of the globe. "The related increases in property valuations supported record gains in our development, or CDFS, business and exceptionally strong margins during the quarter," he said. "Our property fund segment also performed well, driven by a 21 percent increase in assets under management since the first quarter of 2006. In addition, our property operations segment benefited from significant rent growth on lease turnovers and occupancies that continue to surpass average market levels."
Walter C. Rakowich, president and chief operating officer of ProLogis, said supply and demand in the industrial property market are well balanced across all three of the company's operating regions. "In North America, overall development remains disciplined, driving continued positive net absorption in the top 30 logistics markets," Rakowich said. "In Europe, leasing activity was brisk in Central Europe, while in the UK and Western Europe, demand remains solid. Market conditions in Asia continue to be very strong driven by growth in global trade, and new projects are leasing up shortly after completion."
Acquisition of Parkridge Furthers Leadership Position in Europe
During the quarter, the company enhanced its European operations with the purchase of Parkridge's industrial business and a 25 percent investment in its retail business for total consideration of $1.3 billion. "This merger with our top competitor in Europe was notable for several reasons," Schwartz said. "It combined Parkridge's talented industrial development team with our own, creating an organization with unparalleled skills and experience. It replenished our land bank in the United Kingdom, where it has always been difficult to obtain entitled land for new development projects. In addition, it added strategically located land and newly completed industrial properties in Central Europe, where customer demand is extremely strong and investment values continue to appreciate. Just as our merger with Catellus in 2005 enabled us to take our North American business to an enhanced level, we believe the combination with Parkridge will have similar benefits in Europe."
Global Development Pipeline Grows, Supported by Solid Market Fundamentals
During the first quarter, ProLogis began construction of $615.6 million of new development and completed $515.0 million, including development activity within its joint ventures. The company's total CDFS asset pipeline stood at $5.8 billion at the end of the quarter, an 8.8 percent increase over December 31, 2006.
Of this amount, expected investment in projects currently under construction is $2.4 billion, while the remaining $3.4 billion of completed developments and repositioned acquisitions were 73.9 percent leased at quarter end.
"The strength of global customer demand and leasing in our development pipeline supports our new development activity," said Ted Antenucci, president -- global development. "With operations in over 100 markets around the world, our network of ProLogis associates enables us to closely monitor market conditions and supports our confidence in growing full-year development starts by 20 to 30 percent over 2006 levels."
"Our ability to address global customers' distribution space needs in the majority of the world's top logistics markets is unique in the industry," Antenucci said. "During the quarter, we signed more than six million square feet of new CDFS leases, including those with repeat customers such as: Schenker Logistics in Shanghai, China; Kuhne & Nagel in Bucharest, Romania; and Exel in Southern California's Inland Empire.
Selected Financial and Operating Information
* Increased same-store net operating income by 5.6 percent (a 6.4 percent
increase when straight-lined rents and lease amortization are
excluded), driven by 3.6 percent growth in average same-store
occupancies and same-store rent growth of 6.9 percent.
* Increased leasing in stabilized pool to 95.4 percent, up from
95.3 percent at December 31, 2006.
* Recycled $782.1 million of capital from CDFS contributions and
dispositions during the quarter.
* Realized FFO from CDFS transactions of $237.0 million for the quarter,
up from $72.2 million in Q1 2006. Post-deferral, post-tax CDFS margins
were 45.4 percent for the quarter. Excluding land sales, post-deferral,
post-tax CDFS margins were 34.1 percent.
* Started new developments with a total expected investment of
$615.6 million during the quarter, including industrial joint venture
developments.
* ProLogis' share of FFO from property funds was $30.6 million for the
quarter, compared with $53.9 million in Q1 2006, which included a
$27.9 million gain from the liquidation of North American Funds II, III
and IV. Excluding this gain, FFO from property funds was up 17.7
percent from Q1 2006.
* Fee income from property funds for the quarter was $21.6 million,
compared with $38.6 million in the same quarter in 2006, which included
a $22.0 million incentive return earned from the transaction noted
above. Excluding this incentive return, fund fee income was
30.1 percent higher than Q1 2006.
* Increased total assets owned and under management to $28.6 billion, up
from $26.7 billion at December 31, 2006, a quarter-over-quarter
increase of 7.1 percent.
Copies of ProLogis' first quarter 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 Tuesday, May 1, 2007. A replay of the webcast will be available on the company's website until May 15, 2007. 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 103 markets across North America, Europe and Asia. The company has $28.6 billion of assets owned, managed and under development, comprising 436.9 million square feet (40.6 million square meters) in 2,525 properties as of March 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 more than 1,300 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 acquisition, (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
First Quarter 2007
Unaudited Financial Results
Selected Financial Information
(in thousands, except per share amounts and percentages)
Three Months Ended
March 31,
2007 2006 % Change
Net earnings attributable to common shares:
Net earnings attributable to common
shares $236,091 $183,159 28.9%
Net earnings per diluted share
attributable to common shares $0.89 $0.72 23.6%
FFO and FFO, as adjusted See definition
of FFO
FFO attributable to common shares $329,713 $225,298 46.3%
Add back:
Merger integration and relocation
expenses (1) -- 2,372
FFO attributable to common shares,
as adjusted $329,713 $227,670 44.8%
FFO per diluted share attributable
to common shares $1.25 $0.89 40.4%
Add back:
Merger integration and relocation
expenses (1) -- 0.01
FFO per diluted share attributable
to common shares, as adjusted $1.25 $0.90 38.9%
EBITDA:
EBITDA $478,047 $341,180 40.1%
Distributions:
Actual distributions per common share (2) $0.46 $0.40 15.0%
See our definition of FFO and our definition of EBITDA.
Footnotes follow Consolidated Balance Sheets.
ProLogis
First Quarter 2007
Unaudited Financial Results
Consolidated Statements of Earnings
(in thousands)
Three Months Ended
March 31,
2007 2006
Revenues:
Rental income (5)(6)(7) $259,409 $220,482
CDFS disposition proceeds (8)(9)(10)(11) 669,938 305,010
Property management and other fees and
incentives (11) 21,647 38,568
Development management and other income (8) 7,439 4,168
Total revenues 958,433 568,228
Expenses:
Rental expenses (5)(7) 66,325 58,425
Cost of CDFS dispositions (8) 438,991 238,286
General and administrative (12) 50,142 33,788
Depreciation and amortization (7) 78,823 70,879
Merger integration and relocation expenses (1) -- 2,372
Other expenses 2,866 2,526
Total expenses 637,147 406,276
Operating income 321,286 161,952
Other income (expense):
Earnings from unconsolidated property funds (11) 18,964 56,445
Earnings from CDFS joint ventures and other
unconsolidated investees (4)(8) 544 3,517
Interest expense (7)(13) (88,651) (70,853)
Interest income on long-term notes receivable (8) 3,266 5,036
Interest and other income, net 7,908 4,574
Total other income (expense) (57,969) (1,281)
Earnings before minority interest 263,317 160,671
Minority interest (173) (1,125)
Earnings before certain net gains 263,144 159,546
Gains recognized on dispositions of certain
non-CDFS business assets (14) -- 13,709
Foreign currency exchange expenses and losses,
net (15) (13,552) (1,322)
Earnings before income taxes 249,592 171,933
Income taxes (16):
Current income tax expense 18,100 13,197
Deferred income tax expense 3,321 169
Total income taxes 21,421 13,366
Earnings from continuing operations 228,171 158,567
Discontinued operations (7):
Income attributable to disposed properties and
assets held for sale 969 9,499
Gains recognized on dispositions:
Non-CDFS business assets 4,964 16,428
CDFS business assets 8,341 5,019
Total discontinued operations 14,274 30,946
Net earnings 242,445 189,513
Less preferred share dividends 6,354 6,354
Net earnings attributable to common shares $236,091 $183,159
Footnotes follow Consolidated Balance Sheets.
ProLogis
First Quarter 2007
Unaudited Financial Results
Consolidated Statements of Earnings
(Continued)
(in thousands, except per share amounts)
Three Months Ended
March 31,
2007 2006
Weighted average common shares outstanding - Basic 254,253 244,282
Weighted average common shares outstanding - Diluted 265,019 255,146
Net earnings per share attributable to common shares
- Basic:
Continuing operations $0.87 $0.62
Discontinued operations 0.06 0.13
Net earnings per share attributable to common
shares - Basic $0.93 $0.75
Net earnings per share attributable to common shares
- Diluted:
Continuing operations $0.84 $0.60
Discontinued operations 0.05 0.12
Net earnings per share attributable to common
shares - Diluted $0.89 $0.72
Calculation of Net Earnings per Share Attributable to Common Shares -
Diluted
(in thousands, except per share amounts)
Three Months Ended
March 31,
2007 2006
Net earnings attributable to common shares - Basic $236,091 $183,159
Minority interest (a) 988 1,125
Adjusted net earnings attributable to common shares
- Diluted $237,079 $184,284
Weighted average common shares outstanding - Basic 254,253 244,282
Incremental weighted average effect of conversion
of limited partnership units 5,140 5,363
Incremental weighted average effect of potentially
dilutive instruments (b) 5,626 5,501
Weighted average common shares outstanding - Diluted 265,019 255,146
Net earnings per share attributable to common shares
- Diluted $0.89 $0.72
(a) Includes only the minority interest related to the convertible limited
partnership units.
(b) Total weighted average potentially dilutive instruments outstanding
were 10,834 and 11,116 for the three months ended March 31, 2007 and
2006, respectively. Substantially all were dilutive for both periods.
Footnotes follow Consolidated Balance Sheets.
ProLogis
First Quarter 2007
Unaudited Financial Results
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended
March 31,
2007 2006
Revenues:
Rental income (5) $262,301 $247,020
CDFS disposition proceeds (7)(8)(9)(10)(11) 737,427 353,241
Property management and other fees and
incentives (11) 21,647 38,568
Development management and other income (8) 7,439 4,168
Total revenues 1,028,814 642,997
Expenses:
Rental expenses (5) 67,375 70,880
Cost of CDFS dispositions (7)(8) 500,476 281,032
General and administrative (12) 50,142 33,788
Depreciation of corporate assets 2,706 2,883
Merger integration and relocation expenses (1) -- 2,372
Other expenses 2,866 2,526
Total expenses 623,565 393,481
405,249 249,516
Other income (expense):
FFO from unconsolidated property funds (11) 30,620 53,931
FFO from CDFS joint ventures and other
unconsolidated investees (4)(8) 2,136 4,737
Interest expense (88,651) (71,487)
Interest income on long-term notes receivable (8) 3,266 5,036
Interest and other income, net 7,908 4,574
Foreign currency exchange expenses and losses,
net (15) (6,188) (333)
Current income tax expense (16) (18,100) (13,197)
Total other income (expense) (69,009) (16,739)
FFO 336,240 232,777
Less preferred share dividends 6,354 6,354
Less minority interest 173 1,125
FFO attributable to common shares $329,713 $225,298
Weighted average common shares outstanding - Basic 254,253 244,282
Weighted average common shares outstanding - Diluted 265,019 255,146
FFO per share attributable to common shares:
Basic $1.30 $0.92
Diluted $1.25 $0.89
See Consolidated Statements of Earnings, our definition of FFO and the
Reconciliations of Net Earnings to FFO.
Footnotes follow Consolidated Balance Sheets.
ProLogis
First Quarter 2007
Unaudited Financial Results
Consolidated Statements of FFO (Continued)
Calculation of FFO per Share Attributable to Common Shares - Diluted
(in thousands, except per share amounts)
Three Months Ended
March 31,
2007 2006
FFO attributable to common shares - Basic $329,713 $225,298
Minority interest attributable to convertible
limited partnership units 988 1,125
FFO attributable to common shares - Diluted $330,701 $226,423
Merger integration and relocation expenses (1) -- 2,372
FFO attributable to common shares, as adjusted
- Diluted $330,701 $228,795
Weighted average common shares outstanding - Basic 254,253 244,282
Incremental weighted average effect of conversion
of limited partnership units 5,140 5,363
Incremental weighted average effect of potentially
dilutive instruments 5,626 5,501
Weighted average common shares outstanding - Diluted 265,019 255,146
FFO per share attributable to common shares - Diluted $1.25 $0.89
FFO per share attributable to common shares, as
adjusted - Diluted $1.25 $0.90
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
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 and losses from the sales of previously depreciated properties. We agree that these two NAREIT adjustments are useful to investors for the following reasons:
(a) historical cost accounting for real estate assets in accordance with
GAAP assumes, through depreciation charges, that the value of real
estate assets diminishes predictably over time. NAREIT stated in its
White Paper on FFO "since real estate asset values have historically
risen or fallen with market conditions, many industry investors have
considered presentations of operating results for real estate
companies that use historical cost accounting to be insufficient by
themselves." Consequently, NAREIT's definition of FFO reflects the
fact that real estate, as an asset class, generally appreciates over
time and depreciation charges required by GAAP do not reflect the
underlying economic realities.
(b) REITs were created as a legal form of organization in order to
encourage public ownership of real estate as an asset class through
investment in firms that were in the business of long-term ownership
and management of real estate. The exclusion, in NAREIT's definition
of FFO, of gains and losses from the sales of previously depreciated
operating real estate assets allows investors and analysts to readily
identify the operating results of the long-term assets that form the
core of a REIT's activities and assists in comparing those operating
results between periods. We include the gains and losses from
dispositions of properties acquired or developed in our CDFS business
segment and our proportionate share of the gains and losses from
dispositions recognized by the property funds in our definition of
FFO.
At the same time that NAREIT created and defined its FFO concept for the REIT industry, it also recognized that "management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community." We believe that financial analysts, potential investors and shareholders who review our operating results are best served by a defined FFO measure that includes other adjustments to GAAP net earnings in addition to those included in the NAREIT defined measure of FFO.
Our defined FFO measure excludes the following items from GAAP net earnings that are not excluded in the NAREIT defined FFO measure:
(i) deferred income tax benefits and deferred income tax expenses
recognized by our subsidiaries;
(ii) current income tax expense related to acquired tax liabilities that
were recorded as deferred tax liabilities in an acquisition, to the
extent the expense is offset with a deferred income tax benefit in
GAAP earnings that is excluded from our defined FFO measure;
(iii) certain foreign currency exchange gains and losses resulting from
certain debt transactions between us and our foreign consolidated
subsidiaries and our foreign unconsolidated investees;
(iv) foreign currency exchange gains and losses from the remeasurement
(based on current foreign currency exchange rates) of certain third
party debt of our foreign consolidated subsidiaries and our foreign
unconsolidated investees; and
(v) mark-to-market adjustments associated with derivative financial
instruments utilized to manage our foreign currency risks.
FFO of our unconsolidated investees is calculated on the same basis.
The items that we exclude from GAAP net earnings, while not infrequent or unusual, 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. Most importantly, the economics underlying the items that we exclude from GAAP net earnings are not the primary drivers in management's decision-making process and capital investment decisions. Period to period fluctuations in these items can be driven by accounting for short-term factors that are not relevant to long-term investment decisions, long-term capital structures or to long-term tax planning and tax structuring decisions. Accordingly, we believe that investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.
Real estate is a capital-intensive business. Investors' analyses of the performance of real estate companies tend to be centered on understanding the asset value created by real estate investment decisions and understanding current operating returns that are being generated by those same investment decisions. The 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 that 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. Some of the limitations are:
-- The current income tax expenses that are excluded from our defined FFO
measure represent taxes that are payable.
-- Depreciation and amortization of real estate assets are economic costs
that are excluded from FFO. FFO is limited as it does not reflect the cash
requirements that may be necessary for future replacements of the real
estate assets. Further, the amortization of capital expenditures and
leasing costs necessary to maintain the operating performance of
distribution properties are not reflected in FFO.
-- Gains or losses from property dispositions represent changes in the
value of the disposed properties. FFO, by excluding these gains and
losses, does not capture realized changes in the value of disposed
properties arising from changes in market conditions.
-- The deferred income tax benefits and expenses that are excluded from
our defined FFO measure result from the creation of a deferred income tax
asset or liability that may have to be settled at some future point. Our
defined FFO measure does not currently reflect any income or expense that
may result from such settlement.
-- The foreign currency exchange gains and losses that are excluded from
our defined FFO measure are generally recognized based on movements in
foreign currency exchange rates through a specific point in time. The
ultimate settlement of our foreign currency-denominated net assets is
indefinite as to timing and amount. Our defined FFO measure is limited in
that it does not reflect the current period changes in these net assets
that result from periodic foreign currency exchange rate movements.
We compensate for these limitations by using our FFO measure only in conjunction with GAAP net earnings. To further compensate, we always reconcile our defined FFO measure to GAAP net earnings in our financial reports. Additionally, we provide investors with our complete financial statements prepared under GAAP, our definition of FFO, which includes a discussion of the limitations of using our non-GAAP measure, and a reconciliation of our GAAP measure (net earnings) to our non-GAAP measure (FFO, as we define it) so that investors can appropriately incorporate this measure and its limitations into their analyses.
ProLogis
First Quarter 2007
Unaudited Financial Results
Reconciliations of Net Earnings to FFO
(in thousands)
Three Months Ended
March 31,
2007 2006
Reconciliation of net earnings to FFO:
Net earnings attributable to common shares $236,091 $183,159
Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and
amortization 76,117 67,996
Adjustments to CDFS dispositions for
depreciation (2,337) 466
Gains recognized on dispositions of certain
non-CDFS business assets (14) -- (13,709)
Reconciling items attributable to discontinued
operations (7):
Gains recognized on dispositions of non-CDFS
business assets (4,964) (16,428)
Real estate related depreciation and
amortization 873 3,950
Totals discontinued operations (4,091) (12,478)
Our share of reconciling items from
unconsolidated investees (17):
Real estate related depreciation and
amortization 18,841 13,220
Gains on dispositions of non-CDFS business
assets (1,899) (109)
Other amortization items (18) (1,909) (10,595)
Totals unconsolidated investees 15,033 2,516
Totals NAREIT defined adjustments 84,722 44,791
Subtotals-NAREIT defined FFO 320,813 227,950
Add (deduct) our defined adjustments:
Foreign currency exchange expenses and losses,
net (15) 7,364 989
Deferred income tax expense (16) 3,321 169
Our share of reconciling items from
unconsolidated investees (17):
Foreign currency exchange gains, net (15) (1,329) (2,223)
Deferred income tax benefit (456) (1,587)
Totals unconsolidated investees (1,785) (3,810)
Totals our defined adjustments 8,900 (2,652)
FFO attributable to common shares $329,713 $225,298
See Consolidated Statements of Earnings, Consolidated Statements of FFO
and the definition of FFO.
Footnotes follow Consolidated Balance Sheets.
ProLogis
First Quarter 2007
Unaudited Financial Results
Reconciliations of Net Earnings to EBITDA
(in thousands)
Three Months Ended
March 31,
2007 2006
Reconciliation of net earnings to EBITDA:
Net earnings attributable to common shares $236,091 $183,159
Add (deduct):
NAREIT defined adjustments to compute FFO 84,722 44,791
Our defined adjustments to compute FFO 8,900 (2,652)
Add:
Interest expense 88,651 70,853
Depreciation of corporate assets 2,706 2,883
Current income tax expense included in FFO (16) 18,100 13,197
Adjustments to CDFS gains on dispositions for
interest capitalized 8,769 6,552
Preferred share dividends 6,354 6,354
Reconciling items attributable to discontinued
operations -- 634
Share of reconciling items from unconsolidated
investees (17) 23,754 15,409
EBITDA $478,047 $341,180
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 believe that EBITDA is a useful supplemental measure, although it does not represent net earnings or cash from operating activities that are computed in accordance with GAAP and is not indicative of cash available to fund cash needs, which we present in our Consolidated Statements of Cash Flows and include in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission. Accordingly, the EBITDA measure presented should not be considered as an alternative to net earnings as an indicator of our operating performance, or as an alternative to cash flows from operating, investing, or financing activities as a measure of liquidity. The EBITDA measure presented may not be comparable to similarly titled measures of other REITs.
EBITDA generally represents net earnings computed in accordance with GAAP adjusted to exclude:
(i) interest expense;
(ii) income tax expenses and benefits; and
(iii) depreciation and amortization expenses.
In our computation of EBITDA the following items are also excluded:
(i) preferred dividends and charges related to the redemption of
preferred shares;
(ii) the foreign currency exchange gains and losses that are also
excluded in our definition of FFO;
(iii) impairment charges; and
(iv) gains and losses from the dispositions of non-CDFS business
assets.
In addition, we adjust the gains and losses from the contributions and sales of developed properties recognized as CDFS income to reflect these gains and losses as if no interest cost had been capitalized during the development of the properties (i.e. the gains are larger since capitalized interest is not included in the basis of the assets contributed and sold). EBITDA of our unconsolidated investees is calculated on the same basis.
ProLogis
First Quarter 2007
Unaudited Financial Results
Consolidated Balance Sheets
(in thousands)
March 31, December 31,
2007 (3) 2006
Assets:
Investments in real estate assets:
Industrial operating properties $11,062,512 $10,423,249
Retail operating properties 310,266 305,188
Land subject to ground leases and other 441,814 472,412
Properties under development (including
cost of land) 1,021,613 964,842
Land held for development 1,792,273 1,397,081
Other investments 320,479 391,227
14,948,957 13,953,999
Less accumulated depreciation 1,322,497 1,280,206
Net investments in real estate assets 13,626,460 12,673,793
Investments in and advances to unconsolidated
investees:
Property funds 1,048,316 981,840
CDFS joint ventures and other
unconsolidated investees (4) 504,522 317,857
Total investments in and advances to
unconsolidated investees 1,552,837 1,299,697
Cash and cash equivalents 554,507 475,791
Accounts and notes receivable 338,181 439,791
Other assets 1,315,295 957,295
Discontinued operations-assets held for
sale (7) 74,076 57,158
Total assets $17,461,357 $15,903,525
Liabilities and Shareholders' Equity:
Liabilities:
Lines of credit $1,719,112 $2,462,796
Senior notes and other unsecured debt 4,907,731 4,445,092
Convertible debt 1,228,174 --
Secured debt and assessment bonds 1,478,426 1,478,998
Accounts payable and accrued expenses 584,926 518,651
Other liabilities 617,734 546,129
Discontinued operations-assets held for
sale (7) 971 1,012
Total liabilities 10,537,074 9,452,678
Minority interest 62,100 52,268
Shareholders' equity:
Series C preferred shares at stated
liquidation preference of $50.00 per share 100,000 100,000
Series F preferred shares at stated
liquidation preference of $25.00 per share 125,000 125,000
Series G preferred shares at stated
liquidation preference of $25.00 per share 125,000 125,000
Common shares at $.01 par value per share 2,565 2,509
Additional paid-in capital 6,356,420 6,000,119
Accumulated other comprehensive income 215,112 216,922
Distributions in excess of net earnings
(19) (61,914) (170,971)
Total shareholders' equity 6,862,183 6,398,579
Total liabilities and shareholders'
equity $17,461,357 $15,903,525
Footnotes follow Consolidated Balance Sheets.
ProLogis
First Quarter 2007
Unaudited Financial Results
Notes to Consolidated Financial Statements
(1) In September 2005, we completed a merger with Catellus Development
Corporation. Certain costs related to this merger included merger
integration and employee transition costs as well as 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.
(2) The annual distribution rate for 2007 is $1.84 per common share. The
distribution is declared quarterly and may be adjusted at the
discretion of the Board of Trustees.
(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, which was financed with $740.5 million in cash, the
issuance of 4.8 million shares of our common stock (valued for
accounting purposes at $71.01 per share for a total of
$339.5 million) and the assumption of $178.9 million of debt and
other liabilities. The cash portion of the acquisition was funded
with borrowings under our Global Line and a new $600 million senior
credit facility.
We allocated the purchase price based on estimated fair values and
recorded approximately $721.2 million of real estate assets,
$193.5 million in investments in CDFS joint ventures and other
unconsolidated investees, $54.0 million of cash and other tangible
assets and $290.2 million of goodwill and other intangible assets.
The allocation of the purchase price was based upon preliminary
estimates and assumptions and, accordingly, these allocations are
subject to revision when final information is available. Revisions to
the fair value allocations, which may be significant, will be
recorded as adjustments to the purchase price allocations in
subsequent periods and should not have a significant impact on our
overall financial position or results of operations.
(4) We have varying ownership interests in unconsolidated investees. The
investees primarily engage in activities similar to our CDFS business
segment activities (as discussed in note 8) and own operating
properties in China, Europe and North America. We refer to the joint
ventures engaged in industrial property development and operation as
industrial CDFS joint ventures. In addition, certain of the CDFS
joint ventures engage in land, retail and commercial development and
operation and we refer to these joint ventures as non-industrial CDFS
joint ventures. We have ownership interests in all of the CDFS joint
ventures ranging from 25% to 50%. We also have varying ownership
interests in other unconsolidated investees that primarily own and
operate industrial, office and hotel properties.
(5) Represents rental income earned and rental expenses incurred while we
own a property directly. Under the terms of the respective lease
agreements, some or all of our rental expenses are recovered from our
customers. Amounts recovered are included as a component of rental
income. Rental expenses also include our direct expenses associated
with the management of the properties owned by the property funds.
For properties that have been contributed to property funds, we
recognize our share of the total operations of the property funds
under the equity method and present these amounts below operating
income in our Consolidated Statements of Earnings and FFO.
(6) In our Consolidated Statements of Earnings, rental income includes
the following (in thousands):
Three Months Ended
March 31,
2007 2006
Rental income $197,700 $168,865
Rental expense recoveries 48,541 42,795
Straight-lined rents 13,168 8,822
$259,409 $220,482
(7) Properties disposed of to third parties are considered to be
discontinued operations unless such properties were developed under a
pre-sale agreement. During the three months ended March 31, 2007, we
disposed of seven such properties to third parties, as well as land
subject to a ground lease.
The operations of the properties disposed of to third parties during
2007 and the aggregate net gains recognized upon their dispositions
are presented as discontinued operations in our Consolidated
Statements of Earnings for all periods presented. In addition, the
operations of 89 properties disposed of during 2006 (15 of which were
CDFS business assets) are presented as discontinued operations. As
of March 31, 2007 and December 31, 2006, we had 24 properties and 8
properties, respectively, that were classified as held for sale and
accordingly, the operations of these properties are included in
discontinued operations and the respective assets and liabilities are
presented separately in our Consolidated Balance Sheets. Interest
expense included in discontinued operations represents interest
directly attributable to these properties.
The components that are presented as discontinued operations
(excluding the net gains or losses recognized upon disposition) are
as follows (in thousands):
Three Months Ended
March 31,
2007 2006
Rental income $2,892 $26,538
Rental expenses (1,050) (12,455)
Depreciation and amortization (873) (3,950)
Interest expense -- (634)
$969 $9,499
For purposes of our Consolidated Statements of FFO, we do not
segregate discontinued operations. In addition, in the calculation
of FFO we include the CDFS disposition proceeds and the cost of CDFS
dispositions for all CDFS properties disposed of during the period,
including those classified as discontinued operations.
(8) The CDFS business segment primarily represents the development of
properties, the acquisition of properties with the intent to
rehabilitate and/or reposition the property and other land and
commercial development activities. It is generally our intent to
contribute our CDFS properties to a property fund in which we have an
ownership interest and act as manager or sell the properties to a
third party. Additionally, we: (i) earn fees for development
activities provided on behalf of customers or third parties; (ii)
recognize interest income on notes receivable related to previous
asset dispositions; (iii) recognize gains or losses on the
disposition of land parcels, including land subject to ground leases;
and (iv) recognize our proportionate share of the earnings or losses
of CDFS joint ventures. We include the income generated in the CDFS
business segment in our computation of FFO and EBITDA.
(9) When we contribute a property to an entity in which we have an
ownership interest, we do not recognize a portion of the proceeds in
our computation of the gain resulting from the contribution. The
amount of the proceeds that we defer is based on our continuing
ownership interest in the contributed property that arises due to our
ownership interest in the entity acquiring the property. We defer
this portion of the proceeds by recognizing a reduction to our
investment in the applicable unconsolidated investee. We adjust our
proportionate share of the earnings or losses that we recognize under
the equity method in later periods to reflect the entity's
depreciation expense as if the depreciation expense was computed on
our lower basis in the contributed assets rather than on the entity's
basis in the contributed assets. If a loss is recognized when a
property is contributed, the entire loss is recognized when it is
known. See note 10 for the amount of cumulative gross proceeds that
have not been recognized as of March 31, 2007.
When a property that we originally contributed to an unconsolidated
investee is disposed of to a third party, we recognize a gain during
the period that the disposition occurs related to the proceeds we had
previously deferred, in addition to our proportionate share of the
gain or loss recognized by the entity. Further, during periods when
our ownership interest in a property fund decreases, we recognize
gains to the extent that proceeds were previously deferred to
coincide with our new ownership interest in the property fund.
(10) As of March 31, 2007, the cumulative gross proceeds that have not
been recognized in computing the gains from our contributions of
properties to unconsolidated investees (before subsequent
amortization) are presented below (in thousands). See note 12.
Gross Proceeds Not Recognized
CDFS Non-CDFS
Transactions Transactions Totals
ProLogis European Properties $140,708 $9,338 $150,046
ProLogis California LLC 5,394 26,129 31,523
ProLogis North American
Properties Fund I 8,265 852 9,117
ProLogis North American
Properties Fund V 25,345 2,940 28,285
ProLogis North American
Properties Funds VI-X 2,765 -- 2,765
ProLogis North American
Industrial Fund 39,015 16,870 55,885
ProLogis Japan Properties Fund I 44,819 -- 44,819
ProLogis Japan Properties Fund II 44,082 -- 44,082
CDFS joint ventures 4,269 -- 4,269
Totals $314,662 $56,129 $370,791
(11) On January 4, 2006, we purchased the 80% ownership interests in each
of ProLogis North American Properties Funds II, III and IV
(collectively "Funds II-IV") from our fund partner. On March 1,
2006, we contributed substantially all of the assets and associated
liabilities to the ProLogis North American Industrial Fund, which was
formed in February 2006. In connection with these transactions, we
recognized the following amounts in the respective financial
statement line items, during the first quarter of 2006 (in thousands)
after deferral of $17.9 million, due to our 20% continuing ownership
interest in the ProLogis North American Industrial Fund:
Statements Statements
of Earnings of FFO
CDFS disposition proceeds (a) $12,492 $12,958
Property management and other fees and
incentives (b) $21,958 $21,958
Earnings from unconsolidated property funds (c) $37,113 $27,916
(a) Represents the recognition of the proceeds that we had previously
deferred as part of CDFS proceeds upon the initial contributions of
the properties to Funds II-IV.
(b) Represents an incentive return we earned due to certain return levels
achieved by our fund partner upon the termination of Funds II-IV.
(c) Represents our proportionate share of the gain on termination
recognized by Funds II-IV on a depreciated basis (earnings) and on an
undepreciated basis (FFO).
(12) In the three months ended March 31, 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 (see note 3).
(13) The following table presents the components of interest expense (in
thousands). The increase in interest expense before capitalization
is primarily the result of increased debt levels due to property
acquisitions, as well as our increased development activities, which
also accounts for the increase in capitalized interest.
Three Months Ended
March 31,
2007 2006
Gross interest expense $115,022 $96,485
Net premium recognized (3,025) (3,224)
Amortization of deferred loan costs 2,359 998
Interest expense before capitalization 114,356 94,259
Less: capitalized amounts (25,705) (23,406)
Net interest expense $88,651 $70,853
(14) In addition to contributions of CDFS properties, from time to time,
we contribute properties from our property operations segment to the
unconsolidated property funds. During the three months ended March
31, 2006, we contributed 12 properties to unconsolidated property
funds in which we have continuing interests through our equity
ownership. 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.
(15) Foreign currency exchange gains and losses that are recognized as a
component of net earnings generally result from: (i) remeasurement
and/or settlement of certain debt transactions between us and our
foreign consolidated subsidiaries and foreign unconsolidated
investees (depending on the type of loan, the currency in which the
loan is denominated and the form of our investment); (ii)
remeasurement and/or settlement of certain third party debt of our
foreign consolidated subsidiaries (depending on the currency in
which the loan is denominated); and (iii) mark-to-market adjustments
related to derivative financial instruments utilized to manage
foreign currency risks. We generally exclude these types of foreign
currency exchange gains and losses from our defined FFO measure and
also from our computation of EBITDA.
Foreign currency exchange gains and losses that result from
transactions (including certain intercompany debt and equity
investments) that are settled in a currency other than the reporting
entity's functional currency and from the settlement of derivative
financial instruments utilized to manage foreign currency risks are
included in our defined FFO measure and in our computation of
EBITDA.
(16) Current income tax is generally a function of the level of income
recognized by our taxable subsidiaries operating primarily in the
CDFS business segment, state income taxes, taxes incurred in foreign
jurisdictions and interest associated with our income tax
liabilities. Deferred income tax is generally a function of the
period's temporary differences (items that are treated differently
for tax purposes than for financial reporting purposes), the
utilization of tax net operating losses generated in prior years
that had been previously recognized as deferred tax assets and
deferred tax liabilities related to indemnification agreements
related to certain contributions to property funds.
In connection with purchase accounting, we record all of the
acquired assets and liabilities at the estimated fair values at the
date of acquisition. For our taxable subsidiaries, we recognize the
deferred tax liabilities that represent the tax effect of the
difference between the tax basis carried over and the fair values 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.
(17) We report our investments in the property funds, CDFS joint ventures
and other unconsolidated investees under the equity method. For
purposes of calculating FFO and EBITDA, the net earnings of each of
our unconsolidated investees is adjusted to be consistent with our
calculation of these measures.
(18) Consists primarily of adjustments to the amounts we recognize under
the equity method that are necessary to recognize the amount of gains
not recognized at the contribution date due to the deferral of
certain proceeds based on our ownership interest in the
unconsolidated investee acquiring the property. See note 9. In
addition, this amount represents the adjustment to the amounts we
recognize under the equity method on dispositions made by the
unconsolidated investees to reflect the gain on sale on an
undepreciated basis for FFO.
(19) Effective January 1, 2007, we implemented Financial Accounting
Standards Board Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes -- an Interpretation of FASB Statement No. 109" ("FIN
48"), which resulted in an increase to our income tax liabilities and
a reduction to the January 1, 2007 balance of Retained Earnings of
$9.3 million.
*** Certain 2006 amounts included in this Supplemental Information
package have been reclassified to conform to the 2007 presentation.
SOURCE ProLogis
Released May 1, 2007