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ProLogis Reports First Quarter 2009 Results
- Significant Progress on De-leveraging Initiatives -
- Property Market Fundamentals Experience Further Slowing -
- Company Declares Second Quarter Dividend and Updates Guidance to Reflect Issuance of Shares -
FFO, including significant non-cash items, was
"We have accomplished a great deal in the first part of 2009, making significant progress on our objectives to de-leverage and de-risk the company," said
"Taking into consideration additional asset sale and refinancing agreements and the remaining capital requirements related to our development pipeline, we believe we have substantially addressed our anticipated cash needs through 2012. Our swift execution of these de-leveraging initiatives enables us to further enhance our focus on operating property performance, completing and leasing properties in our development portfolio and pursuing opportunities to generate value from our land bank," Rakowich said.
Property Market Fundamentals Soft
During the quarter, industrial property fundamentals continued to reflect global economic weakness and the slowdown in global trade. Throughout the majority of the company's markets, activity levels were reduced and leasing concessions are on the rise. Partially offsetting these trends are higher-than-average customer retention and sharply reduced levels of new supply. ProLogis' same-store net operating income (excluding same-store assets associated with the company's development portfolio), decreased 1.9 percent, reflecting a 1.8 percent decrease in leased percentage and negative rent growth of 4.2 percent for the quarter. Including development portfolio assets, in line with previous reporting, same-store net operating income for the period increased 0.78 percent, with a 0.16 percent increase in leased percentage and negative rent growth of 4.2 percent.
"On average, the company's non-development portfolio was 93.0 percent leased at the end of the first quarter, down from 94.7 percent at year-end 2008, in line with our expectations," Rakowich added. "We have been actively addressing our lease turnovers for the remainder of the year as well as the continued lease up of our development portfolio. Despite the challenging environment, we improved leasing within our development portfolio by 500 basis points, prior to contributions and reflecting the reversal of previous starts."
Asset Sales, Fund Contributions and Debt Repurchases Support De-leveraging Goal
In
During the first quarter, ProLogis completed dispositions with aggregate proceeds of
"In addition, we have a sizeable base of unencumbered assets on our balance sheet, which provides secured debt financing capacity," said Sullivan. "As such, we intend to utilize the secured debt market to provide additional liquidity to re-finance near-term maturities and have
Company Declares Common Dividend
Earlier this month, following the issuance of approximately 175 million shares of common stock, the company's Board reduced the 2009 annualized dividend rate to
Also today, the company declared its second quarter common dividend of
Selected Updates to Business Drivers that Support 2009 Guidance
Same-Store Same-store NOI is still expected to decrease by 1.5 to
NOI 3 percent; however, adjusted same-store NOI
(excluding same-store assets associated with the
development portfolio) is expected to decrease 2.5 to
3.5 percent.
Direct Owned Gross proceeds from third-party dispositions and
Dispositions contributions to property funds are expected to range
and from $1.5 to $1.7 billion, of which $135.7 million had
Contributions closed by the end of the first quarter.
Common Following the issuance of an additional 175 million
Dividend shares, the quarterly dividend for each of the second,
third and fourth quarters of 2009 is expected to be
$0.15 per share.
Revised 2009 FFO for the full year 2009 is expected to be
FFO between $1.31 and $1.48 per share, with full-year
and EPS earnings per share of $1.45 to $1.67.
Guidance
Reconciliation of EPS to FFO: Low High
Initial FFO guidance per
diluted share $1.85 $2.05
Shares outstanding
(pre-equity issuance) 268 268
------ ------
FFO $495 $550
Impact of equity issuance:
Reduction in interest
expense 26 40
------ ------
Revised FFO, excluding
significant non-cash items $521 $590
------ ------
Revised weighted average
shares outstanding 398 398
------ ------
Revised FFO/diluted share $1.31 $1.48
====== ======
Adjustments for net earnings:
Gain from debt repurchase 0.34 0.34
Depreciation and amortization (0.85) (0.92)
Foreign exchange, deferred
taxes and other 0.15 0.17
Gain on sale of assets 0.50 0.60
------ ------
Revised net earnings per share,
after share issuance $1.45 $1.67
====== ======
Copies of ProLogis' first quarter 2009 supplemental information will be available from the company's website at http://ir.prologis.com in the "Annual & Supplemental Reports" section after market close on
The in-person meeting will be at The Hudson Theatre at the Millennium Broadway Hotel, located at 145 West 44th Street in
About ProLogis
ProLogis is a leading global provider of distribution facilities, with more than 475 million square feet of industrial space (44 million square meters) in markets across
The statements above that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which ProLogis operates, management's beliefs and assumptions made by management, they involve uncertainties that could significantly impact ProLogis' financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future - including statements relating to rent and occupancy growth, development activity and changes in sales or contribution volume of developed properties, general conditions in the geographic areas where we operate and the availability of capital in existing or new property funds - are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, (v) maintenance of real estate investment trust ("REIT") status, (vi) availability of financing and capital, (vii) changes in demand for developed properties, and (viii) those additional factors discussed in "Item 1A. Risk Factors" of ProLogis' Annual Report on Form 10-K for the year ended
Overview
(in thousands, except per share amounts)
Summary of Results
Three Months Ended
March 31,
------------------
2009 2008 (1)
---- --------
Revenues $455,094 $1,645,927
Net earnings (a) $178,732 $183,521
Net earnings per share - Diluted (a) $0.66 $0.69
FFO, including significant non-cash items (a) $242,265 $358,637
Add (deduct) significant non-cash items:
Our share of losses on derivative activity
recognized by the property funds 11,283 -
Net gain related to disposed assets - China
operations (3,315) -
Gain on early extinguishment of debt (17,928) -
------- ---
Total adjustments for significant
non-cash items (9,960) -
------ ---
FFO, excluding significant non-cash
items (a) $232,305 $358,637
======== ========
FFO per share - Diluted, including significant
non-cash items (a) $0.90 $1.34
Deduct - summarized significant non-cash
adjustments - per share (0.04) -
----- ---
FFO per share - Diluted, excluding significant
non-cash items (a) $0.86 $1.34
===== =====
Distributions per common share (b) $0.25 $0.5175
===== ======
-----------
(a) These amounts are attributable to common shares.
(b) In April 2009, in connection with the expected issuance of common
shares in a registered public offering and recognizing the need to
maintain maximum financial flexibility in light of the current
state of the capital markets and considering the impact of the
proposed offering, our Board of Trustees ("Board") set our 2009
annualized distribution level at $0.70 per common share (including
the $0.25 per share already paid in the first quarter of 2009).
The payment of distributions is subject to authorization by the
Board out of funds legally available for the payment of
distributions and is subject to market conditions and Real Estate
Investment Trust ("REIT") distribution requirements. The payment
of common share distributions and its composition between cash and
stock is dependent upon our financial condition and operating
results and may be adjusted at the discretion of the Board during
the year.
Footnotes follow Financial Statements
Consolidated Balance Sheets
(in thousands, except per share data)
March 31, December 31,
2009 2008 (1)
---- --------
Assets:
Investments in real estate assets (1):
Industrial properties:
Core $7,946,714 $7,944,245
Completed development 3,328,027 3,031,449
Properties under development 861,169 1,181,344
Land held for development 2,528,675 2,482,582
Retail and mixed use properties 387,117 358,992
Land subject to ground leases and other 400,061 405,263
Other investments 249,192 321,397
------- -------
15,700,955 15,725,272
Less accumulated depreciation 1,652,743 1,583,299
--------- ---------
Net investments in real estate
assets 14,048,212 14,141,973
Investments in and advances to
unconsolidated investees:
Property funds (2) 1,564,978 1,957,977
Other investees 297,226 312,016
------- -------
Total investments in and advances
to unconsolidated investees 1,862,204 2,269,993
Cash and cash equivalents 123,779 174,636
Accounts and notes receivable 155,066 244,778
Other assets (1) 1,026,016 1,126,993
Discontinued operations - assets
held for sale (2) 121,582 1,310,754
------- ---------
Total assets $17,336,859 $19,269,127
=========== ===========
Liabilities and Equity:
Liabilities:
Debt (1)(3) $9,327,737 $10,711,368
Accounts payable and accrued expenses 702,934 658,868
Other liabilities 652,162 751,238
Discontinued operations - assets held
for sale (2) 112,546 389,884
------- -------
Total liabilities 10,795,379 12,511,358
---------- ----------
Equity (4):
ProLogis 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 2,678 2,670
Additional paid-in capital (1) 7,076,296 7,070,108
Accumulated other comprehensive
loss (5) (363,531) (29,374)
Distributions in excess of net
earnings (1) (543,681) (655,513)
-------- --------
Total ProLogis shareholders'
equity 6,521,762 6,737,891
Noncontrolling interests (6) 19,718 19,878
------ ------
Total equity 6,541,480 6,757,769
--------- ---------
Total liabilities and equity $17,336,859 $19,269,127
=========== ===========
Footnotes follow Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended
March 31,
---------
2009 2008 (1)
---- --------
Revenues:
Rental income (7) $238,462 $262,559
Property management and other fees and
incentives 33,634 29,490
CDFS disposition proceeds (8):
Developed and repositioned properties (2) 180,237 1,263,413
Acquired property portfolios - 83,332
Development management and other income 2,761 7,133
----- -----
Total revenues 455,094 1,645,927
------- ---------
Expenses:
Rental expenses 73,301 83,014
Investment management expenses (9) 10,576 11,229
Cost of CDFS dispositions (1)(8):
Developed and repositioned properties - 985,433
Acquired property portfolios - 83,332
General and administrative (10) 48,243 46,264
Reduction in workforce (10) 4,462 -
Depreciation and amortization 79,750 75,774
Other expenses 6,419 2,470
----- -----
Total expenses 222,751 1,287,516
------- ---------
Operating income 232,343 358,411
Other income (expense):
Earnings (loss) from unconsolidated property
funds, net (11) 2,098 (18,567)
Earnings from other unconsolidated investees,
net 2,201 1,970
Interest expense (1)(12) (92,932) (95,626)
Interest and other income, net 1,693 4,733
Net gains on dispositions of development
properties to property funds (8) 2,511 -
Foreign currency exchange gains (losses),
net (13) 30,537 (35,853)
Gain on early extinguishment of debt (3) 17,928 -
------ ---
Total other income (expense) (35,964) (143,343)
------- --------
Earnings before income taxes 196,379 215,068
------- -------
Current income tax expense (2) 22,189 24,404
Deferred income tax expense (benefit) (6,828) 2,500
------ -----
Total income taxes 15,361 26,904
------ ------
Earnings from continuing operations 181,018 188,164
Discontinued operations (14):
Income (loss) attributable to assets held
for sale and disposed properties 1,267 (1,082)
Net gain related to disposed assets -
China operations (2) 3,315 -
Net gains (impairment) on dispositions:
Non-development properties - 3,813
Development properties and land (189) 130
---- ---
Total discontinued operations 4,393 2,861
----- -----
Consolidated net earnings 185,411 191,025
Net earnings attributable to noncontrolling
interests (6) (310) (1,150)
---- ------
Net earnings attributable to controlling
interests 185,101 189,875
Less preferred share dividends 6,369 6,354
----- -----
Net earnings attributable to common shares $178,732 $183,521
======== ========
Weighted average common shares outstanding
- Basic (4) 267,716 258,946
Weighted average common shares outstanding
- Diluted (4) 270,278 268,131
Net earnings per share attributable to common
shares - Basic:
Continuing operations $0.65 $0.70
Discontinued operations 0.02 0.01
---- ----
Net earnings per share attributable to
common shares - Basic $0.67 $0.71
===== =====
Net earnings per share attributable to common
shares - Diluted:
Continuing operations $0.64 $0.68
Discontinued operations 0.02 0.01
---- ----
Net earnings per share attributable to
common shares - Diluted $0.66 $0.69
===== =====
Footnotes follow Financial Statements
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended
March 31,
---------
2009 2008 (1)
---- --------
Revenues:
Rental income $243,535 $269,476
Property management and other fees and
incentives 33,727 29,490
CDFS disposition proceeds (8):
Developed and repositioned properties (2) 180,237 1,263,413
Acquired property portfolios - 83,332
Development management and other income 2,761 7,157
----- -----
Total revenues 460,260 1,652,868
------- ---------
Expenses:
Rental expenses 75,369 85,524
Investment management expenses (9) 10,576 11,229
Cost of CDFS dispositions (1)(8):
Developed and repositioned properties - 985,303
Acquired property portfolios - 83,332
General and administrative (10) 49,548 51,070
Reduction in workforce (10) 4,462 -
Depreciation of corporate assets 4,118 3,420
Other expenses 6,456 2,470
----- -----
Total expenses 150,529 1,222,348
------- ---------
309,731 430,520
Other income (expense):
FFO from unconsolidated property funds (11) 36,743 37,312
FFO from other unconsolidated investees 5,013 5,165
Interest expense (1)(12) (92,762) (95,482)
Net gain related to disposed assets - China
operations (2) 3,315 -
Gain on early extinguishment of debt (3) 17,928 -
Interest and other income, net 3,419 5,616
Net gains on dispositions of development
properties to property funds (8) 1,760 -
Net impairment on dispositions of land -
third parties (8) (189) -
Foreign currency exchange losses, net (13,480) (1,860)
Current income tax expense (2)(15) (22,390) (15,174)
------- -------
Total other income (expense) (60,643) (64,423)
------- -------
FFO 249,088 366,097
Less preferred share dividends 6,369 6,354
Less net earnings attributable to noncontrolling
interests (6) 454 1,106
--- -----
FFO attributable to common shares, including
significant non-cash items $242,265 $358,637
-------- --------
Adjustments for significant non-cash items (9,960) -
------ ---
FFO attributable to common shares, excluding
significant non-cash items $232,305 $358,637
======== ========
Weighted average common shares outstanding -
Basic (4) 267,716 258,946
Weighted average common shares outstanding -
Diluted (4) 270,278 268,131
FFO per share attributable to common shares,
including significant non-cash items:
Basic $0.90 $1.38
===== =====
Diluted $0.90 $1.34
===== =====
FFO per share attributable to common shares,
excluding significant non-cash items:
Basic $0.87 $1.38
===== =====
Diluted $0.86 $1.34
===== =====
Footnotes follow Financial Statements
Reconciliations of Net Earnings to FFO and EBITDA
(in thousands)
Reconciliation of net earnings to FFO,
including significant non-cash items
Three Months Ended
March 31,
---------
2009 2008 (1)
---- --------
Net earnings (a) $178,732 $183,521
Add (deduct) NAREIT
defined adjustments:
Real estate related depreciation and
amortization 75,632 72,354
Adjustments to gains on dispositions for
depreciation (751) -
Adjustments to gains on
dispositions of non-development properties 1,621 -
Reconciling items attributable to discontinued
operations (14):
Gains on dispositions of non-CDFS properties - (3,813)
Real estate related depreciation and
amortization 1,164 1,804
----- -----
Total discontinued operations 1,164 (2,009)
Our share of reconciling items from
unconsolidated investees:
Real estate related depreciation and
amortization 38,317 32,818
Gains on dispositions of non-CDFS properties - (54)
Other amortization items (3,590) (4,210)
------ ------
Total unconsolidated investees 34,727 28,554
------- ------
Total NAREIT defined adjustments 112,393 98,899
------- ------
Subtotal-NAREIT defined FFO 291,125 282,420
Add (deduct) our defined adjustments:
Foreign currency exchange losses (gains),
net (43,948) 34,841
Current income tax expense (15) - 9,658
Deferred income tax expense (benefit) (6,840) 2,500
Our share of reconciling items from
unconsolidated investees:
Foreign currency exchange losses, net 1,651 517
Unrealized losses (gains) on
derivative contracts, net (1,854) 28,632
Deferred income tax expense 2,131 69
----- --
Total unconsolidated investees 1,928 29,218
----- ------
Total our defined adjustments (48,860) 76,217
------- ------
FFO, including significant non-cash items (a) $242,265 $358,637
======== ========
Reconciliation of FFO, including significant
non-cash items, to FFO, excluding significant
non-cash items
Three Months Ended
March 31,
---------
2009 2008 (1)
---- --------
FFO, including significant non-cash items (a) $242,265 $358,637
Add (deduct) significant non-cash items:
Our share of losses on derivative activity
recognized by the property funds (11) 11,283 -
Gain related to disposed assets - China
operations (2) (3,315) -
Gain on early extinguishment of
debt (3) (17,928) -
------- ---
Total adjustments for significant
non-cash items (9,960) -
------ ---
FFO, excluding significant non-cash items (a) $232,305 $358,637
======== ========
Reconciliation of FFO, excluding significant
non-cash items, to EBITDA
Three Months Ended
March 31,
---------
2009 2008 (1)
---- --------
FFO, excluding significant non-cash
items (a) $232,305 $358,637
Interest expense 92,762 95,482
Depreciation of corporate assets 4,118 3,420
Current income tax expense included in FFO 22,390 15,174
Adjustments to gains on dispositions for
interest capitalized 2,758 16,666
Preferred share dividends 6,369 6,354
Impairment charges 189 -
Share of reconciling items from unconsolidated
investees 51,888 40,403
------ ------
Earnings before interest, taxes, depreciation
and amortization (EBITDA) $412,779 $536,136
======== ========
See Consolidated Statements of Operations and
Consolidated Statements of FFO.
Footnotes follow Financial Statements
(a) Attributable to common shares.
Calculation of Per Share Amounts
(in thousands, except per share amounts)
Net Earnings Per Share
Three Months Ended
March 31,
---------
2009 2008
---- ----
Net earnings - Basic (a) $178,732 $183,521
Noncontrolling interest attributable to convertible
limited partnership units 310 1,150
--- -----
Adjusted net earnings - Diluted (a) $179,042 $184,671
======== ========
Weighted average common shares outstanding -
Basic 267,716 258,946
Incremental weighted average effect of conversion
of limited partnership units 1,235 5,053
Incremental weighted average effect of stock
awards (b) 1,327 4,132
----- -----
Weighted average common shares outstanding -
Diluted 270,278 268,131
======= =======
Net earnings per share - Diluted (a) $0.66 $0.69
===== =====
FFO Per Share, including significant non-cash items
Three Months Ended
March 31,
---------
2009 2008
---- ----
FFO - Basic, including significant non-cash items
(a) $242,265 $358,637
Noncontrolling interest attributable to convertible
limited partnership units 310 1,150
--- -----
FFO - Diluted, including significant non-cash items
(a) $242,575 $359,787
======== ========
Weighted average common shares outstanding - Basic 267,716 258,946
Incremental weighted average effect of conversion
of limited partnership units 1,235 5,053
Incremental weighted average effect of stock
awards (b) 1,327 4,132
----- -----
Weighted average common shares outstanding -
Diluted 270,278 268,131
======= =======
FFO per share - Diluted, including significant
non-cash items (a) $0.90 $1.34
===== =====
FFO Per Share, excluding significant non-cash items
Three Months Ended
March 31,
---------
2009 2008
---- ----
FFO - Diluted, including significant non-cash
items (a) $242,575 $359,787
Adjustments for significant non-cash items (9,960) -
------ ---
FFO - Diluted, excluding significant non-cash
items (a) $232,615 $359,787
======== ========
Weighted average common shares outstanding - Basic 267,716 258,946
Incremental weighted average effect of conversion
of limited partnership units 1,235 5,053
Incremental weighted average effect of stock
awards (b) 1,327 4,132
----- -----
Weighted average common shares outstanding -
Diluted 270,278 268,131
======= =======
FFO per share - Diluted, excluding significant
non-cash items (a) $0.86 $1.34
===== =====
-------
(a) Attributable to common shares.
(b) Total weighted average potentially dilutive awards outstanding
were 11,515 and 10,438 for the three months ended March 31, 2009
and 2008, respectively. Of the potentially dilutive instruments,
8,924 were anti-dilutive for the three months ended March 31, 2009
and substantially all were dilutive for the three months ended
March 31, 2008.
Notes to Financial Statements
Please also refer to our annual and quarterly financial statements
filed with the Securities and Exchange Commission on Forms 10-K and
10-Q for further information about us and our business. Certain 2008
amounts in our financial statements have been reclassified to conform
to the 2009 presentation.
(1) In May 2008, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position APB 14-1 "Accounting for Convertible
Debt Instruments that May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1"), that
requires separate accounting for the debt and equity components of
convertible debt. The value assigned to the debt component is the
estimated fair value of a similar bond without the conversion
feature at the time of issuance, which would result in the debt
being recorded at a discount. The resulting debt discount is
amortized through the first redeemable option date as additional
non-cash interest expense. We adopted FSP APB 14-1 on January 1,
2009, as required, on a retrospective basis to the convertible
notes we issued in 2007 and 2008. As a result, we restated our
2008 results to reflect the additional interest expense and the
additional capitalized interest related to our development
activities for both properties we currently own, as well as
properties that were contributed during the applicable periods.
This restatement impacted earnings and FFO.
The following tables illustrate the impact of the restatement on
our Consolidated Balance Sheets and Consolidated Statements of
Operations and FFO for these periods (in thousands):
As of December 31, 2008
-----------------------
FSP APB 14-1
As Reported adjustments As Adjusted
----------- ------------ -----------
Consolidated Balance Sheet:
---------------------------
Real estate $15,706,172 $19,100 $15,725,272
Other assets $1,129,182 $(2,189) $1,126,993
Debt $11,007,636 $(296,268) $10,711,368
Additional paid in capital $6,688,615 $381,493 $7,070,108
Distributions in excess of
net earnings $(587,199) $(68,314) $(655,513)
For the three months ended March 31, 2008
FSP APB 14-1
As Reported adjustments As Adjusted
----------- ----------- -----------
(before 2009
discontinued
operations
adjustment)
Consolidated Statements of
Operations and FFO:
--------------------------
Cost of CDFS dispositions $1,068,639 $126 $1,068,765
Interest expense, net of
capitalization $85,124 $10,358 $95,482
Net earnings attributable
to controlling interests $200,359 $(10,484) $189,875
(2) On February 9, 2009, we sold our operations in China and our
property fund interests in Japan to affiliates of GIC Real Estate,
the real estate investment company of the Government of Singapore
Investment Corporation ("GIC RE"), for total cash consideration of
$1.3 billion ($845 million related to China and $500 million
related to the Japan investments). The proceeds were used
primarily to pay down borrowings on our credit facilities.
All of the assets and liabilities associated with our China
operations were classified as Assets and Liabilities Held for Sale
in our accompanying Consolidated Balance Sheet as of December 31,
2008. In the fourth quarter of 2008, based on the carrying values
of these assets and liabilities, as compared with the estimated
sales proceeds less costs to sell, we recognized an impairment of
$198.2 million. In connection with the sale in the first quarter
of 2009, we recognized a $3.3 million gain on sale. In addition,
the results of our China operations are presented as discontinued
operations in our accompanying Consolidated Statements of
Operations for all periods. All operating information presented
throughout this report excludes China operations.
In connection with the sale of our investments in the Japan
property funds, we recognized a gain of $180.2 million, which is
reflected as CDFS Proceeds in our Consolidated Statements of
Operations and FFO, as it represents the recapture of previously
deferred gains on the contribution of properties to the property
funds based on our ownership interests in the property funds at
the time of original contribution of properties. We also
recognized $20.5 million in current income tax expense related to
the Japan portion of the transaction.
In addition, we have entered into an agreement to sell one
property in Japan to GIC RE. This property is classified as Held
for Sale in our accompanying Consolidated Balance Sheets as of
March 31, 2009 and December 31, 2008, along with borrowings of
$108.6 million under our credit facilities, and its operations
have been included in Discontinued Operations for all periods
presented in our accompanying Consolidated Statements of
Operations. See note 14 for more information on this and other
properties classified as discontinued operations.
(3) During March and April 2009, we repurchased several series of
notes outstanding, as follows:
-- In March 2009, we repurchased $16.7 million original
principal amount of our 2.25% convertible senior notes due
2037 (which have a cash put right in 2012) for approximately
$9.2 million and $31.5 million of our 1.875% convertible
senior notes due 2037 (which have a cash put right in 2013)
for approximately $15.6 million. In connection with these
transactions, we recognized a gain of $17.9 million that is
reported as "Gain on Early Extinguishment of Debt" in our
Consolidated Statements of Operations and FFO. The gain
represents the discount related to that portion of the
original principal amount that was reflected as "Debt" at
the time of the buyback (see note 1 above).
-- During April 2009, we repurchased an additional $7.5 million
original principal amount of our 2.25% convertible senior
notes due 2037 for approximately $4.4 million, an additional
$190.1 million original principal amount of our 1.875%
convertible senior notes due 2037 for approximately $107.0
million and $27.4 million original principal amount of our
2.625% convertible senior notes due 2038 (which have a cash
put right in 2013) for approximately $17.0 million.
-- Also during April 2009, we repurchased euro 42.65 million
(approximately $58.3 million at March 31, 2009) original
principal amount of our 4.375% senior notes due April 2011
for approximately euro 32.0 million (approximately
$43.7 million at March 31, 2009).
The repurchase of certain of our debt is in line with our
announced initiatives to reduce debt. We expect to continue
to repurchase our debt depending on market conditions and
other factors.
(4) In April 2009, we completed a public offering of 174.8 million
common shares at a price of $6.60 per share, including an
overallotment option of 22.8 million shares that was exercised by
the underwriters prior to closing. On April 14, 2009, we closed on
the offering and received net proceeds, after underwriters
discount but prior to offering expenses, of $1.1 billion. The
proceeds were used to repay borrowings under our credit
facilities, which includes borrowings that were made on our credit
facilities in April 2009 to repurchase certain convertible and
senior notes (see note 13).
(5) The additional losses recognized in Accumulated Other
Comprehensive Loss in the first quarter of 2009 in our
Consolidated Balance Sheet are principally the result of the sale
of our China operations and investments in the Japan property
funds in February 2009 and the strengthening of the US dollar
against the euro, yen and pound sterling during this time. The
strengthening US dollar results in lower net assets upon
translation of our international operations into US dollars.
(6) We adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 160 "Noncontrolling Interests in
Consolidated Financial Statements -- An Amendment of ARB No. 51"
("SFAS 160") on January 1, 2009. SFAS 160 requires noncontrolling
interests (previously referred to as minority interests) to be
reported as a component of equity and changes the accounting for
transactions with noncontrolling interest holders.
(7) In our Consolidated Statements of Operations, rental income
includes the following (in thousands):
Three Months Ended
March 31,
------------------
2009 2008
------------------
Rental income $175,650 $196,916
Rental expense recoveries 53,930 58,827
Straight-lined rents 8,882 6,816
----- -----
$238,462 $262,559
======= =======
(8) During the fourth quarter of 2008, in response to the current
market conditions, we modified our business strategy. As a
result, as of December 31, 2008, we have two operating segments
- Direct Owned and Investment Management, and we no longer have a
CDFS Business segment. We presented the results of operations of
our CDFS Business segment separately in 2008.
Our direct owned segment represents the direct, long-term
ownership of industrial properties. Our investment strategy in
this segment focuses primarily on the ownership and leasing of
industrial properties in key distribution markets. We consider
these properties to be our Core Portfolio. Also included in this
segment are operating properties we developed with the intent to
contribute the properties to an unconsolidated property fund that
we previously referred to as our "CDFS Pipeline" and, beginning
December 31, 2008, we now refer to as our Completed Development
Portfolio. We may contribute either Core or Development properties
to the property funds, to the extent there is fund capacity, or
sell them to third parties. When we contribute or sell
Development properties, we recognize FFO to the extent the
proceeds received exceed our original investment (i.e. prior to
depreciation). However, beginning January 1, 2009, we now present
the results as Net Gains on Dispositions, rather than as CDFS
Proceeds and Cost of CDFS Dispositions. In addition, we have
industrial properties that are currently under development (also
included in our Development Portfolio) and land available for
development that are part of this segment as well. The investment
management segment represents the investment management of
unconsolidated property funds and joint ventures and the
properties they own.
(9) Beginning in 2009, we are reporting the direct costs associated
with our investment management segment for all periods presented
as a separate line item "Investment Management Expenses" in our
Consolidated Statements of Operations and FFO. These costs include
the property management expenses associated with the property-
level management of the properties owned by the property funds
(previously included in Rental Expenses) and the investment
management expenses associated with the asset management of the
property funds (previously included in General and Administrative
Expenses). In order to allocate the property management expenses
between the properties owned by us and the properties owned by the
property funds, we use the square feet owned at the beginning of
the period by the respective portfolios.
(10) As we previously announced in the fourth quarter of 2008, in
response to the difficult economic climate, we initiated general
and administrative expense ("G&A") reductions with a near-term
target of a 20 to 25% reduction in G&A prior to capitalization or
allocation. These initiatives include a Reduction in Workforce
("RIF") and reductions to other expenses through various cost
savings measures. Due to the changes in our business strategy in
the fourth quarter of 2008, we have halted the majority of our new
development activities, which, along with lower gross G&A, has
resulted in lower capitalized G&A. Our G&A included in our
Statements of Operations consisted of the following (in
thousands):
Three Months Ended
March 31,
------------------
2009 2008
------------------
Gross G&A expense $77,840 $95,374
Capitalized amounts and amounts reported as rental
and investment management expenses (29,597) (49,110)
------ ------
Net G&A $48,243 $46,264
====== ======
In the fourth quarter of 2008 and the first quarter of 2009, we
recognized $23.1 million and $4.5 million, respectively, of
expenses related to the RIF program. We may have additional RIF
charges in the future.
(11) For the three months ended March 31, 2009 and 2008, included in
Earnings/Loss from Unconsolidated Property Funds in our
Consolidated Statements of Operations was a loss of $9.7 million
and $31.6 million, respectively, related to our share of
derivative activity within the property funds (see note 4 to
section IV for additional information). Included in FFO
from unconsolidated property funds for 2009 and 2008 was $11.6
million and $3.0 million, respectively, of our share of realized
losses that we include in our calculation of FFO. In 2009, $11.3
million of this amount relates to contracts that were settled in
previous periods and, therefore, we are being added back to our
calculation of FFO, excluding significant non-cash items.
(12) The following table presents the components of interest expense as
reflected in our Consolidated Statements of Operations (in
thousands):
Three Months Ended
March 31,
------------------
2009 2008
------------------
Interest expense $101,859 $121,970
Amortization of FSP APB 14-1 discount 17,838 13,759
Amortization of discount (premium), net 874 (593)
Amortization of deferred loan costs 3,378 2,809
----- -----
Interest expense before capitalization 123,949 137,945
Capitalized amounts (31,017) (42,319)
------ ------
Net interest expense $92,932 $95,626
====== ======
The decrease in interest expense in 2009 over 2008 is due to
lower debt levels and lower borrowing rates, offset by lower
capitalization due to less development activity.
(13) During the first quarter of 2009 and 2008, we recognized net
foreign currency exchange gains and losses, respectively, related
to the remeasurement of inter-company loans between the U.S. and
our consolidated subsidiaries in Japan and Europe due to the
fluctuations in the exchange rates of US dollars to the yen, the
euro and pound sterling between December 31st and March 31st of
the applicable years. These gains and losses related to inter-
company loans are not included in our calculation of FFO.
(14) The operations of the properties held for sale or disposed of to
third parties and the aggregate net gains recognized upon their
disposition are presented as discontinued operations in our
Consolidated Statements of Operations for all periods presented,
unless the property was developed under a pre-sale agreement.
As discussed in Note 2 above, all of the assets and liabilities
associated with our China operations and the one property in Japan
that we expect to sell to GIC RE in the second quarter of 2009
were classified as Assets and Liabilities Held for Sale in our
accompanying Consolidated Balance Sheet as of December 31, 2008.
As of March 31, 2009, the Japan building and one other property
that met the criteria were classified as held for sale on our
Consolidated Balance Sheets.
During 2009, other than our China operations, we did not sell any
properties to third parties. During 2008, we disposed of 15
properties to third parties, six of which were development
properties, as well as land subject to ground leases.
The income (loss) attributable to these properties and our China
operations were as follows (in thousands):
Three Months Ended
March 31,
------------------
2009 2008
------------------
Rental income $5,073 $6,917
Rental expenses (2,068) (2,510)
Depreciation and amortization (1,164) (1,804)
Other expenses, net (574) (3,685)
--- -----
Income (loss) attributable to disposed
properties $1,267 $(1,082)
===== =====
For purposes of our Consolidated Statements of FFO, we do not
segregate discontinued operations. In addition, we include the
gains from disposition of development properties (2009) and CDFS
properties (2008) in the calculation of FFO, including those
classified as discontinued operations.
(15) In connection with purchase accounting, we record all of the
acquired assets and liabilities at the estimated fair values at
the date of acquisition. For our taxable subsidiaries, we
generally recognize the deferred tax liabilities that represent
the tax effect of the difference between the tax basis carried
over and the fair values of these assets at the date of
acquisition. As taxable income is generated in these subsidiaries,
we recognize a deferred tax benefit in earnings as a result of the
reversal of the deferred tax liability previously recorded at the
acquisition date and we record current income tax expense
representing the entire current income tax liability. In our
calculation of FFO, we only include the current income tax expense
to the extent the associated income is recognized for financial
reporting purposes.
SOURCE ProLogis