ProLogis Reports Third Quarter Results
- New Date and Time for Conference Call -
- Key Industrial Indicators Showing Improvement -
- Dispositions Ahead of Plan; Support Enhanced Portfolio Quality and Concentration in Major Logistics Corridors -
- Company Provides Dividend and 2011 FFO Outlook -
DENVER, Oct. 25 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), the leading global provider of distribution facilities, today reported third quarter 2010 funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $0.22 per diluted share. Of this amount, approximately $0.07 related to gains from disposition activity and $0.15 per diluted share was from core operations. FFO, including significant non-cash items of $0.01, was $0.21 per diluted share.
For the nine months ended September 30, 2010, FFO, excluding significant non-cash items and year-to-date non-recurring charges, was $0.50 per diluted share, relative to the company's full-year 2010 guidance of $0.70 to $0.78 per diluted share. Core FFO for the nine months was $0.38 per diluted share relative to the company's full-year guidance of $0.53 to $0.56 per diluted share.
The company reported a net loss of $0.03 per diluted share for the third quarter of 2010 and a net loss of $0.27 per diluted share for the nine months ended September 30, 2010.
"During the quarter, we made significant progress on our objective of disposing of non-strategic, direct-owned properties in order to reduce debt and create value through accretive development," said Walter C. Rakowich, chief executive officer. "Our third-quarter dispositions and those we plan to complete in the fourth quarter or in early 2011 support our efforts to shift investment into new development, increase our direct owned portfolio outside the United States and enhance the quality and concentration of our properties within major logistics corridors."
Industrial Fundamentals Showing Improvement
"Industrial operating performance metrics are turning around, although the pace of improvement is more moderate than we have experienced in past recoveries," Rakowich said. "There is a continued lack of new development in our global markets, and the availability of large, modern distribution centers is shrinking. We believe we are nearing a tipping point where even a modest improvement in demand could facilitate a rapid recovery in the industrial market. Among the favorable signs are: positive net absorption in the top 31 North American industrial markets for the second consecutive quarter, stable-to-improving occupancies and rental rate growth in select, supply constrained markets. Overall, fundamentals are headed in the right direction."
The company's total industrial operating portfolio (including completed development and the investment management portfolio) was 89.90 percent leased at the end of the quarter, up 24 basis points from 89.66 percent at June 30, 2010. Leasing in the company's completed development portfolio increased by 122 basis points, or 217 basis points excluding the contribution and sale of fully leased properties during the quarter. Total leasing activity in the third quarter was 27.0 million square feet, in line with historical average quarterly leasing activity.
Customer retention during the quarter remained strong at 70.5 percent within the company's direct owned portfolio and 79.1 percent within its investment management business. In the company's total same-store portfolio, rental rates on turnovers declined 8.5 percent in the third quarter, compared with a rental rate decline of 15.7 percent in the second quarter of 2010. Occupancy increased by 2.1 percent, and net operating income increased 0.27 percent.
Year-to-date and Planned Dispositions to Significantly Exceed Goal
Through the end of the third quarter, the company had completed over $595 million of property dispositions and contributions to funds. In addition, the company recently entered into a definitive agreement with affiliates of Blackstone Real Estate Advisors ("Blackstone") to sell a North American industrial portfolio, its minority interest in a hotel property and ProLogis' interests in three of its property funds for a total purchase price of $1.02 billion. Total gross proceeds from this transaction, year-to-date dispositions and anticipated fourth quarter sales are expected to be approximately $1.65 to $1.7 billion – above the company's initial 2010 gross disposition target of $1.3 to $1.5 billion. Net proceeds from the Blackstone transaction are expected to be approximately $830 million and will be used principally for the repayment of debt and to fund development activity.
In addition, ProLogis is actively pursuing the disposition of certain retail, mixed-use and ground lease assets. The company expects to consummate the disposition of all, or a portion of, these assets in early 2011 and to generate $350 to $550 million in proceeds.
Steady Demand for New Development
In the first three quarters, the company began more than $500 million of new development. Since the end of the quarter, ProLogis has signed three new build-to-suit agreements totaling $62 million of total expected investment, including two in the United States and one in the UK. "We continue to have a robust pipeline of development proposals and expect actual starts this year of $600 to $700 million, with another $48 million of signed development agreements that will begin construction in 2011," said Ted R. Antenucci, president and chief investment officer. "We plan to expand our development business to $800 million to $1 billion of annual starts in 2011. While we anticipate the vast majority will be build-to-suit, we believe improving fundamentals in major logistics corridors will support speculative development in a handful of space-constrained markets. Expanding our development program is an important element of our long-term growth plan and is accretive to net asset value."
Strategic Positioning in Focus for Fourth Quarter
"We are highly focused on implementing a number of strategic initiatives in the fourth quarter, which we believe will position us well for 2011 and beyond," said William E. Sullivan, chief financial officer. The spectrum of initiatives includes, but is not limited to:
- A strategic decision to more aggressively pursue land sales, wherein we are undertaking a rigorous evaluation of all land positions and may take further impairments of our current book basis, which we expect to be in line with discount ranges presented in our recent investor presentations, which could be material;
- A plan to tender for between $1 billion and $2 billion of our public debt, with the principal intent of further smoothing our annual maturities, as well as deploying the proceeds from our asset sales activity into the most accretive debt reduction opportunities;
- An intent to evaluate the effectiveness of various derivative positions, in light of the current and anticipated interest rate environment, which may result in the recording of one-time charges or adjustments;
- A focus on creating incremental cost savings from structural and platform efficiencies, and
- A review of the company's investment in certain non-industrial assets, which may result in impairments.
"Our 2010 per diluted share guidance for core FFO of $0.53 to $0.56; FFO, excluding significant non-cash items and non-recurring charges, of $0.70 to $0.78; and net earnings of $0.09 to $0.13, remains unchanged. However, we anticipate a variety of one-time charges, some cash and some non-cash, from the fourth quarter strategic positioning activities, which are not included in our guidance."
While the Blackstone transaction will generate sizeable taxable gains, the company expects these gains to be partially offset by losses associated with the intended debt repurchase and other anticipated fourth quarter charges. As a result, the company intends to reduce its fourth quarter dividend to $0.1125 per share, consistent with anticipated taxable income for 2010. "It is our Board's current intent to maintain this level of cash dividend throughout 2011, more in line with our taxable income, and position ourselves to grow the dividend over time as our adjusted FFO grows," said Sullivan.
Expectations for 2011
The company also established an expectation for growth in core FFO per share of 15 percent or more for 2011 and will provide a specific range and business drivers to support that guidance early in the year. "Our growth rate in 2011 will be affected by the dilutive impact of the Blackstone transaction and additional anticipated 2010 and 2011 asset sales, the proceeds of which will initially be used to reduce debt. However, we expect growth from the impact of continued development portfolio leasing, new build-to-suit developments coming on line and higher average occupancies," said Sullivan. "In addition, while we expect FFO gains from development in 2011, we will focus our guidance in 2011 primarily on core FFO."
The company's expected net earnings per share of $0.09 to $0.13 for 2010 would have been a net loss of $0.50 to $0.55 per share prior to anticipated disposition gains. For 2011, the loss per share is expected to decline by roughly 25 percent, prior to any dispositions, acquisitions or other transactions. The primary differences between FFO and earnings per share relates to depreciation and gains and losses on transactions.
Webcast and Conference Call Information
The company will host a webcast/conference call to discuss quarterly results, current market conditions and future outlook on Tuesday, October 26, 2010, at 8:30 a.m. Eastern Time. Interested parties are encouraged to access the live webcast by clicking the microphone icon located near the top of the opening page at http://ir.prologis.com. Interested parties also can participate via conference call by dialing (866) 305-2304 domestically or (660) 422-4873 internationally.
Replay Information
A replay of the conference call will be posted when available. The replay will be available until midnight Eastern Time on Tuesday, November 9, 2010, and can be accessed by dialing (800) 642-1687 domestically or (706) 645-9291 internationally and entering passcode 20289828. A transcript of the call and the webcast replay, including a podcast format, will be posted when available in the "Financial Information" section of the ProLogis Investor Relations website.
About ProLogis
ProLogis is the leading global provider of distribution facilities, with more than 475 million square feet of industrial space owned and managed (44 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,400 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. For additional information about the company, go to www.prologis.com.
Follow ProLogis on Twitter: http://twitter.com/ProLogis
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 reports filed with the Securities and Exchange Commission by ProLogis under the heading "Risk Factors." ProLogis undertakes no duty to update any forward-looking statements appearing in this press release.
Overview | |||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Summary of Results | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues | $ | 270,114 | $ | 269,291 | $ | 790,541 | $ | 960,283 | |||||||
Net earnings (loss) (a) | $ | (15,052) | $ | (11,788) | $ | (129,331) | $ | 405,809 | |||||||
Net earnings (loss) per share - Diluted (a) | $ | (0.03) | $ | (0.03) | $ | (0.27) | $ | 1.06 | |||||||
FFO, including significant non-cash items (a) | $ | 104,050 | $ | 65,187 | $ | 179,011 | $ | 444,646 | |||||||
Add (deduct) significant non-cash items: | |||||||||||||||
Impairment of real estate properties and other assets | 2,929 | 46,274 | 3,296 | 130,492 | |||||||||||
Net gain related to disposed assets - China operations | - | - | - | (3,315) | |||||||||||
Losses (gains) on early extinguishment of debt | 1,791 | (12,010) | 16,049 | (173,218) | |||||||||||
Write-off deferred extension fees associated with the Global Line | - | - | 854 | - | |||||||||||
Our share of certain losses (gains) recognized by the property funds | - | (4,925) | 3,575 | 6,358 | |||||||||||
Total adjustments for significant non-cash items | 4,720 | 29,339 | 23,774 | (39,683) | |||||||||||
FFO, excluding significant non-cash items (a) | $ | 108,770 | $ | 94,526 | $ | 202,785 | $ | 404,963 | |||||||
FFO per share - Diluted, including significant non-cash items (a) | $ | 0.21 | $ | 0.14 | $ | 0.37 | $ | 1.16 | |||||||
Add (deduct) - summarized significant non-cash adjustments - per share | 0.01 | 0.07 | 0.05 | (0.10) | |||||||||||
FFO per share - Diluted, excluding significant non-cash items (a) | $ | 0.22 | $ | 0.21 | $ | 0.42 | $ | 1.06 | |||||||
(a) These amounts are attributable to common shares. Footnotes follow Financial Statements | |||||||||||||||
Consolidated Balance Sheets | |||||||||||
(in thousands, except per share data) | |||||||||||
September 30, | December 31, | ||||||||||
2010 | 2009 | ||||||||||
Assets: | |||||||||||
Investments in real estate assets: | |||||||||||
Industrial properties: | |||||||||||
Core (1) | $ | 7,580,614 | $ | 7,436,539 | |||||||
Core - completed development | 4,048,846 | 4,108,962 | |||||||||
Properties under development | 276,397 | 191,127 | |||||||||
Land held for development | 2,380,914 | 2,569,343 | |||||||||
Retail and mixed use properties | 304,358 | 302,838 | |||||||||
Land subject to ground leases and other | 372,823 | 373,422 | |||||||||
Other investments | 162,285 | 190,352 | |||||||||
15,126,237 | 15,172,583 | ||||||||||
Less accumulated depreciation | 1,883,405 | 1,671,100 | |||||||||
Net investments in real estate assets | 13,242,832 | 13,501,483 | |||||||||
Investments in and advances to unconsolidated investees: | |||||||||||
Property funds (1) | 2,024,149 | 1,876,650 | |||||||||
Other unconsolidated investees (1) | 328,039 | 275,073 | |||||||||
Total investments in and advances to unconsolidated investees | 2,352,188 | 2,151,723 | |||||||||
Cash and cash equivalents | 17,799 | 34,362 | |||||||||
Accounts and notes receivable | 123,186 | 91,547 | |||||||||
Other assets | 1,033,914 | 1,017,780 | |||||||||
Total assets | $ | 16,769,919 | $ | 16,796,895 | |||||||
Liabilities and Equity: | |||||||||||
Liabilities: | |||||||||||
Debt (2) | $ | 8,170,032 | $ | 7,977,778 | |||||||
Accounts payable and accrued expenses | 397,281 | 367,399 | |||||||||
Other liabilities | 519,524 | 444,432 | |||||||||
Total liabilities | 9,086,837 | 8,789,609 | |||||||||
Equity: | |||||||||||
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 | 4,770 | 4,742 | |||||||||
Additional paid-in capital | 8,573,066 | 8,524,867 | |||||||||
Accumulated other comprehensive income | 17,392 | 42,298 | |||||||||
Distributions in excess of net earnings | (1,279,837) | (934,583) | |||||||||
Total ProLogis shareholders' equity | 7,665,391 | 7,987,324 | |||||||||
Noncontrolling interests | 17,691 | 19,962 | |||||||||
Total equity | 7,683,082 | 8,007,286 | |||||||||
Total liabilities and equity | $ | 16,769,919 | $ | 16,796,895 | |||||||
Footnotes follow Financial Statements | |||||||||||
Consolidated Statements of Operations | ||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
Revenues: | ||||||||||||||
Rental income (3) | $ | 236,068 | $ | 220,489 | $ | 695,816 | $ | 661,252 | ||||||
Property management and other fees and incentives | 29,262 | 45,792 | 86,231 | 111,200 | ||||||||||
CDFS disposition proceeds (4) | - | - | - | 180,237 | ||||||||||
Development management and other income | 4,784 | 3,010 | 8,494 | 7,594 | ||||||||||
Total revenues | 270,114 | 269,291 | 790,541 | 960,283 | ||||||||||
Expenses: | ||||||||||||||
Rental expenses | 69,095 | 67,862 | 201,732 | 203,325 | ||||||||||
Investment management expenses | 9,829 | 10,186 | 30,079 | 31,581 | ||||||||||
General and administrative (5) | 34,959 | 38,632 | 115,886 | 128,325 | ||||||||||
Reduction in workforce (5) | - | 415 | - | 11,745 | ||||||||||
Impairment of real estate properties and other assets | 2,929 | 46,274 | 3,296 | 130,492 | ||||||||||
Depreciation and amortization | 93,469 | 79,643 | 267,018 | 230,952 | ||||||||||
Other expenses | 5,409 | 8,405 | 14,325 | 19,408 | ||||||||||
Total expenses | 215,690 | 251,417 | 632,336 | 755,828 | ||||||||||
Operating income | 54,424 | 17,874 | 158,205 | 204,455 | ||||||||||
Other income (expense): | ||||||||||||||
Earnings from unconsolidated property funds, net | 7,455 | 11,639 | 13,305 | 31,135 | ||||||||||
Earnings (loss) from other unconsolidated investees, net | 1,770 | (693) | 7,197 | 2,850 | ||||||||||
Interest expense (6) | (120,233) | (89,838) | (349,132) | (265,819) | ||||||||||
Other income (expense), net | 7,375 | (10,021) | 5,833 | (5,846) | ||||||||||
Net gains on dispositions of real estate properties (7) | 35,922 | 13,627 | 58,688 | 22,419 | ||||||||||
Foreign currency exchange gains, net (8) | 6,144 | 13,386 | 2,626 | 34,898 | ||||||||||
Gain (loss) on early extinguishment of debt, net (2) | (1,791) | 12,010 | (48,449) | 173,218 | ||||||||||
Total other income (expense) | (63,358) | (49,890) | (309,932) | (7,145) | ||||||||||
Earnings (loss) before income taxes | (8,934) | (32,016) | (151,727) | 197,310 | ||||||||||
Current income tax expense (benefit) (4) | 5,499 | (4,626) | 15,850 | 30,140 | ||||||||||
Deferred income tax expense (benefit) | 1,956 | (5,088) | (40,442) | (20,687) | ||||||||||
Total income taxes | 7,455 | (9,714) | (24,592) | 9,453 | ||||||||||
Earnings (loss) from continuing operations | (16,389) | (22,302) | (127,135) | 187,857 | ||||||||||
Discontinued operations (9): | ||||||||||||||
Income (loss) attributable to disposed properties | (130) | 2,775 | 392 | 23,416 | ||||||||||
Net gain related to disposed assets - China operations (4) | - | - | - | 3,315 | ||||||||||
Net gains on dispositions: | ||||||||||||||
Non-development properties | 667 | 14,270 | 9,729 | 199,791 | ||||||||||
Development properties and land subject to ground leases | 7,359 | - | 7,424 | 11,503 | ||||||||||
Total discontinued operations | 7,896 | 17,045 | 17,545 | 238,025 | ||||||||||
Consolidated net earnings (loss) | (8,493) | (5,257) | (109,590) | 425,882 | ||||||||||
Net earnings attributable to noncontrolling interests | (190) | (162) | (634) | (966) | ||||||||||
Net earnings (loss) attributable to controlling interests | (8,683) | (5,419) | (110,224) | 424,916 | ||||||||||
Less preferred share dividends | 6,369 | 6,369 | 19,107 | 19,107 | ||||||||||
Net earnings (loss) attributable to common shares | $ | (15,052) | $ | (11,788) | $ | (129,331) | $ | 405,809 | ||||||
Weighted average common shares outstanding - Basic | 477,028 | 452,683 | 476,280 | 379,421 | ||||||||||
Weighted average common shares outstanding - Diluted | 477,028 | 452,683 | 476,280 | 382,623 | ||||||||||
Net earnings (loss) per share attributable to common shares - Basic: | ||||||||||||||
Continuing operations | $ | (0.05) | $ | (0.07) | $ | (0.31) | $ | 0.44 | ||||||
Discontinued operations | 0.02 | 0.04 | 0.04 | 0.63 | ||||||||||
Net earnings (loss) per share attributable to common shares - Basic | $ | (0.03) | $ | (0.03) | $ | (0.27) | $ | 1.07 | ||||||
Net earnings (loss) per share attributable to common shares - Diluted: | ||||||||||||||
Continuing operations | $ | (0.05) | $ | (0.07) | $ | (0.31) | $ | 0.44 | ||||||
Discontinued operations | 0.02 | 0.04 | 0.04 | 0.62 | ||||||||||
Net earnings (loss) per share attributable to common shares - Diluted | $ | (0.03) | $ | (0.03) | $ | (0.27) | $ | 1.06 | ||||||
Footnotes follow Financial Statements | ||||||||||||||
Consolidated Statements of Funds From Operations (FFO) | |||||||||||||
(in thousands, except per share amounts) | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||
Revenues: | |||||||||||||
Rental income | $ | 236,252 | $ | 225,226 | $ | 697,419 | $ | 711,681 | |||||
Property management and other fees and incentives | 29,262 | 45,792 | 86,231 | 111,293 | |||||||||
CDFS disposition proceeds (4) | - | - | - | 180,237 | |||||||||
Development management and other income | 4,784 | 3,010 | 8,494 | 7,594 | |||||||||
Total revenues | 270,298 | 274,028 | 792,144 | 1,010,805 | |||||||||
Expenses: | |||||||||||||
Rental expense | 69,326 | 68,874 | 202,607 | 218,228 | |||||||||
Investment management expenses | 9,829 | 10,186 | 30,079 | 31,581 | |||||||||
General and administrative (5) | 34,959 | 38,632 | 115,886 | 129,630 | |||||||||
Reduction in workforce (5) | - | 415 | - | 11,745 | |||||||||
Impairment of real estate properties and other assets | 2,929 | 46,274 | 3,296 | 130,492 | |||||||||
Depreciation of corporate assets | 3,269 | 3,982 | 9,770 | 12,069 | |||||||||
Other expenses | 5,409 | 8,405 | 14,325 | 19,414 | |||||||||
Total expenses | 125,721 | 176,768 | 375,963 | 553,159 | |||||||||
Operating FFO | 144,577 | 97,260 | 416,181 | 457,646 | |||||||||
Other income (expense): | |||||||||||||
FFO from unconsolidated property funds | 42,315 | 43,901 | 116,016 | 115,518 | |||||||||
FFO from other unconsolidated investees | 3,660 | 947 | 12,135 | 8,926 | |||||||||
Interest expense | (120,233) | (89,838) | (349,132) | (265,649) | |||||||||
Other income (expense), net | 7,375 | (10,021) | 5,833 | (5,774) | |||||||||
Net gains on dispositions of real estate properties, net of related tax (7)(10) | 38,899 | 12,515 | 59,150 | 30,072 | |||||||||
Foreign currency exchange gains (losses), net | (694) | 318 | 17 | (22,068) | |||||||||
Gain (loss) on early extinguishment of debt, net (2) | (1,791) | 12,010 | (48,449) | 173,218 | |||||||||
Current income tax benefit (expense) (4)(10) | (3,499) | 4,626 | (12,999) | (30,341) | |||||||||
Net gain related to disposed assets - China operations (4) | - | - | - | 3,315 | |||||||||
Total other income (expense) | (33,968) | (25,542) | (217,429) | 7,217 | |||||||||
FFO | 110,609 | 71,718 | 198,752 | 464,863 | |||||||||
Less preferred share dividends | 6,369 | 6,369 | 19,107 | 19,107 | |||||||||
Less net earnings attributable to noncontrolling interests | 190 | 162 | 634 | 1,110 | |||||||||
FFO attributable to common shares, including significant non-cash items | $ | 104,050 | $ | 65,187 | $ | 179,011 | $ | 444,646 | |||||
Adjustments for significant non-cash items | 4,720 | 29,339 | 23,774 | (39,683) | |||||||||
FFO attributable to common shares, excluding significant non-cash items | $ | 108,770 | $ | 94,526 | $ | 202,785 | $ | 404,963 | |||||
Weighted average common shares outstanding - Basic | 477,028 | 452,683 | 476,280 | 379,421 | |||||||||
FFO per share attributable to common shares, including significant non-cash items: | |||||||||||||
Basic | $ | 0.22 | $ | 0.14 | $ | 0.38 | $ | 1.17 | |||||
Diluted | $ | 0.21 | $ | 0.14 | $ | 0.37 | $ | 1.16 | |||||
FFO per share attributable to common shares, excluding significant non-cash items: | |||||||||||||
Basic | $ | 0.23 | $ | 0.21 | $ | 0.43 | $ | 1.07 | |||||
Diluted | $ | 0.22 | $ | 0.21 | $ | 0.42 | $ | 1.06 | |||||
Footnotes follow Financial Statements | |||||||||||||
Reconciliations of Net Earnings (Loss) to FFO and EBITDA | ||||||||||||||||
(in thousands) | ||||||||||||||||
Reconciliation of net earnings (loss) to FFO, including significant non-cash items | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net earnings (loss) (a) | $ | (15,052) | $ | (11,788) | $ | (129,331) | $ | 405,809 | ||||||||
Add (deduct) NAREIT defined adjustments: | ||||||||||||||||
Real estate related depreciation and amortization | 90,200 | 75,661 | 257,248 | 218,883 | ||||||||||||
Adjustments to gains on dispositions for depreciation | (2,376) | (1,001) | (4,208) | (2,204) | ||||||||||||
Adjustments to (gains on) dispositions of non-development properties | (6) | (111) | 97 | (1,646) | ||||||||||||
Reconciling items attributable to discontinued operations: (9) | ||||||||||||||||
Gains on dispositions of non-development properties | (667) | (14,270) | (9,729) | (199,791) | ||||||||||||
Real estate related depreciation and amortization | 83 | 950 | 336 | 11,534 | ||||||||||||
Total discontinued operations | (584) | (13,320) | (9,393) | (188,257) | ||||||||||||
Our share of reconciling items from unconsolidated investees: | ||||||||||||||||
Real estate related depreciation and amortization | 39,311 | 37,973 | 116,143 | 113,954 | ||||||||||||
Adjustment to gains/losses on dispositions for depreciation | - | (1,310) | - | (7,888) | ||||||||||||
Other amortization items | (3,324) | (1,659) | (10,313) | (7,821) | ||||||||||||
Total unconsolidated investees | 35,987 | 35,004 | 105,830 | 98,245 | ||||||||||||
Total NAREIT defined adjustments | 123,221 | 96,233 | 349,574 | 125,021 | ||||||||||||
Subtotal-NAREIT defined FFO | 108,169 | 84,445 | 220,243 | 530,830 | ||||||||||||
Add (deduct) our defined adjustments: | ||||||||||||||||
Foreign currency exchange gains, net (8) | (6,838) | (13,068) | (2,609) | (56,897) | ||||||||||||
Deferred income tax expense (benefit) | 1,956 | (5,088) | (40,442) | (20,699) | ||||||||||||
Our share of reconciling items from unconsolidated investees: | ||||||||||||||||
Foreign currency exchange losses (gains), net (8) | 350 | (556) | 2,294 | (790) | ||||||||||||
Unrealized losses (gains) on derivative contracts, net | 1,450 | (208) | (125) | (6,167) | ||||||||||||
Deferred income tax benefit | (1,037) | (338) | (350) | (1,631) | ||||||||||||
Total unconsolidated investees | 763 | (1,102) | 1,819 | (8,588) | ||||||||||||
Total our defined adjustments | (4,119) | (19,258) | (41,232) | (86,184) | ||||||||||||
FFO, including significant non-cash items (a) | $ | 104,050 | $ | 65,187 | $ | 179,011 | $ | 444,646 | ||||||||
Reconciliation of FFO, including significant non-cash items to FFO, excluding significant non-cash items | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
FFO, including significant non-cash items (a) | $ | 104,050 | $ | 65,187 | $ | 179,011 | $ | 444,646 | ||||||||
Add (deduct) significant non-cash items: | ||||||||||||||||
Impairment of real estate properties and other assets | 2,929 | 46,274 | 3,296 | 130,492 | ||||||||||||
Net gain related to disposed assets - China operations (4) | - | - | - | (3,315) | ||||||||||||
Losses (gains) on early extinguishment of debt (2) | 1,791 | (12,010) | 16,049 | (173,218) | ||||||||||||
Write-off deferred extension fees associated with Global Line | - | - | 854 | - | ||||||||||||
Our share of certain net losses (gains) recognized by the property funds | - | (4,925) | 3,575 | 6,358 | ||||||||||||
Total adjustments for significant non-cash items | 4,720 | 29,339 | 23,774 | (39,683) | ||||||||||||
FFO, excluding significant non-cash items (a) | $ | 108,770 | $ | 94,526 | $ | 202,785 | $ | 404,963 | ||||||||
Reconciliation of FFO, excluding significant non-cash items, to EBITDA | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
FFO, excluding significant non-cash items (a) | $ | 108,770 | $ | 94,526 | $ | 202,785 | $ | 404,963 | ||||||||
Interest expense | 120,233 | 89,838 | 348,278 | 265,649 | ||||||||||||
Depreciation of corporate assets | 3,269 | 3,982 | 9,770 | 12,069 | ||||||||||||
Current income tax expense (benefit) included in FFO (10) | 5,499 | (4,626) | 15,850 | 30,341 | ||||||||||||
Adjustments to gains on dispositions for interest capitalized | 1,849 | 4,605 | 3,119 | 11,544 | ||||||||||||
Preferred share dividends | 6,369 | 6,369 | 19,107 | 19,107 | ||||||||||||
Our share of reconciling items from unconsolidated investees | 45,705 | 44,241 | 141,247 | 130,705 | ||||||||||||
Earnings before interest, taxes, depreciation, and amortization (EBITDA) | $ | 291,694 | $ | 238,935 | $ | 740,156 | $ | 874,378 | ||||||||
(a) Attributable to common shares. See Consolidated Statements of Operations and Consolidated Statements of FFO Footnotes follow Financial Statements | ||||||||||||||||
Calculation of Per Share Amounts | ||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||
Net Earnings (Loss) Per Share | ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2010 (a) | 2009 (a) | 2010 (a) | 2009 | |||||||||||
Net earnings (loss) - Basic (b) | $ | (15,052) | $ | (11,788) | $ | (129,331) | $ | 405,809 | ||||||
Noncontrolling interest attributable to convertible limited partnership units (c) | - | - | - | 966 | ||||||||||
Adjusted net earnings (loss) - Diluted (b) | $ | (15,052) | $ | (11,788) | $ | (129,331) | $ | 406,775 | ||||||
Weighted average common shares outstanding - Basic | 477,028 | 452,683 | 476,280 | 379,421 | ||||||||||
Incremental weighted average effect of conversion of limited partnership units (c) | - | - | - | 1,192 | ||||||||||
Incremental weighted average effect of stock awards | - | - | - | 2,010 | ||||||||||
Weighted average common shares outstanding - Diluted (d) | 477,028 | 452,683 | 476,280 | 382,623 | ||||||||||
Net earnings (loss) per share - Diluted (b) | $ | (0.03) | $ | (0.03) | $ | (0.27) | $ | 1.06 | ||||||
FFO Per Share, including significant non-cash items | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||
FFO - Basic, including significant non-cash items (b) | $ | 104,050 | $ | 65,187 | $ | 179,011 | $ | 444,646 | |||||
Interest expense for convertible debt to common shares (d) | 4,216 | - | - | - | |||||||||
Noncontrolling interest attributable to convertible limited partnership units (c) | 157 | - | - | 966 | |||||||||
FFO - Diluted, including significant non-cash items (b) | $ | 108,423 | $ | 65,187 | $ | 179,011 | $ | 445,612 | |||||
Weighted average common shares outstanding - Basic | 477,028 | 452,683 | 476,280 | 379,421 | |||||||||
Incremental weighted average effect of conversion of limited partnership units (c) | 760 | - | - | 1,192 | |||||||||
Incremental weighted average effect of conversion of certain convertible debt (d) | 26,611 | - | - | - | |||||||||
Incremental weighted average effect of stock awards | 3,275 | 2,388 | 3,355 | 2,010 | |||||||||
Weighted average common shares outstanding - Diluted | 507,674 | 455,071 | 479,635 | 382,623 | |||||||||
FFO per share - Diluted, including significant non-cash items (b) | $ | 0.21 | $ | 0.14 | $ | 0.37 | $ | 1.16 | |||||
FFO Per Share, excluding significant non-cash items | ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
FFO - Basic, including significant non-cash items (b) | $ | 104,050 | $ | 65,187 | $ | 179,011 | $ | 444,646 | ||||||
Adjustments for significant non-cash items | 4,720 | 29,339 | 23,774 | (39,683) | ||||||||||
Interest expense for convertible debt to common shares (d) | 4,216 | - | - | - | ||||||||||
Noncontrolling interest attributable to convertible limited partnership units (c) | 157 | 162 | - | 966 | ||||||||||
FFO - Diluted, excluding significant non-cash items (b) | $ | 113,143 | $ | 94,688 | $ | 202,785 | $ | 405,929 | ||||||
Weighted average common shares outstanding - Basic | 477,028 | 452,683 | 476,280 | 379,421 | ||||||||||
Incremental weighted average effect of conversion of limited partnership units (c) | 760 | 1,110 | - | 1,192 | ||||||||||
Incremental weighted average effect of conversion of certain convertible debt (d) | 26,611 | - | - | - | ||||||||||
Incremental weighted average effect of stock awards | 3,275 | 2,388 | 3,355 | 2,010 | ||||||||||
Weighted average common shares outstanding - Diluted | 507,674 | 456,181 | 479,635 | 382,623 | ||||||||||
FFO per share - Diluted, excluding significant non-cash items (b) | $ | 0.22 | $ | 0.21 | $ | 0.42 | $ | 1.06 | ||||||
(a) In periods with a net loss, the inclusion of any incremental shares is anti-dilutive, and therefore, both basic and diluted shares are the same. (b) Attributable to common shares. (c) If the impact of the conversion of limited partnership units is anti-dilutive, the income and shares of the limited partnerships are not included in the diluted per share calculation. (d) Relates to the convertible debt issued in March 2010. If the impact of the conversion of the convertible debt is anti-dilutive, the expense associated with the debt and the related shares are not included in the diluted per share calculation. | ||||||||||||||
Notes of Financial Statements
Please 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 amounts from previous periods presented in this document have been reclassified to conform to the 2010 presentation.
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 that we refer to as Completed Development Properties. Our intent is to hold and use the Core and Development properties, however, depending on market and other conditions, we may contribute either Core or Development properties to the property funds or sell 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) and present the results as Net Gains on Dispositions. In addition, we have industrial properties that are currently under development and land available for development that are part of this segment as well. We may develop the land or sell to third parties, depending on market and other conditions. The investment management segment represents the investment management of unconsolidated property funds and joint ventures and the properties they own.
(1) On October 18, 2010, we announced that we had entered into a definitive agreement to sell a portfolio of industrial properties and several equity method investments to a single buyer for approximately $1.02 billion. The industrial portfolio includes approximately 180 properties with 23 million square feet that were 95.6% leased at September 30, 2010 and had net operating income of approximately $19.1 million for the three months ended September 30, 2010. The equity method investments include our 20% ownership interest in three property funds (ProLogis North American Properties Fund VI-VIII) and an investment in an unconsolidated joint venture that owns a hotel property and adjacent land. We expect the sale, which is subject to customary closing conditions, to close later in the fourth quarter and result in an approximate $200 million net gain for GAAP earnings purposes. We will continue to provide property management services for the industrial properties that were previously owned directly by us and by the property funds.
(2) During the three and nine months ended September 30, 2010 and 2009, in connection with our announced initiatives to stagger and extend our debt maturities and reduce debt, we repurchased portions of several series of senior and convertible senior notes outstanding with maturities in 2012, 2013, 2015 and 2016. In addition, in the first and third quarters of 2010, we repaid certain secured mortgage debt in connection with the sale of two properties in Japan. The repurchase activity is summarized as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
Convertible Senior Notes (a): | ||||||||||||||
Original principal amount | $ | 103,000 | $ | 15,000 | $ | 842,642 | $ | 536,257 | ||||||
Cash purchase price | $ | 97,181 | $ | 13,028 | $ | 791,603 | $ | 351,106 | ||||||
Senior Notes: | ||||||||||||||
Original principal amount | $ | 33,539 | $ | 20,000 | $ | 456,015 | $ | 363,192 | ||||||
Cash purchase price | $ | 33,102 | $ | 19,925 | $ | 482,484 | $ | 322,015 | ||||||
Secured Mortgage Debt: | ||||||||||||||
Original principal amount | $ | 89,581 | $ | 227,017 | $ | 134,721 | $ | 227,017 | ||||||
Cash repayment price | $ | 90,402 | $ | 227,017 | $ | 137,061 | $ | 227,017 | ||||||
Total: | ||||||||||||||
Original principal amount | $ | 226,120 | $ | 262,017 | $ | 1,433,378 | $ | 1,126,466 | ||||||
Cash purchase / repayment price | $ | 220,685 | $ | 259,970 | $ | 1,411,148 | $ | 900,138 | ||||||
Gain (loss) on early extinguishment of debt, net (b) | $ | (1,791) | $ | 12,010 | $ | (48,449) | $ | 173,218 | ||||||
(a) Although the cash purchase price is less than the principal amount outstanding, the repurchase of these notes resulted in a non-cash loss in 2010 due to the non-cash discount. Therefore, we adjusted for this non-cash loss to arrive at FFO, excluding significant non-cash items. (b) Represents the difference between the recorded debt (including unamortized related debt issuance costs, premiums and discounts) and the consideration we paid to retire the debt. Of the loss referred to above, the non-cash loss of $1.8 million and $16.0 million for the three and nine months ended September 30, 2010, respectively, are adjusted back to arrive at FFO, excluding significant non-cash items. | ||||||||||||||
(3) In our Consolidated Statements of Operations, rental income includes the following (in thousands):
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||
Rental income | $ | 177,012 | $ | 165,385 | $ | 513,023 | $ | 487,443 | |||||
Rental expense recoveries | 50,169 | 47,278 | 152,418 | 147,522 | |||||||||
Straight-lined rents | 8,887 | 7,826 | 30,375 | 26,287 | |||||||||
$ | 236,068 | $ | 220,489 | $ | 695,816 | $ | 661,252 | ||||||
(4) 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, for total cash consideration of $1.3 billion ($845 million related to China and $500 million related to the Japan investments).
In connection with the sale of our investments in the Japan property funds, we recognized a gain of $180.2 million. The gain is reflected as CDFS Proceeds in our Consolidated Statements of Operations and FFO, as it represents previously deferred gains on the contribution of development properties to the property funds based on our ownership interest in the property funds at the time of original contribution. We also recognized $20.5 million in current income tax expense related to the Japan portion of the transaction. We continued to manage the Japan properties until July 2009 at which time we earned a termination fee of $16.3 million that is included in Property Management and Other Fees and Incentives in our Consolidated Statements of Operations and FFO.
(5) In the fourth quarter of 2008, in response to the difficult economic climate, we initiated general and administrative expense ("G&A") reductions. These initiatives included a Reduction in Workforce ("RIF") program and reductions to other expenses through various cost savings measures. Lower gross G&A and less development activity 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 | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||
Gross G&A expense | $ | 59,795 | $ | 65,060 | $ | 190,529 | $ | 212,221 | |||||
Reported as rental expense | (4,988) | (4,872) | (14,822) | (14,660) | |||||||||
Reported as investment management expenses | (9,829) | (10,186) | (30,079) | (31,581) | |||||||||
Capitalized amounts | (10,019) | (11,370) | (29,742) | (37,655) | |||||||||
Net G&A | $ | 34,959 | $ | 38,632 | $ | 115,886 | $ | 128,325 | |||||
(6) The following table presents the components of Interest Expense as reflected in our Consolidated Statements of Operations (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
Gross interest expense | $ | 114,291 | $ | 91,349 | $ | 332,525 | $ | 281,585 | ||||||
Amortization of discount, net | 10,880 | 15,706 | 38,412 | 51,049 | ||||||||||
Amortization of deferred loan costs | 6,110 | 4,941 | 20,027 | 11,191 | ||||||||||
Interest expense before capitalization | 131,281 | 111,996 | 390,964 | 343,825 | ||||||||||
Capitalized amounts | (11,048) | (22,158) | (41,832) | (78,006) | ||||||||||
Net interest expense | $ | 120,233 | $ | 89,838 | $ | 349,132 | $ | 265,819 | ||||||
Gross interest expense increased in 2010 from 2009 due to increased borrowing rates. The decrease in capitalized amounts in 2010 from 2009 is due to less development activity.
(7) Included in Net Gains on Dispositions of Real Estate Properties for the three and nine months ended September 30, 2010 are gains of $6.5 million and $7.6 million, respectively, from the sale of real estate properties that were previously impaired.
(8) Included in Foreign Currency Exchange Gains (Losses), Net, for the nine months ended September 30, 2010 and 2009, are net foreign currency exchange gains or losses from 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 U.S. dollars to the yen, the euro and pound sterling between January 1st and September 30th of the applicable years. We do not include the gains and losses related to inter-company loans in our calculation of FFO.
(9) The operations of the properties held for sale and properties that are disposed of to third parties during a period, including the aggregate net gains recognized upon their disposition, are presented as discontinued operations in our Consolidated Statements of Operations for all periods presented.
During the nine months ended September 30, 2010, we disposed of 13 properties to third parties aggregating 1.4 million square feet, 2 of which were development properties. During all of 2009, other than our China operations, we disposed of land subject to ground leases and 140 properties aggregating 14.8 million square feet to third parties, 3 of which were development properties.
The income attributable to these properties and our China operations was as follows (in thousands): | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||
Rental income | $ | 184 | $ | 4,737 | $ | 1,603 | $ | 50,429 | |||||
Rental expenses | (231) | (1,012) | (875) | (14,903) | |||||||||
Depreciation and amortization | (83) | (950) | (336) | (11,534) | |||||||||
Other expenses, net | - | - | - | (576) | |||||||||
Income (loss) attributable to disposed properties | $ | (130) | $ | 2,775 | $ | 392 | $ | 23,416 | |||||
For purposes of our Consolidated Statements of FFO, we do not segregate discontinued operations. In addition, we include the gains from disposition of land parcels and Completed Development Properties in the calculation of FFO, including those classified as discontinued operations.
(10) The net gains on dispositions of real estate properties presented in our Consolidated Statements of FFO are net of related taxes of $2.0 million and $2.9 million for the three and nine months ended September 30, 2010, respectively.
SOURCE ProLogis
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