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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-13545
AMB PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 94-3281941
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
505 MONTGOMERY ST., SAN FRANCISCO, CALIFORNIA 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 394-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1998, there were 85,874,513 shares of the Registrant's
common stock, $0.01 par value per share, outstanding.
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AMB PROPERTY CORPORATION
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited).............................. 1
Consolidated Statements of Operations for the nine and three
months ended September 30, 1997 and 1998 (unaudited)........ 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1998 (unaudited)............... 3
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1998 (unaudited)................. 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market
Risks....................................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities....................................... 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
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PART I
ITEM 1. FINANCIAL STATEMENTS
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
Investments in real estate:
Land and improvements..................................... $ 550,635 $ 718,855
Buildings and improvements................................ 1,822,516 2,376,390
Construction in progress.................................. 69,848 128,685
---------- ----------
Total investments in properties................... 2,442,999 3,223,930
Accumulated depreciation and amortization................. (4,153) (43,904)
---------- ----------
Net investments in properties..................... 2,438,846 3,180,026
Investment in unconsolidated joint venture................ -- 67,191
---------- ----------
Net investments in real estate.................... 2,438,846 3,247,217
Cash and cash equivalents................................... 39,968 33,206
Other assets................................................ 27,441 46,850
---------- ----------
Total assets...................................... $2,506,255 $3,327,273
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Unsecured credit facility................................. $ 150,000 $ 205,000
Senior debt securities.................................... -- 400,000
Secured debt.............................................. 535,652 701,602
---------- ----------
Total debt........................................ 685,652 1,306,602
Other liabilities........................................... 49,350 109,606
Payable to affiliates....................................... 38,071 --
---------- ----------
Total liabilities................................. 773,073 1,416,208
Commitments and contingencies............................... -- --
Minority interests.......................................... 65,152 144,389
Stockholders' equity:
Series A Preferred Stock, cumulative, redeemable, $0.01
par value, 100,000,000 shares authorized, 4,000,000
shares issued and outstanding, $100,000 liquidation
preference............................................ -- 96,100
Common stock, $0.01 par value, 500,000,000 shares
authorized, 85,874,513 issued and outstanding......... 859 859
Additional paid-in capital............................. 1,667,171 1,669,717
Retained earnings...................................... -- --
---------- ----------
Total stockholders' equity........................ 1,668,030 1,766,676
---------- ----------
Total liabilities and stockholders' equity........ $2,506,255 $3,327,273
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
1997 1998 1997 1998
----------- ------------ ---------- -----------
REVENUES
Rental revenues....................... $ -- $ 92,841 $ -- $ 251,844
Investment management and other
income............................. 12,204 1,220 23,287 3,016
---------- ----------- ---------- -----------
Total revenues................ 12,204 94,061 23,287 254,860
OPERATING EXPENSES
Property operating expenses........... -- 12,720 -- 33,951
Real estate taxes..................... -- 12,413 -- 33,686
General and administrative............ -- 2,832 -- 8,694
Interest, including amortization...... -- 19,544 -- 47,105
Depreciation and amortization......... -- 14,750 -- 40,052
Investment management expenses........ 5,986 -- 14,305 --
---------- ----------- ---------- -----------
Total operating expenses...... 5,986 62,259 14,305 163,488
---------- ----------- ---------- -----------
Income from operations before
minority interests.......... 6,218 31,802 8,982 91,372
Minority interests' share of net
income............................. -- (2,930) -- (6,615)
---------- ----------- ---------- -----------
Net income.................... 6,218 28,872 8,982 84,757
Series A preferred stock dividends.... -- (1,514) -- (1,514)
---------- ----------- ---------- -----------
Net income available to common
stockholders................ $ 6,218 $ 27,358 $ 8,982 $ 83,243
========== =========== ========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic................................. $ 1.22 $ 0.32 $ 1.77 $ 0.97
========== =========== ========== ===========
Diluted............................... $ 1.22 $ 0.32 $ 1.77 $ 0.97
========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic................................. 5,079,855 85,874,513 5,079,855 85,874,513
========== =========== ========== ===========
Diluted............................... 5,079,855 86,251,857 5,079,855 86,252,923
========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1997 1998
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 8,982 $ 84,757
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. -- 40,052
Straight-line rents....................................... -- (8,083)
Amortization of debt premiums and financing costs......... -- (1,921)
Minority interests' share of net income................... -- 6,615
Equity in loss of AMB Investment Management............... -- 394
Equity earnings of unconsolidated joint venture........... -- (833)
Changes in assets and liabilities:
Other assets.............................................. (1,243) (11,795)
Other liabilities......................................... 3,547 28,047
------- ---------
Net cash provided by operating activities............... 11,286 137,233
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... -- (397,388)
Additions to land and building improvements................. -- (26,700)
Additions to tenant improvements and leasing costs.......... -- (7,622)
Additions to construction in progress....................... -- (67,078)
Acquisition of interest in unconsolidated joint venture..... -- (67,149)
Distributions received from investment in unconsolidated
joint venture............................................. -- 1,011
Reduction of payable to affiliates in connection with
Formation Transactions.................................... -- (38,071)
Purchase of furniture, fixtures and equipment............... (1,436) --
------- ---------
Net cash used in investing activities................... (1,436) (602,997)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on unsecured credit facilities................... -- 546,000
Borrowings on secured debt.................................. -- 54,554
Payments on unsecured credit facilities..................... -- (491,000)
Payments on secured debt.................................... -- (62,916)
Net proceeds from issuance of senior debt securities........ -- 399,166
Net proceeds from issuance of Series A Preferred Stock...... -- 96,100
Dividends paid to common stock and preferred stock
shareholders.............................................. -- (58,825)
Distributions to minority interests......................... -- (24,077)
Deferred offering costs..................................... (711) --
Distributions to stockholders of Predecessor................ (6,628) --
Principal payment of notes receivable from stockholders of
Predecessor............................................... 869 --
------- ---------
Net cash provided by (used in) financing activities..... (6,470) 459,002
------- ---------
Net increase in cash and cash equivalents................... 3,380 (6,762)
Cash and cash equivalents at beginning of period............ 2,783 39,968
------- ---------
Cash and cash equivalents at end of period.................. $ 6,163 $ 33,206
======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ -- $ 39,291
======= =========
Property acquisitions:
Purchase price............................................ $ -- $ 674,365
Assumption of secured debt................................ -- (171,988)
Minority interests' contribution.......................... -- (104,989)
------- ---------
Cash paid for property acquisitions................ $ -- $ 397,388
======= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS)
COMMON STOCK
SERIES A ------------------- ADDITIONAL
PREFERRED NUMBER PAID-IN RETAINED
STOCK OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ---------- ------ ---------- -------- ----------
BALANCE AT DECEMBER 31, 1997..... $ -- 85,874,513 $859 $1,667,171 $ -- $1,668,030
Preferred Stock offering, net
of offering costs........... 96,100 -- -- -- -- 96,100
Net income..................... 1,514 -- -- -- 83,243 84,757
Reallocation of Limited
Partners' interests in
Operating
Partnership................. -- -- -- 7,540 -- 7,540
Dividends...................... (1,514) -- -- (4,994) (83,243) (89,751)
------- ---------- ---- ---------- -------- ----------
BALANCE AT SEPTEMBER 30, 1998.... $96,100 85,874,513 $859 $1,669,717 $ -- $1,766,676
======= ========== ==== ========== ======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
1. ORGANIZATION AND FORMATION
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "IPO") on November 26, 1997. The
Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"),
commencing with its taxable year ended December 31, 1997, and believes its
current organization and method of operation will enable it to maintain its
status as a REIT. The Company, through its controlling interest in its
subsidiary AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of industrial buildings and community
shopping centers in target markets nationwide. Unless the context otherwise
requires, the "Company" means AMB Property Corporation, the Operating
Partnership and its other controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the IPO. AMB Institutional Realty Advisors, Inc., a California
corporation and registered investment advisor (the "Predecessor") formed AMB
Property Corporation, a wholly owned subsidiary, and merged with and into the
Company (the "Merger") in exchange for 4,746,616 shares of the Company's Common
Stock. In addition, the Company and the Operating Partnership acquired, through
a series of mergers and other transactions, 31.8 million rentable square feet of
industrial property and 6.3 million rentable square feet of retail property in
exchange for 65,022,185 shares of the Company's Common Stock, 2,542,163 limited
partner interests ("LP Units") in the Operating Partnership, the assumption of
debt and, to a limited extent, cash. The net assets of the Predecessor and the
properties acquired with Common Stock were contributed to the Operating
Partnership in exchange for 69,768,801 units. The purchase method of accounting
was applied to the acquisition of the properties. Collectively, the Merger and
the other formation transactions described above are referred to as the
"Formation Transactions."
On November 26, 1997, the Company completed its IPO of 16,100,000 shares of
Common Stock, $0.01 par value per share (the "Common Stock") for $21.00 per
share, resulting in gross offering proceeds of approximately $338,100. The net
proceeds of approximately $300,032 were used to repay indebtedness, to purchase
interests from certain investors who elected not to receive shares or units in
connection with the Formation Transactions, to fund property acquisitions, and
for general corporate working capital requirements.
As of September 30, 1998, the Company owned an approximate 95.1% general
partner interest in the Operating Partnership. The remaining 4.9% limited
partner interest is owned by nonaffiliated investors. For local law purposes,
properties in certain states are owned through limited partnerships and limited
liability companies owned 99% by the Operating Partnership and 1% by a wholly
owned subsidiary of the Company. The ownership of such properties through such
entities does not materially affect the Company's overall ownership of the
interests in the properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the day-to-day management and control of the Operating
Partnership.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership purchased 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain executive officers of the Company and an officer of AMB
Investment Management collectively purchased 100% of the Investment Management
Subsidiary's voting common stock (representing a 5% economic interest therein).
The Operating Partnership accounts for its investment in AMB Investment
Management using the equity method of accounting. AMB Investment Management was
formed to succeed to the Predecessor's investment management business of
providing real estate investment management services on a fee basis to clients.
The Operating Partnership also owns 100% of the non-voting
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AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
preferred stock of Headlands Realty Corporation, a Maryland corporation
(representing a 95% economic interest therein). Certain executive officers of
the company and a director of Headlands Realty Corporation collectively own 100%
of the voting common stock of Headlands Realty Corporation (representing a 5%
economic interest therein). Headlands Realty Corporation invests in properties
and may in the future engage in or acquire interests in entities that engage in
the management, leasing and development of properties and similar activities.
As of September 30, 1998, the Company owned 547 industrial buildings (the
"Industrial Properties") and 37 retail centers (the "Retail Properties") located
in 29 markets throughout the United States. The Industrial Properties,
principally warehouse distribution buildings, encompass approximately 53.1
million rentable square feet and, as of September 30, 1998, were 95.9% leased to
over 1,500 tenants. The Retail Properties, principally grocer-anchored community
shopping centers, encompass approximately 6.9 million rentable square feet and,
as of the same date, were 94.8% leased to over 900 tenants. The Industrial
Properties and the Retail Properties collectively are referred to as the
"Properties."
2. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated financial
statements for prior periods have been reclassified to conform to current
classifications with no effect on results of operations. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, of a normal recurring nature, necessary for a fair presentation
of the Company's consolidated financial position and results of operations for
the interim periods.
The interim financial information for the nine months and for the three
months ended September 30, 1997 represents the results of the Predecessor, an
investment manager. The Predecessor's revenues consisted primarily of fees
earned in connection with real estate investment management services. As such,
information presented for the nine months and for the three months ended
September 30, 1997 and 1998 is not comparable given the differences in lines of
business between the Company and the Predecessor.
The interim results of the nine and three months ended September 30, 1997
and 1998 are not necessarily indicative of the results expected for the entire
year. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. REAL ESTATE ACQUISITION ACTIVITY
During the nine months ended September 30, 1998, the Company invested: (i)
$642.5 million in 187 industrial buildings, aggregating 15.3 million rentable
square feet, (ii) $31.8 million in 2 retail centers, aggregating 0.4 million
rentable square feet and (iii) $67.1 million in an unconsolidated limited
partnership interest in an existing real estate joint venture that owns 36
industrial buildings aggregating 4.0 million square
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AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
feet. Of this activity, acquisitions totaling $258.9 million in 83 industrial
buildings aggregating 5.1 million rentable square feet were completed during the
three months ended September 30, 1998.
4. DEBT
In connection with the Formation Transactions, the Company assumed certain
secured debt with an aggregate principal value of $517,031 and a fair value of
$535,613. The difference between the principal value and the fair value was
recorded as a debt premium. The debt premium is being amortized into interest
expense over the term of the related debt instruments using the effective
interest method. As of September 30, 1998, the unamortized debt premium was
$15,918. As of September 30, 1998, debt, excluding unamortized debt premiums,
consists of the following:
Unsecured credit facility, variable interest at LIBOR plus
90 basis points (6.53% at September 30, 1998), due
November 2000............................................. $ 205,000
Unsecured senior debt securities, weighted average interest
rate of 7.18%, due June 2008, June 2015 and June 2018..... 400,000
Secured debt, varying interest rates from 4.00% to 10.38%
due November 1998 to January 2014......................... 685,684
----------
Total Debt........................................ $1,290,684
==========
The Company has a $500,000 unsecured revolving credit agreement (the
"Credit Facility") with Morgan Guaranty Trust Company of New York, as agent, and
a syndicate of twelve other banks. The Credit Facility has a term of three
years, and is subject to a fee that accrues on the daily average undrawn funds,
which varies between 15 and 25 basis points of the undrawn funds based on the
Company's credit rating (15 basis points at September 30, 1998). The Credit
Facility has various financial and non-financial covenants.
Interest on the senior debt securities is payable semiannually in each June
and December commencing December 1998. The 2015 notes are putable and callable
in June 2005. The senior debt securities are subject to various financial and
non-financial covenants.
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain Properties. All of the
secured debt bears interest at fixed rates, except for two loans with an
aggregate principal amount of $9,255 which bear interest at variable rates. The
secured debt has various financial and non-financial covenants. Additionally,
certain of the secured debt is cross-collateralized. The weighted-average fixed
interest rate on secured debt at September 30, 1998, was 7.9%.
Capitalized interest related to construction projects for the three and
nine months ended September 30, 1998, was $1,876 and $4,974, respectively. There
was no capitalized interest for periods prior to the Formation Transactions.
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AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
The scheduled maturities of the Company's total debt, excluding unamortized
debt premiums, as of September 30, 1998 are as follows:
SENIOR
CREDIT DEBT SECURED
FACILITY SECURITIES DEBT TOTAL
-------- ---------- ---------- ----------
1998 (three months)................... $ -- $ -- $ 15,343 $ 15,343
1999.................................. -- -- 12,689 12,689
2000.................................. 205,000 -- 18,151 223,151
2001.................................. -- -- 40,353 40,353
2002.................................. -- -- 66,466 66,466
Thereafter............................ -- 400,000 532,682 932,682
-------- -------- -------- ----------
$205,000 $400,000 $685,684 $1,290,684
======== ======== ======== ==========
5. MINORITY INTERESTS
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties (some of which are Institutional Alliance Partners(TM)) in 16 real
estate joint ventures that are consolidated for financial reporting purposes.
Such investments are consolidated because (i) the Company owns a majority
interest, or (ii) the Company holds significant control over the entity through
a 50% or greater ownership interest combined with the ability to control major
operating decisions such as approval of budgets, selection of property managers
and changes in financing.
The following table sets forth the minority interest ownership held by
certain joint venture partners, Institutional Alliance Partners(TM) and the
limited partners' interests in the Operating Partnership as of September 30,
1998.
Minority Interest -- Joint Ventures......................... $ 16,711
Minority Interest -- Institutional Alliance Partners(TM).... 41,205
Minority Interest -- Limited Partners....................... 86,473
--------
$144,389
========
6. STOCKHOLDERS' EQUITY
On July 27, 1998, the Company sold 4,000,000 shares of 8.5% Series A
Cumulative Redeemable Preferred Stock for $100,000 in an underwritten public
offering. The net proceeds of $96,100 (after deducting underwriters' discounts
and commissions and offering costs) from the offering were contributed to the
Operating Partnership in exchange for 4,000,000 Series A preferred units with
terms identical to the Series A Preferred Stock. The Operating Partnership used
these proceeds to repay borrowings under the Credit Facility. The Series A
Preferred Stock is redeemable solely at the option of the Company.
On September 3, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per share of common stock and operating
partnership unit, payable on October 2, 1998, to stockholders and unitholders of
record as of September 16, 1998. On September 3, 1998, the Company declared a
cash dividend of $0.4604 per share on its Series A Preferred Stock, and the
Operating Partnership declared a cash distribution of $0.4604 per unit on its
Series A Preferred Units, for the period commencing on July 27, 1998 and ending
on October 14, 1998, payable on October 15, 1998 to stockholders and unitholders
of record as of September 16, 1998.
8
11
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
7. INCOME PER SHARE
The Company's only dilutive securities outstanding for the three and nine
months ended September 30, 1998 were stock options issued under its stock
incentive plan. The effect of the stock options was to increase weighted average
shares outstanding by 378,410 and 377,344 shares for the three and nine months
ended September 30, 1998, respectively. Such dilution was computed using the
treasury stock method. The Predecessor had no dilutive securities outstanding
during the nine months ended September 30, 1997.
8. PRO FORMA INFORMATION
The following summary unaudited pro forma financial information for the
three and nine months ended September 30, 1997 has been prepared as if the
Formation Transactions, the IPO (as described in Note 1) and property
acquisitions and dispositions during the year ended December 31, 1997 had
occurred on January 1, 1997. The pro forma financial information does not
purport to present the consolidated results that would have occurred if the
aforementioned transactions had been consummated on January 1, 1997, nor does it
purport to be indicative of the consolidated results of operations for future
periods.
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
Total revenues............................. $ 70,816 $ 210,048
Income from operations before minority
interests................................ 25,730 75,539
Net income............................... 25,463 72,572
Income Per Share of Common Stock
Basic.................................... $ 0.30 $ 0.85
=========== ===========
Diluted.................................. $ 0.30 $ 0.85
=========== ===========
Weighted Average Common Shares Outstanding
Basic.................................... 85,874,513 85,874,513
=========== ===========
Diluted.................................. 85,874,513 85,874,513
=========== ===========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of the consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates," or "anticipates" or the negative
of these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, risks and uncertainties affecting property
development and construction (including, construction delays, cost overruns, our
inability to obtain necessary permits and public opposition to these
activities), our failure to qualify and maintain our status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended,
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. Our success also depends upon economic trends
generally, including interest rates, income tax laws, governmental regulation,
legislation, population changes and those risk factors discussed in the section
entitled "Business -- Business Risks" in our Annual Report on Form 10-K for
fiscal year ended December 31, 1997. We caution you not to place undue reliance
on forward-looking statements, which reflect our analysis only and speak only as
of the date of this report or the dates indicated in the statements.
THE COMPANY
We are a fully integrated real estate company engaged in the ownership,
operation, management, acquisition, renovation, expansion and development of
industrial buildings and community shopping centers in target markets
nationwide.
At September 30, 1998, we owned and operated a total of 547 industrial
buildings and 37 retail centers totaling 60.0 million square feet in 29 markets
nationwide. In addition, as of the same date we had an interest in an
unconsolidated joint venture that owns 36 industrial buildings aggregating 4.0
million square feet and we operated properties aggregating 4.5 million square
feet of property on behalf of investment management clients.
INDUSTRIAL AND RETAIL PROPERTIES BY REGION
AS OF SEPTEMBER 30, 1998
INDUSTRIAL PROPERTIES RETAIL PROPERTIES TOTAL
------------------------------ --------------------------- ---------------------------------
NUMBER RENTABLE NUMBER RENTABLE NUMBER RENTABLE
OF SQUARE % OF OF SQUARE % OF OF BUILDINGS SQUARE % OF
REGION BUILDINGS FEET TOTAL CENTERS FEET TOTAL AND CENTERS FEET TOTAL
------ --------- ---------- ----- ------- --------- ----- ------------ ---------- -----
Eastern.............. 85 10,929,011 20.6% 4 1,272,968 18.6% 89 12,201,979 20.3%
Midwestern........... 106 11,986,978 22.6 4 710,833 10.4 110 12,697,811 21.2
Southern............. 184 16,171,842 30.4 12 1,972,366 28.6 196 18,144,208 30.2
Western.............. 172 14,042,240 26.4 17 2,907,986 42.4 189 16,950,226 28.3
--- ---------- ----- -- --------- ----- --- ---------- -----
Total............ 547 53,130,071 100.0% 37 6,864,153 100.0% 584 59,994,224 100.0%
=== ========== ===== == ========= ===== === ========== =====
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ACQUISITION AND DEVELOPMENT ACTIVITY
During the third quarter, we invested $258.9 million in operating
properties, consisting of 83 industrial buildings aggregating 5.1 million square
feet. We also initiated two new development projects aggregating approximately
0.5 million square feet during the quarter, with a total estimated cost of $23.3
million upon completion. As of September 30, 1998, we had 13 industrial projects
aggregating approximately 5.3 million square feet in our development pipeline
with a total estimated investment of $231.3 million upon completion and three
retail projects aggregating approximately 0.6 million square feet in our
development pipeline representing an estimated investment of $92.2 million upon
completion.
STRATEGIC ALLIANCE PROGRAMS (TM)
We believe that our strategy of forming strategic alliances with local and
regional real estate experts and institutional investors provides us with growth
opportunities, access to private capital and flexibility in the markets in which
we operate. We have been a leader in forming these alliances through our
Strategic Alliance Programs(TM).
DEVELOPMENT ALLIANCE PROGRAM(TM): Our strategy for our Development Alliance
Program(TM) is to enhance our development capability by forming alliances
with development firms with a strong local presence and expertise. During
the third quarter, we initiated two development projects with Development
Alliance Partners(TM): a $10.9 million expected investment in a 0.2 million
square foot industrial project in Dallas, Texas and a $12.4 million
expected investment in a 0.3 million square foot industrial project in
Houston, Texas.
UPREIT ALLIANCE PROGRAM(TM): Through our UPREIT Alliance Program(TM), we
issue operating partnership units in exchange for properties, thus
providing additional growth for our portfolio. We expanded our UPREIT
Alliance Program(TM) in the third quarter through the acquisition of a 1.0
million square foot industrial portfolio aggregating 21 industrial
buildings in Menlo Park, California for $100.4 million. We believe that
UPREIT Alliance Partners(TM), who can benefit from a tax advantaged
transaction structure, have been, and will continue to be, an attractive
source of new acquisitions.
INSTITUTIONAL ALLIANCE PROGRAM(TM): Our strategy for our Institutional
Alliance Program(TM) is to form joint ventures with institutional investors
through the co-investment program of AMB Investment Management. This
program provides access to private capital, including during those times
when the public markets are less attractive.
MANAGEMENT ALLIANCE PROGRAM(TM): Our strategy for our Management Alliance
Program(TM) is to develop close relationships with and outsource property
management to local property managers that we believe are among the best in
their respective markets. These local property managers provide us with
local market information related to tenant activity and acquisition and
development opportunities. Two of our acquisitions during the third
quarter, aggregating $72.2 million and 1.9 million square feet, were
sourced through our Management Alliance Program(TM).
CUSTOMER ALLIANCE PROGRAM(TM): Through our Customer Alliance Program(TM),
we seek to build long-term working relationships with major tenants with
the assistance of leading local and national leasing firms. During the
quarter we continued our comprehensive branding program intended to broaden
awareness of AMB among our constituents, to support the expansion of our
Strategic Alliance Programs(TM) and to establish consistency for all of
AMB's customers, brokers and Strategic Alliance Partners(TM).
RESULTS OF OPERATIONS
OVERVIEW
Because of the significant impact of the Formation Transactions and the IPO
on our results of operations, the discussion below is presented as follows:
- Results of the Company and its Predecessor for the nine and three months
ended September 30, 1998 and 1997, and
- Results of the Properties for the nine and three months ended September
30, 1998 and 1997.
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COMPANY AND PREDECESSOR RESULTS OF OPERATIONS
Company and Predecessor -- Nine and Three Months Ended September 30, 1998 and
1997
Total revenues. Total revenues, including straight-line rents, tenant
reimbursements and other income, totaled $254.9 and $94.1 million for the nine
and three months ended September 30, 1998. The Predecessor's revenues consisted
primarily of fees earned in connection with real estate management services. As
such, no such rental revenues existed for the Predecessor for the nine and three
months ended September 30, 1997.
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, totaled $67.6
and $25.1 million for the nine and three months ended September 30, 1998. The
Predecessor's expenses consisted primarily of salaries and other general and
administrative costs. As such, no such property operating expenses existed
during the nine and three months ended September 30, 1997.
General and administrative expenses. Our general and administrative
expenses were $8.7 and $2.8 million for the nine and three months ended
September 30, 1998, as compared to the Predecessor's investment management
expenses of $14.3 and $6.0 million for the nine and three months ended September
30, 1997. Investment management expenses of the Predecessor consisted primarily
of salaries and other general and administrative expenses. The $5.6 million, or
39%, and $3.2 million, or 53%, decreases, respectively, in general and
administrative expenses is attributable to the change in our operations from an
investment manager to a fully integrated real estate company, and the formation
of AMB Investment Management. In connection with the Formation Transactions, AMB
Investment Management assumed employment and other related costs of certain
employees who transferred from the Predecessor to AMB Investment Management for
the purpose of carrying on the investment management business.
PROPERTIES RESULTS OF OPERATIONS
The historical results of operations of the Properties for periods prior to
November 26, 1997 include Properties that were managed by the Predecessor and
exclude the results of four properties that were contributed to us in the
Formation Transactions that the Predecessor did not previously manage.
The historical property financial data presented in this report show
significant increases in revenues and expenses principally attributable to
substantial portfolio growth. As a result, we do not believe the year-to-year
financial data are comparable. Therefore, the analysis below shows changes
resulting from Properties that the Predecessor owned as of January 1, 1997,
excluding development projects (the "Same Store Properties"), and changes
attributable to acquisition and development activity during 1997 and 1998. For
the comparison between the nine and three month periods ended September 30, 1998
and 1997, the Same Store Properties consist of properties aggregating 30.4
million square feet. Our future financial condition and results of operations,
including rental revenues, may be impacted by the acquisition of additional
properties. Our future revenues and expenses may vary materially from their
historical rates.
Properties -- Nine and Three Months Ended September 30, 1998 and 1997
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $82.5 and $34.8
million, or 49% and 60%, for the nine and three months ended September 30, 1998,
to $251.8 and $92.8 million, respectively, as compared with the same periods in
1997. Approximately $10.9 and $3.7 million, or 13% and 11% of this increase, was
attributable to Same Store Properties, with the remaining $71.6 and $31.1
million attributable to Properties acquired in 1997 and 1998, respectively. The
growth in rental revenues in Same Store Properties resulted primarily from the
incremental effect of cash rental rate increases, straight-line rents and
changes in occupancy and reimbursement of expenses. During the trailing 12
months ended September 30, 1998, the increase in average base rents (cash basis)
was 16.3% on 8.0 million square feet leased.
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Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, increased by
$15.5 and $7.3 million, or 30% and 42%, for the nine and three months ended
September 30, respectively, to $67.6 and $25.1 million as compared with the same
periods in 1997. Same Store Properties operating expenses decreased by
approximately $0.4 million for the nine months ended September 30, 1998, and
increased by approximately $0.2 million for the three months ended September 30,
1998, while operating expenses attributable to Properties acquired in 1998 and
1997 added $15.9 and $7.1 million, respectively. The change in Same Store
Properties operating expenses and real estate taxes relates to increases in Same
Store Properties real estate taxes and insurance expense of approximately $0.4
and $0.3 million for the nine and three months ended September 30, 1998,
respectively, offset by decreases in Same Store Properties other property
operating expenses (excluding real estate taxes and insurance) of approximately
$0.8 and $0.1 million for the nine and three months ended September 30, 1998,
respectively. The decrease in other property operating expenses is attributable
to lower asset management costs in 1998 as compared to 1997 resulting from the
change in ownership structure.
LIQUIDITY AND CAPITAL RESOURCES
We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of Properties
will include borrowings under the Credit Facility, other forms of secured or
unsecured financing, proceeds from equity or debt offerings by the Company or
the Operating Partnership (including issuances of Units in the Operating
Partnership) and cash flows provided by operations. We presently believe that
our sources of working capital and our ability to access private and public debt
and equity capital are adequate for us to continue to meet liquidity
requirements for the foreseeable future.
Capital Resources
We have a $500 million unsecured revolving credit agreement with Morgan
Guaranty Trust Company of New York, as agent, and a syndicate of twelve other
banks. The Credit Facility has a term of three years and is subject to a fee
that accrues on the daily average undrawn funds, which varies between 15 and 25
basis points (currently 15 basis points) of the undrawn funds based on our
credit rating. We use the Credit Facility principally for acquisitions and for
general working capital requirements. Borrowings under the Credit Facility bear
interest at LIBOR plus 90 to 120 basis points (currently LIBOR plus 90 basis
points), depending our debt rating at the time of the borrowings. As of
September 30, 1998, the outstanding balance on the Credit Facility was $205.0
million and it bore interest at LIBOR plus 90 basis points (6.53% as of such
date). Monthly debt service payments on the Credit Facility are interest only.
The Credit Facility matures in November 2000. The total amount available under
the Credit Facility fluctuates based upon the borrowing base, as defined in the
agreement governing the Credit Facility. At September 30, 1998, the remaining
amount available under the Credit Facility was approximately $295.0 million.
In June 1998, the Operating Partnership issued $400,000 aggregate principal
amount of unsecured notes ("Senior Debt Securities") in an underwritten public
offering, the net proceeds of which the Operating Partnership used to repay
amounts outstanding under the Credit Facility. The Senior Debt Securities mature
in June 2008, June 2015 and June 2018 and bear interest at a weighted average
rate of 7.18%, which is payable in June and December of each year, commencing in
December 1998. The 2015 notes are putable and callable in June 2005. We received
credit ratings for our unsecured debt of Baa1 from Moody's Investors Service,
BBB from Standard & Poor's Corporation and BBB+ from Duff & Phelps Credit Rating
Co. As a result of the receipt of the investment-grade credit ratings, the
interest rate on the Credit Facility was reduced by 20 basis points to the
current rate of LIBOR plus 90 basis points.
In July 1998, we sold 4,000,000 shares of 8 1/2% Series A Cumulative
Redeemable Preferred Stock at a price of $25.00 per share in an underwritten
public offering. We contributed the net proceeds of $96,100 to the Operating
Partnership in exchange for 4,000,000 Series A preferred units with terms
identical to the Series A Preferred Stock. The Operating Partnership used these
proceeds to repay borrowings under the Credit Facility incurred in connection
with property acquisitions and for general corporate purposes.
In connection with the Formation Transactions and property acquisitions
consummated after the Formation Transactions, we have assumed various mortgages
and other secured debt. As of September 30,
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1998, the aggregate principal amount of this secured debt was $685.7 million,
excluding unamortized debt premiums of $15.9 million. The secured debt bears
interest at rates varying from 4.0% to 10.4% per annum (with a weighted average
of 7.9%) and final maturity dates ranging from November 1998 to January 2014.
As of September 30, 1998, our total outstanding debt was approximately $1.3
billion, including unamortized debt premiums of approximately $15.9 million. See
Notes to Consolidated Financial Statements. The total amount of debt that we
must repay during the remainder of 1998 is approximately $15.3 million,
including scheduled principal amortization of approximately $2.2 million.
In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, we presently intend to operate with
a debt-to-total market capitalization ratio of approximately 45% or less.
Additionally, we presently intend to continue to structure our balance sheet in
order to maintain an investment grade rating on our senior unsecured debt. As of
September 30, 1998, our debt-to-total market capitalization ratio was
approximately 35.1%.
Liquidity
As of September 30, 1998, we had approximately $33.2 million in cash and
cash equivalents and $295.0 million of additional available borrowings under the
Credit Facility. We intend to use cash from operations and available borrowings
under the Credit Facility as well as net proceeds from any future debt or equity
offerings to fund property acquisitions, development activities, and capital
expenditures and to provide for general working capital requirements.
On September 3, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per common share and operating
partnership unit, payable on October 2, 1998 to stockholders and unitholders of
record on September 16, 1998. On September 3, 1998, the Company declared a cash
dividend of $0.4604 per share on its Series A Preferred Stock, and the Operating
Partnership declared a cash distribution of $0.4604 per unit on its Series A
Preferred Units, for the period commencing on July 27, 1998 and ending on
October 14, 1998, payable on October 15, 1998 to stockholders and unitholders of
record as of September 16, 1998.
The anticipated size of our distributions, using only cash from operations,
will not allow us to retire all of our debt as it comes due. Therefore, we
intend to also repay maturing debt with net proceeds from future debt and/or
equity financings. However, we may not be able to obtain future financings on
favorable terms or at all.
Capital Commitments
In addition to recurring capital expenditures and costs to renew or
re-tenant space, our development pipeline currently includes 16 projects
representing a total estimated investment of $323.5 million upon completion. Of
this total, approximately $142.0 million had been funded as of September 30,
1998, approximately $89.0 million is estimated to be required to complete
projects currently under construction and the remainder represents estimated
investments in either projects where construction has not yet begun or future
phases of projects under construction. We presently expect to fund these
expenditures with cash from operations, borrowings under the Credit Facility or
debt or equity issuances. Other than these capital items, we have no material
capital commitments.
During the period from January 1, 1998 to September 30, 1998, we invested:
- $642.5 million in 187 industrial buildings, aggregating 15.3 million
rentable square feet,
- $31.8 million in 2 retail centers, aggregating 0.4 million rentable
square feet, and
- $67.1 million in an unconsolidated limited partnership interest in an
existing joint venture that owns 36 industrial buildings aggregating 4.0
million square feet.
We funded these acquisitions through borrowings under the Credit Facility,
cash, debt assumption, co-investments by Institutional Alliance Partners(TM) and
the issuance of LP Units. We presently believe that
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our funds from operations and borrowings under the Credit Facility will be
sufficient to meet our current capital commitments for the next 12 months.
YEAR 2000 COMPLIANCE
Many computer programs have been written using two digits rather than four
to define the applicable year. Computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This "year 2000 issue" could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
We are currently conducting a company-wide test of our financial and
non-financial systems to ensure that our systems will adequately handle the year
2000 issue. Our current financial system generally provides for a four-digit
year; however, the current system is not fully year 2000 compliant. We expect
that our financial system will be fully year 2000 compliant once we complete a
software upgrade in late 1998 or early 1999. We expect the upgrade to cost less
than $100,000.
We are currently surveying our property managers to determine if our
non-financial systems (HVAC, security, lighting and other building systems) at
our Properties are year 2000 compliant. We do not expect the cost to bring
property systems into compliance to be material. Although we can make no
assurance, we currently do not expect that the year 2000 issue will materially
affect our operations due to problems encountered by our suppliers, customers
and lenders.
FUNDS FROM OPERATIONS
We believe that Funds from Operations ("FFO"), as defined by NAREIT, is an
appropriate measure of performance for an equity REIT. While FFO is a relevant
and widely used measure of operating performance of REITs, it does not represent
cash flow from operations or net income as defined by GAAP, and it should not be
considered as an alternative to those indicators in evaluating liquidity or
operating performance. Further, FFO as disclosed by other REITs may not be
comparable.
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The following table reflects the calculation of our FFO for the nine and
three months ended September 30, 1997 and 1998. The 1997 FFO was prepared on a
pro forma basis (giving effect to the completion of the Formation Transactions,
the IPO, and certain 1997 property acquisitions and dispositions) as if they had
occurred on January 1, 1997 (dollars in thousands).
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1998 1997 (PRO FORMA) 1998 1997 (PRO FORMA)
----------- ---------------- ----------- ----------------
Income from operations before minority
interests............................ $ 31,802 $ 25,730 $ 91,372 $ 75,539
Real estate related depreciation and
amortization:
Total depreciation and
amortization...................... 14,750 12,060 40,052 35,298
Furniture, fixtures, and equipment
depreciation...................... (104) (21) (319) (107)
FFO attributable to minority
interests(1)(2)...................... (2,035) (375) (4,123) (1,326)
Adjustments to derive FFO in
unconsolidated joint venture(3):
Company's share of net income........ (833) -- (833) --
Company's share of FFO............... 1,327 -- 1,327 --
Series A Preferred Stock dividends..... (1,514) -- (1,514) --
----------- ----------- ----------- -----------
FFO(1)................................. $ 43,393 $ 37,394 $ 125,962 $ 109,404
=========== =========== =========== ===========
Weighted average shares and units
outstanding (diluted)................ 90,053,107 88,416,676 89,537,512 88,416,676
=========== =========== =========== ===========
- ---------------
(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of properties, plus real estate related
depreciation and amortization. We consider FFO an appropriate measure of
performance of an equity REIT because it is predicated on cash flow
analyses. We compute FFO in accordance with standards established by the
White Paper, which may differ from the methodology for calculating FFO
utilized by other REITs and, accordingly, many not be comparable to other
REITs. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of liquidity, nor is it indicative of
funds available to fund cash needs, including the ability to make
distributions.
(2) Represents FFO attributable to minority interest in consolidated joint
ventures for the period presented, which has been computed as minority
interests' share of net income plus minority interests' share of real
estate-related depreciation and amortization of the consolidated joint
ventures for such period. These minority interests are not convertible into
shares of Common Stock.
(3) Represents our pro rata share of FFO in unconsolidated joint ventures for
the period presented, which has been computed as our share of net income
plus our share of real estate-related depreciation and amortization of the
unconsolidated joint venture for such period.
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TENANT RETENTION RATES AND RENT INCREASES
The following table sets forth information relating to tenant retention
rates and rent increases on renewal and re-tenanted space for the Industrial
Properties and the Retail Properties for the periods presented.
FOR THE THREE FOR THE NINE
YEARS ENDED DECEMBER 31, MONTHS ENDED MONTHS ENDED
-------------------------- SEPTEMBER 30, SEPTEMBER 30, WEIGHTED
1995 1996 1997 1998 1998 AVERAGE
------ ------ ------ ------------- ------------- --------
INDUSTRIAL PROPERTIES
Retention rate..................... 67.9% 79.2% 69.5% 58.0% 75.4% 73.2%
Rent increases..................... 4.8% 4.7% 13.0% 18.5% 18.8% 16.7%
RETAIL PROPERTIES
Retention rate..................... 63.5% 88.4% 87.8% 45.0% 73.9% 80.0%
Rent increases..................... 3.2% 5.4% 10.1% 3.5% 16.6% 14.6%
ALL PROPERTIES
Retention rate..................... 67.7% 79.8% 70.3% 57.3% 75.3% 73.6%
Rent increases..................... 4.3% 5.0% 11.0% 15.8% 18.4% 16.3%
RECURRING TENANT IMPROVEMENTS AND LEASING COMMISSIONS PER SQUARE FOOT LEASED
The table below summarizes for the Industrial Properties and the Retail
Properties, separately, the recurring tenant improvements and leasing
commissions per square foot leased for the periods presented. The recurring
tenant improvements and leasing commissions represent costs incurred to lease
space after the initial lease term of the initial tenant, excluding costs
incurred to relocate tenants as part of a re-tenanting strategy. The tenant
improvements and leasing commissions set forth below are not necessarily
indicative of future tenant improvements and leasing commissions.
FOR THE THREE FOR THE NINE
YEARS ENDED DECEMBER 31, MONTHS ENDED MONTHS ENDED
------------------------ SEPTEMBER 30, SEPTEMBER 30, WEIGHTED
1995 1996 1997 1998 1998 AVERAGE
------ ------ ------ ------------- ------------- --------
INDUSTRIAL PROPERTIES
Expenditures per renewed square
foot leased................... $0.91 $0.93 $1.05 $1.06 $0.81 $0.91
Expenditures per re-tenanted
square foot leased............ 1.75 1.97 1.62 1.60 2.05 1.81
Weighted average............ 1.32 1.29 1.30 1.20 1.05 1.22
RETAIL PROPERTIES
Expenditures per renewed square
foot leased................... $5.53 $4.72 $4.25 $3.31 $1.82 $3.51
Expenditures per re-tenanted
square foot leased............ 5.37 6.53 7.92 8.31 6.40 7.14
Weighted average.............. 5.46 5.61 6.41 4.87 2.38 5.03
ALL PROPERTIES
Expenditures per renewed square
foot leased................... $1.15 $1.07 $1.23 $1.13 $0.86 $1.04
Expenditures per re-tenanted
square foot re-tenanted
leased........................ 1.89 2.27 2.23 1.88 2.19 2.15
Weighted average............ 1.51 1.50 1.68 1.33 1.11 1.43
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OCCUPANCY AND AVERAGE BASE RENT
The table below sets forth weighted average occupancy rates and average
base rent per square foot, based on square feet leased, of the Industrial
Properties and the Retail Properties for the periods presented.
AS OF DECEMBER 31, AS OF
-------------------------- SEPTEMBER 30,
1995 1996 1997 1998
------ ------ ------ -------------
INDUSTRIAL PROPERTIES
Occupancy rate at period end....................... 97.3% 97.2% 95.7% 95.9%
Average base rent per square foot(1)............... $ 3.43 $ 3.81 $ 4.26 $ 4.48
RETAIL PROPERTIES
Occupancy rate at period end....................... 92.4% 92.4% 96.1% 94.8%
Average base rent per square foot(1)............... $10.46 $11.32 $11.98 $11.91
ALL PROPERTIES
Occupancy rate at period end....................... 97.0% 96.9% 95.8% 95.8%
Average base rent per square foot(1)............... N/A N/A N/A N/A
- ---------------
(1) Average base rent per square foot represents the total annualized
contractual base rental revenue for the period divided by the average
occupied square feet during the period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
PART II
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 1998, there were no pending legal proceedings to which
we are a party or of which any of our Properties is the subject, the adverse
determination of which we anticipate would have a material adverse effect upon
our financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES
(a), (b) On July 27, 1998, we issued 4,000,000 shares of 8 1/2% Series A
Cumulative Redeemable Preferred Stock at a price of $25.00 per share in an
underwritten public offering. The Articles Supplementary establishing the rights
of the Series A Preferred Stockholders were filed as exhibit 3.4(4) of our
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998.
(c) On September 24, 1998, the Operating Partnership issued to five Lincoln
Property Company limited partnerships 699,837 LP Units with an aggregate value
of approximately $16.5 million in consideration for the acquisition of certain
properties. Holders of the LP Units may redeem part or all of their LP Units for
cash, or at the election of the Company, exchange their LP Units for shares of
Common Stock on a one-for-one basis.
The issuance of LP Units in connection with the acquisitions discussed
above constituted private placements of securities which were exempt from the
registration requirement of the Securities Act of 1933, as amended, pursuant to
Section 4(2) and Rule 506 of Regulation D.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Second Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P.
10.2 Second Amendment to Second Amended and Restated Revolving
Credit Agreement made as of September 30, 1998 by and among
AMB Property, L.P., the Banks and Co-Agents Party Thereto,
and Morgan Guaranty Trust Company of New York, as Agent.
27.1 Financial Data Schedule -- AMB Property Corporation
(b) Reports on Form 8-K:
Form 8-K for the event dated June 30, 1998, was filed July 9, 1998 in
connection with the issuance of $400 million principal amount of senior debt
securities.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMB PROPERTY CORPORATION
Registrant
Date: November 12, 1998 By: /s/ Hamid R. Hoghadam
---------------------------------------------
Hamid R. Moghadam
President and Chief Executive Officer,
Director (Principal Executive Officer)
Date: November 12, 1998 And: /s/ S. Davis Carniglia
---------------------------------------------
S. Davis Carniglia
Chief Financial Officer,
Managing Director
(Principal Financial Officer)
Date: November 12, 1998 And: /s/ Michael A. Coke
---------------------------------------------
Michael A. Coke
Director of Financial Management
And Reporting, Chief Accounting
Officer (Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.1 Second Amended and Restated Agreement of Limited Partnership of AMB
Property, L.P.
10.2 Second Amendment to Second Amended and Restated Revolving Credit
Agreement made as of September 30, 1998 by and among AMB Property,
L.P., the Banks and Co-Agents Party Thereto, and Morgan Guaranty Trust
Company of New York, as Agent.
27.1 Financial Data Schedule - AMB Property, L.P.