AMB Property Corporation (NYSE: AMB) leases 155 M square feet of warehouse space worldwide--about the area of a medium-sized town in America--to multinational tenants like FedEx, UPS, Nippon Express, and the United States government, as well as to nearly three thousand smaller companies spread across 47 markets in the Americas, Asia, and Europe. In addition to its REIT business, the company also has a money management business. Although only responsible for 5% of AMB's revenue, its investment advisory business provides a steady source of funding for its real estate acquisitions and development projects. The company earned $633 million in revenue but incurred a net loss of $50 million in 2009.
AMB builds many of its properties next to key transport centers like airports ("on-tarmac" property) and major sea/river ports. The company also has international exposure, which allows it to attract large multinational customers who are willing to pay a premium for a more comprehensive international offering.
Because many of AMB's tenants have longer triple-net leases (avg. 6 years) where they must pay for some or all of their utilities, building insurance, and real estate tax fees, AMB has a degree of protection from rising costs.
AMB is a real estate investment trust that owns and leases real estate to a wide pool of tenants. It also engages in property resell and real estate management for third parties, as well as private capital activtities like independent/institutional money management and joint ventures.
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A prolonged slump of the domestic economy affects all industrial REITs as their tenant companies feel the squeeze of a weak market on all levels of the consumer chain, and the opposite holds true for economic golden years. But with AMB, the relationship is more complex than a simple strong-market-strong-company one. Rising real estate prices raise the value of AMB's properties, but the company's long triple-net leases (see Company Overview above) prevent it from immediately translating this into base rent increases; high real estate prices also adversely affect the company's acquisition/development power and hence growth levels.
Meanwhile, a slumping real estate market is not necessarily bad for AMB. Industrial REITs have surged at a time when others in the real estate market have struggled and ABM is no exception. Because a market downturn means that fewer new industrial buildings are in construction, demand increases and AMB can raise its lease rates. The weak dollar that often comes along with a slumping housing market can also increase export profits for global manufacturers--the kind of company that makes up much of AMB's tenant base.
With 87% of revenues coming from domestic rentals and real estate activity, AMB remains closely tied to the US's overall economic health, despite some hedging effects from its triple-net leases. Particularly important is California, which by itself accounts for almost a third of AMB's total yearly revenues. In 2009, the company's revenue fell 8.6% due to the weak economic environment.
AMB's focus on clients with multinational, transportation-centric needs means it inevitably ends up with tenants who are highly exposed to trading changes in the global market. Thus, trade volume increases involving the Americas, Europe, and Asia all play to AMB's growing international strength. No matter which direction trade increases in, more volume means more products to be stored and distributed, and more demand for the infill storage/distribution properties AMB provides. At the same time, AMB opportunity for raising profit also exposes it to the volatility of the international market-- Peter Slatin of Forbes/Slatin Real Estate writes that "increasingly globally oriented industrial REITs will feel the impact of changing worldwide trade patterns almost immediately." As it develops its overseas reach, AMB faces increasingly stiff competition from both fellow global REIT behemoths and the many foreign small-scale real estate companies that already populate the markets AMB is eyeing.
Coastal hurricanes can hurt AMB's operations by damaging property and shutting down the transportation infrastructure its clients depend on. South Florida alone makes up 5% of AMB's total owned/operated square footage, and much of the company's remaining real estate is located along the exposed coastlines of important US ports and shipping centers.
Because of rising energy costs, many businesses are searching for more energy-efficient properties. While the concept of a "green REIT" has been tossed around for some time in the commercial REIT community, industrial REITs and their customers are only just beginning to join the trend. As one of the earliest converts to the green trend among industrial REITs, AMB stands to gain from the lower utility costs its green buildings offer clients--especially attractive for triple-net lease tenants who must pay the warehouse utility bills themselves. While the greening process itself requires extra investment, noted experts in the field like Jerry Yudelman, who chairs the US Green Building Council, have observed that "greening" costs decrease as companies accrue experience with conversion and new green development. In addition to the decreased operating costs and increased building values, rents, and occupancy rates green buildings are also subject to lower insurance rates and tax credits. Still, AMB is far from the only player in the green REIT game--close competitor ProLogis was another early investor in energy-efficient buildings, and more than two thirds of the US' 300 REITs are pursuing or planning to pursue green upgrades.
One of the larger industrial REITs, AMB is well-placed in both the US and global market. Its two-part business plan--money management and joint venture in addition to its core real estate/rental business--gives it an extra edge that no major competitors except ProLogis have. A large customer base makes it stable for an REIT--not so exposed to tenant inability to pay--and its high-quality properties in major urban and shipping centers protect it from the rapid devaluation that suburban industrial properties face in market downturns. Its strong global presence makes it an attractive choice for large multinational companies with a need for transit-ready properties including a variety of industrial building types. AMB is also noted for early and continued investment in energy-efficient, environmentally friendly technologies and development. Still, AMB faces very real all-around competition in the form of ProLogis, and must compete with numerous smaller and more specialized REITs and private real estate firms, especially in the US.
In addition to these primary all-around or US competitors, AMB also faces pressure from smaller, more specialized industrial REITs like Kilroy Realty Corporation (KRC).
There are also countless private real estate firms like CenterPoint Properties that are also engaged in transportation-focused industrial real estate activity. Foreign companies like Alexandria Real Estate Equities (ARE) are also increasingly direct competitors for AMB as the company continues its global expansion.