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Prologis, Inc. 10-K 2010
e10vk
Table of Contents

 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2009
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 001-13545 (AMB Property Corporation)
001-14245 (AMB Property, L.P.)
AMB Property Corporation
 
     
Maryland (AMB Property Corporation)
Delaware (AMB Property, L.P.)
(State or Other Jurisdiction of
Incorporation or Organization)
  94-3281941
94-3285362
(I.R.S. Employer Identification No.)
Pier 1, Bay 1,
San Francisco, California
(Address of Principal Executive Offices)
  94111
(Zip Code)
 
 
         
   
Title of Each Class
 
Name of Each Exchange on Which Registered
 
AMB Property Corporation   Common Stock, $.01 par value   New York Stock Exchange
AMB Property Corporation   6.50% Series L Cumulative Redeemable Preferred Stock   New York Stock Exchange
AMB Property Corporation   6.75% Series M Cumulative Redeemable Preferred Stock   New York Stock Exchange
AMB Property Corporation   7.00% Series O Cumulative Redeemable Preferred Stock   New York Stock Exchange
AMB Property Corporation   6.85% Series P Cumulative Redeemable Preferred Stock   New York Stock Exchange
AMB Property, L.P.    None   None
 
 
             
    AMB Property Corporation   None    
    AMB Property, L.P.    None    
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
         
AMB Property Corporation
  Yes þ   No o
AMB Property, L.P. 
  Yes o   No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
         
AMB Property Corporation
  Yes o   No þ
AMB Property, L.P. 
  Yes o   No þ
 
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.
 
         
AMB Property Corporation
  Yes þ   No o
AMB Property, L.P. 
  Yes þ   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
AMB Property Corporation:
 
     
Large accelerated filer þ
  Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o
  Smaller reporting company o
 
AMB Property, L.P.:
 
     
Large accelerated filer o
  Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) þ
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
         
AMB Property Corporation
  Yes o   No þ
AMB Property, L.P. 
  Yes o   No þ
 
The aggregate market value of common shares held by non-affiliates of AMB Property Corporation (based upon the closing sale price on the New York Stock Exchange) on June 30, 2009 was $2,668,464,248.
 
As of February 17, 2010, there were 149,203,394 shares of AMB Property Corporation’s common stock, $0.01 par value per share, outstanding.
 
 
Part III incorporates by reference portions of AMB Property Corporation’s Proxy Statement for its Annual Meeting of Stockholders which the registrant anticipates will be filed no later than 120 days after the end of its fiscal year pursuant to Regulation 14A.
 


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EXPLANATORY NOTE
 
This report combines the annual reports on Form 10-K for the fiscal year ended December 31, 2009 of AMB Property Corporation and AMB Property, L.P. Unless stated otherwise or the context otherwise requires: references to “AMB Property Corporation”, the “Parent Company” or the “parent company” mean AMB Property Corporation, a Maryland corporation, and its controlled subsidiaries; and references to “AMB Property, L.P.”, the “Operating Partnership” or the “operating partnership” mean AMB Property, L.P., a Delaware limited partnership, and its controlled subsidiaries. The terms “the Company” and “the company” mean the parent company, the operating partnership and their controlled subsidiaries on a consolidated basis. In addition, references to the company, the parent company or the operating partnership could mean the entity itself or one or a number of their controlled subsidiaries.
 
The parent company is a real estate investment trust and the general partner of the operating partnership. As of December 31, 2009, the parent company owned an approximate 97.8% general partnership interest in the operating partnership, excluding preferred units. The remaining approximate 2.2% common limited partnership interests are owned by non-affiliated investors and certain current and former directors and officers of the parent company. As of December 31, 2009, the parent company owned all of the preferred limited partnership units of the operating partnership. As the sole general partner of the operating partnership, the parent company has the full, exclusive and complete responsibility for the operating partnership’s day-to-day management and control.
 
The company believes combining the annual reports on Form 10-K of the parent company and the operating partnership into this single report results in the following benefits:
 
  •  enhancing investors’ understanding of the parent company and the operating partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
 
  •  eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the company’s disclosure applies to both the parent company and the operating partnership; and
 
  •  creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
 
Management operates the parent company and the operating partnership as one enterprise. The management of the parent company consists of the same members as the management of the operating partnership. These members are officers of the parent company and employees of the operating partnership.
 
There are few differences between the parent company and the operating partnership, which are reflected in the disclosure in this report. The company believes it is important to understand the differences between the parent company and the operating partnership in the context of how the parent company and the operating partnership operate as an interrelated consolidated company. The parent company is a real estate investment trust, whose only material asset is its ownership of partnership interests of the operating partnership. As a result, the parent company does not conduct business itself, other than acting as the sole general partner of the operating partnership, issuing public equity from time to time and guaranteeing certain debt of the operating partnership. The parent company itself does not hold any indebtedness but guarantees some of the secured and unsecured debt of the operating partnership, as disclosed in this report. The operating partnership holds substantially all the assets of the company and holds the ownership interests in the company’s joint ventures. The operating partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the parent company, which are contributed to the operating partnership in exchange for partnership units, the operating partnership generates the capital required by the company’s business through the operating partnership’s operations, by the operating partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units of the operating partnership or its subsidiaries.
 
Noncontrolling interests and stockholder’s equity and partners’ capital are the main areas of difference between the consolidated financial statements of the parent company and those of the operating partnership. The common limited partnership interests in the operating partnership are accounted for as partners’ capital in the


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operating partnership’s financial statements and as noncontrolling interests in the parent company’s financial statements. The noncontrolling interests in the operating partnership’s financial statements include the interests of joint venture partners, and preferred limited partnership unitholders and common limited partnership unitholders of AMB Property II, L.P., a subsidiary of the operating partnership. The noncontrolling interests in the parent company’s financial statements include the same noncontrolling interests at the operating partnership level and limited partnership unitholders of the operating partnership. The differences between stockholders’ equity and partners’ capital result from the differences in the equity issued at the parent company and operating partnership levels.
 
To help investors understand the significant differences between the parent company and the operating partnership, this report presents the following separate sections for each of the parent company and the operating partnership:
 
  •  consolidated financial statements;
 
  •  the following notes to the consolidated financial statements:
 
  •  Debt;
 
  •  Income taxes;
 
  •  Noncontrolling Interests; and
 
  •  Stockholders’ Equity of the Parent Company/Partners’ Capital of the Operating Partnership; and
 
  •  Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This report also includes separate Item 9A. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the parent company and the operating partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the parent company and operating partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
 
In order to highlight the differences between the parent company and the operating partnership, the separate sections in this report for the parent company and the operating partnership specifically refer to the parent company and the operating partnership. In the sections that combine disclosure of the parent company and the operating partnership, this report refers to actions or holdings as being actions or holdings of the company. Although the operating partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the company is appropriate because the business is one enterprise and the parent company operates the business through the operating partnership.
 
As general partner with control of the operating partnership, the parent company consolidates the operating partnership for financial reporting purposes, and the parent company does not have significant assets other than its investment in the operating partnership. Therefore, the assets and liabilities of the parent company and the operating partnership are the same on their respective financial statements. The separate discussions of the parent company and the operating partnership in this report should be read in conjunction with each other to understand the results of the company on a consolidated basis and how management operates the company.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
 
                         
        Page    
 
      Business     7          
          The Company     7          
          Investment Strategy     7          
          Primary Sources of Revenue and Earnings     8          
          Long Term Growth Strategies     8          
      Risk Factors     11          
      Unresolved Staff Comments     32          
      Properties     32          
          Industrial Properties     32          
          Owned and Managed Operating Statistics     37          
          Development Properties     39          
          Properties Held Through Co-investment Ventures, Limited Liability Companies and  Partnerships     40          
      Legal Proceedings     44          
      Submission of Matters to a Vote of Security Holders     44          
 
PART II
      Market for AMB Property Corporation’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     45          
        Market for AMB Property, L.P.’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities     45          
      Selected Financial Data — AMB Property Corporation     48          
        Selected Financial Data — AMB Property, L.P.      50          
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     52          
          Management’s Overview     52          
          Summary of Key Transactions     55          
          Critical Accounting Policies     55          
          Consolidated Results of Operations     58          
          Liquidity and Capital Resources of the Parent Company     64          
          Liquidity and Capital Resources of the Operating Partnership     70          
          Off-Balance Sheet Arrangements     87          
          Supplemental Earnings Measures     88          
      Quantitative and Qualitative Disclosures About Market Risk     91          
      Financial Statements and Supplementary Data     93          
      Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     93          
      Controls and Procedures     93          
      Other Information     94          
 
PART III
      Directors, Executive Officers and Corporate Governance     95          
      Executive Compensation     95          
      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     95          
      Certain Relationships and Related Transaction, and Director Independence     95          
      Principal Accountant Fees and Services     95          
 
PART IV
      Exhibits and Financial Statement Schedules     95          
 EX-10.6
 EX-21.1
 EX-21.2
 EX-23.1
 EX-23.2
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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Some of the information included in this annual report on Form 10-K contains forward-looking statements, which are made pursuant to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Because these forward-looking statements involve numerous risks and uncertainties, there are important factors that could cause the company’s actual results to differ materially from those in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future events. The events or circumstances reflected in the forward-looking statements might not occur. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “forecasting,” “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 should not be read as guarantees of future performance or results, and will not necessarily be accurate indicators of whether, or the time at which, such performance or results will be achieved. There is no assurance that the events or circumstances reflected in forward-looking statements will occur or be achieved. Forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and the company may not be able to realize them.
 
The following factors, among others, apply to the company’s business as a whole and could cause its actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
 
  •  changes in general economic conditions in California, the U.S. or globally (including financial market fluctuations), global trade or in the real estate sector (including risks relating to decreasing real estate valuations and impairment charges);
 
  •  risks associated with using debt to fund the company’s business activities, including re-financing and interest rate risks;
 
  •  the company’s failure to obtain, renew, or extend necessary financing or access the debt or equity markets;
 
  •  the company’s failure to maintain its current credit agency ratings or comply with its debt covenants;
 
  •  risks related to the company’s obligations in the event of certain defaults under co-investment venture and other debt;
 
  •  risks associated with equity and debt securities financings and issuances (including the risk of dilution);
 
  •  defaults on or non-renewal of leases by customers or renewal at lower than expected rent;
 
  •  difficulties in identifying properties, portfolios of properties, or interests in real-estate related entities or platforms to acquire and in effecting acquisitions on advantageous terms and the failure of acquisitions to perform as the company expects;
 
  •  unknown liabilities acquired in connection with acquired properties, portfolios of properties, or interests in real-estate related entities;
 
  •  the company’s failure to successfully integrate acquired properties and operations;
 
  •  risks and uncertainties affecting property development, redevelopment and value-added conversion (including construction delays, cost overruns, the company’s inability to obtain necessary permits and financing, the company’s inability to lease properties at all or at favorable rents and terms, and public opposition to these activities);
 
  •  the company’s failure to set up additional funds, attract additional investment in existing funds or to contribute properties to its co-investment ventures due to such factors as its inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or the co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements;
 
  •  risks and uncertainties relating to the disposition of properties to third parties and the company’s ability to effect such transactions on advantageous terms and to timely reinvest proceeds from any such dispositions;


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  •  risks of doing business internationally and global expansion, including unfamiliarity with new markets and currency risks;
 
  •  risks of changing personnel and roles;
 
  •  losses in excess of the company’s insurance coverage;
 
  •  changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws;
 
  •  increases in real property tax rates;
 
  •  risks associated with the company’s tax structuring;
 
  •  increases in interest rates and operating costs or greater than expected capital expenditures; and
 
  •  environmental uncertainties and risks related to natural disasters.
 
In addition, if the parent company fails to qualify and maintain its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended, then the parent company’s actual results and future events could differ materially from those set forth or contemplated in the forward-looking statements.
 
The company’s success also depends upon economic trends generally, various market conditions and fluctuations and those other risk factors discussed under the heading “Risk Factors” in Item 1A of this report. The company cautions you not to place undue reliance on forward-looking statements, which reflect the company’s analysis only and speak as of the date of this report or as of the dates indicated in the statements. All of the company’s forward-looking statements, including those in this report, are qualified in their entirety by this statement. The company assumes no obligation to update or supplement forward-looking statements.
 
The company uses the terms “industrial properties” or “industrial buildings” to describe the various types of industrial properties in its portfolio and uses these terms interchangeably with the following: logistics facilities, centers or warehouses, High Throughput Distribution® (HTD®) facilities; or any combination of these terms. The company uses the term “owned and managed” to describe assets in which it has at least a 10% ownership interest, for which it is the property or asset manager and which it currently intends to hold for the long term. The company uses the term “joint venture” to describe all joint ventures, including co-investment ventures with real estate developers, other real estate operators, or institutional investors where the company may or may not have control, act as the manager and/or developer, earn asset management distributions or fees, or earn incentive distributions or promote interests. In certain cases, the company might provide development, leasing, property management and/or accounting services, for which it may receive compensation. The company uses the term “co-investment venture” to describe joint ventures with institutional investors, managed by the company, from which the company typically receives acquisition fees for acquisitions, portfolio and asset management distributions or fees, as well as incentive distributions or promote interests. Unless otherwise indicated, management’s discussion and analysis applies to both the operating partnership and the parent company.
 
The company’s website address is http://www.amb.com. The annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K of the parent company and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on the company’s website free of charge as soon as reasonably practicable after the company electronically files such material with, or furnishes it to, the U.S. Securities and Exchange Commission, or SEC. The public may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains such reports, proxy and information statements and other information, and the Internet address is http://www.sec.gov. The company’s Corporate Governance Principles and Code of Business Conduct are also posted on the company’s website. Information contained on the company’s website is not and should not be deemed a part of this report or any other report or filing filed with or furnished to the SEC. The operating partnership does not have a separate internet address and its SEC reports are available free of charge upon request to the attention of the company’s Investor Relations Department, AMB Property Corporation, Pier 1, Bay 1, San Francisco, CA 94111. The following marks are registered trademarks of AMB Property Corporation: AMB®; and High Throughput Distribution® (HTD®).


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PART I
 
Item 1.   Business
 
The Company
 
The company is a global owner, operator and developer of industrial real estate, focused on major hub and gateway distribution markets in the Americas, Europe and Asia. As of December 31, 2009, the company owned, or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 155.1 million square feet (14.4 million square meters) in 47 markets within 14 countries. The company invests in properties located predominantly in the infill submarkets of its targeted markets. The company’s portfolio is comprised of High Throughput Distribution® facilities — industrial properties built for speed and located near airports, seaports and ground transportation systems.
 
The approximately 155.1 million square feet as of December 31, 2009 included:
 
  •  132.6 million square feet (principally, warehouse distribution buildings) on an owned and managed basis, which includes investments held on a consolidated basis or through unconsolidated joint ventures, that were 91.2% leased;
 
  •  15.0 million square feet in its development portfolio, including approximately 9.7 million square feet in 33 development projects that are complete and in the process of stabilization and approximately 5.3 million square feet in 15 development projects under construction;
 
  •  7.4 million square feet in 46 industrial operating buildings in unconsolidated joint ventures in which the company has investments but does not manage; and
 
  •  152,000 square feet through a ground lease, which is the location of its global headquarters.
 
The company’s business is operated primarily through the operating partnership. As of December 31, 2009, the parent company owned an approximate 97.8% general partnership interest in the operating partnership, excluding preferred units. As the sole general partner of the operating partnership, the parent company has the full, exclusive and complete responsibility for and discretion in its day-to-day management and control.
 
The parent company is a self-administered and self-managed real estate investment trust and it expects that it has qualified, and will continue to qualify, as a real estate investment trust for federal income tax purposes beginning with the year ended December 31, 1997. As a self-administered and self-managed real estate investment trust, the company’s own employees perform its corporate administrative and management functions, rather than the company relying on an outside manager for these services. The company believes that real estate is fundamentally a local business and is best operated by local teams in each of its markets. As a vertically integrated company, the company actively manages its portfolio of properties. In select markets, the company may, from time to time, establish relationships with third-party real estate management firms, brokers and developers that provide some property-level administrative and management services under the company’s direction.
 
The company’s global headquarters are located at Pier 1, Bay 1, San Francisco, California 94111; the company’s telephone number is (415) 394-9000. The company’s other principal office locations are in Amsterdam, Boston, Chicago, Los Angeles, Mexico City, Shanghai, Singapore and Tokyo. As of December 31, 2009, the company employed 521 individuals.
 
 
The company’s investment strategy focuses on providing distribution space to customers whose businesses are tied to global trade and depend on the efficient movement of goods through the global supply chain. The company’s properties are primarily located in the world’s busiest distribution markets featuring large, supply-constrained infill locations with dense populations and proximity to seaports, airports and major freeway interchanges. When measured by annualized base rent, on an owned and managed basis, a substantial majority of the company’s portfolio of industrial properties is located in its target markets and much of this is in infill submarkets. Infill locations are characterized by supply constraints on the availability of land for competing projects as well as


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physical, political or economic barriers to new development. The company believes that its facilities are essential to creating efficiencies in the supply chain and its business encompasses a blend of real estate, global logistics and infrastructure.
 
In its target markets, the company focuses on HTD® facilities, industrial properties designed to facilitate the rapid distribution of its customers’ products rather than the long term storage of goods. The company’s investment focus on HTD® assets is based on what it believes to be a global trend toward lower inventory levels and expedited supply chains. HTD® facilities generally have a variety of physical and locational characteristics that allow for the rapid transport of goods from point to point. These physical characteristics could include numerous dock doors, shallower building depths, fewer columns, large truck courts and more space for trailer parking. The company believes that these building characteristics help its customers to reduce their costs and become more efficient in their delivery systems. The locational characteristics feature large, supply-constrained infill locations with dense populations and proximity to seaports, airports and major freeway interchanges. The company’s customers comprise logistics, freight forwarding and air-express companies with time-sensitive needs that value facilities that are proximate to transportation infrastructure.
 
The company believes that changes in global trade have been a primary driver of demand for industrial real estate for decades, as the correlation between industrial demand and U.S. imports and exports is approximately 80%. The company has observed that demand for industrial real estate is further influenced by the long-term relationship between trade and GDP. Trade and GDP are closely interrelated as higher levels of investment, production and consumption within a globalized country are consistent with increased levels of imports and exports. As the world produces and consumes more, the company believes that the volume of global trade will continue to increase at a rate well in excess of global GDP. International Monetary Fund (IMF) forecasts indicated that global trade fell by more than 12% in 2009, the steepest decline in modern history. This compares to a forecasted decline of only 1% in global GDP. Current 2010 consensus estimates for the U.S. and global GDP growth are 2.7% and 3.9%, respectively, which the company believes should result in a significant rebound in trade and industrial real estate demand.
 
 
The primary source of the company’s core earnings is revenues received from its real estate operations and private capital business. The principal contributor of its core earnings is rent received from customers under long-term (generally three to ten years) operating leases at its properties, including reimbursements from customers for certain operating costs and asset management fees. The company also generates core earnings from its private capital business, which include priority distributions, acquisition and development fees, promote interests and incentive distributions from its co-investment ventures. The company may generate additional earnings from the disposition of assets in its development-for-sale and value-added conversion programs as well as from land sales.
 
 
The company believes that its long-term growth will be driven by its ability to:
 
  •  maintain and increase occupancy rates and/or increase rental rates at its properties;
 
  •  raise third-party equity and grow its earnings from its private capital business from the acquisition of new properties or through the possible contribution of properties;
 
  •  acquire industrial real estate with total returns above the company’s cost of capital; and
 
  •  develop properties profitably and either to hold or to sell these development properties to third parties.
 
 
The company seeks to generate long-term internal growth by maintaining a high occupancy rate at its properties, by controlling expenses and through contractual rent increases on existing space and thus capitalizing on the economies of scale inherent in owning, operating and growing a large, global portfolio. The company actively manages its portfolio by establishing leasing strategies and negotiating lease terms, pricing, and level and timing of property improvements. With respect to its leasing strategies, the company takes a long-term view to ensure that it


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maximizes the value of its real estate. As the company continues to work through a challenging operating environment and to provide flexibility to its customers, the company evaluates and adjusts its leasing strategies for market terms and leasing rates, which may include leasing terms of less than four years in duration. The company believes that its long-standing focus on customer relationships and ability to provide global solutions for a well-diversified customer base in the logistics, shipping, and air cargo industries will enable it to capitalize on opportunities as they arise.
 
The company believes that the strategic locations within its portfolio, the experience of its cycle-tested operations team and its ability to respond quickly to the needs of its customers provides a competitive advantage in leasing. The company believes that its regular maintenance programs, capital expenditure programs, energy management and sustainability programs create cost efficiencies that provide benefit to it and its customers.
 
 
The company, through AMB Capital Partners, LLC, its private capital group, was one of the pioneers of the real estate investment trust (REIT) industry’s co-investment model and has more than 26 years of experience in asset management and fund formation. The company co-invests in properties with private capital investors through partnerships, limited liability companies or other joint ventures. The company has a direct and long-standing relationship with institutional investors. More than 60% of the company’s owned and managed operating portfolio is held through its eight co-investment ventures. The company tailors industrial portfolios to investors’ specific needs in separate or commingled accounts and deploys capital in both close-ended and open-ended structures, while providing complete portfolio management and financial reporting services. Generally, the company is the largest investor in its funds and owns a 10-50% interest in its co-investment ventures. The company believes that its significant ownership of 10-50% in each of its funds provides a strong alignment of its interest with its co-investment partners’ interests.
 
The company believes that its co-investment program with private-capital investors will continue to serve as a source of revenues and capital for new investments. In anticipation of the formation of future co-investment ventures, the company may also hold acquired and newly developed properties for contribution to such future co-investment ventures. The company may make additional investments through its existing co-investment ventures or new co-investment ventures in the future and presently plans to do so. The company is in various stages of discussions with prospective investors to attract new capital to take advantage of potential future opportunities and these capital raising activities may include the formation of new joint ventures. Such transactions, if the company completes them, may be material individually or in aggregate.
 
 
The company’s acquisition experience and its network of property management, leasing and acquisition resources should continue to provide opportunities for growth. In addition to its internal resources, the company has long-term relationships with lenders, leasing and investment sales brokers, as well as third-party local property management firms, which may give it access to additional acquisition opportunities because such managers frequently market properties on behalf of sellers. The company is actively monitoring its target markets and may seek opportunities to selectively acquire high-quality, well-located industrial real estate. The company strives to enhance the quality of its portfolio through acquisitions that are accretive to the company’s earnings and its net asset value. In addition, the company seeks to redeploy capital from the sale of non-strategic assets into properties that better fit its current investment focus.
 
The company is generally engaged in various stages of negotiations for a number of acquisitions and other transactions, some of which may be significant, that may include, but are not limited to, individual properties, large multi-property portfolios and platforms or property owning or real estate-related entities.
 
 
The company’s development business consists of conventional development, build-to-suit development, redevelopment, value-added conversions and land sales. Despite the cyclical downturn in the U.S. and global economy, the company believes that, over the long term, customer demand for new industrial space in strategic


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markets tied to global trade will continue to outpace supply, most notably in major gateway markets in Asia, Europe and Brazil. The company believes that the development, redevelopment and expansion of well-located, high-quality industrial properties provide attractive investment opportunities at higher rates of return, due to the development risk, than may be obtained from the purchase of existing properties. Through the deployment of its in-house development and redevelopment expertise, the company seeks to create value both through new construction and the acquisition and management of redevelopment opportunities. New developments, redevelopments and value-added conversions require significant management attention, and development and redevelopment may require significant capital investment, to maximize their returns. The company pursues development projects directly and in co-investment ventures and development joint ventures, providing it with the flexibility to pursue development projects independently or in partnerships, depending on market conditions, submarkets or building sites and availability of capital. Completed development and redevelopment properties are held in its owned and managed portfolio or sold to third parties.
 
The company believes that its long-standing focus on infill locations creates a unique opportunity to enhance value through the conversion of select industrial properties to higher and better uses. Value-added conversion projects generally involve a significant enhancement or a change in use of the property from an industrial facility to a higher and better use, including use as research & development, office, residential, retail, or manufacturing properties. Activities required to prepare the property for conversion to a higher and better use may include rezoning, redesigning, reconstructing and retenanting. The sales price of a value-added conversion project is generally based on the underlying land value, reflecting its ultimate higher and better use and, as such, little to no residual value is ascribed to the industrial building. Generally, the company expects to sell to third parties these value-added conversion projects at some point in the re-entitlement and conversion process, thus recognizing the enhanced value of the underlying land that supports the property’s repurposed use. The company believes that its global market presence and expertise will enable it to generate and capitalize on a diverse range of development opportunities over the long term.
 
The company’s development team has experience in real estate development, both with the company and with local, national or international development firms. Although the company has reduced its development staff in correlation to reduced levels of development activity, the company has retained certain key investment and development personnel in its most productive platforms around the globe to preserve its long-term growth potential. This core development team possesses multidisciplinary backgrounds that allows for the completion of the build-out of the company’s development pipeline, as well as the temporary deployment of some of the team members in leasing, operations and customer service, as it completes the build-out and lease-up of its current development pipeline.
 
See Part IV, Item 15: Note 18 of “Notes to Consolidated Financial Statements” for segment information related to the company’s operations and information regarding geographic areas.


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ITEM 1A.   Risk Factors
 
 
The company’s operations involve various risks that could have adverse consequences to it. These risks include, among others:
 
Risks of the Current Economic Environment
 
 
Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions, slower growth and recession in most major economies during 2009. Although signs of recovery may exist, there are continued concerns about the systemic impact of inflation, the availability and cost of credit, a declining real estate market, and geopolitical issues that contribute to increased market volatility and uncertain expectations for the global economy. These conditions, combined with declining business activity levels and consumer confidence, increased unemployment and volatile oil prices, contributed to unprecedented levels of volatility in the capital markets during 2009. Any additional, continued or recurring disruptions in the capital and credit markets may adversely affect the company’s business, results of operations, cash flows and financial condition.
 
As a result of these market conditions, the cost and availability of credit have been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike, and a corresponding decrease in global infrastructure spending. While the company currently believes that it has sufficient working capital and capacity under its credit facilities in the near term, continued or recurring turbulence in the global markets and economies and prolonged declines in business and consumer spending may adversely affect its liquidity and financial condition, as well as the liquidity and financial condition of its customers. If these market conditions persist, recur or worsen in the long term, they may limit the company’s ability, and the ability of its customers, to timely replace maturing liabilities, and access the credit markets to meet liquidity needs.
 
If the long-term debt ratings of the operating partnership fall below its current levels, the borrowing cost of debt under its unsecured credit facilities and certain term loans may increase. In addition, if the long-term debt ratings of the operating partnership fall below investment grade, it may be unable to request borrowings in currencies other than U.S. dollars or Japanese Yen, as applicable; however, the lack of other currency borrowings does not affect its ability to fully draw down under the credit facilities or term loans. While the operating partnership currently does not expect its long-term debt ratings to fall below investment grade, in the event that its ratings do fall below those levels, it may be unable to exercise its options to extend the term of its credit facilities, and the loss of its ability to borrow in foreign currencies could affect its ability to optimally hedge its borrowings against foreign currency exchange rate changes. In addition, the company cannot assure you that additional, continuing or recurring long-term disruptions in the global economy and the continuation of tighter credit conditions among, and potential failures of, third-party financial institutions as a result of such disruptions will not have an adverse effect on the operating partnership’s borrowing capacity and liquidity position. The operating partnership’s access to funds under its credit facilities is dependent on the ability of the lenders that are parties to such facilities to meet their funding commitments to the operating partnership. The company cannot assure you that if one of the operating partnership’s lenders fails (some of whom are lenders under a number of the operating partnership’s facilities), the operating partnership will be successful in finding a replacement lender and, as a result, its borrowing capacity under the applicable facilities may be permanently reduced. If the company does not have sufficient cash flows and income from its operations to meet its financial commitments and those lenders are not able to meet their funding commitments to the operating partnership, the company’s business, results of operations, cash flows and financial condition could be adversely affected.


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Certain of the company’s third-party indebtedness is held by the company’s consolidated or unconsolidated joint ventures. In the event that the company’s joint venture partner is unable to meet its obligations under the joint venture agreements or the third-party debt agreements, the company may elect to pay its joint venture partner’s portion of debt to avoid foreclosure on the mortgaged property or permit the lender to foreclose on the mortgaged property to meet the joint venture’s debt obligations. In either case, the company could face a loss of income and asset value on the property.
 
There can be no assurance that the markets will stabilize in the near future or that the company will choose to or be able to increase its levels of capital deployment at such time or ever. In addition, a continued increase in the cost of credit and inability to access the capital and credit markets may adversely impact the occupancy of the company’s properties, the disposition of its properties, private capital raising and contribution of properties to its co-investment ventures. For example, an inability to fully lease the company’s properties may result in such properties not meeting the company’s investment criteria for contributions to its co-investment ventures. If the company is unable to contribute completed development properties to its co-investment ventures or sell its completed development projects to third parties, the company will not be able to recognize gains from the contribution or sale of such properties and, as a result, the net income available to the parent company’s common stockholders and its funds from operations will decrease. Additionally, business layoffs, downsizing, industry slowdowns and other similar factors that affect the company’s customers may adversely impact its business and financial condition. Furthermore, general uncertainty in the real estate markets has resulted in conditions where the pricing of certain real estate assets may be difficult due to uncertainty with respect to capitalization rates and valuations, among other things, which may add to the difficulty of buyers or the company’s co-investment ventures to obtain financing on favorable terms to acquire such properties or cause potential buyers to not complete acquisitions of such properties. The market uncertainty with respect to capitalization rates and real estate valuations also adversely impacts the company’s net asset value. In addition, the operating partnership may face difficulty in refinancing its mortgage debt, or may be unable to refinance such debt at all, if its property values significantly decline. Such a decline may also cause a default under the loan-to-value covenants in some of the company’s joint ventures’ mortgage debt, which may require its joint ventures to re-margin or pay down a portion of the applicable debt. There can be no assurance, however, that in such an event, the company will be able to do so to prevent foreclosure.
 
In the event that the company does not have sufficient cash available to it through its operations to continue operating its business as usual, the company may need to find alternative ways to increase its liquidity. Such alternatives may include, without limitation, divesting itself of properties, whether or not they otherwise meet the company’s strategic objectives to keep in the long term, at less than optimal terms; issuing and selling its debt and equity in public or private transactions under less than optimal conditions; entering into leases with its customers at lower rental rates or less than optimal terms; or entering into lease renewals with its existing customers without an increase in rental rates at turnover. There can be no assurance, however, that such alternative ways to increase the company’s liquidity will be available to the company. Additionally, taking such measures to increase the company’s liquidity may adversely affect its business, results of operations and financial condition.
 
As of December 31, 2009, the company had $187.2 million in cash and cash equivalents. The company’s available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of invested cash and cash in its operating accounts. The invested cash is invested in money market funds that invest solely in direct obligations of the government of the United States or in time deposits with certain financial institutions. To date, the company has experienced no loss or lack of access to its invested cash or cash equivalents; however, the company can provide no assurances that access to its invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
 
At any point in time, the company also has a significant amount of cash deposits in its operating accounts that are with third-party financial institutions, and, as of December 31, 2009, the amount in such deposits was approximately $159.4 million on a consolidated basis. These balances exceed the Federal Deposit Insurance Corporation insurance limits. While the company monitors daily the cash balances in its operating accounts and adjusts the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or be subject to other adverse conditions in the financial markets. To date, the company has experienced no loss or lack of access to cash in its operating accounts.


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The market price per share of the parent company’s common stock may decline or fluctuate significantly in response to many factors, including:
 
  •  general market and economic conditions;
 
  •  actual or anticipated variations in the parent company’s operating results or dividends or the parent company’s payment of dividends in shares of its stock;
 
  •  changes in its funds from operations or earnings estimates;
 
  •  difficulties or inability to access capital or extend or refinance existing debt;
 
  •  breaches of covenants and defaults under the operating partnership’s credit facilities and other debt;
 
  •  decreasing (or uncertainty in) real estate valuations, market rents and rental occupancy rates;
 
  •  a change in analyst ratings or the operating partnership’s credit ratings;
 
  •  general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of the parent company’s stock to demand a higher annual yield from future dividends;
 
  •  adverse market reaction to any additional debt the operating partnership incurs in the future or any other capital market activity the company may conduct, including additional issuances of parent company stock;
 
  •  adverse market reaction to the company’s strategic initiatives and their implementation;
 
  •  changes in market valuations of similar companies;
 
  •  publication of research reports about the parent company or the real estate industry;
 
  •  the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies);
 
  •  additions or departures of key management personnel;
 
  •  actions by institutional stockholders;
 
  •  speculation in the press or investment community;
 
  •  terrorist activity may adversely affect the markets in which the company’s securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending;
 
  •  governmental regulatory action and changes in tax laws; and
 
  •  the realization of any of the other risk factors included in this report.
 
Many of the factors listed above are beyond the company’s control. These factors may cause the market price of shares of the parent company’s common stock to decline, regardless of its financial condition, results of operations, business or its prospects.
 
Debt Financing Risks
 
 
As of December 31, 2009, the operating partnership had total debt outstanding of $3.2 billion. As of December 31, 2009, the parent company guaranteed $1.2 billion of the operating partnership’s obligations with respect to the senior debt securities referenced in the parent company’s financial statements. The operating partnership is subject to risks normally associated with debt financing, including the risk that its cash flow will be insufficient to meet required payments of principal and interest. It is likely that the operating partnership will need


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to refinance at least a portion of its outstanding debt as it matures. There is a risk that the operating partnership may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of its existing debt. If the operating partnership is unable to refinance or extend principal payments due at maturity or pay them with proceeds of other capital transactions, then the operating partnership expects that its cash flow will not be sufficient in all years to repay all such maturing debt and to pay distributions to its unitholders, including the parent company, which, in turn, will be unable to pay cash dividends to its stockholders. Furthermore, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact the operating partnership as well. If interest rates increase, the operating partnership’s interest costs and overall costs of capital will increase, which could adversely affect its financial condition, results of operation and cash flow, the market price of the parent company’s stock, the operating partnership’s ability to pay principal and interest on its debt and to pay distributions to its unitholders, the parent company’s ability to pay cash dividends to its stockholders and the operating partnership’s capital deployment activity. In addition, there may be circumstances that will require the operating partnership to obtain amendments or waivers to provisions in its credit facilities or other financings. There can be no assurance that the operating partnership will be able to obtain necessary amendments or waivers at all or without significant expense. In such case, the operating partnership may not be able to fund its business activities as planned, within budget or at all.
 
In addition, if the company mortgages one or more of its properties to secure payment of indebtedness and the company is unable to meet mortgage payments, then the property could be foreclosed upon or transferred to the lender with a consequent loss of income and asset value. A foreclosure on one or more of the company’s properties could adversely affect its financial condition, results of operations, cash flow and ability to pay distributions to the operating partnership’s unitholders and cash dividends to the parent company’s stockholders, and the market price of the parent company’s stock.
 
As of December 31, 2009, the company had outstanding bank guarantees in the amount of $0.4 million used to secure contingent obligations, primarily obligations under development and purchase agreements. As of December 31, 2009, the company also guaranteed $47.9 million and $106.7 million on outstanding loans for six of its consolidated co-investment ventures and four of its unconsolidated co-investment ventures, respectively. Also, the company has entered into contribution agreements with certain of its unconsolidated co-investment venture funds. These contribution agreements require the company to make additional capital contributions to the applicable co-investment venture fund upon certain defaults by the co-investment venture of its debt obligations to the lenders. Such additional capital contributions will cover all or part of the applicable co-investment venture’s debt obligation and may be greater than the company’s share of the co-investment venture’s debt obligation or the value of the company’s share of any property securing such debt. The company’s contribution obligations under these agreements will be reduced by the amounts recovered by the lender and the fair market value of the property, if any, used to secure the debt and obtained by the lender upon default. The company’s potential obligations under these contribution agreements were $260.6 million as of December 31, 2009. The company intends to continue to guarantee debt of its unconsolidated co-investment venture funds and make additional contributions to its unconsolidated co-investment venture funds in connection with property contributions to the funds. Such payment obligations under such guarantees and contribution obligations under such contribution agreements, if required to be paid, could be of a magnitude that could adversely affect the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders and the market price of the parent company’s stock.
 
 
The credit ratings of the operating partnership’s senior unsecured long-term debt and the parent company’s preferred stock are based on its operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analyses of the company. The company’s credit ratings can affect the amount of capital it can access, as well as the terms and pricing of any debt the operating partnership may incur. There can be no assurance that the company will be able to maintain its current credit ratings, and in the event its current credit ratings are downgraded, the company would likely incur higher borrowing costs


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and may encounter difficulty in obtaining additional financing. Also, a downgrade in the company’s credit ratings may trigger additional payments or other negative consequences under its current and future credit facilities and debt instruments. For example, if the operating partnership’s credit ratings of its senior unsecured long-term debt are downgraded to below investment grade levels, the operating partnership may not be able to obtain or maintain extensions on certain of its existing debt. Adverse changes in the operating partnership’s credit ratings could negatively impact its refinancing and other capital market activities, its ability to manage its debt maturities, its future growth, its financial condition, the market price of the parent company’s stock, and its development and acquisition activity.
 
 
The terms of the operating partnership’s credit agreements and other indebtedness require that it complies with a number of financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit flexibility in the operating partnership’s operations, and its failure to comply with these covenants could cause a default under the applicable debt agreement even if it has satisfied its payment obligations. As of December 31, 2009, the operating partnership had certain non-recourse, secured loans, which are cross-collateralized by multiple properties. If the operating partnership defaults on any of these loans, it may then be required to repay such indebtedness, together with applicable prepayment charges, to avoid foreclosure on all the cross-collateralized properties within the applicable pool. Foreclosure on the operating partnership’s properties, or its inability to refinance its loans on favorable terms, could adversely impact its financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders or distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock. In addition, the operating partnership’s credit facilities and senior debt securities contain certain cross-default provisions, which are triggered in the event that its other material indebtedness is in default. These cross-default provisions may require the operating partnership to repay or restructure the credit facilities and the senior debt securities in addition to any mortgage or other debt that is in default, which could adversely affect the operating partnership’s financial condition, results of operations, cash flow and ability to pay distributions to its unitholders and the parent company’s ability to pay cash dividends to its stockholders and the market price of its stock.
 
 
The company seeks to manage its exposure to exchange and interest rate volatility by using exchange and interest rate hedging arrangements, such as cap agreements and swap agreements. These agreements involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing the company’s exposure to exchange or interest rate changes and that a court could rule that such agreements are not legally enforceable. Hedging may reduce overall returns on the company’s investments. Failure to hedge effectively against exchange and interest rate changes may materially adversely affect the company’s results of operations.
 
 
In order to qualify as a real estate investment trust, the parent company is required each year to distribute to its stockholders at least 90% of its real estate investment trust taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) and is subject to tax to the extent its income is not fully distributed. While historically the parent company has satisfied these distribution requirements by making cash distributions to its stockholders, the parent company may choose to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, its own stock. For distributions with respect to taxable years ending on or before December 31, 2011, and in some cases declared as late as December 31, 2012, recent Internal Revenue Service guidance allows the parent company to satisfy up to 90% of the distribution requirements discussed above through the distribution of shares of its stock, if certain conditions are met. Assuming the parent company continues to satisfy these distribution requirements with cash, the parent company and the operating partnership may not be able to fund all future capital needs, including acquisition and development activities, from cash retained from operations and may have to rely on third-party sources of capital. Further, in


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order to maintain the parent company’s real estate investment trust status and avoid the payment of federal income and excise taxes, the parent company, through the operating partnership, may need to borrow funds on a short-term basis to meet the real estate investment trust distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. The company’s ability to access private debt and equity capital on favorable terms or at all is dependent upon a number of factors, including general market conditions, the market’s perception of the company’s growth potential, its current and potential future earnings and cash distributions and the market price of its securities.
 
 
As of December 31, 2009, the operating partnership’s share of total debt-to-its share of total market capitalization ratio was 46.5%. The operating partnership’s definition of “the operating partnership’s share of total market capitalization” is the operating partnership’s share of total debt plus preferred equity liquidation preferences plus market equity. See footnote 1 to the Capitalization Ratios table contained in Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources” for the operating partnership’s definitions of “market equity” and “the operating partnership’s share of total debt.” As this ratio percentage increases directly with a decrease in the market price per share of the parent company’s capital stock, an unstable market environment will impact this ratio in a volatile manner. There can also be no assurance that the operating partnership would not become more highly leveraged, resulting in an increase in debt service that could adversely affect the cash available for distribution to its unitholders and, in turn, the cash available to distribute to the parent company’s stockholders. Furthermore, if the operating partnership becomes more highly leveraged, the operating partnership may not be in compliance with the debt covenants contained in the agreements governing its co-investment ventures, which could adversely impact its private capital business.
 
Other Real Estate Industry Risks
 
 
The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If the company’s properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then the operating partnership’s ability to pay distributions to its unitholders (including the parent company) and, in turn, the parent company’s ability to pay cash dividends to its stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline when circumstances reduce the income from the property. Income from, and the value of, the company’s properties may be adversely affected by:
 
  •  changes in the general economic climate, such as the current one, including diminished access to or availability of capital (including difficulties in financing, refinancing and extending existing debt) and rising inflation (see “Risks of the Current Economic Environment”);
 
  •  local conditions, such as oversupply of or a reduction in demand for industrial space;
 
  •  the attractiveness of the company’s properties to potential customers;
 
  •  competition from other properties;
 
  •  the company’s ability to provide adequate maintenance and insurance;
 
  •  increased operating costs;
 
  •  increased cost of compliance with regulations;
 
  •  the potential for liability under applicable laws (including changes in tax laws); and
 
  •  disruptions in the global supply chain caused by political, regulatory or other factors, including terrorism.


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In addition, periods of economic slowdown or recession in the United States and in other countries, rising interest rates, diminished access to or availability of capital or declining demand for real estate, may result in a general decrease in rents, an increased occurrence of defaults under existing leases or greater difficulty in financing the company’s acquisition and development activities, which would adversely affect the company’s financial condition and results of operations. Future terrorist attacks may result in declining economic activity, which could reduce the demand for and the value of the company’s properties. To the extent that future attacks impact the company’s customers, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.
 
The company’s properties are concentrated predominantly in the industrial real estate sector. As a result of this concentration, the company feels the impact of an economic downturn in this sector more acutely than if the company’s portfolio included other property types.
 
 
The current economic downturn has generally resulted in lower real estate valuations, which has required the company to recognize real estate impairment charges on its assets. The company conducts a comprehensive review of all real estate asset classes in accordance with its policy of accounting for the impairment or disposal of long-lived assets, which indicates that asset values should be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. The intended use of an asset, either held for sale or held for the long term, can significantly impact how impairment is measured. If an asset is intended to be held for the long term, the impairment analysis is based on a two-step test. The first test measures estimated expected future cash flows over the holding period, including a residual value (undiscounted and without interest charges), against the carrying value of the property. If the asset fails the first test, then the asset carrying value is measured against the estimated fair value from a market participant standpoint, with the excess of the asset’s carrying value over the estimated fair value recognized as an impairment charge to earnings. If an asset is intended to be sold, impairment is tested based on a one-step test, comparing the carrying value to the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economic and market conditions and the availability of capital. The company determines the estimated fair values based on assumptions regarding rental rates, costs to complete, lease-up and holding periods, as well as sales prices or contribution values. The company also utilizes the knowledge of its regional teams and the recent valuations of its two open-ended funds, which contain a large, geographically diversified pool of assets, all of which are subject to third-party appraisals on at least an annual basis. As a result of changing market conditions, the company re-evaluated the carrying value of its investments and recognized real estate impairment losses of $181.9 million during the year ended December 31, 2009 on certain of its investments.
 
The principal trigger which led to the impairment charges was the severe economic deterioration in some markets resulting in a decrease in leasing and rental rates, rising vacancies and an increase in capitalization rates. Additional impairments may be necessary in the future in the event that market conditions continue to deteriorate and impact the factors used to estimate fair value, which may include impairments relating to the company’s unconsolidated real estate as well as impairments relating to the company’s investments in its unconsolidated co-investment ventures. Investments in unconsolidated joint ventures are presented under the equity method. The equity method is used when the company has the ability to exercise significant influence over operating and financial policies of the joint venture but does not have control of the joint venture. Under the equity method, these investments are initially recognized in the balance sheet at cost and are subsequently adjusted to reflect the company’s proportionate share of net earnings or losses of the joint venture, distributions received, contributions, deferred gains from the contribution of properties and certain other adjustments, as appropriate. When circumstances indicate there may have been a loss in value of an equity investment, the company evaluates the investment for impairment by estimating the company’s ability to recover its investment or if the loss in value is other than temporary. To evaluate whether an impairment is other than temporary, the company considers relevant factors, including, but not limited to, the period of time in any unrealized loss position, the likelihood of a future recovery, and the company’s positive intent and ability to hold the investment until the forecasted recovery. If the company determines the loss in value is other than temporary, the company recognizes an impairment charge to reflect the


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investment at fair value. Fair value is determined through various valuation techniques, including, but not limited to, discounted cash flow models, quoted market values and third party appraisals. During the year ended December 31, 2009, the company did not record any impairment on its investments in unconsolidated co-investment ventures. There can be no assurance that the estimates and assumptions the company uses to assess impairments are accurate and will reflect actual results. A worsening real estate market may cause the company to reevaluate the assumptions used in its impairment analysis and its intent to hold, sell, develop or contribute properties. Impairment charges could adversely affect the company’s financial condition, results of operations and its ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders and the market price of the parent company’s stock. See Part IV, Item 15: Note 3 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the real estate impairment losses recorded in the company’s results of operations.
 
 
As of December 31, 2009, on an owned and managed basis, the company’s occupancy average was 91.4% year-to-date and the leases on 13.1% of the company’s industrial properties (based on annualized base rent) will expire on or prior to December 31, 2010. The company derives most of its income from rent received from its customers. Accordingly, the company’s financial condition, results of operations, cash flow and its ability to pay dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock could be adversely affected if the company is unable to lease vacant space at favorable rents or terms or at all and to promptly relet or renew expiring leases or if the rental rates upon leasing, renewal or reletting are significantly lower than expected. There can be no assurance that the company will be able to lease its vacant space, renew its expiring leases, increase its occupancy to its historical averages or generally realize the potential of its currently low-yielding assets (including the build-out and leasing of its development platform). Periods of economic slowdown or recession are likely to adversely affect the company’s leasing activities. If a customer experiences a downturn in its business or other type of financial distress, then it may be unable to make timely rental payments or renew its lease. Further, the company’s ability to rent space and the rents that it can charge are impacted, not only by customer demand, but by the number of other properties the company has to compete with to appeal to customers.
 
 
The company’s results of operations, distributable cash flow and the value of the parent company’s stock would be adversely affected if a significant number of the company’s customers were unable to meet their lease obligations. In the current economic environment, it is likely that customer bankruptcies will increase. If a customer seeks the protection of bankruptcy, insolvency or similar laws, such customer’s lease may be terminated in the process and result in a reduction of cash flow to the company. In the event of a significant number of lease defaults and/or tenant bankruptcies, the company’s cash flow may not be sufficient to pay distributions to the operating partnership’s unitholders and cash dividends to the parent company’s stockholders and repay maturing debt and any other obligations. As of December 31, 2009, on an owned and managed basis, the company did not have any single customer account for annualized base rent revenues greater than 3.6%. However, in the event of lease defaults by a significant number of the company’s customers, the company may incur substantial costs in enforcing its rights as landlord.
 
 
On a strategic and selective basis, the company may acquire U.S. or foreign properties, portfolios of properties or interests in property-owning or real-estate related entities and platforms, which could include large acquisitions that could increase the company’s size and alter its capital and organizational structure. Such acquisitions entail various risks, including the risks that the company’s investments may not perform or be accretive to the company’s value as it expects, that it may be unable to quickly and efficiently integrate its new acquisitions into its existing operations or, if applicable, contribute the acquired properties to a joint venture, that portfolio acquisitions may


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include non-core assets, that the new investments may come with unexpected liabilities and that the company’s cost estimates for developing or bringing an acquired property up to market standards may prove inaccurate. The company may not be able to acquire assets at values above the company’s cost of capital. In addition, the company expects to finance future acquisitions through a combination of borrowings under its unsecured credit facilities, proceeds from private or public equity or debt offerings (including issuances of operating partnership units) and proceeds from property divestitures, which may not be available at favorable pricing or at all and which could adversely affect the company’s cash flow. Further, the company faces significant competition for attractive investment opportunities from other real estate investors, including both publicly-traded real estate investment trusts and private institutional investors and funds. This competition increases as quality investment opportunities arise at favorable pricing and investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, the company may be unable to make additional investments as it desires or the purchase price of the investments may be significantly elevated. Also, the company may incur significant transaction-related costs in exploring and pursuing potential transactions it may not consummate. Any of the above risks could adversely affect the company’s financial condition, results of operations, cash flow and the ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock.
 
 
As of December 31, 2009, approximately 88.1 million square feet of the company’s properties were held through joint ventures, limited liability companies or partnerships with third parties. The company’s organizational documents do not limit the amount of available funds that it may invest in partnerships, limited liability companies or joint ventures, and the company may and currently intends to develop and acquire properties through joint ventures, limited liability companies, partnerships with and investments in other entities when warranted by the circumstances. However, there can be no assurance that the company will be able to form new joint ventures, attract third party investment or make additional investments in new or existing joint ventures, successfully develop or acquire properties through such joint ventures, or realize value from such joint ventures. The company’s inability to do so may have an adverse effect on the company’s growth, its earnings and the market price of the parent company’s securities.
 
Joint venture partners may share certain approval rights over major decisions and some partners may manage the properties in the joint venture investments. Joint venture investments involve certain risks, including:
 
  •  if the company’s joint venture partners go bankrupt, then the company and any other remaining partners may generally remain liable for the investment’s liabilities;
 
  •  if the company’s joint venture partners fail to fund their share of any required capital contributions, then the company may choose to or be required to contribute such capital;
 
  •  the company may, under certain circumstances, guarantee all or a portion of the joint venture’s debt, which may require the company to pay an amount greater than its investment in the joint venture;
 
  •  the company’s joint venture partners might have economic or other business interests or goals that are inconsistent with the company’s business interests or goals that would affect the company’s ability to operate the property;
 
  •  the company’s joint venture partners may have the power to act contrary to the company’s instructions, requests, policies or objectives, including its current policy with respect to maintaining the parent company’s qualification as a real estate investment trust;
 
  •  the joint venture or other governing agreements often restrict the transfer of an interest in the joint venture or may otherwise restrict the company’s ability to sell the interest when it desires or on advantageous terms;
 
  •  the company’s relationships with its joint venture partners are generally contractual in nature and may be terminated or dissolved under the terms of the agreements, and in such event, the company may not continue


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  to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at an above-market price to continue ownership;
 
  •  disputes between the company and its joint venture partners may result in litigation or arbitration that would increase the company’s expenses and prevent its officers and directors from focusing their time and effort on the company’s business and result in subjecting the properties owned by the applicable joint venture to additional risk; and
 
  •  the company may in certain circumstances be liable for the actions of its joint venture partners.
 
The company generally seeks to maintain sufficient control or influence over its joint ventures to permit it to achieve its business objectives; however, the company may not be able to do so, and the occurrence of one or more of the events described above could adversely affect the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders and the market price of the parent company’s stock.
 
 
The company may contribute or sell properties to certain of its co-investment ventures on a case-by-case basis. However, the company may fail to contribute properties to its co-investment ventures due to such factors as its inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or its co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements such as forward commitments, loan maturities and future redemptions. If the co-investment ventures are unable to raise additional capital on favorable terms after available capital is depleted or if the value of properties to be contributed or sold to the co-investment ventures are appraised at less than the cost of such properties, then such contributions or sales could be delayed or prevented, adversely affecting the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock.
 
A delay in these contributions could result in adverse effects on the company’s liquidity and on its ability to meet projected earnings levels in a particular reporting period, which could have an adverse effect on the company’s results of operations, distributable cash flow and the value of its securities.
 
 
The company may divest itself of properties, which are currently in its portfolio, are held for sale or which otherwise do not meet its strategic objectives. The company may, in certain circumstances, divest itself of properties to increase its liquidity or to capitalize on opportunities that arise. The company’s ability to dispose of properties on advantageous terms or at all depends on factors beyond its control, including competition from other sellers, current market conditions (including capitalization rates applicable to its properties) and the availability of financing for potential buyers of its properties. If the company is unable to dispose of properties on favorable terms or at all or redeploy the proceeds of property divestitures in accordance with its investment strategy, then the company’s financial condition, results of operations, cash flow, ability to meet its debt obligations in a timely manner and the ability to pay cash dividends and distributions could be adversely affected, which could also negatively impact the market price of the parent company’s stock.
 
 
The company competes with other owners, operators and developers of real estate, some of which own properties similar to the company’s properties in the same submarkets in which the company’s properties are located. If the company’s competitors sell assets similar to assets the company intends to divest in the same markets and/or at valuations below the company’s valuations for comparable assets, the company may be unable to divest its assets at favorable pricing or on favorable terms or at all. In addition, if the company’s competitors offer space at rental rates below current market rates or below the rental rates the company currently charges its customers, the


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company may lose potential customers, and the company may be pressured to reduce its rental rates below those the company currently charges in order to retain customers when its customers’ leases expire. As a result, the company’s financial condition, cash flow, cash available for distributions and dividends and, trading price of the parent company’s stock and ability to satisfy the operating partnership’s debt service obligations could be materially adversely affected.
 
 
On a strategic and selective basis, the company may develop, renovate and redevelop properties. After the financial and real estate markets stabilize, the company may expand its investment in its development, renovation and redevelopment business and complete the build-out and leasing of its development platform. The company may also develop, renovate and redevelop properties in newly formed development joint ventures into which the company may contribute assets. The real estate development, renovation and redevelopment business involves significant risks that could adversely affect the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders and the market price of the parent company’s stock, which include the following risks:
 
  •  the company may not be able to obtain financing for development projects on favorable terms or at all and complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties, generating cash flow and, if applicable, contributing properties to a joint venture;
 
  •  the company may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;
 
  •  the properties may perform below anticipated levels, producing cash flow below budgeted amounts;
 
  •  the company may not be able to lease properties on favorable terms or at all;
 
  •  construction costs, total investment amounts and the company’s share of remaining funding may exceed the company’s estimates and projects may not be completed, delivered or stabilized as planned;
 
  •  the company may not be able to attract third party investment in new development joint ventures or sufficient customer demand for its product;
 
  •  the company may not be able to capture the anticipated enhanced value created by its value-added conversion projects on its expected timetables or at all;
 
  •  the company may not be able to successfully form development joint ventures or capture value from such newly formed ventures;
 
  •  the company may fail to contribute properties to its co-investment ventures due to such factors as its inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or its co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements such as future redemptions;
 
  •  the company may experience delays (temporary or permanent) if there is public opposition to its activities;
 
  •  substantial renovation, new development and redevelopment activities, regardless of their ultimate success, typically require a significant amount of management’s time and attention, diverting their attention from the company’s day-to-day operations; and
 
  •  upon completion of construction, the company may not be able to obtain, on advantageous terms or at all, permanent financing for activities that it has financed through construction loans.


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Real estate assets are not as liquid as certain other types of assets. Further, the Internal Revenue Code regulates the number of properties that the parent company, as a real estate investment trust, can dispose of in a year, their tax bases and the cost of improvements that the parent company makes to the properties. In addition, a portion of the properties held directly or indirectly by certain of the company’s subsidiary partnerships were acquired in exchange for limited partnership units in the applicable partnership. The contribution agreements for such properties may contain restrictions on certain sales, exchanges or other dispositions of these properties, or a portion thereof, which result in a taxable transaction for specified periods, following the contribution of these properties to the applicable partnership. These limitations may affect the company’s ability to sell properties. This lack of liquidity and the Internal Revenue Code restrictions may limit the company’s ability to vary its portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect the company’s financial condition, results of operations and cash flow, the market price of the parent company’s stock, the ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the operating partnership’s ability to access capital necessary to meet its debt payments and other obligations.
 
 
 
The company acquired and developed, and may continue to acquire and develop on a strategic and selective basis, properties and operating platforms outside the United States. Because local markets affect the company’s operations, the company’s international investments are subject to economic fluctuations in the international locations in which the company invests. Access to capital may be more restricted, or unavailable on favorable terms or at all, in certain locations. In addition, the company’s international operations are subject to the usual risks of doing business abroad such as revisions in tax treaties or other laws and regulations, including those governing the taxation of the company’s international revenues, restrictions on the transfer of funds, and, in certain parts of the world, uncertainty over property rights, terrorist or gang-related activities, civil unrest and political instability. The company cannot predict the likelihood that any of these developments may occur. Further, the company has entered, and may in the future enter, into agreements with non-U.S. entities that are governed by the laws of, and are subject to dispute resolution in the courts of, another country or region. The company cannot accurately predict whether such a forum would provide it with an effective and efficient means of resolving disputes that may arise. Further, even if the company is able to obtain a satisfactory decision through arbitration or a court proceeding, the company could have difficulty enforcing any award or judgment on a timely basis or at all.
 
The company also has offices in many countries outside the United States and, as a result, the company’s operations may be subject to risks that may limit its ability to effectively establish, staff and manage its offices outside the United States, including:
 
  •  differing employment practices and labor issues;
 
  •  local business and cultural factors that differ from the company’s usual standards and practices;
 
  •  regulatory requirements and prohibitions that differ between jurisdictions; and
 
  •  health concerns.
 
The company’s global growth (including growth in new regions in the United States) subjects the company to certain risks, including risks associated with funding increasing headcount, integrating new offices, and establishing effective controls and procedures to regulate the operations of new offices and to monitor compliance with regulations such as the Foreign Corrupt Practices Act. In addition, payroll expenses are paid in local currencies and, therefore, the company is exposed to risks associated with fluctuations in the rate of exchange between the U.S. dollar and these currencies.
 
Further, the company’s business has grown rapidly and may continue to grow in a strategic and deliberate manner. If the company fails to effectively manage its international growth, then the company’s financial condition,


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results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock could be adversely affected.
 
 
The company may pursue growth opportunities in international markets on a strategic and selective basis. As the company invests in countries where the U.S. dollar is not the national currency, the company is subject to international currency risks from the potential fluctuations in exchange rates between the U.S. dollar and the currencies of those other countries. A significant depreciation in the value of the currency of one or more countries where the company has a significant investment may materially affect its results of operations. The company attempts to mitigate any such effects by borrowing in the currency of the country in which it is investing and, under certain circumstances, by putting in place international currency put option contracts to hedge exchange rate fluctuations. For leases denominated in international currencies, the company may use derivative financial instruments to manage the international currency exchange risk. The company cannot assure you, however, that its efforts will successfully neutralize all international currency risks.
 
 
The company has acquired and may continue to acquire properties, portfolios of properties, interests in real-estate related entities or platforms on a strategic and selective basis in international markets that are new to it. When the company acquires properties or platforms located in these markets, it may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. The company works to mitigate such risks through extensive diligence and research and associations with experienced partners; however, there can be no guarantee that all such risks will be eliminated.
 
 
 
As of December 31, 2009, the company’s industrial properties located in California represented 22.6% of the aggregate square footage of its industrial operating properties and 21.0% of its industrial annualized base rent, on an owned and managed basis. The company’s revenue from, and the value of, its properties located in California may be affected by local real estate conditions (such as an oversupply of or reduced demand for industrial properties) and the local economic climate. Business layoffs, downsizing, industry slowdowns, changing demographics and other factors may adversely impact California’s economic climate. Because of the number of properties the company has located in California, a downturn in California’s economy or real estate conditions could adversely affect the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to its stockholders and the market price of its stock.
 
 
The company continues to have significant cash balances that it invests in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. From time to time, these investments may include (either directly or indirectly):
 
  •  direct obligations issued by the U.S. Treasury;
 
  •  obligations issued or guaranteed by the U.S. government or its agencies;
 
  •  taxable municipal securities;
 
  •  obligations (including certificates of deposit) of banks and thrifts;


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  •  commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks;
 
  •  repurchase agreements collateralized by corporate and asset-backed obligations;
 
  •  both registered and unregistered money market funds; and
 
  •  other highly rated short-term securities.
 
Investments in these securities and funds are not insured against loss of principal. Under certain circumstances the company may be required to redeem all or part of its investment, and its right to redeem some or all of its investment may be delayed or suspended. In addition, there is no guarantee that the company’s investments in these securities or funds will be redeemable at par value. A decline in the value of the company’s investment or a delay or suspension of its right to redeem may have an adverse effect on the company’s results of operations or financial condition.
 
 
The company carries commercial liability, property and rental loss insurance covering all the properties that it owns and manages in types and amounts that it believes are adequate and appropriate given the relative risks applicable to the property, the cost of coverage and industry practice. Certain losses, such as those due to terrorism, windstorms, floods or seismic activity, may be insured subject to certain limitations, including large deductibles or co-payments and policy limits. Although the company has obtained coverage for certain acts of terrorism, with policy specifications and insured limits that the company considers commercially reasonable given the cost and availability of such coverage, the company cannot be certain that it will be able to renew coverage on comparable terms or collect under such policies. In addition, there are other types of losses, such as those from riots, bio-terrorism or acts of war, that are not generally insured in the company’s industry because it is not economically feasible to do so. The company may incur material losses in excess of insurance proceeds and it may not be able to continue to obtain insurance at commercially reasonable rates. Given current market conditions, there can also be no assurance that the insurance companies providing the company’s coverage will not fail or have difficulty meeting their coverage obligations to the company. Furthermore, the company cannot assure you that its insurance companies will be able to continue to offer products with sufficient coverage at commercially reasonable rates. If the company experiences a loss that is uninsured or that exceeds its insured limits with respect to one or more of its properties or if the company’s insurance companies fail to meet their coverage commitments to it in the event of an insured loss, then the company could lose the capital invested in the damaged properties, as well as the anticipated future revenue from those properties and, if there is recourse debt, then the company would remain obligated for any mortgage debt or other financial obligations related to the properties. Moreover, as the general partner of the operating partnership, the parent company generally will be liable for all of the operating partnership’s unsatisfied recourse obligations, including any obligations incurred by the operating partnership as the general partner of co-investment ventures. Any such losses or higher insurance costs could adversely affect the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders and the market price of the parent company’s stock.
 
A number of the company’s properties are located in areas that are known to be subject to earthquake activity. U.S. properties located in active seismic areas include properties in the San Francisco Bay Area, Los Angeles, and Seattle. The company’s largest concentration of such properties is in California where, on an owned and managed basis, as of December 31, 2009, the company had 280 industrial buildings, aggregating approximately 30.0 million square feet and representing 22.6% of its industrial operating properties based on aggregate square footage and 21.0% based on industrial annualized base rent, on an owned and managed basis. International properties located in active seismic areas include Tokyo and Osaka, Japan and Mexico City, Mexico. The company carries earthquake insurance on all of its properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles that it believes are commercially reasonable. The company evaluates its earthquake insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.


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A number of the company’s properties are located in areas that are known to be subject to hurricane and/or flood risk. The company carries hurricane and flood hazard insurance on all of its properties located in areas historically subject to such activity, subject to coverage limitations and deductibles that it believes are commercially reasonable. The company evaluates its insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.
 
 
The company has acquired and may in the future acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against the company based upon ownership of any of these entities or properties, then the company might have to pay substantial sums to settle it, which could adversely affect its cash flow. Contingent or unknown liabilities with respect to entities or properties acquired might include:
 
  •  liabilities for environmental conditions;
 
  •  losses in excess of the company’s insured coverage;
 
  •  accrued but unpaid liabilities incurred in the ordinary course of business;
 
  •  tax, legal and regulatory liabilities;
 
  •  claims of customers, vendors or other persons dealing with the company’s predecessors prior to its formation or acquisition transactions that had not been asserted or were unknown prior to the company’s formation or acquisition transactions; and
 
  •  claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of the company’s properties.
 
 
The company depends on the efforts of its executive officers and other key employees. From time to time, the company’s personnel and their roles may change. As part of the company’s cost savings plan, the company has reduced its total global headcount and may do so again in the future. While the company believes that it has retained its key talent, left its global platform intact and can find suitable employees to meet its personnel needs, the loss of key personnel, any change in their roles, or the limitation of their availability could adversely affect the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock. The company does not have employment agreements with any of its executive officers.
 
Because the company’s compensation packages include equity-based incentives, pressure on the parent company’s stock price or limitations on the company’s ability to award such incentives could affect the company’s ability to offer competitive compensation packages to its executives and key employees. If the company is unable to continue to attract and retain its executive officers, or if compensation costs required to attract and retain key employees become more expensive, the company’s performance and competitive position could be materially adversely affected.
 
 
 
From time to time, certain of the company’s executive officers and directors may own interests in other real-estate related businesses and investments, including de minimis holdings of the equity securities of public and private real estate companies. The company’s executive officers’ involvement in other real estate-related activities could divert their attention from the company’s day-to-day operations. The company’s executive officers have entered into non-competition agreements with the company pursuant to which they have agreed not to engage in any activities, directly or indirectly, in respect of commercial real estate, and not to make any investment in respect of


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any industrial or retail real estate, other than through ownership of not more than 5% of the outstanding shares of a public company engaged in such activities or through certain specified investments. State law may limit the company’s ability to enforce these agreements. The company will not acquire any properties from its executive officers, directors or their affiliates unless the transaction is approved by a majority of the disinterested and independent (as defined by the rules of the New York Stock Exchange) members of the parent company’s board of directors with respect to that transaction.
 
 
As the general partner of the operating partnership, the parent company has fiduciary obligations to the operating partnership’s limited partners, the discharge of which may conflict with the interests of the parent company’s stockholders. In addition, those persons holding limited partnership units will have the right to vote as a class on certain amendments to the operating partnership’s partnership agreement and individually to approve certain amendments that would adversely affect their rights. The limited partners may exercise these voting rights in a manner that conflicts with the interests of the parent company’s stockholders. In addition, under the terms of the operating partnership’s partnership agreement, holders of limited partnership units will have approval rights with respect to specified transactions that affect all stockholders but which they may not exercise in a manner that reflects the interests of all stockholders.
 
 
 
Under various environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of investigation, removal or remediation of certain hazardous or toxic substances or petroleum products at, on, under, in or from its property. The costs of removal or remediation of such substances could be substantial. These laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination.
 
Environmental laws in some countries, including the United States, also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of the company’s properties are known to contain asbestos-containing building materials.
 
In addition, some of the company’s properties are leased or have been leased, in part, to owners and operators of businesses that use, store or otherwise handle petroleum products or other hazardous or toxic substances, creating a potential for the release of such hazardous or toxic substances. Further, certain of the company’s properties are on, adjacent to or near other properties that have contained or currently contain petroleum products or other hazardous or toxic substances, or upon which others have engaged, are engaged or may engage in activities that may release such hazardous or toxic substances. From time to time, the company may acquire properties, or interests in properties, with known adverse environmental conditions where the company believes that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. In such an instance, the company underwrites the costs of environmental investigation, clean-up and monitoring into the acquisition cost and obtains appropriate environmental insurance for the property. Further, in connection with certain divested properties, the company has agreed to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.


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At the time of acquisition, the company subjects all of its properties to a Phase I or similar environmental assessments by independent environmental consultants and the company may have additional Phase II testing performed upon the consultant’s recommendation. These environmental assessments have not revealed, and the company is not aware of, any environmental liability that it believes would have a material adverse effect on the company’s financial condition or results of operations taken as a whole. Nonetheless, it is possible that the assessments did not reveal all environmental liabilities and that there are material environmental liabilities unknown to the company, or that known environmental conditions may give rise to liabilities that are greater than the company anticipated. Further, the company’s properties’ current environmental condition may be affected by customers, the condition of land, operations in the vicinity of the properties (such as releases from underground storage tanks) or by unrelated third parties. If the costs of compliance with existing or future environmental laws and regulations exceed the company’s budgets for these items, then the company’s financial condition, results of operations, cash flow and ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders, and the market price of the parent company’s stock could be adversely affected.
 
 
Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If the company is required to make unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then the company’s cash flow and the amounts available for dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders may be adversely affected. The company’s properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life-safety requirements. The company could incur fines or private damage awards if it fails to comply with these requirements. While the company believes that its properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by the company that will affect its cash flow and results of operations.
 
 
 
The parent company elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with its taxable year ended December 31, 1997. The parent company believes it has operated so as to qualify as a real estate investment trust under the Internal Revenue Code and believes that the parent company’s current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable it to continue to qualify as a real estate investment trust. However, it is possible that the parent company has been organized or has operated in a manner that would not allow it to qualify as a real estate investment trust, or that the parent company’s future operations could cause it to fail to qualify. Qualification as a real estate investment trust requires the parent company to satisfy numerous requirements (some on an annual and others on a quarterly basis) established under highly technical and complex sections of the Internal Revenue Code for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within the parent company’s control. For example, in order to qualify as a real estate investment trust, the parent company must derive at least 95% of its gross income in any year from qualifying sources. In addition, the parent company must pay dividends to its stockholders aggregating annually at least 90% of its real estate investment trust taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. While historically the parent company has satisfied the distribution requirement discussed above by making cash distributions to its stockholders, the parent company may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, its own stock. For distributions with respect to taxable years ending on or before December 31, 2011, and in some cases declared as late as December 31, 2012, recent Internal Revenue


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Service guidance allows the parent company to satisfy up to 90% of this distribution requirement through the distribution of shares of its stock, if certain conditions are met. The provisions of the Internal Revenue Code and applicable Treasury regulations regarding qualification as a real estate investment trust are more complicated in the parent company’s case because it holds its assets through the operating partnership. Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a real estate investment trust or the federal income tax consequences of such qualification. However, the parent company is not aware of any pending tax legislation that would adversely affect its ability to qualify as a real estate investment trust.
 
If the parent company fails to qualify as a real estate investment trust in any taxable year, the parent company will be required to pay federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Unless the parent company is entitled to relief under certain statutory provisions, the parent company would be disqualified from treatment as a real estate investment trust for the four taxable years following the year in which the parent company lost its qualification. If the parent company lost its real estate investment trust status, the parent company’s net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, the parent company would no longer be required to make distributions to its stockholders.
 
Furthermore, the parent company owns a direct or indirect interest in certain subsidiary REITs which elected to be taxed as REITs under Sections 856 through 860 of the Internal Revenue Code. Provided that each subsidiary REIT qualifies as a REIT, the parent company’s interest in such subsidiary REIT will be treated as a qualifying real estate asset for purposes of the REIT asset tests, and any dividend income or gains derived by the parent company from such subsidiary REIT will generally be treated as income that qualifies for purposes of the REIT gross income tests. To qualify as a REIT, the subsidiary REIT must independently satisfy all of the REIT qualification requirements. If such subsidiary REIT were to fail to qualify as a REIT, and certain relief provisions did not apply, it would be treated as a regular taxable corporation and its income would be subject to United States federal income tax. In addition, a failure of the subsidiary REIT to qualify as a REIT would have an adverse effect on the parent company’s ability to comply with the REIT income and asset tests, and thus the parent company’s ability to qualify as a REIT.
 
 
From time to time, the company may transfer or otherwise dispose of some of its properties, including by contributing properties to its co-investment venture funds. Under the Internal Revenue Code, any gain resulting from transfers of properties the company holds as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax. The company does not believe that its transfers or disposals of property or its contributions of properties into its co-investment ventures are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or dispositions of properties by the company or contributions of properties into the company’s co-investment venture funds are prohibited transactions. While the company believes that the Internal Revenue Service would not prevail in any such dispute, if the Internal Revenue Service were to argue successfully that a transfer, disposition, or contribution of property constituted a prohibited transaction, the company would be required to pay a 100% penalty tax on any gain allocable to the company from the prohibited transaction. In addition, income from a prohibited transaction might adversely affect the company’s ability to satisfy the income tests for qualification as a real estate investment trust.
 
 
The parent company may distribute taxable dividends that are partially payable in cash and partially payable in its stock. Under recent IRS guidance, up to 90% of any such taxable dividend with respect to calendar years 2008 through 2011, and in some cases declared as late as December 31, 2012, could be payable in the parent company’s stock if certain conditions are met. Taxable stockholders receiving such dividends will be required to include the full


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amount of the dividend as ordinary income to the extent of the parent company’s current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the parent company’s stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, the parent company may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of the parent company’s stockholders determine to sell shares of its stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of the parent company’s stock.
 
 
In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future, and there can be no assurance that any such changes will not adversely affect the taxation of the parent company, the operating partnership, any stockholder of the parent company or any limited partner of the operating partnership.
 
Risks Associated with Ownership of the Parent Company’s Stock
 
 
Certain provisions of the parent company’s charter and bylaws may delay, defer or prevent a change in control or other transaction that could provide the holders of the parent company’s common stock with the opportunity to realize a premium over the then-prevailing market price for the common stock. To maintain the parent company’s qualification as a real estate investment trust for federal income tax purposes, not more than 50% in value of the parent company’s outstanding stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year after the first taxable year for which a real estate investment trust election is made. Furthermore, the parent company’s common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxable year (or a proportionate part of a short tax year). In addition, if the parent company, or an owner of 10% or more of the parent company’s stock, actually or constructively owns 10% or more of one of the parent company’s customers (or a customer of any partnership in which the company is a partner), then the rent received by the parent company (either directly or through any such partnership) from that customer will not be qualifying income for purposes of the real estate investment trust gross income tests of the Internal Revenue Code. To help the parent company maintain its qualification as a real estate investment trust for federal income tax purposes, the parent company prohibits the ownership, actually or by virtue of the constructive ownership provisions of the Internal Revenue Code, by any single person, of more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of each of the parent company’s common stock, series L preferred stock, series M preferred stock, series O preferred stock, and series P preferred stock (unless such limitations are waived by the parent company’s board of directors). The parent company refers to this limitation as the “ownership limit.” The charter provides that shares acquired or held in violation of the ownership limit will be transferred to a trust for the benefit of a designated charitable beneficiary. The charter further provides that any person who acquires shares in violation of the ownership limit will not be entitled to any dividends on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the price paid for the shares or the amount realized from the sale. A transfer of shares in violation of the above limits may be void under certain circumstances. The ownership limit may have the effect of delaying, deferring or preventing a change in control and, therefore, could adversely affect the parent company’s stockholders’ ability to realize a premium over the then-prevailing market price for the shares of the parent company’s common stock in connection with such transaction.
 
The parent company’s charter authorizes it to issue additional shares of common and preferred stock and to establish the preferences, rights and other terms of any series or class of preferred stock that the parent company issues. The parent company’s board of directors could establish a series or class of preferred stock that could have the effect of delaying, deferring or preventing a transaction, including a change in control, that might involve a premium price for the common stock or otherwise be in the best interests of the parent company’s stockholders.


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The parent company’s charter and bylaws and Maryland law also contain other provisions that may impede various actions by stockholders without the approval of the parent company’s board of directors, which in turn may delay, defer or prevent a transaction, including a change in control. The parent company’s charter and bylaws include the following provisions:
 
  •  directors may be removed only for cause and only upon a two-thirds vote of stockholders;
 
  •  the parent company’s board can fix the number of directors within set limits (which limits are subject to change by the parent company’s board), and fill vacant directorships upon the vote of a majority of the remaining directors, even though less than a quorum, or in the case of a vacancy resulting from an increase in the size of the board, a majority of the entire board;
 
  •  stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and
 
  •  the request of the holders of 50% or more of the parent company’s common stock is necessary for stockholders to call a special meeting.
 
Maryland law includes the following provisions:
 
  •  a two-thirds vote of stockholders is required to amend the parent company’s charter; and
 
  •  stockholders may only act by written consent with the unanimous approval of all stockholders entitled to vote on the matter in question.
 
In addition, the parent company’s board could elect to adopt, without stockholder approval, other provisions under Maryland law that may impede a change in control.
 
 
As the parent company is a real estate investment trust, the company is dependent on external sources of capital and the parent company may issue common or preferred stock and the operating partnership may issue debt securities to fund the company’s future capital needs. The company has the authority to issue shares of common stock or other equity or debt securities, and to cause the operating partnership or AMB Property II, L.P., one of the company’s subsidiaries, to issue limited partnership units, in exchange for property or otherwise. Existing stockholders have no preemptive right to acquire any additional securities issued by the operating partnership, AMB Property II, L.P., or the parent company and any issuance of additional equity securities may adversely affect the market price of the parent company’s stock and could result in dilution of an existing stockholder’s investment.
 
 
As the parent company is a real estate investment trust, the market value of the parent company’s equity securities, in general, is based primarily upon the market’s perception of the parent company’s growth potential and its current and potential future earnings and cash dividends. The market value of the parent company’s equity securities is based secondarily upon the market value of its underlying real estate assets. For this reason, shares of the parent company’s stock may trade at prices that are higher or lower than its net asset value per share. To the extent that the parent company retains operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of the parent company’s underlying assets, may not correspondingly increase the market price of its stock. The parent company’s failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of the parent company’s stock. Further, the distribution yield on the stock (as a percentage of the price of the stock) relative to market interest rates may also influence the price of the parent company’s stock. An increase in market interest rates might lead prospective purchasers of the parent company’s stock to expect a higher distribution yield, which would adversely affect the parent company’s stock’s market price. Additionally, if the market price of the parent company’s stock declines significantly, then the operating partnership might breach certain covenants with respect to its debt obligations, which could adversely affect the company’s liquidity and ability to make future


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acquisitions and the parent company’s ability to pay cash dividends to its stockholders and the operating partnership’s ability to pay distributions to its unitholders.
 
The parent company’s board of directors has decided to align the parent company’s regular dividend payments with the projected taxable income from recurring operations alone. The parent company may make special distributions going forward, as necessary, related to taxable income associated with any asset dispositions and gain activity. In the past, the parent company’s board of directors has suspended dividends to the parent company’s stockholders, and it is possible that they may do so again in the future, or decide to pay dividends in the parent company’s own stock as provided for in the Internal Revenue Code.
 
 
Subject to the parent company’s current investment policy to maintain the parent company’s qualification as a real estate investment trust (unless a change is approved by the parent company’s board of directors under certain circumstances), the parent company’s board of directors determines the company’s investment and financing policies, its growth strategy and its debt, capitalization, distribution and operating policies. The parent company’s board of directors may revise or amend these strategies and policies at any time without a vote of stockholders. Any such changes may not serve the interests of all of the parent company’s stockholders or the operating partnership’s unitholders and could adversely affect the company’s financial condition or results of operations, including its ability to pay cash dividends to the parent company’s stockholders and distributions to the operating partnership’s unitholders.
 
 
The operating partnership and AMB Property II, L.P. had 3,376,141 common limited partnership units issued and outstanding as of December 31, 2009, all of which are currently exchangeable on a one-for-one basis into shares of the parent company’s common stock. In the future, the operating partnership or AMB Property II, L.P. may issue additional limited partnership units, and the parent company may issue shares of common stock, in connection with the acquisition of properties or in private placements. These shares of common stock and the shares of common stock issuable upon exchange of limited partnership units may be sold in the public securities markets over time, pursuant to registration rights that the parent company has granted, or may grant in connection with future issuances, or pursuant to Rule 144 under the Securities Act of 1933. In addition, common stock issued under the company’s stock option and incentive plans may also be sold in the market pursuant to registration statements that the parent company has filed or pursuant to Rule 144. As of December 31, 2009, under the company’s stock option and incentive plans, the company had 6,079,937 shares of common stock reserved and available for future issuance, had outstanding options to purchase 8,107,697 shares of common stock (of which 5,807,455 are vested and exercisable and 3,200,220 have exercise prices below market value at December 31, 2009) and had 918,753 unvested restricted shares of common stock outstanding. Future sales of a substantial number of shares of the parent company’s common stock in the market or the perception that such sales might occur could adversely affect the market price of the parent company’s common stock. Further, the existence of the common limited partnership units of the operating partnership and AMB Property II, L.P. and the shares of the parent company’s common stock reserved for issuance upon exchange of limited partnership units and the exercise of options, and registration rights referred to above, may adversely affect the terms upon which the parent company is able to obtain additional capital through the sale of equity securities.
 
 
 
The design and effectiveness of the company’s disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of the company’s disclosure controls and procedures and internal control over


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financial reporting, there can be no guarantee that the company’s internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Furthermore, the company’s disclosure controls and procedures and internal control over financial reporting with respect to entities that the company does not control or manage or third-party entities that the company may acquire may be substantially more limited than those the company maintains with respect to the subsidiaries that the company has controlled or managed over the course of time. Deficiencies, including any material weakness, in the company’s internal control over financial reporting which may occur in the future could result in misstatements of the company’s results of operations, restatements of its financial statements, a decline in the parent company’s stock price, or otherwise materially adversely affect the company’s business, reputation, results of operations, financial condition or liquidity.
 
ITEM 1B.   Unresolved Staff Comments
 
None.
 
ITEM 2.   Properties
 
 
As of December 31, 2009, the company owned and managed 1,101 industrial buildings aggregating approximately 132.6 million rentable square feet (on a consolidated basis, the company had 684 industrial buildings aggregating approximately 73.7 million rentable square feet), excluding development and renovation projects and recently completed development projects available for sale or contribution, located in 47 global markets throughout the Americas, Europe and Asia. The company’s industrial properties were 91.2% leased to 2,481 customers, the largest of which accounted for no more than 3.6% of the company’s annualized base rent from its industrial properties. See Part IV, Item 15: Note 18 of “Notes to Consolidated Financial Statements” for segment information related to the company’s operations.
 
Property Characteristics.  The company’s industrial properties, which consist primarily of warehouse distribution facilities suitable for single or multiple customers, are typically comprised of multiple buildings.
 
The following table identifies types and characteristics of the company’s industrial buildings and each type’s percentage, based on square footage, of the company’s total owned and managed operating portfolio:
 
                     
        December 31,
Building Type
  Description   2009   2008
 
Warehouse
  Customers typically 15,000-75,000 square feet, single or multi-customer     55.3 %     53.6 %
Bulk Warehouse
  Customers typically over 75,000 square feet, single or multi-customer     34.8 %     36.2 %
Flex Industrial
  Includes assembly or research & development, single or multi-customer     3.6 %     3.4 %
Light Industrial
  Smaller customers, 15,000 square feet or less, higher office finish     2.3 %     2.7 %
Air Cargo
  On-tarmac or airport land for transfer of air cargo goods     2.4 %     2.5 %
Trans-Shipment
  Unique configurations for truck terminals and cross-docking     1.0 %     1.1 %
Office
  Single or multi-customer, used strictly for office     0.6 %     0.5 %
                     
          100.0 %     100.0 %
 
Lease Terms.  The company’s industrial properties are typically subject to leases on a “triple net basis,” in which customers pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a “modified gross basis,” in which customers pay expenses over certain threshold levels. In addition, most of the company’s leases include fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years, with a weighted average of six years, excluding renewal options. However, the majority of the company’s industrial leases do not include renewal options.


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Overview of Our Global Market Presence.  The company’s industrial properties are located in the following markets:
 
             
The Americas   Europe   Asia
 
Atlanta
  Northern New Jersey/   Amsterdam   Beijing
Austin
  New York City   Bremerhaven   Guangzhou
Baltimore/Washington D.C. 
  Orlando   Brussels   Nagoya
Boston
  Querétaro   Frankfurt   Osaka
Chicago
  Reynosa   Hamburg   Seoul
Dallas/Ft. Worth
  San Francisco Bay Area   Le Havre   Shanghai
Guadalajara
  Savannah   London   Singapore
Houston
  Seattle   Lyon   Tokyo
Mexico City
  South Florida   Madrid    
Minneapolis
  Southern California   Milan    
Monterrey
  Tijuana   Paris    
New Orleans
  Toronto   Rotterdam    
 
Within these metropolitan areas, the company’s industrial properties are generally concentrated in locations with limited new construction opportunities within established, relatively large submarkets, which we believe should provide a higher rate of occupancy and rent growth than properties located elsewhere. These infill locations are typically near major airports or seaports or convenient to major highway systems and rail lines, and are proximate to large and diverse labor pools. There is typically broad demand for industrial space in these centrally-located submarkets due to a diverse mix of industries and types of industrial uses, including warehouse distribution, light assembly and manufacturing. The company generally avoids locations at the periphery of metropolitan areas where there are fewer constraints to the supply of additional industrial properties.


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Portfolio Overview
 
The following includes the company’s owned and managed operating portfolio and development properties, investments in operating properties through non-managed unconsolidated joint ventures, and recently completed developments that have not yet been placed in operations but are being held for sale or contribution:
 
                                                 
                            Year-to-Date
    Trailing Four
 
          The Company’s
          Annualized
    Same Store NOI
    Quarters Rent
 
    Square Feet
    Share of Square
    2009
    Base Rent(1)
    Growth Without
    Change on
 
    as of
    Feet as of
    Average
    psf as of
    Lease
    Renewals and
 
Markets
  12/31/2009     12/31/2009     Occupancy     12/31/2009     Termination Fees(2)     Rollovers(3)  
 
Southern California
    18,917,656       55.6 %     92.0 %   $ 6.34       (1.8 )%     (6.5 )%
Chicago
    13,118,853       54.0 %     90.4 %     5.14       (2.2 )%     (15.6 )%
No. New Jersey/New York
    11,638,422       50.8 %     90.2 %     7.65       (9.5 )%     (5.5 )%
San Francisco Bay Area
    10,958,673       76.3 %     90.1 %     6.33       (5.2 )%     (1.8 )%
Seattle
    7,883,158       51.6 %     94.1 %     5.48       (5.2 )%     (0.7 )%
South Florida
    6,363,198       72.8 %     94.4 %     7.37       (1.0 )%     (12.4 )%
U.S. On-Tarmac(4)
    2,463,090       92.4 %     89.7 %     19.85       (4.2 )%     1.0 %
Other U.S. Markets
    28,502,247       62.5 %     88.9 %     5.52       (7.6 )%     (11.0 )%
                                                 
U.S. Subtotal/Wtd Avg
    99,845,297       60.8 %     90.9 %   $ 6.43       (5.1 )%     (7.5 )%
                                                 
Canada
    3,564,059       100.0 %     95.3 %   $ 5.49       (28.6 )%     3.4 %
                                                 
Mexico City
    4,165,885       36.9 %     91.4 %   $ 5.59       (18.7 )%     (14.8 %)
Guadalajara
    2,890,526       21.6 %     96.7 %     4.42       (2.2 )%     (13.2 )%
Other Mexico Markets
    893,500       65.6 %     90.5 %     4.63       (26.0 )%     (8.0 )%
                                                 
Mexico Subtotal/Wtd Avg
    7,949,911       34.5 %     93.5 %   $ 5.08       (12.2 )%     (14.1 )%
                                                 
The Americas Total/Wtd Avg
    111,359,267       60.1 %     91.1 %   $ 6.30       (5.4 )%     (8.2 )%
                                                 
                                                 
France
    4,060,708       32.7 %     97.6 %   $ 8.70       (0.7 )%     (14.3 )%
Germany
    3,192,628       30.2 %     96.9 %     8.98       (5.5 )%     (1.8 )%
Benelux
    3,267,362       31.2 %     91.9 %     9.90       (15.1 )%     1.2 %
Other Europe Markets
    343,077       61.9 %     100.0 %     14.92       n/a       n/a  
                                                 
Europe Subtotal/Wtd Avg(5)
    10,863,775       32.4 %     95.7 %   $ 9.32       (4.7 )%     (3.9 )%
                                                 
                                                 
Tokyo
    5,364,804       21.5 %     91.6 %   $ 14.80       4.4 %     (3.1 )%
Osaka
    2,000,037       20.0 %     90.5 %     11.96       (3.2 )%     6.7 %
                                                 
Japan Subtotal/Wtd Avg(5)
    7,364,841       21.1 %     91.3 %   $ 14.07       3.4 %     (0.6 )%
                                                 
China
    1,897,400       100.0 %     86.1 %   $ 4.54       3.5 %     14.1 %
Singapore
    935,926       100.0 %     98.4 %     9.41       (0.2 )%     (4.2 )%
Other Asia Markets
    218,119       100.0 %     85.2 %     5.96       0.0 %     (15.7 )%
                                                 
Asia Total/Wtd Avg(5)
    10,416,286       44.2 %     91.0 %   $ 11.95       1.1 %     (1.6 )%
                                                 
                                                 
Owned and Managed Total/Wtd Avg(6)
    132,639,328       56.6 %     91.4 %   $ 6.98       (4.5 )%     (6.9 )%
Other Real Estate Investments(7)
    7,495,959       51.8 %     86.7 %     5.31                  
                                                 
Total Operating Portfolio
    140,135,287       56.4 %     91.1 %   $ 6.90                  
                                                 
                                                 
Development
                                               
Construction-in-Progress
    5,260,930       86.6 %                                
Pre-Stabilized Developments(8)
    9,667,775       97.0 %                                
                                                 
Development Portfolio Subtotal
    14,928,705       93.3 %                                
                                                 
Total Global Portfolio
    155,063,992       59.9 %                                
                                                 
 
 
(1) Annualized base rent (“ABR”) is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2009, multiplied by 12.
 
(2) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a reconciliation to net income and a discussion of why management believes same store cash basis NOI is a useful supplemental measure for the company’s management and investors, ways to use this measure when assessing the company’s financial performance, and the limitations of the measure as a measurement tool.
 
(3) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former tenant’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental


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amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(4) Includes domestic on-tarmac air cargo facilities at 14 airports.
 
(5) Annualized base rent for leases denominated in foreign currencies is translated using the currency exchange rate at December 31, 2009.
 
(6) Owned and managed is defined by the company as assets in which it has at least a 10% ownership interest, for which it is the property or asset manager, and which the company currently intends to hold for the long term.
 
(7) Includes investments in operating properties through the company’s investments in unconsolidated joint ventures that it does not manage, and are therefore excluded from the company’s owned and managed portfolio, and the location of the company’s global headquarters.
 
(8) Represents development projects available for sale or contribution that are not included in the operating portfolio.
 
 
The following table summarizes the lease expirations for the company’s owned and managed operating properties for leases in place as of December 31, 2009, without giving effect to the exercise of renewal options or termination rights, if any, at or prior to the scheduled expirations:
 
                         
    Square
    Annualized Base
    % of Annualized
 
Year
  Feet     Rent (000’s)(2)(3)     Base Rent(2)  
 
2010
    17,309,720     $ 116,679       13.1 %
2011
    23,340,991       167,194       18.8 %
2012
    17,790,198       138,026       15.5 %
2013
    16,418,476       118,763       13.4 %
2014
    14,197,938       113,349       12.8 %
2015
    11,079,728       78,101       8.8 %
2016
    3,955,600       26,703       3.0 %
2017
    5,007,304       35,374       4.0 %
2018
    3,777,633       30,570       3.4 %
2019+
    8,647,646       64,062       7.2 %
                         
Total
    121,525,234     $ 888,821       100.0 %
                         
 
 
(1) Schedule includes leases that expire on or after December 31, 2009. Schedule includes owned and managed operating properties which the company defines as properties in which it has at least a 10% ownership interest, for which it is the property or asset manager, and which the company currently intends to hold for the long term.
 
(2) Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2009, multiplied by 12. If free rent is granted, then the first positive rent value is used. Leases denominated in foreign currencies are translated using the currency exchange rate at December 31, 2009.
 
(3) Apron rental amounts (but not square footage) are included.


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Top Customers.  As of December 31, 2009, the company’s largest customers by annualized base rent, on an owned and managed basis, are set forth in the table below:
 
                             
          Annualized
       
        Square
    Base (000’s)
    % of Annualized
 
Customer(2)
  Feet     Rent(3)     Base Rent(3)(4)  
 
1
  Deutsche Post World Net (DHL)(5)     3,545,758     $ 30,668       3.6 %
2
  United States Government(5)(6)     1,355,450       20,287       2.4 %
3
  FedEx Corporation(5)     1,400,090       14,687       1.7 %
4
  Sagawa Express     828,552       13,825       1.6 %
5
  Nippon Express     1,029,170       13,578       1.6 %
6
  BAX Global Inc/Schenker/Deutsche Bahn(5)     1,127,451       10,450       1.2 %
7
  La Poste     902,391       8,829       1.0 %
8
  Panalpina     1,316,351       8,636       1.0 %
9
  Caterpillar Logistics Services     543,039       7,810       0.9 %
10
  CEVA Logistics, Inc.      1,032,000       6,933       0.8 %
                             
    Subtotal     13,080,252     $ 135,703       15.8 %
    Top 11-20 Customers     6,634,092       46,682       5.6 %
                             
    Total     19,714,344     $ 182,385       21.4 %
                             
 
 
(1) Schedule includes owned and managed operating properties.
 
(2) Customer(s) may be a subsidiary of or an entity affiliated with the named customer.
 
(3) Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2009, multiplied by 12. If free rent is granted, then the first positive rent value is used. Leases denominated in foreign currencies are translated using the currency exchange rate at December 31, 2009.
 
(4) Computed as aggregate annualized base rent divided by the aggregate annualized base rent of operating properties.
 
(5) Airport apron rental amounts (but not square footage) are included.
 
(6) United States Government includes the United States Postal Service, United States Customs, United States Department of Agriculture and various other U.S. governmental agencies.


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Owned and Managed Operating and Leasing Statistics(1)
 
The following table summarizes key operating and leasing statistics for all of the company’s owned and managed operating properties as of and for the years ended December 31, 2009, 2008 and 2007:
 
                         
Operating Portfolio
  2009   2008   2007
 
Square feet owned(2)(3)
    132,639,328       131,508,119       118,180,295  
Occupancy percentage(3)
    91.2 %     95.1 %     96.0 %
Average occupancy percentage
    91.4 %     94.9 %     95.1 %
                         
Weighted average lease terms (years):
                       
Original
    6.3       6.2       6.2  
Remaining
    3.5       3.4       3.5  
                         
Trailing four quarters tenant retention
    61.2 %     71.5 %     74.0 %
                         
Trailing four quarters rent change on renewals and rollovers:(4)
                       
Percentage
    (6.9 )%     3.1 %     4.9 %
Same space square footage commencing (millions)
    21.7       18.4       19.2  
                         
Trailing four quarters second generation leasing activity:(5) Tenant improvements and leasing commissions per sq. ft.:
                       
Retained
  $ 1.14     $ 1.43     $ 1.19  
Re-tenanted
  $ 2.61     $ 3.23     $ 3.25  
Weighted average
  $ 1.73     $ 2.02     $ 2.03  
Square footage commencing (millions)
    27.0       22.0       22.8  
 
 
(1) Schedule includes owned and managed operating properties. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) As of December 31, 2008, one of the company’s subsidiaries also managed approximately 1.1 million additional square feet of properties representing the IAT portfolio on behalf of the IAT Air Cargo Facilities Income Fund. In December 2008, the company entered into a definitive agreement to terminate our management agreement with IAT Air Cargo Facilities Income Fund, effective in the first quarter of 2009. As of December 31, 2009, the company also had investments in 7.3 million square feet of operating properties through its investments in non-managed unconsolidated joint ventures and 0.1 million square feet, which is the location of the company’s global headquarters.
 
(3) On a consolidated basis, the company had approximately 73.7 million rentable square feet with an occupancy rate of 89.6% at December 31, 2009.
 
(4) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former customer’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(5) Second generation tenant improvements and leasing commissions per square foot are the total cost of tenant improvements, leasing commissions and other leasing costs incurred during leasing of second generation space divided by the total square feet leased. Costs incurred prior to leasing available space are not included until such space is leased. Second generation space excludes newly developed square footage or square footage vacant at acquisition.


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Owned and Managed Same Store Operating Statistics(1)
 
The following table summarizes key operating and leasing statistics for the company’s owned and managed same store operating properties as of and for the years ended December 31, 2009, 2008 and 2007:
 
                         
Same Store Pool(2)
  2009   2008   2007
 
Square feet in same store pool(3)
    113,692,509       100,912,256       85,192,781  
% of total square feet
    85.7 %     76.7 %     72.1 %
Occupancy percentage(3)
    90.9 %     94.8 %     96.4 %
Average occupancy percentage
    91.6 %     94.6 %     95.9 %
                         
Weighted average lease terms (years):
                       
Original
    6.2       5.8       6.1  
Remaining
    3.2       2.8       3.1  
                         
Trailing four quarters tenant retention
    61.1 %     71.7 %     73.4 %
                         
Trailing four quarters rent change on renewals and rollovers:(4) 
                       
Percentage
    (7.7 )%     2.7 %     5.0 %
Same space square footage commencing (millions)
    20.2       17.3       17.6  
                         
Growth % increase (decrease) (including straight-line rents):
                       
Revenues(5)
    (2.3 )%     3.4 %     4.3 %
Expenses(5)
    2.8 %     5.0 %     6.7 %
Net operating income, excluding lease termination fees(5)(6)
    (4.2 )%     2.8 %     3.4 %
                         
Growth % increase (decrease) (excluding straight-line rents):
                       
Revenues(5)
    (2.5 )%     4.0 %     5.6 %
Expenses(5)
    2.8 %     5.0 %     6.7 %
Net operating income, excluding lease termination fees(5)(6)
    (4.5 )%     3.7 %     5.1 %
 
 
(1) Schedule includes owned and managed operating properties. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) Same store pool includes all properties that are owned as of both the current and prior year reporting periods and excludes development properties for both the current and prior reporting years. The same store pool is set annually and excludes properties purchased and developments completed (generally defined as properties that are stabilized or have been substantially complete for at least 12 months) after December 31, 2007, 2006 and 2005 for the years ended December 31, 2009, 2008 and 2007, respectively. Stabilized is generally defined as properties that are 90% occupied.
 
(3) On a consolidated basis, the company had approximately 63.8 million square feet with an occupancy rate of 89.5% at December 31, 2009.
 
(4) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former customer’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.


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(5) As of December 31, 2009, on a consolidated basis, the percentage change was (3.0)%, 1.9% and (5.0)%, respectively, for revenues, expenses and NOI (including straight-line rents) and (2.8)%, 1.9% and (4.8)%, respectively, for revenues, expenses and NOI (excluding straight-line rents).
 
(6) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a discussion of same store net operating income and cash-basis same store net operating income and a reconciliation of same store net operating income and cash-basis same store net operating income and net income.
 
 
Development Portfolio(1)
 
The following table sets forth the development portfolio of the company as of December 31, 2009 (dollars in thousands):
 
                                                                                         
    2010 Expected Completions(2)     2011 Expected Completions(2)     Total Construction-in-Progress     Pre-Stabilized Developments(3)     Total Development Portfolio  
          Estimated
          Estimated
          Estimated
          Estimated
          Estimated
    % of Total
 
    Estimated
    Total
    Estimated
    Total
    Estimated
    Total
    Estimated
    Total
    Estimated
    Total
    Estimated
 
    Square Feet     Investment(4)     Square Feet     Investment(4)     Square Feet     Investment(4)     Square Feet     Investment(4)     Square Feet     Investment(4)     Investment(4)  
 
                                                                                         
The Americas
                                                                                       
                                                                                         
United States
    389,767     $ 36,601       559,605     $ 67,537       949,372     $ 104,138       2,716,297     $ 237,578       3,665,669     $ 341,716       22.2 %
                                                                                         
Other Americas
    607,202       46,487                   607,202       46,487       1,715,452       96,415       2,322,654       142,902       9.2 %
                                                                                         
                                                                                         
The Americas Total
    996,969     $ 83,088       559,605     $ 67,537       1,556,574     $ 150,625       4,431,749     $ 333,993       5,988,323     $ 484,618       31.4 %
                                                                                         
Europe
                                                                                       
                                                                                         
France
    692,754     $ 59,927           $       692,754     $ 59,927       37,760     $ 5,085       730,514     $ 65,012       4.2 %
                                                                                         
Germany
    426,552       50,170                   426,552       50,170       139,608       19,320       566,160       69,490       4.5 %
                                                                                         
Benelux
    573,352       81,649                   573,352       81,649       207,232       35,061       780,584       116,710       7.6 %
                                                                                         
Other Europe
                                        1,022,887       115,045       1,022,887       115,045       7.5 %
                                                                                         
                                                                                         
Europe Total
    1,692,658     $ 191,746           $       1,692,658     $ 191,746       1,407,487     $ 174,511       3,100,145     $ 366,257       23.8 %
                                                                                         
Asia
                                                                                       
                                                                                         
Japan
    420,847     $ 54,574           $       420,847     $ 54,574       2,835,609     $ 501,942       3,256,456     $ 556,516       36.1 %
                                                                                         
China
    523,793       22,251       1,067,058       56,525       1,590,851       78,776       598,850       29,854       2,189,701       108,630       7.0 %
                                                                                         
Other Asia
                                        394,080       25,749       394,080       25,749       1.7 %
                                                                                         
                                                                                         
Asia Total
    944,640     $ 76,825       1,067,058     $ 56,525       2,011,698     $ 133,350       3,828,539     $ 557,545       5,840,237     $ 690,895       44.8 %
                                                                                         
Total
    3,634,267     $ 351,659       1,626,663     $ 124,062       5,260,930     $ 475,721       9,667,775     $ 1,066,049       14,928,705     $ 1,541,770       100.0 %
                                                                                         
                                                                                         
Real estate impairment losses(5)
                                            (28,160 )             (84,245 )             (112,405 )        
                                                                                         
                                                                                         
Estimated total investment, net of real estate impairment losses
                                          $ 447,561             $ 981,804             $ 1,429,365          
                                                                                         
                                                                                         
Number of Projects
            13               2               15               33               48          
                                                                                         
The Company’s Weighted Average Ownership Percentage
            90.7 %             57.9 %             82.2 %             97.1 %             92.5 %        
                                                                                         
Remainder to Invest
          $ 23,661             $ 31,160             $ 54,821             $ 28,841             $ 83,662          
                                                                                         
The Company’s Share of Remainder to Invest(6)(7)
          $ 18,300             $ 23,833             $ 42,133             $ 27,014             $ 69,147          
                                                                                         
Weighted Average Estimated Yield(7)(8)
            6.6 %             7.6 %             6.8 %             6.8 %             6.8 %        
                                                                                         
Percent Pre-Leased(9)
            15.1 %             14.8 %             15.0 %             59.9 %             44.1 %        
 
 
(1) Includes investments held through unconsolidated joint ventures.
 
(2) Completions are generally defined as properties that are stabilized or have been substantially complete for at least 12 months.
 
(3) Pre-stabilized development represents assets which have reached completion but have not reached stabilization. Stabilization is generally defined as properties that are 90% occupied.


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(4) Represents total estimated cost of development, renovation, or expansion, including initial acquisition costs, prepaid ground leases, buildings, tenant improvements and associated capitalized interest and overhead costs. Estimated total investments are based on current forecasts and are subject to change. Non-U.S. dollar investments are translated to U.S. dollars using the exchange rate at December 31, 2009. We cannot assure you that any of these projects will be completed on schedule or within budgeted amounts. Includes value-added conversion projects.
 
(5) See Part IV, Item 15: Note 3 of “Notes to Consolidated Financial Statements” for discussion of real estate impairment losses.
 
(6) Amounts include capitalized interest as applicable.
 
(7) Calculated as the company’s share of amounts funded to date to its share of estimated total investment.
 
(8) Yields exclude value-added conversion projects and are calculated on an after-tax basis for international projects.
 
(9) Represents the executed lease percentage of total square feet as of the balance sheet date.
 
 
The company holds interests in both consolidated and unconsolidated joint ventures. The company consolidates joint ventures where it exhibits financial or operational control. Control is determined using accounting standards related to the consolidation of joint ventures and variable interest entities. For joint ventures that are defined as variable interest entities, the primary beneficiary consolidates the entity. In instances where the company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes. For joint ventures that are not defined as variable interest entities, management first considers whether the company is the general partner or a limited partner (or the equivalent in such investments which are not structured as partnerships). The company consolidates joint ventures where it is the general partner (or the equivalent) and the limited partners (or the equivalent) in such investments do not have rights which would preclude control and, therefore, consolidation for financial reporting purposes. For joint ventures where the company is the general partner (or the equivalent), but does not control the joint venture as the other partners (or the equivalent) hold substantive participating rights, the company uses the equity method of accounting. For joint ventures where the company is a limited partner (or the equivalent), management considers factors such as ownership interest, voting control, authority to make decisions, and contractual and substantive participating rights of the partners (or the equivalent) to determine if the presumption that the general partner controls the entity is overcome. In instances where these factors indicate the company controls the joint venture, the company consolidates the joint venture; otherwise it uses the equity method of accounting.
 
The following table summarizes the company’s eight consolidated and unconsolidated significant co-investment ventures as of December 31, 2009:
 
                         
            Principal
      Incentive
   
    Date
  Geographic
  Venture
  Functional
  Distribution
   
Co-investment Venture
  Established   Focus   Investors   Currency   Frequency   Term
 
Consolidated
                       
                         
AMB-SGP
  March 2001   United States   Subsidiary of GIC Real Estate Pte Ltd.   USD   10 years   March 2011; extendable 10 years
AMB Institutional Alliance Fund II
  June 2001   United States   Various   USD   At dissolution   December 2014 (estimated)
AMB-AMS
  June 2004   United States   Various   USD   At dissolution   December 2012; extendable 4 years
Unconsolidated
                       
                         
AMB Institutional Alliance Fund III
  October 2004   United States   Various   USD   3 years (next 2Q11)   Open ended
AMB-SGP Mexico
  December 2004   Mexico   Subsidiary of GIC Real Estate Pte Ltd.   USD   7 years   December 2011; extendable 7 years
AMB Japan Fund I
  June 2005   Japan   Various   JPY   At dissolution   June 2013; extendable 2 years
AMB DFS Fund I
  October 2006   United States   Strategic Realty Ventures, LLC   USD   Upon project sales   Perpetual(1)
AMB Europe Fund I
  June 2007   Europe   Various   EUR   3 years (next 2Q10)   Open ended
 
 
(1) For AMB DFS Fund I, the investment period ended in June 2009. The fund will terminate upon completion and disposition of assets currently owned and under development by the fund.


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Consolidated Joint Ventures
 
As of December 31, 2009, the company held interests in co-investment ventures, limited liability companies and partnerships with institutional investors and other third parties, which it consolidates in its financial statements. Under the agreements governing the co-investment ventures, the company and the other party to the co-investment venture may be required to make additional capital contributions and, subject to certain limitations, the co-investment ventures may incur additional debt. Such agreements also impose certain restrictions on the transfer of co-investment venture interests by the company or the other party to the co-investment venture and typically provide certain rights to the company or the other party to the co-investment venture to sell the company’s or their interest in the co-investment venture to the co-investment venture or to the other co-investment venture partner on terms specified in the agreement. In addition, under certain circumstances, many of the co-investment ventures include buy/sell provisions. See Part IV, Item 15: Notes 11 and 12 of the “Notes to Consolidated Financial Statements” for additional details.
 
The table that follows summarizes the company’s consolidated joint ventures as of December 31, 2009 (dollars in thousands):
 
                                         
    Our
          Gross
             
    Ownership
    Square
    Book
    Property
    Other
 
Consolidated Joint Ventures
  Percentage     Feet(1)     Value(2)     Debt     Debt  
 
Operating Co-investment Ventures
                                       
AMB-SGP(3)
    50 %     8,288,663     $ 470,740     $ 335,764     $  
AMB Institutional Alliance Fund II(4)
    20 %     7,318,208       513,450       194,980       50,000  
AMB-AMS(5)
    39 %     2,172,137       158,865       79,756        
                                         
Total Operating Co-investment Ventures
    35 %     17,779,008       1,143,055       610,500       50,000  
Total Consolidated Co-investment Ventures
    35 %     17,779,008       1,143,055       610,500       50,000  
Other Industrial Operating Joint Ventures
    89 %     2,436,591       230,463       32,186        
Other Industrial Development Joint Ventures
    60 %     770,442       272,237       128,374        
                                         
Total Consolidated Joint Ventures
    47 %     20,986,041     $ 1,645,755     $ 771,060     $ 50,000  
                                         
 
 
(1) For development properties, represents the estimated square feet upon completion for committed phases of development projects.
 
(2) Represents the book value of the property (before accumulated depreciation) owned by the joint venture and excludes net other assets as of December 31, 2009. Development book values include uncommitted land.
 
(3) AMB-SGP, L.P. is a co-investment partnership formed in 2001 with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(4) AMB Institutional Alliance Fund II, L.P. is a co-investment partnership formed in 2001 with institutional investors, which invest through a private real estate investment trust, and a third-party limited partner.
 
(5) AMB-AMS, L.P. is a co-investment partnership formed in 2004 with three Dutch pension funds.
 
Unconsolidated Joint Ventures
 
As of December 31, 2009, the company held interests in five significant equity investment co-investment ventures that are not consolidated in its financial statements.


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The table that follows summarizes our unconsolidated joint ventures as of December 31, 2009 (dollars in thousands):
 
                                                                 
    The Company’s
          Gross
                The Company’s
    Estimated
    Planned
 
    Ownership
    Square
    Book
    Property
    Other
    Net Equity
    Investment
    Gross
 
Unconsolidated Joint Ventures
  Percentage     Feet(1)     Value(2)     Debt     Debt     Investment(3)     Capacity     Capitalization  
 
Operating Co-Investment Ventures
                                                               
AMB Institutional Alliance Fund III(4)(5)
    23%       36,057,101     $ 3,269,614     $ 1,720,405     $     $ 209,999     $     $ 3,270,000  
AMB Europe Fund I(5)(6)
    21%       9,236,984       1,260,362       719,431             60,177             1,260,000  
AMB Japan Fund I(7)
    20%       7,263,090       1,498,044       832,370       8,601       80,074             1,498,000  
AMB-SGP Mexico(8)
    22%       6,331,990       357,493       167,180       150,272       19,014       245,000       602,000  
                                                                 
Total Operating Co-investment Ventures
    22%       58,889,165       6,385,513       3,439,386       158,873       369,264       245,000       6,630,000  
Development Co-investment Ventures:
                                                               
AMB DFS Fund I(9)
    15%       200,027       85,270                   14,259             85,000  
AMB Institutional Alliance Fund III(4)(5)
    23%       559,605       82,547       42,376             9,122       n/a       n/a  
                                                                 
Total Development Co-investment Ventures
    19%       759,632       167,817       42,376             23,381             85,000  
                                                                 
Total Unconsolidated Co-investment Ventures
    22%       59,648,797       6,553,330       3,481,762       158,873       392,645       245,000       6,715,000  
Other Industrial Operating Joint Ventures
    51%       7,419,049 (10)     280,432       160,290             50,741       n/a       n/a  
                                                                 
Total Unconsolidated Joint Ventures
    23%       67,067,846     $ 6,833,762     $ 3,642,052     $ 158,873     $ 443,386     $ 245,000     $ 6,715,000  
                                                                 
 
 
(1) For development properties, represents the estimated square feet upon completion for committed phases of development projects.
 
(2) Represents the book value of the property (before accumulated depreciation) owned by the joint venture and excludes net other assets as of December 31, 2009. Development book values include uncommitted land.
 
(3) Through its investment in AMB Property Mexico, the company held equity interests in various other unconsolidated ventures totaling approximately $18.7 million as of December 31, 2009.
 
(4) AMB Institutional Alliance Fund III, L.P. is an open-ended co-investment partnership formed in 2004 with institutional investors, which invest through a private real estate investment trust.
 
(5) The planned capitalization and investment capacity of AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, as open-ended funds are not limited. The planned capitalization represents the gross book value of real estate assets as of the most recent quarter end.
 
(6) AMB Europe Fund I, FCP-FIS, is an open-ended co-investment venture formed in 2007 with institutional investors. The venture is Euro-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2009.
 
(7) AMB Japan Fund I, L.P. is a co-investment venture formed in 2005 with institutional investors. The venture is Yen-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2009.
 
(8) AMB-SGP Mexico, LLC is a co-investment venture formed in 2004 with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation. Other debt includes $91.4 million of loans from co-investment venture partners.
 
(9) AMB DFS Fund I, LLC is a co-investment venture formed in 2006 with a subsidiary of GE Real Estate to build and sell properties.
 
(10) Includes investments in 7.4 million square feet of operating properties held through the company’s investments in unconsolidated joint ventures that it does not manage, which are excluded from the company’s owned and managed portfolio. The company’s owned and managed operating portfolio includes properties in which it has at least a 10% ownership interest, for which it is the property or asset manager, and which the company currently intends to hold for the long-term.
 
On December 30, 2004, the company formed AMB-SGP Mexico, LLC, a co-investment venture with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary


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of the Government of Singapore Investment Corporation, in which the company retained an approximate 20% interest. This interest increased to approximately 22% upon the company’s acquisition of AMB Property Mexico. During 2009, the company made no contributions to this co-investment venture. During 2008, the company contributed three completed development projects totaling approximately 1.4 million square feet to this co-investment venture for approximately $90.5 million. During 2007, the company contributed one approximately 0.1 million square foot operating property for approximately $4.6 million to this co-investment venture. In addition, the company recognized development profits from the contribution to this co-investment venture of two completed development projects aggregating approximately 0.3 million square feet with a contribution value of $22.9 million.
 
On June 30, 2005, the company formed AMB Japan Fund I, L.P., a co-investment venture with 13 institutional investors, in which the company retained an approximate 20% interest. The 13 institutional investors have committed 49.5 billion Yen (approximately $532.2 million in U.S. dollars, using the exchange rate at December 31, 2009) for an approximate 80% equity interest. During 2009, the company contributed to this co-investment venture one completed development project, aggregating approximately 1.0 million square feet for approximately $184.8 million (using the exchange rate on the date of contribution). During 2008, the company contributed to this co-investment venture two completed development projects, aggregating approximately 0.9 million square feet for approximately $174.9 million (using the exchange rate on the date of contribution). During 2007, the company contributed to this co-investment venture one completed development project aggregating approximately 0.5 million square feet for approximately $84.4 million (using the exchange rate on the date of contribution).
 
On October 17, 2006, the company formed AMB DFS Fund I, LLC, a merchant development co-investment venture with Strategic Realty Ventures, LLC, in which the company retained an approximate 15% interest. The investment period for AMB DFS Fund I, LLC ended in June 2009, and the remaining capitalization of this fund as of December 31, 2009 was the estimated investment of $5.1 million to complete the existing development assets held by the fund. Since inception, the company has contributed $28.5 million of equity to the fund. No properties were contributed to this co-investment venture during 2009 or 2008. During the year ended December 31, 2007, the company contributed to this co-investment venture approximately 82 acres of land with a contribution value of approximately $30.3 million. During the years ended December 31, 2009, 2008 and 2007, the company contributed $1.4 million, $4.7 million and $6.0 million to this co-investment venture, respectively. During the year ended December 31, 2009, AMB DFS Fund I, LLC sold development projects for approximately $53.6 million. During the year ended December 31, 2008, AMB DFS Fund I, LLC sold development projects and one land parcel for approximately $57.5 million. During the year ended December 31, 2007, AMB DFS Fund I, LLC sold development projects for approximately $8.9 million.
 
Effective October 1, 2006, the company deconsolidated AMB Institutional Alliance Fund III, L.P., an open-ended co-investment partnership formed in 2004 with institutional investors, on a prospective basis, due to the re-evaluation of the company’s accounting for its investment because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture. During 2009, the company contributed to this co-investment venture two completed development projects, aggregating approximately 0.4 million square feet, for additional units in the fund equal to 100% of the fair value of the assets, for an aggregate price of approximately $32.5 million. During 2008, the company contributed to this co-investment venture one approximately 0.8 million square foot operating property and four completed development projects, aggregating approximately 2.7 million square feet, for approximately $274.3 million. During 2007, the company contributed to this co-investment venture one approximately 0.2 million square foot industrial operating property and four completed development projects, aggregating approximately 1.0 million square feet for approximately $116.6 million. During 2009, AMB Institutional Alliance Fund III, L.P. sold industrial operating properties for approximately $46.6 million. No industrial operating property sales were made from this venture during the years ended December 31, 2008 and 2007.
 
On June 12, 2007, the company formed AMB Europe Fund I, FCP-FIS, a Euro-denominated open-ended co-investment venture with institutional investors, in which the company retained an approximate 20% interest upon formation. At the time of formation, the institutional investors committed approximately 263.0 million Euros (approximately $376.8 million in U.S. dollars, using the exchange rate at December 31, 2009) for an approximate


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80% equity interest. During 2009, the company made no contributions to this co-investment venture. During 2008, the company contributed to this co-investment venture two development projects, aggregating approximately 0.2 million square feet, for approximately $35.2 million (using the exchange rate on the date of contribution). During 2007, the company contributed approximately 4.2 million square feet of industrial operating properties and approximately 1.8 million square feet of completed development projects to this co-investment venture for approximately $799.3 million (using the exchange rates on the dates of contribution).
 
During the year ended December 31, 2009, the company made no contributions of real estate interests, and no gains were recognized. During 2008, the company recognized gains from the contribution of real estate interests, net, of approximately $20.0 million, representing the portion of the company’s interest in the contributed properties acquired by the third-party investors for cash, as a result of the contribution of approximately 0.8 million square feet of industrial operating properties to AMB Institutional Alliance Fund III, L.P. During the year ended December 31, 2007, the company contributed industrial operating properties for approximately $524.9 million, aggregating approximately 4.5 million square feet, into AMB Europe Fund I, FCP-FIS, AMB Institutional Alliance Fund III, L.P. and AMB-SGP Mexico, LLC. The company recognized a gain of $73.4 million on the contributions, representing the portion of its interest in the contributed properties acquired by the third-party investors for cash. These gains are presented in gains from sale or contribution of real estate interests, net of taxes in the consolidated statements of operations.
 
During the year ended December 31, 2009, the company recognized development profits of approximately $29.8 million, as a result of the contribution of three completed development projects, aggregating approximately 1.4 million square feet, to AMB Institutional Alliance Fund III, L.P. and AMB Japan Fund I, L.P. During 2008, the company recognized development profits of approximately $73.9 million, as a result of the contribution of 11 completed development projects, aggregating approximately 5.2 million square feet, to AMB Institutional Alliance Fund III, L.P., AMB Europe Fund I, FCP-FIS, AMB Japan Fund I, L.P. and AMB-SGP Mexico, LLC. During 2007, the company recognized development profits of approximately $95.7 million, as a result of the contribution of 15 completed development projects and two land parcels, aggregating approximately 82 acres of land, to AMB Europe Fund I, FCP-FIS, AMB-SGP Mexico, LLC, AMB Institutional Alliance Fund III, L.P., AMB DFS Fund I, LLC, and AMB Japan Fund I, L.P.
 
Under the agreements governing the co-investment ventures, the company and the other parties to the co-investment ventures may be required to make additional capital contributions and, subject to certain limitations, the co-investment ventures may incur additional debt.
 
 
As of December 31, 2009, the company had $1.1 billion of secured indebtedness, net of unamortized premiums, secured by deeds of trust or mortgages. As of December 31, 2009, the total gross investment book value of those properties securing the debt was $2.0 billion. Of the $1.1 billion of secured indebtedness, $771.1 million, net of unamortized premiums, was consolidated co-investment venture debt secured by properties with a gross investment value of $1.5 billion. As of December 31, 2008, the company had $1.5 billion of secured indebtedness, net of unamortized premiums, secured by deeds of trust or mortgages. As of December 31, 2008, the total gross investment book value of those properties securing the debt was $2.1 billion. Of the $1.5 billion of secured indebtedness, $808.1 million was consolidated co-investment venture debt secured by properties with a gross investment value of $1.4 billion. For additional details, see Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Part IV, Item 15: Notes 6 and 7 of “Notes to Consolidated Financial Statements” included in this report.
 
ITEM 3.   Legal Proceedings
 
As of December 31, 2009, there were no material pending legal proceedings to which we were a party or of which any of our properties was the subject, the adverse determination of which we anticipate would have a material adverse effect upon our financial condition, results of operations and cash flows.
 
ITEM 4.   Submission of Matters to a Vote of Security Holders
 
None.


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ITEM 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (AMB Property Corporation)
 
The parent company’s common stock trades on the New York Stock Exchange under the symbol “AMB.” As of February 17, 2010, there were approximately 452 holders of record of the parent company’s common stock. Set forth below are the high and low sales prices per share of the parent company’s common stock, as reported on the NYSE composite tape, and the dividend per share paid or payable by the parent company during the period from January 1, 2008 through December 31, 2009:
 
                         
Year
  High     Low     Dividend  
 
2008
                       
1st Quarter
  $ 57.92     $ 45.75     $ 0.520  
2nd Quarter
    60.17       49.91       0.520  
3rd Quarter
    57.13       40.27       0.520  
4th Quarter
    44.18       8.73        
2009
                       
1st Quarter
  $ 26.03     $ 9.12     $ 0.280  
2nd Quarter
    20.75       13.81       0.280  
3rd Quarter
    25.96       15.91       0.280  
4th Quarter
    27.43       20.71       0.280  
 
The payment of dividends and other distributions by the parent company is at the discretion of its board of directors and depends on numerous factors, including the parent company’s cash flow, financial condition and capital requirements, real estate investment trust provisions of the Internal Revenue Code and other factors.
 
 
There is no established public trading market for the operating partnership’s partnership units. As of December 31, 2009, the operating partnership had outstanding 160,448,893 partnership units, consisting of 158,328,965 general partnership units (consisting of 149,028,965 common units, 2,000,000 6.50% series L cumulative redeemable preferred units, 2,300,000 6.75% series M cumulative redeemable preferred units, 3,000,000 7.00% series O cumulative redeemable preferred units and 2,000,000 6.85% series P cumulative redeemable preferred units) and 2,119,928 common limited partnership units. The series L preferred units were issued on June 23, 2003 to the parent company for total consideration of $50.0 million. The series M preferred units were issued on November 25, 2003 to the parent company for total consideration of $57.5 million. The series O preferred units were issued on December 13, 2005 to the parent company for total consideration of $75.0 million. The series P preferred units were issued on August 25, 2006 to the parent company for total consideration of $50.0 million. Subject to certain terms and conditions, the common limited partnership units are redeemable by the holders thereof or, at the operating partnership’s option, exchangeable on a one-for-one basis for shares of the common stock of the parent company. As of December 31, 2009, there were 48 holders of record of our common limited partnership units (including the parent company’s general partnership interest).


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During 2009, the operating partnership redeemed 47,563 common limited partnership units for the same number of shares of the parent company’s common stock. In addition, during 2009, the operating partnership redeemed 13,318 common limited partnership units for approximately $268,599. Set forth below are the distributions per common limited partnership unit paid by us during the years ended December 31, 2009 and 2008:
 
         
Year
  Distribution  
 
2008
       
1st Quarter
  $ 0.520  
2nd Quarter
    0.520  
3rd Quarter
    0.520  
4th Quarter
     
2009
       
1st Quarter
  $ 0.280  
2nd Quarter
    0.280  
3rd Quarter
    0.280  
4th Quarter
    0.280  


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The following line graph compares the change in the parent company’s cumulative total stockholder return on shares of its common stock from December 31, 2004 to December 31, 2009 to the cumulative total return of the Standard and Poor’s 500 Stock Index and the FTSE NAREIT Equity REITs Index from December 31, 2004 to December 31, 2009. The graph assumes an initial investment of $100 in the common stock of the parent company and each of the indices on December 31, 2004 and, as required by the SEC, the reinvestment of all dividends. The return shown on the graph is not necessarily indicative of future performance.
 
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Among AMB Property Corporation, The S&P 500 Index
And The FTSE NAREIT Equity REITs Index
 
(PERFORMANCE GRAPH)
 
*$100 invested on 12/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
 
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
 
This graph and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by the company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.


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ITEM 6.   Selected Financial Data
 
SELECTED COMPANY FINANCIAL AND OTHER DATA (1) (AMB Property Corporation)
 
The following table sets forth selected consolidated historical financial and other data for the parent company on a historical basis as of and for the years ended December 31:
 
See footnote 2 below for discussion of the comparability of selected financial and other data.
 
                                         
    2009     2008(2)     2007     2006(2)     2005  
    (dollars in thousands, except share and per share amounts)  
 
Operating Data
                                       
Total revenues
  $ 633,842     $ 693,563     $ 650,886     $ 694,372     $ 630,643  
(Loss) income from continuing operations(3)
    (122,685 )     (11,308 )     288,266       216,304       190,159  
Income from discontinued operations
    94,725       4,558       83,450       72,509       158,455  
Net (loss) income before cumulative effect of change in accounting principle
    (27,960 )     (6,750 )     371,716       288,813       348,614  
Net (loss) income
    (27,960 )     (6,750 )     371,716       289,006       348,614  
Net (loss) income available to common stockholders
    (50,077 )     (66,451 )     293,552       207,970       248,798  
(Loss) income from continuing operations available to common stockholders per common share:
                                       
Basic
    (1.02 )     (0.71 )     2.23       1.60       1.21  
Diluted
    (1.02 )     (0.71 )     2.18       1.55       1.16  
Income from discontinued operations available to common stockholders per common share:
                                       
Basic
    0.65       0.03       0.79       0.77       1.75  
Diluted
    0.65       0.03       0.77       0.74       1.68  
Net (loss) income available to common stockholders per common share:
                                       
Basic
    (0.37 )     (0.68 )     3.02       2.37       2.96  
Diluted
    (0.37 )     (0.68 )     2.95       2.29       2.84  
Dividends declared per common share
    1.12       1.56       2.00       1.84       1.76  
Weighted average common shares outstanding — basic
    134,321,231       97,403,659       97,189,749       87,710,500       84,048,936  
Weighted average common shares outstanding — diluted
    134,321,231       97,403,659       99,601,396       90,960,637       87,733,596  
Other Data
                                       
Funds from operations(4)
  $ 99,275     $ 79,195     $ 363,102     $ 295,893     $ 252,752  
Funds from operations per common share and unit:(4)
                                       
Basic
    0.72       0.78       3.58       3.21       2.85  
Diluted
    0.72       0.77       3.49       3.10       2.74  
Cash flows provided by (used in):
                                       
Operating activities
    242,276       301,020       240,543       335,855       295,815  
Investing activities
    75,129       (881,768 )     (632,240 )     (880,560 )     (60,407 )
Financing activities
    (288,549 )     581,765       420,025       483,621       (101,856 )
Balance Sheet Data
                                       
Investments in real estate at cost
  $ 6,708,660     $ 6,603,856     $ 6,709,545     $ 6,575,733     $ 6,798,294  
Total assets
    6,841,958       7,301,648       7,262,403       6,713,512       6,802,739  
Total consolidated debt
    3,212,596       3,990,185       3,494,844       3,437,415       3,401,561  
Parent company’s share of total debt(5)
    3,580,353       4,293,510       3,272,513       3,088,624       2,601,878  
Preferred stock
    223,412       223,412       223,412       223,417       175,548  
Stockholders’ equity (excluding preferred stock)
    2,716,604       2,291,695       2,540,540       1,943,240       1,740,751  


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(1) All amounts in the consolidated financial statements for prior years have been retrospectively updated for new accounting guidance related to accounting for noncontrolling interests, discontinued operations and per share calculations.
 
(2) Effective October 1, 2006, the company deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis, due to the re-evaluation of the accounting for the company’s investment in the fund because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture. As a result, the financial measures for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, included in the parent company’s operating data, other data and balance sheet data above are not comparable.
 
(3) (Loss) income from continuing operations for the years ended December 31, 2009 and 2008 includes real estate impairment losses of $174.4 million and $183.8 million, respectively, and restructuring charges of $6.4 million and $12.3 million, respectively.
 
(4) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures,” for a reconciliation to net income and a discussion of why the company believes FFO is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing the parent company’s financial performance, and FFO’s limitations as a measurement tool.
 
(5) Parent company’s share of total debt is the pro rata portion of the total debt based on the parent company’s percentage of equity interest in each of the consolidated and unconsolidated joint ventures holding the debt. The company believes that parent company’s share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze the parent company’s leverage and to compare the parent company’s leverage to that of other companies. In addition, it allows for a more meaningful comparison of the parent company’s debt to that of other companies that do not consolidate their joint ventures. Parent company’s share of total debt is not intended to reflect the parent company’s actual liability should there be a default under any or all of such loans or a liquidation of the co-investment ventures. For a reconciliation of parent company’s share of total debt to total consolidated debt, a GAAP financial measure, please see the table of debt maturities and capitalization in Part II, Item 7: “Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources of the Operating Partnership”


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The following table sets forth selected consolidated historical financial and other data for the operating partnership on a historical basis as of and for the years ended December 31:
 
See footnote 2 below for discussion of the comparability of selected financial and other data.
 
                                         
    2009     2008(2)     2007     2006(2)     2005  
    (dollars in thousands, except unit and per unit amounts)  
 
Operating Data
                                       
Total revenues
  $ 633,842     $ 693,563     $ 650,886     $ 694,372     $ 630,643  
(Loss) income from continuing operations(3)
    (122,685 )     (11,308 )     288,266       216,304       190,159  
Income from discontinued operations
    94,725       4,558       83,450       72,509       158,455  
Net (loss) income before cumulative effect of change in accounting principle
    (27,960 )     (6,750 )     371,716       288,813       348,614  
Net (loss) income
    (27,960 )     (6,750 )     371,716       289,006       348,614  
Net (loss) income available to common unitholders
    (50,866 )     (67,233 )     305,241       217,419       262,381  
(Loss) income from continuing operations available to common unitholders per common unit:
                                       
Basic
    (1.02 )     (0.69 )     2.20       1.59       1.20  
Diluted
    (1.02 )     (0.69 )     2.15       1.54       1.15  
Net income from discontinued operations available to common uniholders per common unit:
                                       
Basic
    0.65       0.03       0.81       0.77       1.76  
Diluted
    0.65       0.03       0.79       0.74       1.69  
Net (loss) income available to common unitholders per common unit:
                                       
Basic
    (0.37 )     (0.66 )     3.01       2.36       2.96  
Diluted
    (0.37 )     (0.66 )     2.94       2.28       2.84  
Distributions declared per common unit
    1.12       1.56       2.00       1.84       1.76  
Weighted average common units outstanding — basic
    136,484,612       101,253,972       101,550,001       92,047,678       88,684,262  
Weighted average common units outstanding — diluted
    136,484,612       101,253,972       103,961,648       95,297,815       92,368,922  
Other Data
                                       
Funds from operations(4)
  $ 99,275     $ 79,195     $ 363,102     $ 295,893     $ 252,752  
Funds from operations per common unit:(4)
                                       
Basic
    0.72       0.78       3.58       3.21       2.85  
Diluted
    0.72       0.77       3.49       3.10       2.74  
Cash flows provided by (used in):
                                       
Operating activities
    242,276       301,020       240,543       335,855       295,815  
Investing activities
    75,129       (881,768 )     (632,240 )     (880,560 )     (60,407 )
Financing activities
    (288,549 )     581,765       420,025       483,621       (101,856 )
Balance Sheet Data
                                       
Investments in real estate at cost
  $ 6,708,660     $ 6,603,856     $ 6,709,545     $ 6,575,733     $ 6,798,294  
Total assets
    6,841,958       7,301,648       7,262,403       6,713,512       6,802,739  
Total consolidated debt
    3,212,596       3,990,185       3,494,844       3,437,415       3,401,561  
Operating partnership’s share of total debt(5)
    3,580,353       4,293,510       3,272,513       3,088,624       2,601,878  
Preferred units
    223,412       223,412       223,412       223,417       175,548  
Partner’s capital (excluding preferred units)
    2,755,165       2,342,526       2,610,574       2,095,835       1,904,730  
 
 
(1) All amounts in the consolidated financial statements for prior years have been retrospectively updated for new accounting guidance related to accounting for noncontrolling interests, discontinued operations and per unit calculations.
 
(2) Effective October 1, 2006, the company deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis, due to the re-evaluation of the accounting for the company’s investment in the fund because


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of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. On July 1, 2008, the partners of AMB Partners II, L.P. (previously, a consolidated co-investment venture) contributed their interests in AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in exchange for interests in AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture. As a result, the financial measures for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, included in the operating partnership’s operating data, other data and balance sheet data above are not comparable.
 
(3) (Loss) income from continuing operations for the years ended December 31, 2009 and 2008 includes real estate impairment losses of $174.4 million and $183.8 million, respectively, and restructuring charges of $6.4 million and $12.3 million, respectively.
 
(4) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures,” for a reconciliation to net income and a discussion of why the company believes FFO is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing the operating partnership’s financial performance, and FFO’s limitations as a measurement tool.
 
(5) Operating partnership’s share of total debt is the pro rata portion of the total debt based on the operating partnership’s percentage of equity interest in each of the consolidated and unconsolidated joint ventures holding the debt. The company believes that operating partnership’s share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze the operating partnership’s leverage and to compare the operating partnership’s leverage to that of other companies. In addition, it allows for a more meaningful comparison of the operating partnership’s debt to that of other companies that do not consolidate their joint ventures. Operating partnership’s share of total debt is not intended to reflect the operating partnership’s actual liability should there be a default under any or all of such loans or a liquidation of the co-investment ventures. For a reconciliation of operating partnership’s share of total debt to total consolidated debt, a GAAP financial measure, please see the table of debt maturities and capitalization in Part II, Item 7: “Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources of the Operating Partnership”


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Please read the following discussion and analysis of our consolidated financial condition and results of operations in conjunction with the notes to the consolidated financial statements.
 
 
Beginning in the fourth quarter of 2008, the company began to be impacted by the economic, financial and real estate market crisis. To maintain its competitive advantage, the company established three key near-term priorities for 2009 which included: strengthening its balance sheet and liquidity position; reducing its cost structure; and positioning for future growth opportunities.
 
Management believes that in 2009 it successfully executed on these near-term priorities, which enabled the company to navigate through a challenging environment, and that the company is now positioned to pursue growth opportunities. As such, the company has established three key growth initiatives for 2010, which include:
 
  •  improving the utilization of its existing assets;
 
  •  acquiring industrial real estate with total returns above the company’s cost of capital; and
 
  •  forming new private capital ventures and funds.
 
Management believes that the leading indicators for economic recovery reached an inflection point during the fourth quarter and expects that improving economic conditions will lead to an increase in the demand for industrial real estate. Management expects to see earnings growth if it is able to improve asset utilization by returning its owned and managed portfolio closer to its historical occupancy average of 95%; complete the build-out and leasing of its development portfolio; and realize value from its land bank through new ventures, sales and future build-to-suit projects. The company believes that capital deployment opportunities are increasing and is evaluating multiple transactions in its target markets around the globe. Management believes that its ability to provide multiple forms of consideration to institutional investors, lenders and private developers provide the company with proprietary access to acquisition opportunities. The company is also observing a positive shift in investor interest and believes that this growing level of interest is being met by the scarcity of high quality, well-located industrial real estate. Management believes that its existing and new private capital funds and ventures are well positioned to benefit from this shift in investor preferences.
 
 
Management believes that the company’s financial position is strong and its debt maturity schedule is well laddered. During 2009, the company completed approximately $2.7 billion of debt repayments, repurchases and extensions, of which $1.6 billion occurred in the fourth quarter. Notable transactions during 2009, which further strengthened the company’s liquidity position included:
 
  •  The issuance and sale of 47.4 million shares of its common stock for net proceeds of approximately $552.3 million, during the first quarter;
 
  •  The issuance of $500.0 million of senior unsecured notes consisting of a $250.0 million tranche at 6.13% due 2016 and a $250.0 million tranche at 6.63% due 2019;
 
  •  The refinancing of its $325.0 million unsecured term loan facility with a $345.0 million multi-currency facility, maturing October 2012, which was subsequently upsized to $425.0 million in December 2009;
 
  •  The early repayment of its $230.0 million secured term loan facility originally due September 2010;
 
  •  The completion of the repurchase of $213.6 million in bonds including $168.9 million in connection with its cash tender offer of notes due 2011 and 2013 and $44.7 million of open market repurchases of notes due 2010 and 2013 with a weighted average yield-to maturity of 4.74%, and the completion of a cash tender offer for $146.5 million and $28.5 million in aggregate principal amount of the operating partnership’s 5.45% medium-term notes due 2010 and 8.0% medium-term notes due 2010, respectively; and


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  •  The purchase of AMB Property II, L.P.’s outstanding 7.18% series D cumulative redeemable preferred units in exchange for 2.9 million shares of the parent company’s common stock for an aggregate price of $67.8 million, which represented a 15% discount to the liquidation preference.
 
As a result of its 2009 financing activity, the company reduced its share of total debt-to-its share of total assets to 43.6% from 51.1% and extended the weighted average remaining life of over 25% of its debt to more than five and a half years at an average interest rate of 4.9%. Having resolved its near-term maturities, the company embarked on a strategy, during the fourth quarter, to further lengthen its maturity schedule to minimize its debt maturities through 2013. Management believes this strategy will provide it with maximum flexibility and further position the company to take advantage of opportunities as they arise.
 
As of December 31, 2009, the company’s total consolidated debt maturities for 2010 after extension options (subject to certain conditions) were $322.4 million, excluding principal amortization. The company had unconsolidated debt maturities of $148.2 million for 2010 after extension options (subject to certain conditions) as of December 31, 2009, excluding principal amortization.
 
During 2009, the company disposed of $762.9 million of properties with a weighted average stabilized capitalization rate of 6.8%. During the fourth quarter, the company completed dispositions totaling $92.9 million, with a weighted average stabilized capitalization rate of 8.2%.
 
During 2009, the company increased the availability under its lines of credit by approximately $441 million while reducing its share of outstanding debt by approximately $713 million. As of December 31, 2009, the company had $1.2 billion available for future borrowings under its three multi-currency lines of credit, representing line utilization of 30%, and had cash, cash equivalents and restricted cash of $206.1 million.
 
 
To address the challenges of the current business environment, the company implemented a broad-based cost reduction plan that began in the fourth quarter of 2008. As a result of this plan, the company reduced its total global headcount by approximately one third and reduced gross G&A costs by approximately $60.0 million on a run-rate basis as of December 31, 2009. In executing these cost-saving efforts, the company believes that it has preserved its ability to serve its global customers and manage its industrial operating and development portfolios. While the company has removed excess capacity in its capital deployment teams, it believes that it has retained its key talent and left its global capabilities intact.
 
During the fourth quarter, the company began the process of outsourcing various global property accounting and certain back office functions. The company believes that this initiative will improve the efficiency, cost structure and scalability of its back office operations. The company incurred $2.5 million in severance costs during the fourth quarter and expects to realize $2-3 million of additional restructuring costs in 2010 related to completing this initiative. Management believes that it will produce approximately $5.0 million in annual savings upon the completion of this initiative.
 
 
During 2009, industrial property fundamentals were the most challenging on record. According to data provided by CBRE Econometric Advisors as of January 25, 2010, availability in the United States reached a historical high of 13.9% for the quarter ended December 31, 2009, up 40 basis points from the prior quarter and 250 basis points from the fourth quarter of 2008. For the full year 2009, industrial net absorption was negative 265 million square feet, the lowest on record. The negative trend decelerated over the course of the year, slowing to a negative 38 million square feet in the fourth quarter. Within the U.S., the company believes that its coastal markets will continue to outperform other U.S. industrial markets, as evidenced by flat net absorption and availability unchanged at 12.1% in the fourth quarter. The company continues to believe that the primary infill markets tied to global trade remain relatively strong.
 
Also according to CBRE Econometric Advisors, new construction was at an all time low of 71 million square feet for 2009 and 15.2 million square feet for the fourth quarter. While the company expects the delivery pipeline to continue to decline, the company expects net absorption to be positive in the second half of 2010. At the end of the


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third quarter, the global market fundamentals began to show early signs of stability. Globally, industrial demand is still soft, but management believes that it is seeing signs of increased customer activity and decision making. Market occupancy declines are slowing globally and leasing activity has increased. Market rents remain lower than a year ago and the company expects rent changes on rollovers to continue to trend down through 2010.
 
Current forecasts for 2010, according to the IMF, indicate that global GDP is expected to increase by 3.9% and global trade by 6%, all of which should lead to inventory rebuilding and demand for industrial real estate. The company believes that while the leading indicators for demand for industrial real estate have reached an inflection point, recovery in operating fundamentals will lag behind the recovery in the macro economy as it has in prior cycles. Management expects that its operating fundamentals in the first half of 2010 will be consistent with occupancy in the fourth quarter of 2009 before improving by the end of 2010. Rent changes on rollover are expected to be negative for 2010.
 
For 2009, the company generated $406.9 million of net operating income, on a consolidated basis, from its real estate operations. The company’s owned and managed portfolio occupancy during the three months ended December 31, 2009 was 91.2%, up 20 basis points from September 30, 2009. Average occupancy during the three months ended December 31, 2009 was 90.7%, up 30 basis points from the three months ended September 30, 2009. During the three months ended December 31, 2009, rent changes on rollovers in the company’s industrial operating portfolio declined by 11.5% on an owned and managed basis, excluding expense reimbursements, rental abatements, percentage rents and straight-line rents. Rental rates on lease renewals and rollovers in the company’s portfolio declined by 6.9% for the trailing four quarters ended December 31, 2009.
 
During the quarter, cash-basis same store net operating income without the effect of lease termination fees, decreased by 7.3% and 4.5% for the full year 2009 on an owned and managed basis. Excluding the impact of foreign currency exchange rate movements against the U.S. dollar, cash-basis same store net operating income without the effect of lease termination fees decreased 8.9% for the fourth quarter and 4.7% for the full year 2009. See “Supplemental Earnings Measures” below for a discussion of cash-basis same store net operating income and a reconciliation of cash-basis same store net operating income and net income.
 
As of December 31, 2009, the accounts receivable levels were consistent with historical levels, during recessionary periods, and management believes that the accounts receivable are leveling and that it continues to maintain adequate bad debt reserves. Although the number of bankruptcies of its customers increased during 2009, the company believes the impact of such bankruptcies on its business was not significant for the quarter and year ended December 31, 2009.
 
 
For the year ended December 31, 2009, the company generated private capital revenues of $37.9 million, of which $10.5 million occurred in the fourth quarter. During the first quarter, the company contributed one $185.0 million development project to AMB Japan Fund I, L.P. During the third quarter, the company transferred two assets to AMB Institutional Alliance Fund III, L.P. in exchange for additional units equal to the fair value of the assets, for an aggregate price of $32.5 million, increasing its ownership interest in the fund to 22.7% from 19.3%.
 
Subsequent to year end, the company’s two open-ended funds completed approximately $267.0 million in net capital transactions consisting of: $50.0 million in new third-party equity in AMB Institutional Alliance Fund III; $67.0 million in investor-elected redemption withdrawals, thereby reducing AMB Institutional Alliance Fund III’s redemption queue to $14.9 million as of February 1, 2010; the company’s $100.0 million investment in AMB Institutional Alliance Fund III; and its $50.0 million investment in AMB Europe Fund I, FCP-FIS.
 
Equityholders in two of the company’s co-investment ventures, AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, have a right to request that the ventures redeem their interests under certain conditions. The redemption right of investors in AMB Europe Fund I, FCP-FIS is exercisable beginning after July 1, 2011.
 
 
Given the uncertainty in the global economy during 2009, the company limited its development activity to previously committed projects. During the year ended December 31, 2009, the company commenced development


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on four previously committed development projects for a total estimated investment cost of $60.6 million. In addition to its committed development pipeline, as of December 31, 2009, the company held a total of 2,488 acres of land for future development or sale on an owned and managed basis, approximately 85% of which is located in the Americas. The company currently estimates that these 2,488 acres of land could support approximately 45.1 million square feet of future development.
 
 
The company recognized real estate impairment charges on certain of its assets of $181.9 million in the first quarter of 2009 and of $193.9 million in the fourth quarter of 2008. The principal trigger which led to the impairment charges was the severe economic deterioration in some markets resulting in a decrease in leasing and rental rates, rising vacancies and an increase in capitalization rates. Additional impairments may be necessary in the future in the event that market conditions continue to deteriorate and impact the factors used to estimate fair value, which may include impairments relating to the company’s unconsolidated real estate as well as impairments relating to the company’s investments in its unconsolidated co-investment ventures. See Part IV, Item 15: Note 3 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the real estate impairment losses recorded in the company’s results of operations during the year ended December 31, 2009.
 
 
During the year ended December 31, 2009, the company completed the following significant capital deployment and other transactions:
 
  •  Contributed one completed development project aggregating approximately 1.0 million square feet for an aggregate price of approximately $184.8 million (using the exchange rate in effect on the date of contribution) to AMB Japan Fund I, L.P., an unconsolidated co-investment venture;
 
  •  Sold development projects aggregating approximately 3.1 million square feet, including 1.1 million square feet that was held in an unconsolidated co-investment venture, and three land parcels totaling 35 acres for an aggregate sales price of $347.5 million;
 
  •  Sold industrial operating properties aggregating approximately 2.9 million square feet, including 0.6 million square feet that were held in an unconsolidated co-investment venture, for an aggregate sales price of $198.1 million; and
 
  •  Transferred two development assets to AMB Institutional Alliance Fund III, L.P. in exchange for additional partnership units equal to the fair value of the assets for an aggregate price of $32.5 million and aggregating approximately 0.4 million square feet.
 
See Part IV, Item 15: Notes 4 and 5 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the company’s acquisition, development and disposition activity.
 
 
The company’s discussion and analysis of financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The company evaluates its assumptions and estimates on an on-going basis. The company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.


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Investments in Real Estate.  Investments in real estate and leasehold interests are stated at cost unless circumstances indicate that cost cannot be recovered, in which case, an adjustment to the carrying value of the property is made to reduce it to its estimated fair value. The company also regularly reviews the impact of above or below-market leases, in-place leases and lease origination costs for acquisitions, and records an intangible asset or liability accordingly.
 
The company conducts a comprehensive review of all real estate asset classes in accordance with its policy of accounting for the impairment or disposal of long-lived assets, which indicates that asset values should be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. The intended use of an asset, either held for sale or held for the long term, can significantly impact how impairment is measured. If an asset is intended to be held for the long term, the impairment analysis is based on a two-step test. The first test measures estimated expected future cash flows over the holding period, including a residual value (undiscounted and without interest charges), against the carrying value of the property. If the asset fails the test, then the asset carrying value is measured against the estimated fair value from a market participant standpoint, with the excess of the asset’s carrying value over the estimated fair value recognized as an impairment charge to earnings. If an asset is intended to be sold, impairment is tested based on a one-step test, comparing the carrying value to the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economic and market conditions and the availability of capital. The company determines the estimated fair values based on assumptions regarding rental rates, costs to complete, lease-up and holding periods, as well as sales prices or contribution values. The company also utilizes the knowledge of its regional teams and the recent valuations of its two open-ended funds, which contain a large, geographically diversified pool of assets, all of which are subject to third-party appraisals on at least an annual basis.
 
Revenue Recognition.  The company records rental revenue from operating leases on a straight-line basis over the term of the leases and maintains an allowance for estimated losses that may result from the inability of the company’s customers to make required payments. If customers fail to make contractual lease payments that are greater than the company’s allowance for doubtful accounts, security deposits and letters of credit, then the company may have to recognize additional doubtful account charges in future periods. The company monitors the liquidity and creditworthiness of its customers on an on-going basis by reviewing their financial condition periodically as appropriate. Each period the company reviews its outstanding accounts receivable, including straight-line rents, for doubtful accounts and provide allowances as needed. The company also records lease termination fees when a customer has executed a definitive termination agreement with the company and the payment of the termination fee is not subject to any conditions that must be met or waived before the fee is due to the company. If a customer remains in the leased space following the execution of a definitive termination agreement, the applicable termination fees are deferred and recognized over the term of such customer’s occupancy.
 
Property Dispositions.  The company reports real estate dispositions in four separate categories on its consolidated statements of operations. First, when the company divests a portion of its interests in real estate entities or properties, gains from the sale represent the interests acquired by third-party investors for cash and are included in gains from sale or contribution of real estate interests in the statements of operations. Second, the company disposes of value-added conversion projects and build-to-suit and speculative development projects for which it has not generated material operating income prior to sale. The gain or loss recognized from the disposition of these projects is reported net of estimated taxes, when applicable, and is included in development profits, net of taxes, within continuing operations of the statements of operations. Third, the company disposes of value-added conversion and other redevelopment projects for which it may have generated material operating income prior to sale. The gain or loss recognized is reported net of estimated taxes, when applicable, in the development profits, net of taxes, line within discontinued operations. Lastly, guidance related to accounting for the impairment or disposal of long-lived assets requires the company to separately report as discontinued operations the historical operating results attributable to industrial operating properties sold and the applicable gain or loss on the disposition of the properties, which is included in development profits and gains from sale of real estate interests, net of taxes, in the statements of operations. The consolidated statements of operations for prior periods are also retrospectively adjusted to conform with new guidance regarding accounting for discontinued operations and noncontrolling interests, and there is no impact on the company’s previously reported consolidated financial position, net income or


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cash flows. In all cases, gains and losses are recognized using the full accrual method of accounting. Gains relating to transactions which do not meet the requirements of the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met.
 
Joint Ventures.  The company holds interests in both consolidated and unconsolidated joint ventures. The company consolidates joint ventures where it exhibits financial or operational control. Control is determined using accounting standards related to the consolidation of joint ventures and variable interest entities. For joint ventures that are defined as variable interest entities, the primary beneficiary consolidates the entity. In instances where the company is not the primary beneficiary, it does not consolidate the joint venture for financial reporting purposes. For joint ventures that are not defined as variable interest entities, management first considers whether the company is the general partner or a limited partner (or the equivalent in such investments which are not structured as partnerships). The company consolidates joint ventures where it is the general partner (or the equivalent) and the limited partners (or the equivalent) in such investments do not have rights which would preclude control and, therefore, consolidation for financial reporting purposes. For joint ventures where the company is the general partner (or the equivalent), but does not control the joint venture as the other partners (or the equivalent) hold substantive participating rights, the company uses the equity method of accounting. For joint ventures where the company is a limited partner (or the equivalent), management considers factors such as ownership interest, voting control, authority to make decisions, and contractual and substantive participating rights of the partners (or the equivalent) to determine if the presumption that the general partner controls the entity is overcome. In instances where these factors indicate the company controls the joint venture, the company consolidates the joint venture; otherwise it uses the equity method of accounting.
 
Investments in unconsolidated joint ventures are presented under the equity method. Under the equity method, these investments are initially recognized in the balance sheet at cost and are subsequently adjusted to reflect the company’s proportionate share of net earnings or losses of the joint venture, distributions received, contributions, deferred gains from the contribution of properties and certain other adjustments, as appropriate. When circumstances indicate there may have been a loss in value of an equity investment, the company evaluates the investment for impairment by estimating the company’s ability to recover its investment or if the loss in value is other than temporary. To evaluate whether an impairment is other than temporary, the company considers relevant factors, including, but not limited to, the period of time in any unrealized loss position, the likelihood of a future recovery, and the company’s positive intent and ability to hold the investment until the forecasted recovery. If the company determines the loss in value is other than temporary, the company recognizes an impairment charge to reflect the investment at fair value. Fair value is determined through various valuation techniques, including, but not limited to, discounted cash flow models, quoted market values and third party appraisals.
 
Real Estate Investment Trust.  As a real estate investment trust, the parent company generally will not be subject to corporate level federal income taxes in the United States if it meets minimum distribution requirements, and certain income, asset and share ownership tests. However, some of the company’s subsidiaries may be subject to federal and state taxes. In addition, foreign entities may also be subject to the taxes of the host country. An income tax allocation is required to be estimated on the company’s taxable income arising from its taxable real estate investment trust subsidiaries and international entities. A deferred tax component could arise based upon the differences in GAAP versus tax income for items such as depreciation and gain recognition. The company is required to establish a valuation allowance for deferred tax assets if it is determined, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. The company concluded, based on a review of the relative weight of the available evidence, that it was more likely than not that it would not generate sufficient future taxable income to realize certain deferred tax assets.
 
Foreign Currency Remeasurement and Translation.  Transactions that require the remeasurement and translation of a foreign currency are recorded according to accounting guidance on foreign currency translation. The U.S. dollar is the functional currency for the company’s subsidiaries formed in the United States, Mexico and certain subsidiaries in Europe. Other than Mexico and certain subsidiaries in Europe, the functional currency for the company’s subsidiaries operating outside the United States is generally the local currency of the country in which the entity or property is located, mitigating the effect of currency exchange gains and losses. The company’s subsidiaries whose functional currency is not the U.S. dollar translate their financial statements into U.S. dollars.


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Assets and liabilities are translated at the exchange rate in effect as of the financial statement date. The company translates income statement accounts using the average exchange rate for the period and significant nonrecurring transactions using the rate on the transaction date.
 
The company’s international subsidiaries may have transactions denominated in currencies other than their functional currencies. In these instances, non-monetary assets and liabilities are reflected at the historical exchange rate, monetary assets and liabilities are remeasured at the exchange rate in effect at the end of the period and income statement accounts are remeasured at the average exchange rate for the period. The company also records gains or losses in the income statement when a transaction with a third party, denominated in a currency other than the entity’s functional currency, is settled and the functional currency cash flows realized are more or less than expected based upon the exchange rate in effect when the transaction was initiated.
 
 
The analysis below includes changes attributable to same store growth, acquisitions, development activity and divestitures. The same store pool includes all properties that are owned as of the end of both the current and prior year reporting periods and excludes development properties stabilized after December 31, 2007 (generally defined as properties that are 90% occupied). As of December 31, 2009, the same store industrial pool consisted of properties aggregating approximately 63.8 million square feet. The company’s future financial condition and results of operations, including rental revenues, may be impacted by the acquisition and disposition of additional properties, and expenses may vary materially from historical results. Acquisition and development property divestiture activity for the years ended December 31, 2009, 2008 and 2007 was as follows:
 
                         
    For the Years Ended December 31,
    2009   2008   2007
 
Acquired:
                       
Square feet (in thousands)
          2,831       702  
Acquisition cost (in thousands)
  $     $ 217,044     $ 62,241  
Development Properties Sold or Contributed:
                       
Square feet (in thousands)
    3,387       5,274       8,600  
 
For the Years Ended December 31, 2009 and 2008 (dollars in millions):
 
                                 
    For the Years Ended
             
    December 31,              
Revenues
  2009     2008     $ Change     % Change  
 
Rental revenues
                               
Same store
  $ 473.8     $ 533.5     $ (59.7 )     (11.2 )%
2008 acquisitions
    19.5       11.0       8.5       77.3 %
Development
    50.9       21.8       29.1       133.5 %
Other industrial
    51.8       58.8       (7.0 )     (11.9 )%
                                 
Total rental revenues
    596.0       625.1       (29.1 )     (4.7 )%
Private capital revenues
    37.9       68.5       (30.6 )     (44.7 )%
                                 
Total revenues
  $ 633.9     $ 693.6     $ (59.7 )     (8.6 )%
                                 
 
Same store rental revenues decreased $59.7 million from the prior year due primarily to the contribution of AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture, on July 1, 2008. Same store rental revenues for the year ended December 31, 2008 would have been $494.6 million if the interests in AMB Partners II, L.P. had been contributed as of January 1, 2008, rather than July 1, 2008. The decrease of $20.8 million, excluding the effect of the contribution of interests in AMB Partners II, L.P., was primarily due to decreased occupancy during 2009. The increase in revenues from prior year acquisitions is due to revenues recognized for the full year ended December 31, 2009 for properties acquired throughout all of 2008. The increase in rental revenues from development of $29.1 million is


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primarily due to increased occupancy at several of the company’s development projects. Other industrial revenues include rental revenues from development projects that have reached certain levels of operation but are not yet part of the same store operating pool of properties. The decrease in these revenues of $7.0 million primarily reflects a decline in occupancy in 2009. The decrease in private capital revenues of $30.6 million was primarily due to a decrease in incentive and acquisition fees recognized in 2009 from fees recognized in the prior year. In 2009, the company recognized incentive distributions of $2.9 million for AMB DFS Fund I, LLC, and in 2008, the company received incentive distributions of $33.0 million for AMB Institutional Alliance Fund III, L.P. and $1.0 million in connection with the sale of the partnership interests in AMB/Erie, L.P., including its final real estate asset to AMB Institutional Alliance Fund III, L.P.
 
                                 
    For the Years Ended
             
    December 31,              
Costs and Expenses
  2009     2008     $ Change     % Change  
 
Property operating costs:
                               
Rental expenses
  $ 109.9     $ 100.5     $ 9.4       9.4 %
Real estate taxes
    79.1       78.9       0.2       0.3 %
                                 
Total property operating costs
  $ 189.0     $ 179.4     $ 9.6       5.4 %
                                 
Property operating costs
                               
Same store
  $ 143.6     $ 149.6     $ (6.0 )     (4.0 )%
2008 acquisitions
    7.8       3.1       4.7       151.6 %
Development
    21.3       7.7       13.6       176.6 %
Other industrial
    16.3       19.0       (2.7 )     (14.2 )%
                                 
Total property operating costs
    189.0       179.4       9.6       5.4 %
Depreciation and amortization
    179.9       164.2       15.7       9.6 %
General and administrative
    115.3       144.0       (28.7 )     (19.9 )%
Restructuring charges
    6.4       12.3       (5.9 )     (48.0 )%
Fund costs
    1.1       1.1             %
Real estate impairment losses
    174.4       183.7       (9.3 )     (5.1 )%
Other expenses
    10.2       0.5       9.7       1,940.0 %
                                 
Total costs and expenses
  $ 676.3     $ 685.2     $ (8.9 )     (1.3 )%
                                 
 
Same store properties’ operating expenses decreased $6.0 million from the prior year primarily due to the contribution of AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture, on July 1, 2008. Same store operating expenses for the year ended December 31, 2008 would have been $139.7 million if the interests in AMB Partners II, L.P. had been contributed as of January 1, 2008, rather than July 1, 2008. The increase of $3.9 million, excluding the effect of the contribution of interests in AMB Partners II, L.P., was primarily due to an increase in common area maintenance expenses and ground rent expense. The increase in expenses of $4.7 million related to properties acquired in 2008 is due to the recognition of expenses for the full year ended December 31, 2009 for properties acquired throughout all of 2008. The increase in development operating costs of $13.6 million was primarily due to an increase in utilities, repairs and maintenance expenses and ground rent expenses due to higher occupancy in certain development projects. The decrease in other industrial operating costs of $2.7 million was primarily due to the disposition of industrial operating properties during 2009. The increase in depreciation and amortization expenses of $15.7 million is primarily due to $15.5 million additional depreciation expense recorded upon reclassification of assets from properties held for contribution to investments in real estate in 2009 and asset stabilizations, partially offset by the full depreciation expense taken on an asset demolition in the third quarter of 2008. The decrease in general and administrative expenses of $28.7 million is primarily due to a personnel and cost reduction plan implemented in the fourth quarter of 2008. During the year ended December 31, 2009, the company recorded $6.4 million in restructuring charges, as compared to $12.3 million recorded in the fourth quarter of 2008, due to the further implementation of the cost reduction plan, which included a reduction in global headcount, office closure costs and


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the termination of certain contractual obligations. See Item 15: Note 3 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of the real estate impairment losses recorded in the company’s results of operations during 2009 and 2008. Other expenses increased $9.7 million primarily as a result of an increase in the company’s non-qualified deferred compensation plan expenses of $15.7 million, partially offset by a decrease in dead deal costs of $5.8 million from prior year.
 
                                 
    For the Years Ended
             
    December 31,              
Other Income and (Expenses)
  2009     2008     $ Change     % Change  
 
Development profits, net of taxes
  $ 35.9     $ 81.1     $ (45.2 )     (55.7 )%
Gains from sale or contribution of real estate interests, net
          20.0       (20.0 )     (100.0 )%
Equity in earnings of unconsolidated joint ventures, net
    11.3       17.1       (5.8 )     (33.9 )%
Other income (expenses)
    6.3       (3.1 )     9.4       303.2 %
Interest expense, including amortization
    (121.4 )     (134.0 )     (12.6 )     (9.4 )%
Loss on early extinguishment of debt
    (12.3 )     (0.8 )     11.5       1,437.5 %
                                 
Total other income and (expenses), net
  $ (80.2 )   $ (19.7 )   $ (60.5 )     (307.1 )%
                                 
 
Development profits represent gains from the sale or contribution of development projects, including land. See the development sales and development contributions tables and “Development Sales and Contributions” in “Capital Resources of the Operating Partnership” for a discussion of the development asset sales and contributions and the associated development profits during the years ended December 31, 2009 and 2008. During the year ended December 31, 2009, the company did not contribute any industrial operating properties to unconsolidated co-investment ventures. During the year ended December 31, 2008, the company contributed one industrial operating property for approximately $66.2 million, aggregating approximately 0.8 million square feet, into AMB Institutional Alliance Fund III, L.P. As a result, the company recognized a gain of $20.0 million on the contribution, representing the portion of the company’s interest in the contributed property acquired by the third-party investors for cash.
 
The decrease in equity in earnings of unconsolidated joint ventures of $5.8 million for 2009 as compared to 2008 was primarily due to lower occupancy in 2009 and impairment losses recognized on the company’s unconsolidated assets under management, partially offset by the contribution of AMB Partners II, L.P. (previously, a consolidated co-investment venture) to AMB Institutional Alliance Fund III, L.P., an unconsolidated co-investment venture, on July 1, 2008. Other income increased $9.4 million from the prior year primarily due to a $15.7 million increase in gains related to the company’s non-qualified deferred compensation plan, partially offset by a decrease in bank interest income of $4.7 million due to lower cash balances and interest rates and an increase in foreign currency exchange rate losses. During the year ended December 31, 2009, the company recognized a loss on currency remeasurement of approximately $7.2 million, compared to a loss of approximately $5.7 million in the same period of 2008. Interest expense decreased $12.6 million primarily due to decreased borrowings as well as a decrease in interest rates. Loss on early extinguishment of debt increased by $11.5 million primarily due to early repayments of secured debt and the completion of the repurchase of bonds in connection with the company’s tender offers in 2009.
 
                                 
    For the Years
             
    Ended
             
    December 31,              
Discontinued Operations
  2009     2008     $ Change     % Change  
 
Income attributable to discontinued operations
  $ 3.0     $ 2.0     $ 1.0       50.0 %
Development profits, net of taxes
    53.0             53.0       100.0 %
Gains from sale of real estate interests, net of taxes
    38.7       2.6       36.1       1,388.5 %
                                 
Total discontinued operations
  $ 94.7     $ 4.6     $ 90.1       1,958.7 %
                                 
 
The increase in income attributable to discontinued operations of $1.0 million for the year ended December 31, 2009 as compared to the year ended December 31, 2008 was primarily due to a decrease in real estate impairment losses on properties sold in 2009 or held for sale as of December 31, 2009. During the year ended December 31,


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2009, the company sold value-added conversion development projects and land parcels aggregating approximately 0.2 million square for a sale price of $143.9 million, with a resulting net gain of $53.0 million. During the year ended December 31, 2009, the company sold industrial operating properties aggregating approximately 2.3 million square feet for a sale price of $151.6 million, with a resulting gain of $37.2 million. Additionally, during the year ended December 31, 2009, the company recognized a deferred gain of $1.6 million on the sale of industrial operating properties, aggregating approximately 0.1 million square feet, for a price of $17.5 million, which was deferred as part of the contribution of AMB Partners II, L.P. to AMB Institutional Alliance Fund III, L.P. in July 2008. During the year ended December 31, 2008, the company sold approximately 0.1 million square feet of industrial operating properties for a sale price of $3.6 million, with a resulting gain of $1.0 million, and the company recognized a deferred gain of approximately $1.4 million on the sale of industrial operating properties, aggregating approximately 0.1 million square feet, for an aggregate price of $3.5 million, which were disposed of on December 31, 2007.