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Prologis, Inc. 10-K 2011 Documents found in this filing:Table of Contents
Commission File Number:
001-13545
(AMB Property Corporation)
001-14245
(AMB Property, L.P.)
AMB Property
Corporation
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
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.
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
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ 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 the 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:
AMB Property, L.P.:
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
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, 2010 was $3,889,698,154.
As of February 16, 2011, there were 169,409,343 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, 2010 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, 2010, the parent company owned an approximate
98.2% general partnership interest in the operating partnership,
excluding preferred units. The remaining approximate 1.8% 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, 2010, 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:
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 directly or indirectly 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 stockholders’ 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 (if applicable) 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:
This report also includes separate Item 9A. Controls and
Procedures sections and separate Exhibits 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 directly or indirectly 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.
AMB
PROPERTY CORPORATION AND AMB PROPERTY, L.P.
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Some of the information included in this annual report on
Form 10-K
contains forward-looking statements, such as those related to
our capital resources, portfolio performance, results of
operations and management’s beliefs and expectations, 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:
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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 company posts and will post announcements and other company
information, some of which may be material, in the Investor
Relations section of the company’s website. Investors
should visit the company’s website regularly to access such
information. The annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
of the parent company and any
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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
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
The
Company
The company is an owner, operator and developer of global
industrial real estate, focused on major hub and gateway
distribution markets in the Americas, Europe and Asia. As of
December 31, 2010, the company owned, or had investments
in, on a consolidated basis or through unconsolidated joint
ventures, properties and development projects expected to total
approximately 159.6 million square feet (14.8 million
square meters) in 49 markets within 15 countries.
Of the approximately 159.6 million square feet as of
December 31, 2010:
The company’s business is operated primarily through the
operating partnership. As of December 31, 2010, the parent
company owned an approximate 98.2% 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 parent company was incorporated in the state of Maryland in
1997, and the operating partnership was formed in the state of
Delaware in 1997. See Part IV, Item 15: Note 17
of “Notes to Consolidated Financial Statements” for
segment information related to the company’s operations and
information regarding geographic areas.
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.
The company’s investment strategy focuses on providing
distribution and logistics 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 airports,
seaports and ground transportation
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systems. 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 physical,
political or economic barriers to new development. The company
believes that its facilities are essential to creating
efficiencies in the supply chain, and that 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 location
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 reduce their costs and become more efficient in their
logistics operations. The company’s customers include
logistics, freight forwarding and air-express companies with
time-sensitive needs that value facilities 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.
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 correlated as higher levels of
investment, production and consumption within a globalized
economy 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 in excess of growth in global GDP. In the
second half of the year, improving consumer demand and
double-digit gains in global production and trade led customers
to begin rebuilding their inventory levels, which is a trend
that management believes will strengthen in 2011. Management
also believes that its key hub and gateway markets will continue
to lead the recovery in operating fundamentals and that a
stronger recovery of fundamentals is expected to take hold in
2011, with further increases in positive net absorption and
declining availabilities.
The primary source of the company’s core earnings is
revenue 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 10 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, including priority
distributions, acquisition and development reimbursements,
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:
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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, 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 it 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 shorter leasing
terms. 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 the strategic infill 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. Management believes
the company’s regular maintenance, capital expenditure,
energy management and sustainability programs create cost
efficiencies that benefit the company 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 27 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 a significant number
of institutional investors. As of December 31, 2010, more
than 56% of the company’s owned and managed operating
portfolio is held through its nine significant co-investment
ventures and funds. 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 open-ended funds and owns a
10-50%
interest in its co-investment ventures. The company believes its
significant ownership in each of its funds provides a strong
alignment of interests with its co-investment partners’
interests.
The company believes its co-investment program with private
capital investors will continue to serve as a source of capital
for new investments and revenues for its stockholders. In
anticipation of the formation of future
co-investment
ventures, the company may also hold acquired and newly developed
properties for contribution to future co-investment ventures.
The company may make additional investments through its existing
co-investment ventures or to new co-investment ventures in the
future and currently 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 believes its acquisition experience and its network
of property management, leasing and acquisition resources will
continue to provide opportunities for growth. In addition to its
internal resources, the company has long-standing 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. The company is
actively monitoring opportunities in its target markets and
intends to acquire high-quality, well-located industrial real
estate.
Additionally, the company seeks to acquire industrial properties
that are wholly or partially vacant as a part of
management’s belief that the discount in pricing attributed
to the operating challenges of such a property could provide
greater returns once it is stabilized. Value-added acquisitions
represent unstabilized properties acquired by the company, which
generally have one or more of the following characteristics:
(i) existing vacancy, typically in excess of 20%,
(ii) short-term lease rollover, typically during the first
two years of ownership, or (iii) significant capital
improvement requirements, typically in excess of 20% of the
purchase price. The company excludes value-
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added acquisitions from its owned and managed and consolidated
operating statistics prior to stabilization (generally 90%
leased) in order to provide investors with data which it feels
better reflect the performance of its core portfolio. 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. The company also 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 and 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. The company believes, over the long term, customer demand
for new industrial space in strategic markets tied to global
trade will continue to outpace supply, most notably in major
gateway markets in Asia, Europe and the Americas. The company
believes that developing, redeveloping
and/or
expanding of well-located, high-quality industrial properties
provides higher rates of return than may be obtained from
purchasing existing properties. However, new developments,
redevelopments and value-added conversions may require
significant management attention and capital investment to
maximize 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.
Management believes its long-standing focus on infill locations
can at times lead to opportunities to enhance value through the
conversion of some of the company’s 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,
manufacturing, office, residential, or retail properties.
Activities required to prepare the property for conversion to a
higher and better use may include rezoning, redesigning,
reconstructing and re-tenanting. The sales price of a
value-added conversion project is generally based on the
underlying land value, reflecting its ultimate conversion to a
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.
Members of the company’s development team have broad
experience in real estate development and possess
multidisciplinary backgrounds that allow for the completion of
the build-out and
lease-up of
the company’s development portfolio. Management believes
that there are currently opportunities for land entitlement as
municipalities are beginning to seek revenue generating
activities.
Proposed
Merger with ProLogis
On January 30, 2011, the parent company and the operating
partnership entered into an Agreement and Plan of Merger (the
“merger agreement”) with ProLogis, a Maryland real
estate investment trust, New Pumpkin Inc., a Maryland
corporation and a wholly owned subsidiary of ProLogis, Upper
Pumpkin LLC, a Delaware limited liability company and a wholly
owned subsidiary of New Pumpkin, and Pumpkin LLC, a Delaware
limited liability company and a wholly owned subsidiary of Upper
Pumpkin. The merger agreement provides for a merger of equals,
in which through a series of transactions, ProLogis and its
newly formed subsidiaries will be merged with and into the
parent company (the “merger”), with the parent company
continuing as the surviving corporation with its corporate name
changed to “ProLogis Inc.” As a result of the mergers,
each outstanding common share of beneficial interest of ProLogis
will be converted into the right to receive 0.4464 of a newly
issued share of common stock of
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the parent company. The merger is subject to customary closing
conditions, including receipt of approval of parent company
stockholders and ProLogis shareholders.
The merger transactions entail the following steps:
(1) Pumpkin LLC will be merged with and into ProLogis, with
ProLogis continuing as the surviving entity and as a wholly
owned subsidiary of Upper Pumpkin; (2) then, New Pumpkin
will be merged with and into the parent company with the parent
company continuing as the surviving corporation and its
corporate name changed, and (3) then, the surviving
corporation will contribute all of the outstanding equity
interests of Upper Pumpkin to the operating partnership in
exchange for the issuance by the operating partnership of
partnership interests to the surviving corporation. As a result
of these merger transactions, the combined company will be
structured as an UPREIT.
The merger agreement provides that, upon the consummation of the
merger, the board of directors of the surviving corporation will
consist of 11 members, as follows: (i) Mr. Hamid R.
Moghadam, the current chief executive officer of the parent
company, (ii) Mr. Walter C. Rakowich, the current
chief executive officer of ProLogis, (iii) four individuals
to be selected by the current members of the board of directors
of the parent company, and (iv) five individuals to be
selected by the current members of the board of trustees of
ProLogis. In addition, upon the consummation of the merger,
(a) Mr. Moghadam and Mr. Rakowich will become
co-chief executive officers of the surviving corporation,
(b) Mr. William E. Sullivan, the current chief
financial officer of ProLogis, will become the chief financial
officer of the surviving corporation, (c) Mr. Irving
F. Lyons, III, a current member of the board of trustees of
ProLogis, will become the lead independent director of the
surviving corporation, (d) Mr. Moghadam will become
the chairman of the board of directors of the surviving
corporation and (e) Mr. Rakowich will become the
chairman of the executive committee of the board of directors of
the surviving corporation.
The merger agreement also provides that, on December 31,
2012, (i) unless earlier terminated in accordance with the
bylaws of the surviving corporation, the employment of
Mr. Rakowich as co-chief executive officer will terminate
and Mr. Rakowich will thereupon retire as co-chief
executive officer and as a director of the surviving
corporation, and Mr. Moghadam will become the sole chief
executive officer (and will remain the chairman of the board of
directors) of the surviving corporation, and (ii) unless
earlier terminated, the employment of Mr. Sullivan as the
chief financial officer of the surviving corporation will
terminate and Mr. Thomas S. Olinger, the current chief
financial officer of the parent company, will become the chief
financial officer of the surviving corporation.
The parent company and the operating partnership have been named
as defendants in at least two pending putative shareholder class
actions filed in connection with the merger of the parent
company and ProLogis: James Kinsey, et al. v. ProLogis,
et al., no. 2011CV818, filed on or about
February 2, 2011 in the Denver County District Court,
Colorado; and Vernon C. Burrows, et al. v. ProLogis, et
al., filed on or about February 15, 2011, in the
Circuit Court of Maryland for Baltimore City. The complaints
seek to enjoin the merger, alleging, among other things, that
ProLogis’ directors and certain executive officers breached
their fiduciary duties by failing to maximize the value to be
received by ProLogis shareholders and by improperly considering
certain directors’ personal interests in the transaction in
determining whether to enter into the merger agreement. The
Maryland complaint also includes a derivative claim on behalf of
ProLogis based upon the same allegations. Both complaints also
assert a claim of aiding and abetting breaches of fiduciary
duties against ProLogis, the parent company and the merger
entities. The Colorado complaint also asserts a claim of aiding
and abetting breaches of fiduciary duties against the operating
partnership. In addition to an order enjoining the transaction,
the complaints seek, among other things, attorneys’ fees
and expenses, and the Maryland complaint further seeks certain
monetary damages. The parent company and the operating
partnership view the complaints to be without merit and intend
to defend against them vigorously.
Additional Information About the Proposed Transaction and
Where to Find it:
In connection with the proposed transaction, the company expects
to file with the SEC a registration statement on
Form S-4
that will include a joint proxy statement of ProLogis and the
company that also constitutes a prospectus of the company.
ProLogis and the company also plan to file other relevant
documents with the SEC regarding the proposed transaction.
INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS
AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY
BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. You may obtain a free copy of the joint proxy
statement/prospectus (if and when it becomes available) and
other relevant documents filed by ProLogis
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and the company with the SEC at the SEC’s website at
www.sec.gov. Copies of the documents filed by ProLogis
with the SEC will be available free of charge on ProLogis’
website at www.prologis.com or by contacting ProLogis Investor
Relations at +1-303-567-5690. Copies of the documents filed by
the company with the SEC will be available free of charge on the
company’s website at www.amb.com or by contacting
AMB Investor Relations
at +1-415-394-9000.
The company and ProLogis and their respective directors and
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies
in respect of the proposed transaction. You can find information
about the company’s executive officers and directors in the
company’s definitive proxy statement filed with the SEC on
March 23, 2010. You can find information about
ProLogis’ executive officers and directors in
ProLogis’ definitive proxy statement filed with the SEC on
March 30, 2010. Additional information regarding the
interests of such potential participants will be included in the
joint proxy statement/prospectus and other relevant documents
filed with the SEC if and when they become available. You may
obtain free copies of these documents from the company or
ProLogis using the sources indicated above.
This document shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there
be any sale of securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such jurisdiction. No offering of securities shall be made
except by means of a prospectus meeting the requirements of
Section 10 of the U.S. Securities Act of 1933, as
amended.
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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
Global market and economic conditions have been unprecedented
and challenging with tighter credit conditions, slower growth
and recession in most major economies during the last two years.
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 the last two years. 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, 2010, the company had
$198.4 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,
2010, the amount in such deposits was approximately
$171.3 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:
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.
Risks
Related to Our Proposed Merger Transaction with
ProLogis
We
will be subject to various uncertainties and contractual
restrictions while the merger is pending that could adversely
affect our financial results.
Uncertainty about the effect of the merger on employees,
suppliers and customers may have an adverse effect on us. These
uncertainties may impair our ability to attract, retain and
motivate key personnel until the merger is completed and for a
period of time thereafter, and could cause customers, suppliers
and others who deal with us to
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seek to change existing business relationships. Employee
retention and recruitment may be particularly challenging prior
to completion of the merger, as employees and prospective
employees may experience uncertainty about their future roles
with the combined company.
The pursuit of the merger and the preparation for the
integration may place a significant burden on management and
internal resources. Any significant diversion of management
attention away from ongoing business and any difficulties
encountered in the transition and integration process could
affect our financial results.
In addition, the merger agreement restricts us, without
ProLogis’ consent, from making certain acquisitions and
dispositions, from engaging in certain capital raising
transactions and taking other specified actions while the merger
is pending. These restrictions may prevent us from pursuing
attractive business opportunities and making other changes to
our business prior to completion of the merger or termination of
the merger agreement.
Pending
litigation against AMB and ProLogis could result in an
injunction preventing completion of the merger and the payment
of damages in the event the merger is completed and/or may
adversely affect our company’s business, financial
condition or results of operation before the merger and/or the
combined company’s business, financial condition or results
of operations following the merger.
In connection with the merger, purported stockholders of
ProLogis have filed two putative stockholder class action
lawsuits against us and ProLogis, among others. Among other
remedies, the plaintiffs seek to enjoin the merger. We may be
subject to additional stockholder class action lawsuits during
the pendency of the merger. If a final settlement is not
reached, these lawsuits could prevent or delay completion of the
merger and result in substantial costs to us, including any
costs associated with the indemnification of directors. The
defense or settlement of any lawsuit or claim that remains
unresolved may adversely affect our business, financial
condition or results of operations
and/or the
combined company’s business, financial condition or results
of operations.
We may
be unable to obtain in the anticipated timeframe, or at all,
satisfaction of all conditions to complete the merger or, in
order to do so, we may be required to comply with material
restrictions or conditions that may negatively affect the
combined company after the merger is completed or cause us to
abandon the merger. Failure to complete the merger could
negatively affect our future business and financial
results.
Completion of the merger is contingent upon, among other things,
receipt of certain regulatory approvals and the absence of any
injunction prohibiting the merger. All required regulatory
authorizations, approvals or consents may not be obtained or may
contain terms, conditions or restrictions that will be
detrimental to the combined company after completion of the
merger.
The stockholders of both AMB and ProLogis must approve the
merger transaction at special stockholder meetings to be held
after our merger proxy and registration statement is effective.
If the stockholders of either company do not approve the merger,
the merger will not be consummated.
In addition, satisfying the conditions to, and completion of,
the merger may take longer than, and could cost more than, we
expect. Any delay in completing or any additional conditions
imposed in order to complete the merger may materially adversely
affect the synergies and other benefits that we and ProLogis
expect to achieve from the merger and the integration of our
businesses.
We may be unable to satisfy all the conditions to the merger or
succeed in any litigation brought in connection with the merger.
If the merger is not completed, our financial results may be
adversely affected and we will be subject to several risks,
including but not limited to:
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Any delay or inability to satisfy all conditions to complete the
merger, or failure to complete the merger could negatively
affect our future business, financial condition or results of
operation.
If
completed, the merger may not achieve its intended results, and
we and ProLogis may be unable to successfully integrate our
operations.
We and ProLogis entered into the merger agreement with the
expectation that the merger will result in various benefits,
including, among other things, cost savings and operating
efficiencies. Achieving the anticipated benefits of the merger
is subject to a number of uncertainties, including whether the
businesses of AMB and ProLogis can be integrated in an efficient
and effective manner.
If the merger is completed, it is possible that the integration
process could take longer than anticipated and could result in
the loss of valuable employees, the disruption of each
company’s ongoing businesses, processes and systems or
inconsistencies in standards, controls, procedures, practices,
policies and compensation arrangements, any of which could
adversely affect the combined company’s ability to achieve
the anticipated benefits of the merger. The combined
company’s results of operations could also be adversely
affected by any issues attributable to either company’s
operations that arise or are based on events or actions that
occur prior to the closing of the merger. The companies may have
difficulty addressing possible differences in corporate cultures
and management philosophies. The integration process is subject
to a number of uncertainties, and no assurance can be given that
the anticipated benefits will be realized or, if realized, the
timing of their realization. Failure to achieve these
anticipated benefits could result in increased costs or
decreases in the amount of expected revenues and could adversely
affect the combined company’s future business, results of
operations, financial condition and prospects.
Debt
Financing Risks
As of December 31, 2010, the operating partnership had
total debt outstanding of $3.3 billion. As of
December 31, 2010, the parent company guaranteed
$1.7 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 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 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
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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, 2010, the company had outstanding bank
guarantees in the amount of $0.3 million used to secure
contingent obligations, primarily obligations under development
and purchase agreements. As of December 31, 2010, the
company also guaranteed $58.6 million and
$83.5 million on outstanding loans for five of its
consolidated co-investment ventures and three 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, 2010. 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. In
addition, the announcement of the proposed merger transaction
with ProLogis resulted in the company being placed on a negative
credit rating watch list and because ProLogis’ credit
rating is lower than the company’s, the credit rating of
the combined company may be adversely affected if the proposed
merger is completed. 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 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, 2010, 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
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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, the parent company can 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 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, 2010, the operating partnership’s
share of total
debt-to-its
share of total market capitalization ratio was 41.3%. 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
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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:
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.
As of December 31, 2010, on an owned and managed basis, the
company’s occupancy average was 91.2%
year-to-date
and the leases on 16.4% of the company’s industrial
properties (based on annualized base rent) will expire on or
prior to December 31, 2011. 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
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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, 2010, on an owned and
managed basis, the company did not have any single customer
account for annualized base rent revenues greater than 3.1%.
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.
The 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 may need to re-evaluate the carrying value of its
investments and recognize real estate impairment losses on
certain of its investments.
The principal trigger which has led to impairment charges in the
recent past 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.
Impairments may be necessary in the future in the event that
market conditions deteriorate and
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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
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, 2010,
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.
As of December 31, 2010, the company’s industrial
properties located in California represented 21.1% of the
aggregate square footage of its industrial operating properties
and 19.7% 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.
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, 2010, the company had 277
industrial buildings, aggregating approximately
29.9 million square feet, 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.
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
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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 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, 2010, approximately 91.4 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:
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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
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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 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:
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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:
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
proposed merger with ProLogis is completed, the risks associated
with the combined company’s
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international business will be enhanced due to the combined
company’s larger international presence. If the company
fails to effectively manage its international growth or
integrate the combined company’s international operations
in the event the merger is completed, 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.
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.
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):
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
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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, 2010, the company had 277
industrial buildings, aggregating approximately
29.9 million square feet and representing 21.1% of its
industrial operating properties based on aggregate square
footage and 19.7% 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.
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
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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:
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 in 2008 and 2009, the company
has reduced its total global headcount and may do so again in
the future. In connection with the completion of the proposed
merger with ProLogis, there may be additional changes to the
company’s personnel and their roles that impact the
combined company. 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 currently does not have
employment agreements with any of its executive officers, other
than agreements that may be contingent on the completion of the
proposed merger with ProLogis.
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.
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
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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, the parent company
can 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.
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. Up
to 90% of any such taxable dividend with respect to calendar
years 2008 through 2011, and in some
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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 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.
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 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.
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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.
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
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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.
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.
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:
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Maryland law includes the following provisions:
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. In addition, in the event the proposed merger with
ProLogis is completed, the investment of existing stockholders
will be diluted based on the exchange ratio of ProLogis shares
of common stock into the company’s shares, which will
result in current AMB stockholders owning approximately 40% of
the combined company.
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
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
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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 partially 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
3,041,743 common limited partnership units issued and
outstanding as of December 31, 2010, 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, 2010, under the company’s stock option
and incentive plans, the company had 4,014,453 shares of
common stock reserved and available for future issuance, had
outstanding options to purchase 8,694,938 shares of common
stock (of which 6,361,551 are vested and exercisable and
5,731,803 have exercise prices below market value at
December 31, 2010) and had 1,202,122 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 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
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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.
None.
INDUSTRIAL
PROPERTIES
As of December 31, 2010, the company owned and managed
1,128 industrial buildings aggregating approximately
141.9 million rentable square feet (on a consolidated
basis, the company had 697 industrial buildings aggregating
approximately 79.8 million rentable square feet), excluding
development and renovation projects and recently completed
development projects available for sale or contribution, located
in 49 global markets throughout the Americas, Europe and Asia.
The company’s industrial properties were 93.7% leased to
2,655 customers, the largest of which accounted for no more than
3.1% of the company’s annualized base rent from its
industrial properties. See Part IV, Item 15:
Note 17 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:
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:
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:
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The following table summarizes the lease expirations for the
company’s owned and managed operating properties for leases
in place as of December 31, 2010, without giving effect to
the exercise of renewal options or termination rights, if any,
at or prior to the scheduled expirations:
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Top Customers. As of December 31, 2010,
the company’s largest customers by annualized base rent, on
an owned and managed basis, are set forth in the table below:
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OWNED AND
MANAGED OPERATING AND LEASING STATISTICS
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, 2010, 2009 and 2008:
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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, 2010, 2009, and 2008:
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DEVELOPMENT
PROPERTIES
Development
Portfolio(1)
The following table sets forth the development portfolio of the
company as of December 31, 2010 (dollars in thousands):
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PROPERTIES
HELD THROUGH CO-INVESTMENT VENTURES, LIMITED LIABILITY
COMPANIES AND PARTNERSHIPS
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 nine
consolidated and unconsolidated significant co-investment
ventures as of December 31, 2010:
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In addition, on August 2, 2010, the company announced the
formation of AMB Mexico Fondo Logistico, a publicly traded
co-investment venture with a
10-year term
whose investment strategy is to develop, acquire, own, operate
and manage industrial distribution facilities primarily within
the company’s target markets in Mexico. The functional
currency of this co-investment venture is U.S. dollars and
incentive distributions will be made upon dissolution of the
venture. Initial contributions were made by the third party
investors in the venture, comprised of institutional investors
in Mexico, primarily private pension plans. These contributions
are held by a third party trustee, which is not consolidated by
the company, and, as such, the cash investment and equity
interest of the third party investors are not reflected on the
company’s consolidated financial statements. As of
December 31, 2010, no investments had been made in real
estate properties within this co-investment venture.
Consolidated
Joint Ventures
As of December 31, 2010, 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.
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The table that follows summarizes the company’s
consolidated joint ventures as of December 31, 2010
(dollars in thousands):
Unconsolidated
Joint Ventures
As of December 31, 2010, the company held interests in six
significant equity investment co-investment ventures that are
not consolidated in its financial statements.
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The table that follows summarizes the company’s
unconsolidated joint ventures as of December 31, 2010
(dollars in thousands):
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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.
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The following table presents property related transactions for
the company’s unconsolidated co-investment ventures for the
years ended December 31, 2010, 2009 and 2008 (dollars in
thousands):
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As of December 31, 2010, there were no material pending
legal proceedings to which the company was a party or of which
any of the company’s properties was the subject, the
adverse determination of which the company anticipated would
have a material adverse effect upon the company’s financial
condition, results of operations and cash flows.
Subsequent to year end, the parent company and the operating
partnership have been named as defendants in at least two
pending putative shareholder class actions filed in connection
with the merger of the parent company and ProLogis: James
Kinsey, et al. v. ProLogis, et al., no. 2011CV818,
filed on or about February 2, 2011 in the Denver County
District Court, Colorado; and Vernon C. Burrows, et al. v.
ProLogis, et al., filed on or about February 15, 2011,
in the Circuit Court of Maryland for Baltimore City. The
complaint seeks to enjoin the merger, alleging, among other
things, that ProLogis’ directors and certain executive
officers breached their fiduciary duties by failing to maximize
the value to be received by ProLogis shareholders and by
improperly considering certain directors’ personal
interests in the transaction in determining whether to enter
into the merger agreement. The Maryland complaint also includes
a derivative claim on behalf of ProLogis based upon the same
allegations. Both complaints also assert a claim of aiding and
abetting breaches of fiduciary duties against ProLogis, the
parent company and the merger entitles. The Colorado complaint
also asserts a claim of aiding and abetting breaches of
fiduciary duties against the operating partnership. In addition
to an order enjoining the transaction, the complaints seek,
among other things, attorneys’ fees and expenses, and the
Maryland complaint further seeks certain monetary damages. The
parent company and the operating partnership view the complaints
to be without merit and intend to defend against them vigorously.
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The parent company’s common stock trades on the New York
Stock Exchange under the symbol “AMB.” As of
February 16, 2011, there were approximately 453 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, 2009 through
December 31, 2010:
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,
2010, the operating partnership had outstanding 179,865,400
partnership units, consisting of 177,806,670 general partnership
units (consisting of 168,506,670 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 2,058,730 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, 2010, there were 43 holders of record of
our common limited partnership units (including the parent
company’s general partnership interest).
During 2010, the operating partnership redeemed 61,198 common
limited partnership units for the same number of shares of the
parent company’s common stock. In addition, during 2010,
the operating partnership
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redeemed no common limited partnership units for cash. Set forth
below are the distributions per common limited partnership unit
paid by us during the years ended December 31, 2010 and
2009:
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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, 2005 to
December 31, 2010 to the cumulative total return of the
Standard and Poor’s 500 Stock Index and the FTSE NAREIT
Equity REITs Index from December 31, 2005 to
December 31, 2010. The graph assumes an initial investment
of $100 in the common stock of the parent company and each of
the indices on December 31, 2005 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 5 YEAR CUMULATIVE TOTAL RETURN*
Among AMB Property Corporation, The S&P 500 Index And The FTSE NAREIT Equity REITs Index 
*$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
Copyright©
2011 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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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.
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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.
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Management’s
Overview
The global economic recovery gained momentum in 2010, which made
it possible for the company to successfully execute on its key
growth initiatives for the year. In recognition of the improving
capital markets and operating fundamentals around the world,
management believes that the company has a leading position and
competitive advantage in pursuing growth opportunities. As such,
the company’s three priorities for 2011 are to:
Management believes the pace of the global economic recovery is
strengthening and expects to see earnings growth if the company
is able to improve asset utilization by returning its owned and
managed portfolio closer to its historical occupancy average of
95%; complete the
lease-up of
its development portfolio; and realize value from its land bank
through new ventures, sales and future
build-to-suit
projects. Management believes the U.S. is in the early
stages of the inventory rebuilding process and that the slower
than normal rebuild does not signify a secular change in global
supply chain practices, but rather inventories were drawn down
to unsustainable levels due to stronger than anticipated holiday
retail sales. The company believes that capital deployment
opportunities are increasing and is currently evaluating
multiple opportunities 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. Additionally, management believes its
existing and new private capital co-investment ventures and
joint ventures are well positioned to benefit from the expected
shift in customer demand for high-quality, well-located
industrial real estate.
Strength
of Balance Sheet and Liquidity
The company completed more than $1.9 billion of financings
during the fourth quarter. This activity included
$1.5 billion of wholly-owned debt consisting of the renewal
of its two lines of credit, a corporate term loan, a new bond
issuance, and $391 million for its co-investment ventures
in Europe, Japan and the U.S. For the year ended
December 31, 2010, the company completed financings of
approximately $4.0 billion. These transactions further
improved and extended the weighted average remaining life of the
company’s share of debt to 4.8 years from
3.8 years at an average interest rate of 4.6 percent.
As of December 31, 2010 the company’s share of total
debt to share of total assets was 43 percent, which
includes its share of joint venture debt.
As of December 31, 2010 the company’s share of
liquidity was approximately $1.6 billion, consisting of
approximately $1.4 billion of availability on its lines of
credit and more than $260 million of unrestricted cash and
cash equivalents.
Fundamentals in the U.S. industrial real estate market
further improved in the fourth quarter. According to CBRE
Econometric Advisors, the availability rate declined
30 basis points to 14.3% and net absorption was positive
33.2 million square feet. This is the largest improvement
in net absorption in three years as well as more than four times
the level reached in the third quarter. The recovery was more
broad-based in the fourth quarter with approximately three
quarters of the markets in the U.S. reflecting positive net
absorption, which represents a 25 point increase from the
third quarter. Availabilities in the coastal markets declined
30 basis points to 12.0% after peaking at 12.5% in the
first quarter 2010. The company continues to believe that
record-low construction, when met by stronger demand, will drive
the availability rate back down and that there will be a
substantial improvement in net absorption in 2011.
Cash-basis same-store net operating income (“SS NOI”),
without the effects of lease termination fees, increased
0.9 percent during the fourth quarter of 2010 compared with
the same period in 2009, driven by increases in occupancy. This
increase in quarterly SS NOI marked the first positive
year-over-year
performance since the fourth quarter of 2008. SS NOI for the
full year 2010 decreased 3.2 percent.
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Rent changes on rollovers declined 11.9% on a trailing
four-quarter basis and decreased 11.6% for the quarter. Rent
changes on rollover were negative for 2010, although management
believes net effective rents have bottomed in most of the
company’s markets today.
Capital
Deployment
The company commenced new development in the fourth quarter
totaling approximately 695,800 square feet
(64,640 square meters) and approximately 1.6 million
square feet (150,150 square meters) during 2010 in Brazil,
China and Mexico, with an estimated total investment of
$102.9 million. During the quarter, acquisitions totaled
$144.2 million, including $54.5 million for AMB
U.S. Logistics Fund, L.P. and $89.7 million for AMB
Europe Logistics Fund, FCP-FIS. The company also acquired a 50%
interest in a joint venture mortgage debt investment for
$86.0 million. As of December 31, 2010, the company
held a total of 2,641 acres of land for future development
or sale on an owned and managed basis, approximately 87% of
which is located in the Americas. The company currently
estimates that these 2,641 acres of land could support
approximately 47.4 million square feet of future
development.
During 2010, the company raised a record $781.4 million in
third party private equity. As of December 31, 2010, the
company had assets under management in nine significant
co-investment ventures with a gross book value of approximately
$8.2 billion.
On December 22, 2010, the company announced the formation
of AMB Brazil Logistics Partners Fund I, L.P., a
co-investment venture with a third-party investor whose strategy
is to develop, acquire, own, operate, manage and dispose of
logistics properties primarily within the company’s target
markets in Brazil, namely São Paulo and Rio de Janeiro.
This venture will invest through an equity interest in the joint
venture previously established between the company and its local
Brazil partner, Cyrela Commercial Properties. The initial
third-party equity investment will be approximately
360.0 million Brazilian Reais (approximately
$216.9 million in U.S. dollars using the exchange rate
in effect at December 31, 2010) and the joint
venture’s overall equity commitment is 720.0 million
Brazilian Reais (approximately $433.8 million in
U.S. dollars using the same exchange rate), including the
company’s 50 percent co-investment.
On August 2, 2010, the company announced the formation of
AMB Mexico Fondo Logistico, a publicly traded co-investment
venture with a
10-year term
whose investment strategy is to develop, acquire, own, operate
and manage industrial distribution facilities primarily within
the company’s target markets in Mexico. Approximately
3.3 billion Pesos was raised from the third party investors
in the venture, comprised of institutional investors in Mexico,
primarily private pension plans. These contributions, net of
offering costs, held partially in Pesos and U.S. dollars,
totaled approximately $252.2 million using the exchange
rate in effect on December 31, 2010. The company will
contribute 20% of the total equity, or approximately
$63.1 million using the same exchange rate, at full
deployment.
During 2010, in addition to the commitments of third-party
equity in AMB Brazil Logistics Partners Fund I, L.P. and
AMB Mexico Fondo Logistico, the company’s two open-ended
funds received capital commitments comprising
$257.0 million in third-party equity in AMB
U.S. Logistics Fund, L.P. and $55.3 million in
third-party equity in AMB Europe Logistics Fund, FCP-FIS.
As of July 13, 2010, the members of AMB-SGP Mexico, LLC
agreed to an early termination of the investment period of, and
acquisition exclusivity in favor of, AMB-SGP Mexico, LLC.
Equity holders in two of the company’s co-investment
ventures, AMB U.S. Logistics Fund, L.P. and AMB Europe
Logistics Fund, FCP-FIS, have a right to request that the
ventures redeem their interests under certain conditions. The
redemption right of investors in AMB Europe Logistics Fund,
FCP-FIS is exercisable beginning after July 1, 2011. As of
December 31, 2010, there was no redemption queue for AMB
U.S. Logistics Fund, L.P.
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During the year ended December 31, 2010, the company
completed the following significant transactions:
See Part I, Item 1, Notes 3 and 4 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
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