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  • 10-Q (Nov 5, 2014)
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  • 10-Q (Aug 8, 2013)
  • 10-Q (May 8, 2013)

 
8-K

 
Other

Prologis, Inc. 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
 
 
     
(Mark One)    
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended March 31, 2011
 
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 001-13545 (AMB Property Corporation)
001-14245 (AMB Property, L.P.)
 
AMB Property Corporation
 
     
Maryland (AMB Property Corporation)
Delaware (AMB Property, L.P.)
(State or Other Jurisdiction of
Incorporation or Organization)
  94-3281941 (AMB Property Corporation)
94-3285362 (AMB Property, L.P.)
(I.R.S. Employer
Identification No.)
Pier 1, Bay 1, San Francisco, California
(Address of Principal Executive Offices)
  94111
(Zip Code)
 
(415) 394-9000
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
         
AMB Property Corporation     Yes þ     No o  
AMB Property, L.P. 
    Yes þ     No o  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
AMB Property Corporation:
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
AMB Property, L.P.:
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
         
AMB Property Corporation
    Yes o     No þ  
AMB Property, L.P. 
    Yes o     No þ  
 
As of May 5, 2011, there were 169,576,043 shares of AMB Property Corporation’s common stock, $0.01 par value per share, outstanding.
 


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EXPLANATORY NOTE
 
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2011 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 March 31, 2011, 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 March 31, 2011, 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 quarterly reports on Form 10-Q of the parent company and the operating partnership into this single report results in the following benefits:
 
  •  enhancing investors’ understanding of the parent company and the operating partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
 
  •  eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the company’s disclosure applies to both the parent company and the operating partnership; and
 
  •  creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
 
Management operates the parent company and the operating partnership as one enterprise. The management of the parent company consists of the same members as the management of the operating partnership. These members are officers of the parent company and employees of the operating partnership.
 
There are few differences between the parent company and the operating partnership, which are reflected in the disclosure in this report. The company believes it is important to understand the differences between the parent company and the operating partnership in the context of how the parent company and the operating partnership operate as an interrelated consolidated company. The parent company is a real estate investment trust, whose only material asset is its ownership of partnership interests of the operating partnership. As a result, the parent company does not conduct business itself, other than acting as the sole general partner of the operating partnership, issuing public equity from time to time and guaranteeing certain debt of the operating partnership. The parent company itself does not hold any indebtedness but guarantees some of the secured and unsecured debt of the operating partnership, as disclosed in this report. The operating partnership holds substantially all the assets of the company and 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 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


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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:
 
  •  consolidated financial statements;
 
  •  the following notes to the consolidated financial statements:
 
  •  Debt;
 
  •  Noncontrolling Interests;
 
  •  Stockholders’ Equity of the Parent Company/Partners’ Capital of the Operating Partnership; and
 
  •  Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This report also includes separate Part I, Item 4. 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.
 
 
                 
        Page
 
PART I. FINANCIAL INFORMATION
  Item 1.     Financial Statements of AMB Property Corporation (unaudited)        
        Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010     1  
        Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010     2  
        Consolidated Statement of Equity for the Three Months Ended March 31, 2011     3  
        Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010     4  
        Financial Statements of AMB Property, L.P. (unaudited)        
        Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010     5  
        Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010     6  
        Consolidated Statement of Capital for the Three Months Ended March 31, 2011     7  
        Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010     8  
        Notes to Consolidated Financial Statements of AMB Property Corporation and AMB Property, L.P.      9  
  Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     46  
  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     89  
  Item 4.     Controls and Procedures (AMB Property Corporation)     91  
        Controls and Procedures (AMB Property, L.P.)     92  
 
PART II. OTHER INFORMATION
  Item 1.     Legal Proceedings     93  
  Item 1A.     Risk Factors     94  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     94  
  Item 3.     Defaults Upon Senior Securities     94  
  Item 4.     (Removed and Reserved)     94  
  Item 5.     Other Information     94  
  Item 6.     Exhibits     94  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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Item 1.   Financial Statements of AMB Property Corporation and AMB Property, L.P.
 
AMB PROPERTY CORPORATION
 
As of March 31, 2011 and December 31, 2010
 
                 
    March 31,
    December 31,
 
    2011     2010  
    (Unaudited, dollars in thousands)  
 
ASSETS
Investments in real estate:
               
Land
  $ 1,395,140     $ 1,396,321  
Land held for development
    680,278       672,883  
Buildings and improvements
    4,721,059       4,808,667  
Construction in progress
    44,812       28,305  
                 
Total investments in properties
    6,841,289       6,906,176  
Accumulated depreciation and amortization
    (1,313,547 )     (1,268,093 )
                 
Net investments in properties
    5,527,742       5,638,083  
Investments in unconsolidated joint ventures
    911,003       883,241  
Properties held for sale or contribution, net
    346,242       242,098  
                 
Net investments in real estate
    6,784,987       6,763,422  
Cash and cash equivalents
    203,626       198,424  
Restricted cash
    31,662       29,991  
Accounts receivable, net of allowance for doubtful accounts of $8,735 and $9,551, respectively
    170,867       167,735  
Deferred financing costs, net
    34,931       38,079  
Other assets
    194,690       175,244  
                 
Total assets
  $ 7,420,763     $ 7,372,895  
                 
 
LIABILITIES AND EQUITY
Liabilities:
               
Debt:
               
Secured debt
  $ 961,264     $ 962,434  
Unsecured senior debt
    1,639,823       1,685,956  
Unsecured credit facilities
    402,784       268,933  
Other debt
    422,180       413,976  
                 
Total debt
    3,426,051       3,331,299  
Security deposits
    56,420       57,555  
Dividends payable
    3,330       51,400  
Accounts payable and other liabilities
    234,869       230,519  
                 
Total liabilities
    3,720,670       3,670,773  
Commitments and contingencies (Note 14)
               
Equity:
               
Stockholders’ equity:
               
Series L preferred stock, cumulative, redeemable, $.01 par value, 2,300,000 shares authorized and 2,000,000 issued and outstanding, $50,000 liquidation preference
    48,017       48,017  
Series M preferred stock, cumulative, redeemable, $.01 par value, 2,300,000 shares authorized and 2,300,000 issued and outstanding, $57,500 liquidation preference
    55,187       55,187  
Series O preferred stock, cumulative, redeemable, $.01 par value, 3,000,000 shares authorized and 3,000,000 issued and outstanding, $75,000 liquidation preference
    72,127       72,127  
Series P preferred stock, cumulative, redeemable, $.01 par value, 2,000,000 shares authorized and 2,000,000 issued and outstanding, $50,000 liquidation preference
    48,081       48,081  
Common stock, $.01 par value, 500,000,000 shares authorized, 169,550,704 and 168,736,081 issued and outstanding, respectively
    1,692       1,684  
Additional paid-in capital
    3,034,593       3,071,134  
Retained deficit
    (9,519 )     (17,695 )
Accumulated other comprehensive income
    52,554       42,188  
                 
Total stockholders’ equity
    3,302,732       3,320,723  
Noncontrolling interests:
               
Joint venture partners
    342,514       325,590  
Limited partnership unitholders
    54,847       55,809  
                 
Total noncontrolling interests
    397,361       381,399  
                 
Total equity
    3,700,093       3,702,122  
                 
Total liabilities and equity
  $ 7,420,763     $ 7,372,895  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY CORPORATION
 
 
                 
    2011     2010  
    (Unaudited, dollars in thousands, except share and per share amounts)  
 
REVENUES
               
Rental revenues
  $ 158,085     $ 146,645  
Private capital revenues
    7,683       7,445  
                 
Total revenues
    165,768       154,090  
                 
COSTS AND EXPENSES
               
Property operating costs
    (31,256 )     (28,093 )
Real estate taxes
    (20,806 )     (20,025 )
Depreciation and amortization
    (54,986 )     (47,381 )
General and administrative
    (30,661 )     (31,951 )
Restructuring charges
          (2,973 )
Merger transaction costs
    (3,697 )      
Fund costs
    (241 )     (314 )
Other expenses
    (946 )     (1,191 )
                 
Total costs and expenses
    (142,593 )     (131,928 )
                 
OTHER INCOME AND EXPENSES
               
Development profits, net of taxes
          4,803  
Equity in earnings of unconsolidated joint ventures, net
    7,800       3,875  
Other income
    1,238       289  
Interest expense, including amortization
    (34,942 )     (32,589 )
                 
Total other income and expenses, net
    (25,904 )     (23,622 )
                 
Loss from continuing operations
    (2,729 )     (1,460 )
                 
Discontinued operations:
               
Income attributable to discontinued operations
    870       840  
Development profits, net of taxes
    1,637        
Gains from sale of real estate interests, net of taxes
    14,544        
                 
Total discontinued operations
    17,051       840  
                 
Net income (loss)
    14,322       (620 )
Noncontrolling interests’ share of net (income) loss:
               
Joint venture partners’ share of net (income) loss
    (2,049 )     375  
Joint venture partners’ and limited partnership unitholders’ share of development profits,
               
net of taxes
    (29 )     (106 )
Limited partnership unitholders
    (116 )     200  
                 
Total noncontrolling interests’ share of net (income) loss
    (2,194 )     469  
                 
Net income (loss) attributable to AMB Property Corporation
    12,128       (151 )
Preferred stock dividends
    (3,952 )     (3,952 )
Allocation to participating securities
    (355 )     (344 )
                 
Net income (loss) available to common stockholders
  $ 7,821     $ (4,447 )
                 
Basic income (loss) per common share attributable to common stockholders
               
Loss from continuing operations (after preferred stock dividends)
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common stockholders
  $ 0.05     $ (0.03 )
                 
Diluted income (loss) per common share attributable to common stockholders
               
Loss from continuing operations (after preferred stock dividends)
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common stockholders
  $ 0.05     $ (0.03 )
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
               
Basic
    168,099,995       148,666,418  
                 
Diluted
    168,099,995       148,666,418  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENT OF EQUITY
For the Three Months Ended March 31, 2011
(Unaudited, Dollars in thousands)
 
                                                                 
                                  Accumulated
             
          Common Stock     Additional
          Other
             
    Preferred
    Number
          Paid-in
    Retained
    Comprehensive
    Noncontrolling
       
    Stock     of Shares     Amount     Capital     Deficit     Income (Loss)     Interests     Total  
 
Balance as of December 31, 2010
  $ 223,412       168,736,081     $ 1,684     $ 3,071,134     $ (17,695 )   $ 42,188     $ 381,399     $ 3,702,122  
Net income
    3,952                         8,176             2,194          
Unrealized gain (loss) on securities and derivatives
                                  8,802       (281 )        
Currency translation adjustment
                                  1,564                
Total comprehensive income
                                                            24,407  
Contributions
                                        18,381       18,381  
Distributions and allocations
                                        (3,225 )     (3,225 )
Stock-based compensation amortization and issuance of restricted stock, net
          519,408       5       6,616                         6,621  
Exercise of stock options
          493,986       5       11,754                         11,759  
Conversion of partnership units
          18,750                                      
Forfeiture of stock
          (217,521 )     (2 )     (7,890 )                       (7,892 )
Reallocation of partnership interest
                      261                   (261 )      
Dividends
    (3,952 )                 (47,282 )                 (846 )     (52,080 )
                                                                 
Balance as of March 31, 2011
  $ 223,412       169,550,704     $ 1,692     $ 3,034,593     $ (9,519 )   $ 52,554     $ 397,361     $ 3,700,093  
                                                                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY, CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011 and 2010
 
 
                 
    2011     2010  
    (Unaudited, dollars in thousands)  
 
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income (loss)
  $ 14,322     $ (620 )
Adjustments to net income (loss):
               
Straight-line rents and amortization of lease intangibles
    (5,972 )     (4,289 )
Depreciation and amortization
    54,986       47,381  
Foreign exchange losses
    928       2,837  
Stock-based compensation amortization
    6,621       6,812  
Equity in earnings of unconsolidated joint ventures
    (7,800 )     (3,875 )
Operating distributions received from unconsolidated joint ventures
    7,838       5,316  
Development profits, net of taxes
          (4,803 )
Debt premiums, discounts and finance cost amortization, net
    3,887       3,341  
Discontinued operations:
               
Depreciation and amortization
    28       1,279  
Development profits, net of taxes
    (1,637 )      
Gains from sale of real estate interests, net of taxes
    (14,544 )      
Changes in assets and liabilities:
               
Accounts receivable and other assets
    1,240       (1,369 )
Accounts payable and other liabilities
    1,830       18,055  
                 
Net cash provided by operating activities
    61,727       70,065  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Change in restricted cash
    (2,072 )     (3,085 )
Cash paid for property acquisitions
          (160 )
Additions to land, buildings, development costs, building improvements and lease costs
    (111,927 )     (53,361 )
Net proceeds from divestiture of real estate and securities
    93,657       22,408  
Additions to interests in unconsolidated joint ventures
    (25,543 )     (153,211 )
Repayments from affiliates
          4,157  
                 
Net cash used in investing activities
    (45,885 )     (183,252 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from stock option exercises
    7,990       1,548  
Borrowings on secured debt
    831       4,903  
Payments on secured debt
    (4,719 )     (134,070 )
Borrowings on other debt
          4,300  
Payments on other debt
          (4,183 )
Borrowings on unsecured credit facilities
    325,015       308,252  
Payments on unsecured credit facilities
    (189,074 )     (67,443 )
Payment of financing fees
    (195 )     (431 )
Payments on senior debt
    (44,000 )      
Forfeiture of stock
    (4,123 )      
Contributions from noncontrolling interests
    18,192       3,509  
Dividends paid to common and preferred stockholders
    (99,304 )     (45,644 )
Distributions to noncontrolling interests, including preferred units
    (2,988 )     (3,361 )
                 
Net cash provided by financing activities
    7,625       67,380  
Net effect of exchange rate changes on cash
    (18,265 )     12,027  
Net increase (decrease) in cash and cash equivalents
    5,202       (33,780 )
Cash and cash equivalents at beginning of period
    198,424       187,169  
                 
Cash and cash equivalents at end of period
  $ 203,626     $ 153,389  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
Cash paid for interest, net of capitalized interest
  $ 21,230     $ 15,994  
                 
Non-cash transactions:
               
Proceeds receivable for insured real estate loss
  $ 1,549     $  
Non-cash stock option exercises
  $ 3,769     $  
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY, L.P.

CONSOLIDATED BALANCE SHEETS
As of March 31, 2011 and December 31, 2010
 
                 
    March 31,
    December 31,
 
    2011     2010  
    (Unaudited, dollars in thousands)  
 
ASSETS
Investments in real estate:
               
Land
  $ 1,395,140     $ 1,396,321  
Land held for development
    680,278       672,883  
Buildings and improvements
    4,721,059       4,808,667  
Construction in progress
    44,812       28,305  
                 
Total investments in properties
    6,841,289       6,906,176  
Accumulated depreciation and amortization
    (1,313,547 )     (1,268,093 )
                 
Net investments in properties
    5,527,742       5,638,083  
Investments in unconsolidated joint ventures
    911,003       883,241  
Properties held for sale or contribution, net
    346,242       242,098  
                 
Net investments in real estate
    6,784,987       6,763,422  
Cash and cash equivalents
    203,626       198,424  
Restricted cash
    31,662       29,991  
Accounts receivable, net of allowance for doubtful accounts of $8,735 and $9,551, respectively
    170,867       167,735  
Deferred financing costs, net
    34,931       38,079  
Other assets
    194,690       175,244  
                 
Total assets
  $ 7,420,763     $ 7,372,895  
                 
 
LIABILITIES AND CAPITAL
Liabilities:
               
Debt:
               
Secured debt
  $ 961,264     $ 962,434  
Unsecured senior debt
    1,639,823       1,685,956  
Unsecured credit facilities
    402,784       268,933  
Other debt
    422,180       413,976  
                 
Total debt
    3,426,051       3,331,299  
Security deposits
    56,420       57,555  
Distributions payable
    3,330       51,400  
Accounts payable and other liabilities
    234,869       230,519  
                 
Total liabilities
    3,720,670       3,670,773  
Commitments and contingencies (Note 14)
               
Capital:
               
Partners’ capital:
               
General partner, 169,321,293 and 168,506,670 units outstanding, respectively; 2,000,000 Series L preferred units issued and outstanding with a $50,000 liquidation preference, 2,300,000 Series M preferred units issued and outstanding with a $57,500 liquidation preference, 3,000,000 Series O preferred units issued and outstanding with a $75,000 liquidation preference and 2,000,000 Series P preferred units issued and outstanding with a $50,000 liquidation preference
    3,302,732       3,320,723  
Limited partners, 2,058,730 and 2,058,730 units outstanding, respectively
    37,352       37,773  
                 
Total partners’ capital
    3,340,084       3,358,496  
Noncontrolling interests:
               
Joint venture partners
    342,514       325,590  
Class B limited partnership unitholders
    17,495       18,036  
                 
Total noncontrolling interests
    360,009       343,626  
                 
Total capital
    3,700,093       3,702,122  
                 
Total liabilities and capital
  $ 7,420,763     $ 7,372,895  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2011 and 2010
 
                 
    2011     2010  
    (Unaudited, dollars in thousands, except unit and per unit amounts)  
 
REVENUES
               
Rental revenues
  $ 158,085     $ 146,645  
Private capital revenues
    7,683       7,445  
                 
Total revenues
    165,768       154,090  
COSTS AND EXPENSES
               
Property operating expenses
    (31,256 )     (28,093 )
Real estate taxes
    (20,806 )     (20,025 )
Depreciation and amortization
    (54,986 )     (47,381 )
General and administrative
    (30,661 )     (31,951 )
Restructuring charges
          (2,973 )
Merger transaction costs
    (3,697 )      
Fund costs
    (241 )     (314 )
Other expenses
    (946 )     (1,191 )
                 
Total costs and expenses
    (142,593 )     (131,928 )
                 
OTHER INCOME AND EXPENSES
               
Development profits, net of taxes
          4,803  
Equity in earnings of unconsolidated joint ventures, net
    7,800       3,875  
Other income
    1,238       289  
Interest expense, including amortization
    (34,942 )     (32,589 )
                 
Total other income and expenses, net
    (25,904 )     (23,622 )
                 
Loss from continuing operations
    (2,729 )     (1,460 )
                 
Discontinued operations:
               
Income attributable to discontinued operations
    870       840  
Development profits, net of taxes
    1,637        
Gains from sale of real estate interests, net of taxes
    14,544        
                 
Total discontinued operations
    17,051       840  
                 
Net income (loss)
    14,322       (620 )
Noncontrolling interests’ share of net (income) loss:
               
Joint venture partners’ share of net (income) loss
    (2,049 )     375  
Joint venture partners’ and Class B limited partnership unitholders’
               
share of development profits, net of taxes
    (9 )     (39 )
Class B limited partnership unitholders
    (37 )     74  
                 
Total noncontrolling interests’ share of net (income) loss
    (2,095 )     410  
                 
Net income (loss) attributable to AMB Property, L.P. 
    12,227       (210 )
Series L, M, O and P preferred unit distributions
    (3,952 )     (3,952 )
Allocation to participating securities
    (355 )     (344 )
                 
Net income (loss) available to common unitholders
  $ 7,920     $ (4,506 )
                 
Income (loss) available to common unitholders attributable to:
               
General partner
  $ 7,821     $ (4,447 )
Limited partners
    99       (59 )
                 
Net income (loss) available to common unitholders
  $ 7,920     $ (4,506 )
                 
Basic income (loss) per common unit attributable to common unitholders
               
Loss from continuing operations (after preferred unit distributions)
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common unitholders
  $ 0.05     $ (0.03 )
                 
Diluted income (loss) per common unit attributable to common unitholders
               
Loss from continuing operations (after preferred unit distributions)
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common unitholders
  $ 0.05     $ (0.03 )
                 
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
               
Basic
    170,173,425       150,786,346  
                 
Diluted
    170,173,425       150,786,346  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY, L.P.

CONSOLIDATED STATEMENT OF CAPITAL
For the Three Months Ended March 31, 2011
(Unaudited, Dollars in thousands)
 
                                                                 
    General Partner     Limited Partners              
    Preferred Units     Common Units     Common Units     Noncontrolling
       
    Units     Amount     Units     Amount     Units     Amount     Interests     Total  
 
Balance as of December 31, 2010
    9,300,000     $ 223,412       168,506,670     $ 3,097,311       2,058,730     $ 37,773     $ 343,626     $ 3,702,122  
Net income
          3,952             8,176             99       2,095          
Unrealized gain (loss) on securities and derivatives
                      8,802                   (281 )        
Currency translation adjustment
                      1,564                            
Total comprehensive income
                                                            24,407  
Contributions
                                        18,381       18,381  
Distributions and allocations
                                        (3,225 )     (3,225 )
Stock-based compensation amortization and issuance of common limited partnership units in connection with the issuance of restricted stock, net
                519,408       6,621                         6,621  
Issuance of common limited partnership units in connection with the exercise of stock options
                493,986       11,759                         11,759  
Conversion of Operating Partnership units to common stock
                18,750                                
Forfeiture of common limited partnership units in connection with the forfeiture of stock
                (217,521 )     (7,892 )                       (7,892 )
Reallocation of interests
                      261             56       (317 )      
Distributions
          (3,952 )           (47,282 )           (576 )     (270 )     (52,080 )
                                                                 
Balance as of March 31, 2011
    9,300,000     $ 223,412       169,321,293     $ 3,079,320       2,058,730     $ 37,352     $ 360,009     $ 3,700,093  
                                                                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011 and 2010
 
                 
    2011     2010  
    (Unaudited, dollars in thousands)  
 
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income (loss)
  $ 14,322     $ (620 )
Adjustments to net income (loss):
               
Straight-line rents and amortization of lease intangibles
    (5,972 )     (4,289 )
Depreciation and amortization
    54,986       47,381  
Foreign exchange losses
    928       2,837  
Stock-based compensation amortization
    6,621       6,812  
Equity in earnings of unconsolidated joint ventures
    (7,800 )     (3,875 )
Operating distributions received from unconsolidated joint ventures
    7,838       5,316  
Development profits, net of taxes
          (4,803 )
Debt premiums, discounts and finance cost amortization, net
    3,887       3,341  
Discontinued operations:
               
Depreciation and amortization
    28       1,279  
Development profits, net of taxes
    (1,637 )      
Gains from sale of real estate interests, net of taxes
    (14,544 )      
Changes in assets and liabilities:
               
Accounts receivable and other assets
    1,240       (1,369 )
Accounts payable and other liabilities
    1,830       18,055  
                 
Net cash provided by operating activities
    61,727       70,065  
CASH FLOWS FROM INVESTING ACTIVITIES
               
Change in restricted cash
    (2,072 )     (3,085 )
Cash paid for property acquisitions
          (160 )
Additions to land, buildings, development costs, building improvements and lease costs
    (111,927 )     (53,361 )
Net proceeds from divestiture of real estate and securities
    93,657       22,408  
Additions to interests in unconsolidated joint ventures
    (25,543 )     (153,211 )
Repayments from affiliates
          4,157  
                 
Net cash used in investing activities
    (45,885 )     (183,252 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from stock option exercises
    7,990       1,548  
Borrowings on secured debt
    831       4,903  
Payments on secured debt
    (4,719 )     (134,070 )
Borrowings on other debt
          4,300  
Payments on other debt
          (4,183 )
Borrowings on unsecured credit facilities
    325,015       308,252  
Payments on unsecured credit facilities
    (189,074 )     (67,443 )
Payment of financing fees
    (195 )     (431 )
Payments on senior debt
    (44,000 )      
Forfeiture of units
    (4,123 )      
Contributions from noncontrolling interests
    18,192       3,509  
Distributions paid to partners
    (99,880 )     (46,238 )
Distributions to noncontrolling interests, including preferred units
    (2,412 )     (2,767 )
                 
Net cash provided by financing activities
    7,625       67,380  
Net effect of exchange rate changes on cash
    (18,265 )     12,027  
Net increase (decrease) in cash and cash equivalents
    5,202       (33,780 )
Cash and cash equivalents at beginning of period
    198,424       187,169  
                 
Cash and cash equivalents at end of period
  $ 203,626     $ 153,389  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
Cash paid for interest, net of capitalized interest
  $ 21,230     $ 15,994  
                 
Non-cash transactions:
               
Proceeds receivable for insured real estate loss
  $ 1,549     $  
Non-cash stock option exercises
  $ 3,769     $  
 
The accompanying notes are an integral part of these consolidated financial statements.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
 
1.   Organization and Formation of the Parent Company and the Operating Partnership
 
The Parent Company commenced operations as a fully integrated real estate company effective with the completion of its initial public offering on November 26, 1997. The Parent Company elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 1997, and believes its current organization and method of operation will enable it to maintain its status as a REIT. The Parent Company, through its controlling interest in its subsidiary, the Operating Partnership, is engaged in the ownership, acquisition, development and operation of industrial properties in key distribution markets throughout the Americas, Europe and Asia. Unless otherwise indicated, the notes to consolidated financial statements apply to both the Parent Company and the Operating Partnership.
 
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; distribution 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 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.
 
As of March 31, 2011, 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 the sole general partner of the Operating Partnership, the Parent Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership. Net operating results of the Operating Partnership are allocated after preferred unit distributions based on the respective partners’ ownership interests. Certain properties are owned by the Company through limited partnerships, limited liability companies and other entities. The ownership of such properties through such entities does not materially affect the Company’s overall ownership interests in the properties.
 
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, Inc., and Pumpkin LLC, a Delaware limited liability company and a wholly owned subsidiary of Upper Pumpkin, LLC. 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 merger, 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 the Parent Company. The merger is subject to customary closing conditions, including receipt of approval of Parent Company stockholders and ProLogis shareholders. See Part I, Item 2, “The Company” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a more detailed discussion of the proposed merger.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Through the Operating Partnership, the Company enters into co-investment ventures with institutional investors. These co-investment ventures provide the Company with an additional source of capital and income. As of March 31, 2011, the Company had twelve co-investment ventures, including the co-investment ventures discussed below.
 
On March 3, 2011, the Company announced the formation of AMB Europe Logistics JV, FCP-FIS, an unconsolidated co-investment venture with Allianz Real Estate whose strategy is to acquire, own and operate logistics properties primarily within major seaport, airport and distribution markets in the Eurozone. The initial third-party equity investment will be approximately 400.0 million Euros (approximately $566.3 million in U.S. dollars using the exchange rate in effect at March 31, 2011) and the venture’s overall equity commitment is 470.0 million Euros (approximately $665.4 million in U.S. dollars using the same exchange rate), including the Company’s 15% co-investment. The co-investment venture is not expected to utilize leverage on its investments. As of March 31, 2011, no investments had been made in real estate properties within this co-investment venture.
 
On March 16, 2011, the Company announced the formation of AMB China Logistics Venture I, L.P., an unconsolidated co-investment venture with HIP China Logistics Investments Limited, whose strategy is to develop, acquire, own, operate and manage logistics properties primarily within key markets in China. The venture’s overall equity commitment is $588.0 million, of which the Company will contribute $88.0 million for an approximate 15% ownership. The co-investment venture is expected to utilize 50% leverage on its investments. As of March 31, 2011, no investments had been made in real estate properties within this co-investment venture.
 
Effective October 29, 2010, the name of the Company’s unconsolidated co-investment venture AMB Europe Fund I, FCP-FIS was changed to AMB Europe Logistics Fund, FCP-FIS.
 
AMB Capital Partners, LLC, a Delaware limited liability company (“AMB Capital Partners”), provides real estate investment services to clients on a fee basis. Headlands Realty Corporation, a Maryland corporation, conducts a variety of businesses that includes development projects available for sale or contribution to third parties and incremental income programs. IMD Holding Corporation, a Delaware corporation, conducts a variety of businesses that also includes development projects available for sale or contribution to third parties. AMB Capital Partners, Headlands Realty Corporation and IMD Holding Corporation are direct subsidiaries of the Operating Partnership.
 
As of March 31, 2011, the Company owned or had investments in, on a consolidated basis or through unconsolidated co-investment ventures, properties and development projects expected to total approximately 161.0 million square feet (15.0 million square meters) in 49 markets within 15 countries.
 
Of the approximately 161.0 million square feet as of March 31, 2011:
 
  •  on an owned and managed basis, which includes investments held on a consolidated basis or through unconsolidated joint ventures, the Company owned or partially owned approximately 140.2 million square feet (principally, warehouse distribution buildings) that were 92.8% leased; the Company had investments in 12 development projects, which are expected to total approximately 5.3 million square feet upon completion; the Company owned 25 projects, totaling approximately 6.8 million square feet, which are available for sale or contribution; and the Company had three value-added acquisitions, totaling approximately 1.2 million square feet;
 
  •  through non-managed unconsolidated joint ventures, the Company had investments in 46 industrial operating buildings, totaling approximately 7.3 million square feet; and
 
  •  the Company held approximately 152,000 square feet through a ground lease, which is the location of the Company’s global headquarters.
 
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


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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-added acquisitions from its owned and managed and consolidated operating statistics prior to stabilization (generally 90% leased).
 
2.   Interim Financial Statements
 
These consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted.
 
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments of a normal, recurring nature, necessary for a fair statement of the Company’s consolidated financial position and results of operations for the interim periods presented. The interim results for the three months ended March 31, 2011 are not necessarily indicative of future results. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Annual Report on Form 10-K for the Parent Company and the Operating Partnership for the year ended December 31, 2010.
 
Reclassifications.  Certain items in the consolidated financial statements for prior periods have been reclassified to conform to current classifications.
 
Real Estate Impairment Losses and Restructuring Charges.  The Company conducts a comprehensive review of all real estate asset classes in accordance with its policy of accounting for the impairment or disposal of long-lived assets, which indicates that asset values should be analyzed whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. The intended use of an asset, either held for sale or held for the long term, can significantly impact how impairment is measured. If an asset is intended to be held for the long term, the impairment analysis is based on a two-step test. The first test measures estimated expected future cash flows over the holding period, including a residual value (undiscounted and without interest charges), against the carrying value of the property. If the asset fails the test, then the asset carrying value is measured against the estimated fair value from a market participant standpoint, with the excess of the asset’s carrying value over the estimated fair value recognized as an impairment charge to earnings. If an asset is intended to be sold, impairment is tested based on a one-step test, comparing the carrying value to the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economic and market conditions and the availability of capital. The Company determines the estimated fair values based on assumptions regarding rental rates, costs to complete, lease-up and holding periods, as well as sales prices or contribution values. The Company also utilizes the knowledge of its regional teams and the recent valuations of its two open-ended funds, which contain a large, geographically diversified pool of assets, all of which are subject to third-party appraisals on at least an annual basis. The Company did not recognize any real estate impairment losses during the three months ended March 31, 2011 or 2010. Impairments may be necessary in the future in the event that market conditions deteriorate and impact the factors used to estimate fair value.
 
In the first quarter of 2011, the Company incurred $3.8 million of losses on properties in the Company’s Japan markets associated with the March 2011 earthquake and tsunami, which were partially offset by approximately $1.5 million of expected insurance proceeds. The $2.3 million of net uninsured losses were treated as accelerated real estate depreciation and recorded in depreciation expense and accumulated depreciation.
 
The Company did not recognize restructuring charges during the three months ended March 31, 2011. The Company recognized restructuring charges of approximately $3.0 million in the three months ended March 31, 2010 associated with severance and the termination of certain contractual obligations. The majority of the restructuring charges were cash-related expenses.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Investments in Consolidated and Unconsolidated Joint Ventures.  The Company holds interests in both consolidated and unconsolidated joint ventures. The Company consolidates joint ventures where it exhibits financial or operational control. Control is determined using accounting standards related to the consolidation of joint ventures and variable interest entities. In June 2009, the FASB issued amended guidance related to the consolidation of variable-interest entities. These amendments require an enterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”) based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Additionally, they require an ongoing reconsideration of the primary beneficiary and provide a framework for the events that trigger a reassessment of whether an entity is a VIE.
 
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.
 
Under the equity method, investments in unconsolidated joint ventures 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. No impairment charge was recognized for the three months ended March 31, 2011 and 2010.
 
Fair Value of Financial Instruments.  Due to their short-term nature, the estimated fair value for cash and cash equivalents, restricted cash, accounts receivable, dividends and distributions payable, and accounts payable and other liabilities approximate their book value. Based on borrowing rates available to the Company at March 31, 2011, the book value and the estimated fair value of total debt (both secured and unsecured) were $3.4 billion and $3.5 billion, respectively. Refer to Note 15 below entitled “Derivatives and Hedging Activities” for the related fair value disclosures.
 
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
 
Level 1.  Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities for which instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. In addition, Level 1 assets and liabilities related to the


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Company’s deferred compensation plan are valued based upon transactions in active exchange markets involving assets identical to the underlying investments contained within the plan.
 
Level 2.  Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data where applicable, such as equity prices, interest rate yield curves, option volatility, currency rates and counterparty credit risk.
 
Level 3.  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation using unobservable inputs. For the real estate assets included in Level 3, the Company used the market participant pricing approach, which estimates what a potential buyer would pay today. The key inputs used in the model included capitalization and rental growth rate assumptions, estimated costs to complete and expected lease up and holding periods. When available, current market information, like comparative sales price, was used to determine capitalization and rental growth rates. When market information was not readily available, the inputs were based on the Company’s understanding of market conditions and the experience of the management team.
 
Fair Value Measurements on a Recurring or Nonrecurring Basis as of March 31, 2011
(Dollars in thousands)
 
                                 
    Level 1
  Level 2
  Level 3
   
    Assets/Liabilities
  Assets/Liabilities
  Assets/Liabilities
   
    at Fair Value   at Fair Value   at Fair Value   Total
 
Assets:
                               
Investments in real estate(1)
  $     $     $ 89,430     $ 89,430  
Deferred compensation plan
    21,183                   21,183  
Derivative assets
          6,927             6,927  
Liabilities:
                               
Derivative liabilities
  $     $ (1,204 )   $     $ (1,204 )
Deferred compensation plan
    21,183                   21,183  
 
Fair Value Measurements on a Recurring or Nonrecurring Basis as of December 31, 2010
(Dollars in thousands)
 
                                 
    Level 1
  Level 2
  Level 3
   
    Assets/Liabilities
  Assets/Liabilities
  Assets/Liabilities
   
    at Fair Value   at Fair Value   at Fair Value   Total
 
Assets:
                               
Investments in real estate(1)
  $     $     $ 100,283     $ 100,283  
Deferred compensation plan
    19,123                   19,123  
Derivative assets
          1,664             1,664  
Investment securities
    1,797                   1,797  
Liabilities:
                               
Derivative liabilities
  $     $ 2,746     $     $ 2,746  
Deferred compensation plan
    19,123                   19,123  
 
 
(1) Represents certain real estate assets held for sale, held for contribution or reclassified between held for dispositions and held for use categories on a consolidated basis that are marked to their fair values at March 31, 2011 and December 31, 2010, respectively, as a result of real estate impairment losses, net of recoveries.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Real Estate Acquisition and Development Activity
 
During the three months ended March 31, 2011 and 2010, the Company did not acquire any properties, on a consolidated basis. Within the Company’s owned and managed portfolio, during the three months ended March 31, 2011, 0.3 million square feet was acquired by AMB U.S. Logistics Fund, L.P. for an aggregate purchase price of $17.3 million, and less than 0.1 million square feet was acquired by AMB Europe Logistics Fund, FCP-FIS for an aggregate purchase price of $5.2 million, both of which are unconsolidated co-investment ventures.
 
As of March 31, 2011, the Company had 12 construction-in-progress development projects, on an owned and managed basis, which are expected to total approximately 5.3 million square feet and have an aggregate estimated investment of $470.6 million upon completion, net of $1.0 million of cumulative real estate impairment losses to date. Five of these projects totaling approximately 1.8 million square feet with an aggregate estimated investment of $183.4 million were held in an unconsolidated co-investment venture. Construction-in-progress, at March 31, 2011, included projects expected to be completed through the third quarter of 2013.
 
On a consolidated basis, as of March 31, 2011, the Company had an additional 24 pre-stabilized development projects totaling approximately 6.6 million square feet, with an aggregate estimated investment of $681.2 million, net of $68.6 million of cumulative real estate impairment losses to date, and an aggregate gross book value of $668.5 million, net of cumulative real estate impairment losses.
 
On a consolidated basis, as of March 31, 2011, the Company and its development joint venture partners had funded an aggregate of $814.3 million, or 78%, of the total estimated investment before the impact of real estate impairment losses and will need to fund an estimated additional $223.7 million, or 22%, in order to complete the Company’s development portfolio.
 
In addition to its committed construction-in-progress, the Company held a total of 2,361 acres of land for future development or sale, on a consolidated basis, approximately 86% of which was located in the Americas. The Company currently estimates that these 2,361 acres of land could support approximately 42.7 million square feet of future development.
 
The Company’s development portfolio and land inventory does not include value-added acquisitions.
 
4.   Development Profits, Gains from Sale or Contribution of Real Estate Interests and Discontinued Operations
 
Development Sales and Contributions.  During the three months ended March 31, 2011, the Company did not sell any projects held within the development portfolio to third parties and, as a result, recognized no development profits from continuing operations. During the three months ended March 31, 2010, the Company recognized development profits of approximately $4.8 million as a result of the sale of development projects to third-parties, aggregating approximately 0.3 million square feet for an aggregate sales price of $22.9 million. This included the installment sale of approximately 0.2 million square feet for $12.5 million with development profits of $3.9 million recognized in the three months ended March 31, 2010, which was initiated in the fourth quarter of 2009 and completed in the first quarter of 2010.
 
During the three months ended March 31, 2011 and 2010, the Company made no contributions of completed development projects to unconsolidated co-investment ventures.
 
Properties Held for Sale or Contribution, Net.  As of March 31, 2011, the Company held for sale one property with an aggregate net book value of $1.4 million. Properties held for sale either are not in the Company’s core markets, do not meet its current investment objectives, or are included as part of its development-for-sale or value-added conversion programs. The sales of such properties are generally subject to negotiation of acceptable terms and other customary conditions. Properties held for sale are stated at the lower of cost or estimated fair value less costs to sell. As of December 31, 2010, the Company held for sale ten properties with an aggregate net book value of $55.9 million.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of March 31, 2011, the Company held for contribution to co-investment ventures 18 properties with an aggregate net book value of $344.8 million, which, if contributed, will reduce the Company’s average ownership interest in these projects from approximately 94% to an expected range of less than 40%. As of December 31, 2010, the Company held for contribution to co-investment ventures eight properties with an aggregate net book value of $186.2 million.
 
During the three months ended March 31, 2011, no properties were reclassified from held for sale or contribution to investments in real estate as a result of the change in management’s intent to hold these assets. In accordance with the Company’s policies of accounting for the impairment or disposal of long-lived assets, during the three months ended March 31, 2011, the Company did not recognize any additional depreciation expense and related accumulated depreciation as a result of the reclassification of assets from properties held for sale or contribution to investments in real estate. During the three months ended March 31, 2010, the Company recognized additional depreciation expense and related accumulated depreciation of $1.2 million as a result of similar reclassifications.
 
Discontinued Operations.  The Company reports its property sales as discontinued operations separately as prescribed under its policy of accounting for the impairment or disposal of long-lived assets. During the three months ended March 31, 2011, the Company sold industrial operating properties aggregating approximately 1.9 million square feet for an aggregate sales price of $77.2 million. Of these sales, 0.1 million square feet with a sales price of $7.4 million, resulting in a gain of $1.6 million, related to properties held in the operating portfolio which had previously undergone development by the Company. These gains are presented in development profits, net of taxes, as discontinued operations in the consolidated statements of operations. The remaining $69.8 million of operating property sales resulted in gains of $14.5 million which were presented in gains from sale of real estate interests, net of taxes as discontinued operations in the consolidated statements of operations. During the three months ended March 31, 2010, the Company did not sell any industrial operating properties.
 
During the three months ended March 31, 2011 and 2010, the Company did not sell any value-added conversion projects.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following summarizes the condensed results of discontinued operations, net of noncontrolling interests (dollars in thousands):
 
                 
    For the Three Months
 
    Ended March 31,  
    2011     2010  
 
Rental revenues
  $ 2,385     $ 3,812  
Straight-line rents and amortization of lease intangibles
    13       72  
Property operating expenses
    (765 )     (838 )
Real estate taxes
    (778 )     (901 )
Depreciation and amortization
    (28 )     (1,279 )
Other income and (expenses), net
    43       1  
Interest, including amortization
          (27 )
                 
Income attributable to discontinued operations
    870       840  
Development profits, net of taxes
    1,637        
Gains from sale of real estate interests, net of taxes
    14,544        
                 
Discontinued operations attributable to the Parent Company and the Operating Partnership
  $ 17,051     $ 840  
                 
Parent Company:
               
Discontinued operations
  $ 17,051     $ 840  
Noncontrolling interests:
               
Joint venture partners’ and limited partnership unitholders’ share of (income) loss attributable to discontinued operations
    (6 )     1  
Joint venture partners’ and limited partnership unitholders’ share of gains from sale of real estate interests, net of taxes
    (285 )      
                 
Discontinued operations attributable to the Parent Company
  $ 16,760     $ 841  
                 
Operating Partnership:
               
Discontinued operations
  $ 17,051     $ 840  
Noncontrolling interests:
               
Joint venture partners’ and Class B limited partnership unitholders’ share of loss (income) attributable to discontinued operations
    5       13  
Class B limited partnership unitholders’ share of development profits attributable to discontinued operations
    20        
Joint venture partners’ and Class B limited partnership unitholders’ share of gains from sale of real estate interests, net of taxes
    (90 )      
                 
Discontinued operations attributable to the Operating Partnership
  $ 16,986     $ 853  
                 
 
The difference in income from discontinued operations, net of noncontrolling interests, between the Parent Company and the Operating Partnership is due to the inclusion of the Operating Partnership’s common limited partnership unitholders as noncontrolling interests in the Parent Company’s financial statements.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of March 31, 2011 and December 31, 2010, assets and liabilities attributable to properties held for sale by the Company consisted of the following (dollars in thousands):
 
                 
    March 31,
  December 31,
    2011   2010
 
Cash and cash equivalents
  $     $ 355  
Accounts receivable, deferred financing costs and other assets
  $ 9     $ 1,561  
Accounts payable and other liabilities
  $ 8     $ 831  
 
5.   Debt of the Parent Company
 
The Parent Company itself does not hold any indebtedness. All debt is held directly or indirectly by the Operating Partnership. The debt that is guaranteed by the Parent Company is discussed below. Note 6 below entitled “Debt of the Operating Partnership” should be read in conjunction with this Note 5 for a discussion of the debt of the Operating Partnership consolidated into the Parent Company’s financial statements. In this Note 5, the “Parent Company” refers only to AMB Property Corporation and not to any of its subsidiaries.
 
 
The Parent Company guarantees the Operating Partnership’s obligations with respect to its unsecured senior debt securities. As of March 31, 2011, the Operating Partnership had outstanding an aggregate of $1.7 billion in unsecured senior debt securities, before unamortized net discounts, which bore a weighted average interest rate of 5.5% and had an average term of 6.0 years. The indenture for the senior debt securities contains limitations on mergers or consolidations of the Parent Company.
 
 
The Parent Company guarantees the Operating Partnership’s obligations with respect to certain of its other debt obligations related to the following two facilities. In November 2010, the Operating Partnership paid off the outstanding Euro tranche balance of its original $425.0 million multi-currency term loan, which has a maturity of October 2012. As of March 31, 2011, only the Japanese Yen tranche of the term loan had an outstanding balance, which was approximately $150.3 million in U.S. dollars, using the exchange rate in effect on that date, and bore a weighted average interest rate of 3.4%. Additionally, in November 2010, the Operating Partnership entered into a 153.7 million Euro senior unsecured term loan, maturing in November 2015. Using the exchange rate in effect on March 31, 2011, the term loan had an outstanding balance of approximately $217.6 million in U.S. dollars, which bore a weighted average interest rate of 1.2%. These term loans contain limitations on the incurrence of liens and limitations on mergers or consolidations of the Parent Company.
 
 
The Parent Company is a guarantor of the Operating Partnership’s obligations under its $600.0 million (includes Euro, Yen, British pounds sterling, Canadian dollar or U.S. dollar denominated borrowings) unsecured revolving credit facility. In November 2010, the Operating Partnership refinanced its $550.0 million multi-currency facility, increasing the facility by $50.0 million and extending the maturity to March 2014. This facility can be increased to up to $800.0 million upon certain conditions. This facility had no outstanding balance as of March 31, 2011.
 
The Parent Company and the Operating Partnership guarantee the obligations of AMB Japan Finance Y.K., a subsidiary of the Operating Partnership, under a Yen-denominated unsecured revolving credit facility, as well as the obligations of any other entity in which the Operating Partnership directly or indirectly owns an ownership interest and which is selected by the Operating Partnership from time to time to be a borrower under and pursuant to the credit agreement. This credit facility has an initial borrowing limit of 45.0 billion Yen, which, using the exchange


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
rate in effect on March 31, 2011, equaled approximately $541.3 million U.S. dollars and bore a weighted average interest rate of 2.00%. Prior to its early renewal in December 2010, this credit facility had a borrowing limit of 55.0 billion Yen. Additionally, upon renewal, the credit facility maturity was extended to March 2014. As of March 31, 2011, this facility had a balance of $172.3 million, using the exchange rate in effect on that date.
 
The Parent Company and the Operating Partnership guarantee the obligations for such subsidiaries and other entities controlled by the Operating Partnership that are selected by the Operating Partnership from time to time to be borrowers under and pursuant to a $500.0 million unsecured revolving credit facility. The Operating Partnership and certain of its wholly owned subsidiaries, each acting as a borrower, and the Parent Company and the Operating Partnership, as guarantors, entered into this credit facility, which has an option to further increase the facility to up to $750.0 million and to extend the maturity date by one year. As of March 31, 2011, this facility, which matures in July 2011, had a balance of $230.5 million using the exchange rate in effect on that date and bore a weighted average interest rate of 1.09%.
 
The credit agreements related to the above facilities contain limitations on the incurrence of liens and limitations on mergers or consolidations of the Parent Company.
 
6.   Debt of the Operating Partnership
 
As of March 31, 2011 and December 31, 2010, debt of the Operating Partnership consisted of the following (dollars in thousands):
 
                 
    March 31,
    December 31,
 
    2011     2010  
 
Wholly owned secured debt, varying interest rates from 2.0% to 7.6%, due December 2011 to July 2017 (weighted average interest rates of 2.9% and 2.9% at March 31, 2011 and December 31, 2010, respectively)
  $ 227,316     $ 231,162  
Consolidated joint venture secured debt, varying interest rates from 1.1% to 8.3%, due July 2011 to November 2022 (weighted average interest rates of 4.8% and 4.8% at March 31, 2011 and December 31, 2010, respectively)
    733,882       731,183  
Unsecured senior debt securities, varying interest rates from 3.3% to 7.5%, due September 2011 to July 2020 (weighted average interest rates of 5.5% and 5.6% at March 31, 2011 and December 31, 2010, respectively)
    1,651,682       1,698,601  
Other debt, varying interest rates from 1.2% to 5.8%, due September 2012 to November 2015 (weighted average interest rates of 2.5% and 3.3% at March 31, 2011 and December 31, 2010, respectively)
    422,180       413,976  
Unsecured credit facilities, variable interest rates, due July 2011 and March 2014 (weighted average interest rates of 1.5% and 1.7% at March 31, 2011 and December 31, 2010, respectively)
    402,784       268,933  
                 
Total debt before unamortized net discounts
    3,437,844       3,343,855  
Unamortized net discounts
    (11,793 )     (12,556 )
                 
Total consolidated debt
  $ 3,426,051     $ 3,331,299  
                 
 
 
Secured debt generally requires monthly principal and interest payments. Some of the loans are cross-collateralized by multiple properties. The secured debt is collateralized by deeds of trust, mortgages or other instruments on certain properties and is generally non-recourse. As of March 31, 2011 and December 31, 2010, the total gross investment book value of those properties securing the debt was $1.9 billion and $1.8 billion, respectively, including $1.5 billion held in consolidated joint ventures as of both balance sheet dates. As of March 31, 2011, $691.1 million of the secured debt obligations before unamortized net discounts bore interest at


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
fixed rates (with a weighted average interest rate of 5.1%), while the remaining $270.1 million bore interest at variable rates (with a weighted average interest rate of 2.4%). As of March 31, 2011, $583.6 million of the secured debt before unamortized net discounts was held by the Operating Partnership’s co-investment ventures, including the AMB-SGP, L.P. loan agreement discussed below.
 
Seven subsidiaries of AMB-SGP, L.P., a Delaware limited partnership, which is a subsidiary of the Operating Partnership, entered into a loan agreement for a $305.0 million secured financing, and pursuant to the loan agreement, delivered four promissory notes to the two lenders, each of which mature in March 2012. One note has a principal of $160.0 million and an interest rate that is fixed at 5.29%. The second note has an initial principal borrowing of $40.0 million with a variable interest rate of 81.0 basis points above the one-month LIBOR rate. The third note has an initial principal borrowing of $84.0 million and a fixed interest rate of 5.90%. The fourth note has an initial principal borrowing of $21.0 million and bears interest at a variable rate of 135.0 basis points above the one-month LIBOR rate. The aggregate principal amount outstanding under this loan agreement as of March 31, 2011 was $287.9 million.
 
 
As of March 31, 2011, the Operating Partnership had outstanding an aggregate of $1.7 billion in unsecured senior debt securities, before unamortized net discounts, which bore a weighted average interest rate of 5.5% and had an average term of 6.0 years.
 
The Parent Company guarantees the Operating Partnership’s obligations with respect to its unsecured senior debt securities. The unsecured senior debt securities are subject to various covenants of the Operating Partnership. These covenants contain affirmative covenants, including compliance with financial reporting requirements and maintenance of specified financial ratios, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations. The Operating Partnership was in compliance with its financial covenants for all unsecured senior debt securities at March 31, 2011.
 
 
As of March 31, 2011, the Operating Partnership had $422.2 million outstanding in other debt which bore a weighted average interest rate of 2.5% and had an average term of 3.1 years. Other debt includes a $70.0 million credit facility obtained on August 24, 2007 by AMB Institutional Alliance Fund II, L.P., a subsidiary of the Operating Partnership, which had a $54.3 million balance outstanding as of March 31, 2011. The $367.9 million remaining outstanding balance of other debt, in U.S. dollars using the exchange rates in effect on March 31, 2011, is related to the Operating Partnership’s unsecured term loans discussed below.
 
In November 2010, the Operating Partnership paid off the outstanding Euro tranche balance of its original $425.0 million multi-currency term loan, which matures in October 2012. As of March 31, 2011, only the Japanese Yen tranche of the term loan had an outstanding balance, which was approximately $150.3 million in U.S. dollars, using the exchange rate in effect on that date, and bore a weighted average interest rate of 3.4%.
 
Additionally, in November 2010, the Operating Partnership entered into a 153.7 million Euro senior unsecured term loan, maturing in November 2015. Using the exchange rate in effect on March 31, 2011, the term loan had an outstanding balance of approximately $217.6 million in U.S. dollars, which bore a weighted average interest rate of 1.2%.
 
The Parent Company guarantees the Operating Partnership’s obligations with respect to certain of its unsecured debt. These covenants contain affirmative covenants, including compliance with financial reporting requirements and maintenance of specified financial ratios, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations. The Operating Partnership was in compliance with its financial covenants for all other debt at March 31, 2011.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Unsecured Credit Facilities
 
As of March 31, 2011, the Operating Partnership had three credit facilities with total capacity of approximately $1.6 billion, of which approximately $1.2 billion was available for future borrowings.
 
The Operating Partnership has a $600.0 million (includes Euro, Yen, British pounds sterling, Canadian dollars or U.S. dollar denominated borrowings) unsecured revolving credit facility, guaranteed by the Parent Company. In November 2010, the Operating Partnership refinanced its $550.0 million multi-currency facility, increasing the facility by $50.0 million and extending the maturity to March 2014. This facility can be increased to up to $800.0 million upon certain conditions. As of March 31, 2011, there was no outstanding balance on this credit facility, and the remaining amount available was $589.3 million, net of outstanding letters of credit of $10.7 million, using the exchange rate in effect on that date.
 
AMB Japan Finance Y.K., a subsidiary of the Operating Partnership, has a Yen-denominated unsecured revolving credit facility with an initial borrowing limit of 45.0 billion Yen, which, using the exchange rate in effect on March 31, 2011, equaled approximately $541.3 million U.S. dollars and bore a weighted average interest rate of 2.00%. Prior to its early renewal in December 2010, this credit facility had a borrowing limit of 55.0 billion Yen. Additionally, upon renewal, the credit facility maturity was extended to March 2014 and is guaranteed by both the Parent Company and the Operating Partnership. As of March 31, 2011, the outstanding balance on this credit facility, using the exchange rate in effect on that date, was $172.3 million, and the remaining amount available was $369.0 million.
 
The Operating Partnership and certain of its wholly owned subsidiaries, each acting as a borrower, and the Parent Company and the Operating Partnership, as guarantors, have a $500.0 million unsecured revolving credit facility, which has an option to further increase the facility to up to $750.0 million and to extend the maturity date by one year. The credit facility matures in July 2011. As of March 31, 2011, the outstanding balance on this credit facility, using the exchange rates in effect on that date, was approximately $230.5 million with a weighted average interest rate of 1.09%, and the remaining amount available was $269.5 million.
 
The above credit facilities contain affirmative covenants of the Operating Partnership, including compliance with financial reporting requirements and maintenance of specified financial ratios, and negative covenants of the Operating Partnership, including limitations on the incurrence of liens and limitations on mergers or consolidations. The Operating Partnership was in compliance with its financial covenants under each of these credit agreements at March 31, 2011.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of March 31, 2011, the scheduled maturities and principal payments of the Operating Partnership’s total debt were as follows (dollars in thousands):
 
                                                             
    Wholly Owned                        
    Unsecured             Total
    Consolidated
      Total
 
    Senior
    Credit
    Other
    Secured
      Wholly Owned
    Joint Venture
      Consolidated
 
    Debt     Facilities(1)     Debt     Debt       Debt     Debt       Debt  
2011
  $ 25,000     $ 230,512     $     $ 15,203       $ 270,715     $ 138,854       $ 409,569  
2012
                150,256       29,598         179,854       469,805         649,659  
2013
    293,897                   23,710         317,607       104,852         422,459  
2014
          172,272             4,787         177,059       8,637         185,696  
2015
    112,491             217,624       7,721         337,836       16,943         354,779  
2016
    250,000                   79,994         329,994       15,499         345,493  
2017
    300,000                   66,303         366,303       490         366,793  
2018
    300,000                           300,000       595         300,595  
2019
    250,000                           250,000       29,412         279,412  
2020
    120,294                           120,294       645         120,939  
Thereafter
                                    2,450         2,450  
                                                             
Subtotal
  $ 1,651,682     $ 402,784     $ 367,880     $ 227,316       $ 2,649,662     $ 788,182 (2)     $ 3,437,844  
Unamortized net (discounts) premiums
    (11,859 )                 34         (11,825 )     32         (11,793 )
                                                             
Total
  $ 1,639,823     $ 402,784     $ 367,880     $ 227,350       $ 2,637,837     $ 788,214       $ 3,426,051  
                                                             
                                                             
 
 
(1) Represents three credit facilities with total borrowing capacity of approximately $1.6 billion. Includes $142.0 million in U.S. dollar borrowings and $172.3 million, $64.9 million, $4.2 million and $19.4 million in Yen, Canadian dollar, Euro and Singapore dollar-based borrowings outstanding at March 31, 2011, respectively, translated to U.S. dollars using the foreign exchange rates in effect on that date.
 
(2) Includes an outstanding balance of $54.3 million of other debt on a $70.0 million credit facility held by AMB Institutional Alliance Fund II, L.P.
 
7.   Noncontrolling Interests in the Parent Company
 
In this Note 7, the “Parent Company” refers only to AMB Property Corporation and not to any of its subsidiaries. Noncontrolling interests in the Parent Company’s financial statements include the common limited partnership interests in the Operating Partnership, common limited and preferred limited (if applicable) partnership interests in AMB Property II, L.P., a Delaware limited partnership and a subsidiary of the Operating Partnership, and interests held by third party partners in joint ventures. Such joint ventures hold approximately 20.9 million square feet and are consolidated for financial reporting purposes.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Parent Company’s consolidated joint ventures’ total investment and property debt at March 31, 2011 and December 31, 2010 were as follows (dollars in thousands):
 
                                                             
        Parent
    Total Investment
                         
        Company’s
    in Real Estate     Property Debt     Other Debt  
    Co-investment
  Ownership
    March 31,
    December 31,
    March 31,
    December 31,
    March 31,
    December 31,
 
Consolidated Joint Ventures   Venture Partner   Percentage     2011     2010     2011     2010     2011     2010  
 
Co-investment Ventures
                                                           
AMB Institutional Alliance Fund II, L.P.(1)
  AMB Institutional Alliance REIT II, Inc.     24 %   $ 521,227     $ 518,516     $ 182,849     $ 184,292     $ 54,300     $ 54,300  
AMB-SGP, L.P.(2)
  Industrial JV Pte. Ltd.     50 %     480,302       479,635       325,876       327,301              
AMB-AMS, L.P.(3)
  PMT, SPW and TNO     39 %     161,205       160,985       75,244       75,650              
Other Industrial Operating Joint Ventures
        83 %     348,690       372,536       57,435       62,210              
Other Industrial Development Joint Ventures
        41 %     224,609       181,600       92,510       81,776              
                                                             
Total Consolidated Joint Ventures
              $ 1,736,033     $ 1,713,272     $ 733,914     $ 731,229     $ 54,300     $ 54,300  
                                                             
 
 
(1) AMB Institutional Alliance Fund II, L.P. is a co-investment partnership, comprised of 13 institutional investors, which invest through a private real estate investment trust, and one third-party limited partner as of March 31, 2011. During the third quarter of 2010, the Company purchased additional shares from one of the existing institutional investors, increasing the Company’s ownership in the partnership to approximately 24%.
 
(2) AMB-SGP, L.P. is a co-investment partnership with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(3) AMB-AMS, L.P. is a co-investment partnership with three Dutch pension funds. PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.
 
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 $252.5 million using the exchange rate in effect on March 31, 2011. These contributions, excluding amounts transferred as detailed below, 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 related to this portion of the contributions are not reflected on the Company’s consolidated financial statements. During the three months ended March 31, 2011, $4.1 million of the contributions made by third party investors were transferred from the third party trustee to the co-investment venture. The Company will contribute 20% of the total equity, or approximately $63.1 million, at full deployment, for total equity of $315.6 million available for future investments. During the three months ended March 31, 2011, the Company contributed $1.0 million to this co-investment venture. As of March 31, 2011, no investments had been made in real estate properties within this co-investment venture.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table reconciles the change in the Parent Company’s noncontrolling interests for the three months ended March 31, 2010 (dollars in thousands):
 
         
Balance as of December 31, 2009
  $ 351,304  
Net loss
    (469 )
Contributions
    3,769  
Distributions and allocations
    (2,173 )
Dividends
    (946 )
         
Balance as of March 31, 2010
  $ 351,485  
         
 
The following table details the noncontrolling interests of the Parent Company as of March 31, 2011 and December 31, 2010 (dollars in thousands):
 
                     
    March 31,
    December 31,
    Redemption/Callable
    2011     2010     Date
 
Joint venture partners
  $ 342,514     $ 325,590     N/A
Limited partners in the Operating Partnership
    37,352       37,773     N/A
Held through AMB Property II, L.P.:
                   
Class B limited partners
    17,495       18,036     N/A
                     
Total noncontrolling interests
  $ 397,361     $ 381,399      
                     
 
The following table distinguishes the Parent Company’s noncontrolling interests’ share of net income, including noncontrolling interests’ share of development profits, for the three months ended March 31, 2011 and 2010 (dollars in thousands):
 
                 
    For the Three Months
 
    Ended March 31,  
    2011     2010  
 
Joint venture partners’ share of net income (loss)
  $ 2,049     $ (375 )
Joint venture partners’ and common limited partners’ share of development profits
    20       67  
Common limited partners in the Operating Partnership’s share of net income (loss)
    79       (126 )
Held through AMB Property II, L.P.:
               
Class B common limited partnership units’ share of development profits
    9       39  
Class B common limited partnership units’ share of net income (loss)
    37       (74 )
                 
Total noncontrolling interests’ share of net income (loss)
  $ 2,194     $ (469 )
                 


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
8.   Noncontrolling Interests in the Operating Partnership
 
Noncontrolling interests in the Operating Partnership represent limited partnership interests in AMB Property II, L.P., a Delaware limited partnership, and interests held by third party partners in several real estate joint ventures, aggregating approximately 20.9 million square feet, which are consolidated for financial reporting purposes.
 
The Operating Partnership’s consolidated joint ventures’ total investment and property debt at March 31, 2011 and December 31, 2010 were as follows (dollars in thousands):
 
                                                             
        Operating
    Total Investment
                         
        Partnership’s
    in Real Estate     Property Debt     Other Debt  
    Co-investment
  Ownership
    March 31,
    December 31,
    March 31,
    December 31,
    March 31,
    December 31,
 
Consolidated Joint Ventures   Venture Partner   Percentage     2011     2010     2011     2010     2011     2010  
 
Co-investment Ventures
                                                           
AMB Institutional Alliance Fund II, L.P. 
  AMB Institutional Alliance REIT II, Inc.     24 %   $ 521,227     $ 518,516     $ 182,849     $ 184,292     $ 54,300     $ 54,300  
AMB-SGP, L.P. 
  Industrial JV Pte. Ltd.     50 %     480,302       479,635       325,876       327,301              
AMB-AMS, L.P. 
  PMT, SPW and TNO     39 %     161,205       160,985       75,244       75,650              
Other Industrial Operating Joint Ventures
        83 %     348,690       372,536       57,435       62,210              
Other Industrial Development Joint Ventures
        41 %     224,609       181,600       92,510       81,776              
                                                             
Total Consolidated Joint Ventures
              $ 1,736,033     $ 1,713,272     $ 733,914     $ 731,229     $ 54,300     $ 54,300  
                                                             
 
As of March 31, 2011, no investments had been made in real estate properties within the AMB Mexico Fondo Logistico co-investment venture.
 
The following table reconciles the change in the Operating Partnership’s noncontrolling interests for the three months ended March 31, 2010 (dollars in thousands):
 
         
Balance as of December 31, 2009
  $ 312,743  
Net loss
    (410 )
Contributions
    3,769  
Distributions and allocations
    (2,067 )
Distributions
    (352 )
         
Balance as of March 31, 2010
  $ 313,683  
         
 
The following table details the noncontrolling interests of the Operating Partnership as of March 31, 2011 and December 31, 2010 (dollars in thousands):
 
                     
    March 31,
    December 31,
    Redemption/Callable
    2011     2010     Date
 
Joint venture partners
  $ 342,514     $ 325,590     N/A
Held through AMB Property II, L.P.:
                   
Class B limited partners
    17,495       18,036     N/A
                     
Total noncontrolling interests
  $ 360,009     $ 343,626      
                     


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table distinguishes the Operating Partnership’s noncontrolling interests’ share of net income, including noncontrolling interests’ share of development profits, for the three months ended March 31, 2011 and 2010 (dollars in thousands):
 
                 
    For the Three Months
 
    Ended March 31,  
    2011     2010  
 
Joint venture partners’ share of net income (loss)
  $ 2,049     $ (375 )
Held through AMB Property II, L.P.:
               
Class B common limited partnership units’ share of development profits
    9       39  
Class B common limited partnership units’ share of net income (loss)
    37       (74 )
                 
Total noncontrolling interests’ share of net income (loss)
  $ 2,095     $ (410 )
                 
 
The Operating Partnership has consolidated joint ventures that have finite lives under the terms of the joint venture agreements. As of March 31, 2011, the aggregate book value of the joint venture noncontrolling interests in the accompanying consolidated balance sheets was approximately $342.5 million. The Operating Partnership believes that the aggregate settlement value of these interests was approximately $453.5 million at March 31, 2011. However, there can be no assurance that this will be the aggregate settlement value of the interests. The aggregate settlement value is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that the Operating Partnership would distribute to its joint venture partners upon dissolution, as required under the terms of the respective joint venture agreements. There can be no assurance that the estimated liquidation values of the assets and liabilities and the resulting proceeds that the Operating Partnership distributes upon dissolution will be the same as the actual liquidation values of such assets, liabilities and proceeds distributed upon dissolution. Subsequent changes to the estimated fair values of the assets and liabilities of the consolidated joint ventures will affect the Operating Partnership’s estimate of the aggregate settlement value. The joint venture agreements do not limit the amount to which the noncontrolling joint venture partners would be entitled in the event of liquidation of the assets and liabilities and dissolution of the respective joint ventures.
 
9.   Investments in Unconsolidated Joint Ventures
 
The Company’s unconsolidated joint ventures’ net equity investments at March 31, 2011 and December 31, 2010 were (dollars in thousands):
 
                                         
    March 31, 2011     The Company’s Net
       
    The Company’s
          Equity Investments     Estimated
 
    Ownership
    Square
    March 31,
    December 31,
    Investment
 
Unconsolidated Joint Ventures   Percentage     Feet     2011     2010     Capacity  
 
Co-investment Ventures
                                       
AMB U.S. Logistics Fund, L.P.(1)
    33 %     38,431,931     $ 406,329     $ 409,377     $ 150,000  
AMB Europe Logistics Fund, FCP-FIS(2)
    37 %     10,887,361       174,127       172,903       300,000  
AMB Japan Fund I, L.P.(3)
    20 %     7,263,090       83,644       82,482        
AMB-SGP Mexico, LLC(4)
    22 %     6,352,103       20,193       20,646        
AMB DFS Fund I, LLC(5)
    15 %     195,210       14,303       14,426        
AMB Brazil Logistics Partners Fund I, L.P.(6)
    25 %     639,264       57,975       32,910       350,000  
Other Industrial Operating Joint Ventures(7)
    51 %     7,419,049       51,682       51,043       n/a  
                                         
Total Unconsolidated Joint Ventures(8)
            71,188,008     $ 808,253     $ 783,787     $ 800,000  
                                         


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(1) An open-ended co-investment partnership formed in 2004 with institutional investors, which invest through a private real estate investment trust, and a third-party limited partner.
 
(2) A Euro-denominated open-ended co-investment venture with institutional investors. The institutional investors have committed approximately 263.0 million Euros (approximately $372.4 million in U.S. dollars, using the exchange rate at March 31, 2011) for an approximate 63% equity interest. Effective October 29, 2010, the name of AMB Europe Fund I, FCP-FIS was changed to AMB Europe Logistics Fund, FCP-FIS.
 
(3) A Yen-denominated co-investment venture with 13 institutional investors. The 13 institutional investors have committed 49.5 billion Yen (approximately $595.5 million in U.S. dollars, using the exchange rate at March 31, 2011) for an approximate 80% equity interest.
 
(4) A co-investment venture with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(5) A co-investment venture with Strategic Realty Ventures, LLC. The investment period for AMB DFS Fund I, LLC ended in June 2009, and the remaining capitalization of this fund as of March 31, 2011 was the estimated investment of $5.9 million to complete the existing development assets held by the fund. Since inception, the Company has contributed $28.9 million of equity to the fund. During each of the three months ended March 31, 2011 and 2010, the Company contributed $0.1 million to this co-investment venture.
 
(6) A Brazilian Real denominated co-investment venture with a third-party university endowment partner, which is consolidated for accounting purposes. The third-party investor has committed approximately 360.0 million Brazilian Reais for a 50% equity interest (with a remaining uncalled commitment of approximately $188.9 million in U.S. dollars, using the exchange rate at March 31, 2011). This consolidated co-investment venture does not hold any properties directly, but holds a 50% equity interest in the unconsolidated joint venture previously established with the Company’s joint venture partner Cyrela Commercial Properties. This structure results in an effective 25% equity interest for the Company in the venture’s underlying development assets. During the three months ended March 31, 2011, this joint venture commenced development on 0.6 million square feet of properties.
 
(7) Other Industrial Operating Joint Ventures includes joint ventures between the Company and third parties which generally have been formed to take advantage of a particular market opportunity that can be accessed as a result of the joint venture partner’s experience in the market. The Company typically owns 40-60% of these joint ventures.
 
(8) In addition to the equity investment in the table, the Company, through its investment in AMB Property Mexico, held equity interests in various other unconsolidated ventures totaling approximately $14.0 million and $13.3 million as of March 31, 2011 and December 31, 2010, respectively. Additionally, in December 2010, the Company entered into a mortgage debt investment joint venture with a third-party partner, in which it held an equity interest of $87.6 million and $86.2 million as of March 31, 2011 and December 31, 2010, respectively.
 
On March 3, 2011, the Company announced the formation of AMB Europe Logistics JV, FCP-FIS, a co-investment venture with Allianz Real Estate whose strategy is to acquire, own and operate logistics properties primarily within major seaport, airport and distribution markets in the Eurozone. The initial third-party equity investment will be approximately 400.0 million Euros (approximately $566.3 million in U.S. dollars using the exchange rate in effect at March 31, 2011) and the venture’s overall equity commitment is 470.0 million Euros (approximately $665.4 million in U.S. dollars using the same exchange rate), including the Company’s 15% co-investment. As of March 31, 2011, no investments had been made in real estate properties within this co-investment venture.
 
On March 16, 2011, the Company announced the formation of AMB China Logistics Venture I, L.P., a co-investment venture with HIP China Logistics Investments Limited, whose strategy is to develop, acquire, own, operate and manage logistics properties primarily within key markets in China. The venture’s overall equity


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
commitment is $588.0 million, of which the Company will contribute $88.0 million for an approximate 15% ownership. As of March 31, 2011, no investments had been made in real estate properties within this co-investment venture.
 
For both the three months ended March 31, 2011 and 2010, the Company received no distributions from its unconsolidated joint ventures for the Company’s share of the proceeds from asset sales or financings during the respective periods.
 
The following table presents property related transactions for the Company’s unconsolidated co-investment ventures for the three months ended March 31, 2011 and 2010 (dollars in thousands):
 
                                                 
    AMB U.S. Logistics
  AMB Europe Logistics Fund,
  AMB DFS
    Fund, L.P.   FCP-FIS   Fund I, LLC
    For the Three Months Ended March 31,
    2011   2010   2011   2010   2011   2010
 
Number of properties acquired
    1       2       1                    
Square feet
    278,365       687,932       29,956                    
Acquisition cost(1)
  $ 17,300     $ 45,552     $ 5,202     $     $     $  
Development properties sold:
                                               
Square feet
                            4,817        
Gross Sales Price
  $     $     $     $     $ 578     $  
 
 
(1) Includes estimated total acquisition expenditures of approximately $0.1 million for properties acquired by AMB Europe Logistics Fund, FCP-FIS during the three months ended March 31, 2011. Includes estimated total acquisition expenditures of approximately $0.2 million for properties acquired by AMB U.S. Logistics Fund, L.P. during the three months ended March 31, 2010.
 
The following table presents summarized income statement information for the Company’s unconsolidated joint ventures for the three months ended March 31, 2011 and 2010 (dollars in thousands):
 
                                                                 
    For the Three Months
    For the Three Months
 
    Ended March 31, 2011     Ended March 31, 2010  
                Income
                      Income
       
                (Loss)
                      (Loss)
       
          Property
    from
    Net
          Property
    from
    Net
 
          Operating
    Continuing
    Income
          Operating
    Continuing
    Income
 
Unconsolidated Joint Ventures:   Revenues     Expenses     Operations     (Loss)     Revenues     Expenses     Operations     (Loss)  
 
Co-investment Ventures
                                                               
AMB U.S. Logistics Fund, L.P. 
  $ 71,051     $ (22,002 )   $ 4,034     $ 4,153     $ 68,521     $ (19,228 )   $ 1,663     $ 1,663  
AMB Europe Logistics Fund, FCP-FIS
    26,369       (5,708 )     3,130       3,130       23,301       (5,257 )     339       339  
AMB Japan Fund I, L.P. 
    29,185       (6,192 )     4,037       4,037       25,468       (5,433 )     5,246       5,246  
AMB-SGP Mexico, LLC
    8,922       (1,014 )     (1,881 )(1)     (1,881 )(1)     8,142       (1,555 )     (4,789 )(1)     (4,789 )(1)
AMB DFS Fund I, LLC
    33       (431 )     (503 )     (420 )           (201 )     (283 )     (281 )
AMB Brazil Logistics Partners Fund I, L.P.(2)
                38       38                          
                                                                 
Total Co-investment Ventures
    135,560       (35,347 )     8,855       9,057       125,432       (31,674 )     2,176       2,178  
Other Industrial Operating Joint Ventures
    8,534       (2,114 )     1,892       1,892       8,181       (1,978 )     1,503       1,503  
Other Industrial Development Joint Ventures
                                        (2 )     (2 )
                                                                 
Total Unconsolidated Joint Ventures
  $ 144,094     $ (37,461 )   $ 10,747     $ 10,949     $ 133,613     $ (33,652 )   $ 3,677     $ 3,679  
                                                                 


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(1) Includes $3.8 million of interest expense on loans from co-investment venture partners for each of the three months ended March 31, 2011 and 2010.
 
(2) This summarized financial information represents the financial position and results of operation of the Company’s joint venture with its partner Cyrela Commercial Properties, of which the Company holds a 25% equity interest through its 50% co-investment in AMB Brazil Logistics Partners Fund I, L.P.
 
In accordance with guidance issued by the FASB related to the consolidation of VIEs, the Company has performed an analysis of all of its joint venture entities to determine whether they would qualify as VIEs and whether the joint ventures should be consolidated or accounted for as an equity investment in an unconsolidated joint venture. As a result of the Company’s qualitative assessment to determine whether these joint venture entities are VIEs, the Company identified five joint venture entities, owned in conjunction with the same joint venture partner, which were VIEs based upon the criterion of having insufficient equity investment at risk. Because these five joint ventures, collectively referred to as the “Five Ventures,” have partnership and management agreements with the same joint venture partner and purposes that are nearly identical, the following disclosures are made in the aggregate for all Five Ventures. These Five Ventures have been formed as limited liability companies with the sole purpose of acquiring, developing, improving, maintaining, leasing, marketing and selling properties for profit, with the majority of the business activities to be financed by third-party debt. In determining whether there was sufficient equity investment at risk, the Company evaluated the individual balance sheets of the Five Ventures by comparing the equity balance as well as the outstanding debt balance to the total assets of the Five Ventures.
 
After determining whether any joint ventures are VIEs, the Company performs an assessment of which partner would be considered the primary beneficiary of the identified VIEs and would be required to consolidate the balance sheets and results of operations of these entities on a quarterly basis. This assessment is based upon which partner (1) had the power to direct matters that most significantly impact the activities of the VIEs, and (2) had the obligation to absorb losses or the right to receive benefits of the VIEs that could potentially be significant to the VIE based upon the terms of the partnership and management agreements. Both the Company and the joint venture partner in the entities had equal 50% ownership in the Five Ventures, and per the terms of the partnership agreement, they would both have an equal obligation to absorb losses or the right to receive benefits of the VIEs. While the joint venture partner is designated as the administrative member and has the full power to manage the affairs and operations of the Five Ventures, the partnership and management agreements require consent of both partners for any major decisions, which include: the adoption and any subsequent revision of the operating budget and business plan; the entry into any significant construction, development and property acquisition; any capital transaction including sale, financing or refinancing of the joint venture property; and the entry into or material modification to any lease of the joint venture property. Based upon this understanding, the Company concluded that both partners shared equal power in the significant decisions of the Five Ventures, as well as the financial rights and obligations, and therefore neither partner would consolidate the Five Ventures. As such, the Company accounts for the Five Ventures as an equity investment in unconsolidated joint ventures.
 
The Company includes the following balances related to the Five Ventures, as of March 31, 2011, in investments in unconsolidated joint ventures in the consolidated balance sheet as of March 31, 2011 (dollars in thousands):
 
                 
    As of March 31, 2011
    Equity
  Maximum Loss
    Investment   Exposure
 
Five Ventures
  $ 3,426     $ 3,426 (1)
 
 
(1) Per the partnership agreements for the Five Ventures, the Company’s liability is limited to its investment in the entities. The Company does not guarantee any third-party debt held by these Five Ventures. Capital contributions to the Five Ventures subsequent to the initial capital contribution require the unanimous approval of


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
both the Company and the joint venture partner, and, as of March 31, 2011, the Company has no commitment to make additional contributions to the Five Ventures.
 
10.   Stockholders’ Equity of the Parent Company
 
Holders of common limited partnership units of the Operating Partnership and class B common limited partnership units of AMB Property II, L.P. have the right to require the Operating Partnership or AMB Property II, L.P., as applicable, to redeem part or all of their common limited partnership units or class B common limited partnership units, as applicable, for cash (based upon the fair market value of an equivalent number of shares of common stock of the Parent Company at the time of redemption). The right of the holders of common limited partnership units is subject to the Operating Partnership or AMB Property II, L.P., in its respective sole and absolute discretion, electing to have the Parent Company exchange those common limited partnership units for shares of the Parent Company’s common stock, whether or not such shares are registered under the Securities Act of 1933, on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of certain rights, certain extraordinary distributions and similar events. The redemption right is also subject to the limits on ownership and transfer of common stock set forth in the Parent Company’s charter. With each exchange of the Operating Partnership’s common limited partnership units for the Parent Company’s common stock, the Parent Company’s percentage ownership in the Operating Partnership will increase. The redemption right commences on or after the first anniversary of a unitholder becoming a limited partner of the Operating Partnership or of AMB Property II, L.P., as applicable (or such other date agreed to by the Operating Partnership or AMB Property II, L.P. and the unit holder). During the three months ended March 31, 2011, 18,750 of the Operating Partnership’s common limited partnership units were exchanged for shares of the Parent Company’s common stock.
 
The Parent Company has authorized 100,000,000 shares of preferred stock for issuance, of which the following series were designated as of March 31, 2011: 2,300,000 shares of series L cumulative redeemable preferred, of which 2,000,000 are outstanding; 2,300,000 shares of series M cumulative redeemable preferred, all of which are outstanding; 3,000,000 shares of series O cumulative redeemable preferred, all of which are outstanding; and 2,000,000 shares of series P cumulative redeemable preferred, all of which are outstanding.
 
The series L, M, O and P preferred stock have preference rights with respect to distributions and liquidation over the common stock. Holders of the series L, M, O and P preferred stock are not entitled to vote on any matters, except under certain limited circumstances. In the event of a cumulative arrearage equal to six quarterly dividends, holders of the series L, M, O and P preferred stock will have the right to elect two additional members to serve on the Parent Company’s board of directors until dividends have been paid in full. At March 31, 2011, there were no dividends in arrears. The Parent Company may issue additional series of preferred stock ranking on a parity with the series L, M, O and P preferred stock, but may not issue any preferred stock senior to the series L, M, O and P preferred stock without the consent of two-thirds of the holders of each of the series L, M, O and P preferred stock. The series L, M, O and P preferred stock have no stated maturity and are not subject to mandatory redemption or any sinking fund. The series L and M preferred stock are redeemable solely at the option of the Parent Company, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends. The series O and P preferred stock will be redeemable at the option of the Parent Company on and after December 13, 2010 and August 25, 2011, respectively, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table reconciles the change in the Parent Company’s consolidated stockholders’ equity for the three months ended March 31, 2010 (dollars in thousands):
 
         
Balance as of December 31, 2009
  $ 3,291,320  
Net loss
    (620 )
Unrealized loss on securities and derivatives
    (1,700 )
Currency translation adjustment
    593  
         
Total comprehensive loss
    (1,727 )
Contributions
    3,769  
Distributions and allocations
    (2,173 )
Stock-based compensation amortization and issuance of restricted stock, net
    6,812  
Exercise of stock options
    1,548  
Forfeiture of stock
    (1,671 )
Dividends
    (46,783 )
         
Balance as of March 31, 2010
  $ 3,251,095  
         
 
The following table sets forth the dividends or distributions paid or payable per share:
 
                     
        For the Three Months
        Ended March 31,
Paying Entity   Security   2011   2010
 
AMB Property Corporation
  Common stock   $ 0.280     $ 0.280  
AMB Property Corporation
  Series L preferred stock   $ 0.406     $ 0.406  
AMB Property Corporation
  Series M preferred stock   $ 0.422     $ 0.422  
AMB Property Corporation
  Series O preferred stock   $ 0.438     $ 0.438  
AMB Property Corporation
  Series P preferred stock   $ 0.428     $ 0.428  
 
In September 2010, the Parent Company’s board of directors approved a two-year common stock repurchase program for the repurchase of up to $200.0 million of the parent company’s common stock. The Parent Company has not repurchased any shares of its common stock under this program.
 
As of March 31, 2011, the Parent Company’s stock incentive plans have approximately 2.7 million shares of common stock available for issuance as either stock options or restricted stock grants. The fair value of each option grant is generally estimated at the date of grant using the Black-Scholes option-pricing model. The Parent Company uses historical data to estimate option exercise and forfeitures within the valuation model. Expected volatilities are based on historical volatility of the Parent Company’s stock. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
 
The following table presents the assumptions and fair values for grants made during 2011:
 
                                                     
    Dividend Yield   Expected Volatility   Risk-free Interest Rate   Weighted Average
  Weighted Average
        Weighted
      Weighted
      Weighted
  Expected Life
  Grant Date
For the Quarter Ended   Range   Average   Range   Average   Range   Average   (Years)   Fair Value
 
March 31, 2011
  3.4% - 5.0%     5.0 %   37.9% - 42.6%     38.0 %   2.4% - 2.7%     2.4 %     6.5     $ 7.61  
 
As of March 31, 2011, approximately 9,103,685 options and 1,382,296 non-vested stock awards were outstanding under the plans. There were 925,979 stock options granted, 493,986 options exercised, and 23,246 options forfeited during the three months ended March 31, 2011. There were 548,389 restricted stock awards made, 452,108 non-vested stock awards that vested and 122 non-vested stock awards that were forfeited during the three months ended March 31, 2011. The grant date fair value of restricted stock awards as of the grant dates of the awards issued during the three months ended March 31, 2011 was $33.00. The unamortized expense for restricted stock as


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
of March 31, 2011 was $30.9 million which is expected to be recognized over a weighted average period of 2.8 years. As of March 31, 2011, the Parent Company had $10.4 million of total unrecognized compensation cost related to unvested options granted under the Parent Company’s stock incentive plans which is expected to be recognized over a weighted average period of 1.6 years.
 
During the three months ended March 31, 2011, the Parent Company did not issue any restricted share units (“RSUs”). RSUs are granted to certain employees at a rate of one common share per RSU and are valued on the grant date based upon the market price of a common share on that date. The value of the RSUs granted is recognized as compensation expense over the applicable vesting period, which is generally four years. Holders of RSUs do not receive voting rights, nor are they eligible to receive dividends declared on outstanding shares of common stock, during the vesting period. Shares of common stock equivalent to the number of RSUs granted are reserved for issuance until vesting of the RSUs has completed. During the three months ended March 31, 2011, 25,122 RSUs vested, and 58,893 RSUs are outstanding as of March 31, 2011.
 
11.   Partners’ Capital of the Operating Partnership
 
Holders of common limited partnership units of the Operating Partnership and class B common limited partnership units of AMB Property II, L.P. have the right to require the Operating Partnership or AMB Property II, L.P., as applicable, to redeem part or all of their common limited partnership units or class B common limited partnership units, as applicable, for cash (based upon the fair market value of an equivalent number of shares of common stock of the Parent Company at the time of redemption). The right of the holders of common limited partnership units is subject to the Operating Partnership or AMB Property II, L.P., in its respective sole and absolute discretion, electing to have the Parent Company exchange those common limited partnership units for shares of the Parent Company’s common stock, whether or not such shares are registered under the Securities Act of 1933, on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of certain rights, certain extraordinary distributions and similar events. The redemption right is also subject to the limits on ownership and transfer of common stock set forth in the Parent Company’s charter. With each exchange of the Operating Partnership’s common limited partnership units for the Parent Company’s common stock, the Parent Company’s percentage ownership in the Operating Partnership will increase. The redemption right commences on or after the first anniversary of a unitholder becoming a limited partner of the Operating Partnership or of AMB Property II, L.P., as applicable (or such other date agreed to by the Operating Partnership or AMB Property II, L.P. and the unit holder).
 
The series L, M, O and P preferred units have preference rights with respect to distributions and liquidation over the common units. The series L, M, O and P preferred units are only redeemable if and when the shares of the series L, M, O and P preferred stock are redeemed by the Parent Company. The series L, M, O and P preferred stock have no stated maturity and are not subject to mandatory redemption or any sinking fund. Any such redemption would be for a purchase price equivalent to that of the Parent Company’s preferred stock. The Parent Company’s series L and M preferred stock are redeemable solely at the option of the Parent Company, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends. The series O and P preferred stock will be redeemable solely at the option of the Parent Company on and after December 13, 2010 and August 25, 2011, respectively, in whole or in part, at $25.00 per share, plus accrued and unpaid dividends.
 
The Operating Partnership has classified the preferred and common units held by outside parties and by the Parent Company as permanent equity based on the following considerations:
 
  •  The Operating Partnership determined that settlement in the Parent Company’s stock is equivalent to settlement in equity of the Operating Partnership. The Parent Company’s only significant asset is its interest in the Operating Partnership and the Parent Company conducts substantially all of its business through the Operating Partnership. The Parent Company’s stock is the economic equivalent of the Operating Partnership’s corresponding units. The Company has concluded that a redemption and issuance of shares in exchange for units does not represent a delivery of assets.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
  •  In accordance with the guidance for Contracts in Entity’s Own Equity, the Operating Partnership, as the issuer of the units, controls the settlement options of the redemption of the units (shares or cash). Pursuant to an assignment agreement, the Parent Company has transferred to the Operating Partnership the right to elect to acquire some or all of any tendered units from the tendering partner in exchange for stock of the Parent Company. The unitholder has no control over whether it receives cash or Parent Company stock. There are no factors outside the issuer’s control that could impact those settlement options and there are no provisions that could require cash settlement upon redemption of units. The Operating Partnership units that are held by the Parent Company are redeemable only to maintain the 1:1 ratio of outstanding shares of the Parent Company to the outstanding units of the Operating Partnership and to facilitate the transfer of cash to the Parent Company from the Operating Partnership upon redemption of Parent Company stock. The Parent Company and the Operating Partnership are structured and operated as one interrelated, consolidated business under a single management. The decision to pay cash or have the Parent Company issue registered or unregistered shares of stock is made by a single management team acting for both the Operating Partnership and the Parent Company and causing the entities to act in concert.
 
  •  Management has concluded that there is no conflict in fiduciary duty or interest with respect to the decision to settle a redemption request in cash or common shares of the Parent Company.
 
As of March 31, 2011, the Operating Partnership had outstanding 169,321,293 common general partnership units; 2,058,730 common limited partnership units; 2,000,000 6.5% 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.
 
The following table reconciles the change in Operating Partnership’s partners’ capital for the three months ended March 31, 2010 (dollars in thousands):
 
         
Balance as of December 31, 2009
  $ 3,291,320  
Net loss
    (620 )
Unrealized loss on securities and derivatives
    (1,700 )
Foreign currency translation adjustments
    593  
         
Total comprehensive loss
    (1,727 )
Contributions
    3,769  
Distributions and allocations
    (2,173 )
Stock-based compensation amortization and issuance of common limited partnership units in connection with the issuance of restricted stock, net
    6,812  
Issuance of common limited partnership units in connection with the exercise of stock options
    1,548  
Forfeiture of common limited partnership units in connection with the forfeiture of stock
    (1,671 )
Distributions
    (46,783 )
         
Balance as of March 31, 2010
  $ 3,251,095  
         


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table sets forth the distributions paid or payable per unit:
 
                     
        For the Three Months
        Ended March 31,
Paying Entity   Security   2011   2010
 
AMB Property, L.P. 
  Common limited partnership units   $ 0.280     $ 0.280  
AMB Property, L.P. 
  Series L preferred units   $ 0.406     $ 0.406  
AMB Property, L.P. 
  Series M preferred units   $ 0.422     $ 0.422  
AMB Property, L.P. 
  Series O preferred units   $ 0.438     $ 0.438  
AMB Property, L.P. 
  Series P preferred units   $ 0.428     $ 0.428  
AMB Property II, L.P. 
  Class B common limited partnership units   $ 0.280     $ 0.280  
 
For each share of common stock the Parent Company issues pursuant to the Parent Company’s and Operating Partnership’s stock incentive plans, the Operating Partnership will issue a corresponding common partnership unit to the Parent Company. As of March 31, 2011, the stock incentive plans have approximately 2.7 million shares of common stock available for issuance as either stock options or restricted stock grants. Note 10 above entitled “Stockholders’ Equity of the Parent Company” should be read in conjunction with this Note 11 for a discussion of the activity under the Parent Company’s stock incentive plans.
 
12.   Income (Loss) Per Share and Unit
 
Effective January 1, 2009, the Company adopted a policy which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities. As participating securities, these instruments should be included in the computation of earnings per share (“EPS”) using the two-class method.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Parent Company had no dilutive stock options outstanding for either the three months ended March 31, 2011 or 2010. The computation of the Parent Company’s basic and diluted EPS is presented below (dollars in thousands, except share and per share amounts):
 
                 
    For the Three Months
 
    Ended March 31,  
    2011     2010  
 
Numerator
               
Loss from continuing operations attributable to common stockholders
  $ (4,632 )   $ (992 )
Preferred stock dividends
    (3,952 )     (3,952 )
                 
Loss from continuing operations (after noncontrolling interests’ share of loss from continuing operations, preferred stock dividends and preferred unit redemption discount)
    (8,584 )     (4,944 )
Total discontinued operations attributable to common stockholders after noncontrolling interests
    16,760       841  
Allocation to participating securities
    (355 )     (344 )
                 
Net income (loss) available to common stockholders
  $ 7,821     $ (4,447 )
                 
Denominator
               
Basic
    168,099,995       148,666,418  
Stock option dilution(1)
           
                 
Diluted weighted average common shares
    168,099,995       148,666,418  
                 
Basic income (loss) per common share attributable to AMB Property Corporation
               
Loss from continuing operations
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common stockholders(2)
  $ 0.05     $ (0.03 )
                 
Diluted income (loss) per common share attributable to AMB Property Corporation
               
Loss from continuing operations
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common stockholders(2)
  $ 0.05     $ (0.03 )
                 
 
 
(1) Excludes anti-dilutive stock options of 5,362,851 and 6,410,907 for the three months ended March 31, 2011 and 2010, respectively. These weighted average shares relate to anti-dilutive stock options, which are calculated using the treasury stock method, and could be dilutive in the future.
 
(2) In accordance with the Company’s policies for EPS and participating securities, the net income (loss) available to common stockholders is adjusted for earnings distributed through declared dividends and allocated to all participating securities (weighted average common shares outstanding and unvested restricted stock outstanding) under the two-class method. Under this method, allocations were made to 1,269,422 and 1,228,034 unvested restricted shares outstanding for the three months ended March 31, 2011 and 2010, respectively.
 
When the Parent Company issues shares of common stock upon the exercise of stock options or issues restricted stock, the Operating Partnership issues corresponding common general partnership units to the Parent Company on a one-for-one basis. The Operating Partnership had no dilutive stock options outstanding for either the three months ended March 31, 2011 or 2010. Such dilution was computed using the treasury stock method. The


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
computation of the Operating Partnership’s basic and diluted income (loss) per unit is presented below (dollars in thousands, except unit and per unit amounts):
 
                 
    For the Three Months
 
    Ended March 31,  
    2011     2010  
 
Numerator
               
Loss from continuing operations attributable to common unitholders
  $ (4,759 )   $ (1,063 )
Preferred stock distributions
    (3,952 )     (3,952 )
                 
Loss from continuing operations (after noncontrolling interests’ share of loss from continuing operations, preferred unit distributions and preferred unit redemption discount)
    (8,711 )     (5,015 )
Total discontinued operations attributable to common unitholders after noncontrolling interests
    16,986       853  
Allocation to participating securities
    (355 )     (344 )
                 
Net income (loss) available to common unitholders
  $ 7,920     $ (4,506 )
                 
Denominator
               
Basic
    170,173,425       150,786,346  
Stock option dilution(1)
           
                 
Diluted weighted average common units
    170,173,425       150,786,346  
                 
Basic income (loss) per common unit attributable to AMB Property, L.P.
               
Loss from continuing operations
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common unitholders(2)
  $ 0.05     $ (0.03 )
                 
Diluted income (loss) per common unit attributable to AMB Property, L.P.
               
Loss from continuing operations
  $ (0.05 )   $ (0.04 )
Discontinued operations
    0.10       0.01  
                 
Net income (loss) available to common unitholders(2)
  $ 0.05     $ (0.03 )
                 
 
 
(1) Excludes anti-dilutive stock options of 5,362,851 and 6,410,907 for the three months ended March 31, 2011 and 2010, respectively. These weighted average shares relate to anti-dilutive stock options, which are calculated using the treasury stock method, and could be dilutive in the future.
 
(2) In accordance with the Company’s policies for EPS and participating securities, the net income (loss) available to common unitholders is adjusted for earnings distributed through declared distributions and allocated to all participating securities (weighted average common units outstanding and unvested restricted units outstanding) under the two-class method. Under this method, allocations were made to 1,269,422 and 1,228,034 unvested restricted units outstanding for the three months ended March 31, 2011 and 2010, respectively.
 


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
13.   Segment Information
 
The Company has two lines of business: real estate operations and private capital. Real estate operations is comprised of various segments while private capital consists of a single segment, on which the Company evaluates its performance. For further details, refer to Note 17 of Part IV, Item 15 of the Annual Report on Form 10-K for the Parent Company and the Operating Partnership for the year ended December 31, 2010.
 
Summary information for the reportable segments is as follows (dollars in thousands):
 
                                                 
    Revenues     Property NOI(2)     Development Gains (Losses)  
    For the Three Months
    For the Three Months
    For the Three Months
 
    Ended March 31,     Ended March 31,     Ended March 31,  
Segments(1)   2011     2010     2011     2010     2011     2010  
 
U.S. Markets
                                               
Southern California
  $ 20,553     $ 19,540     $ 15,738     $ 15,154     $     $ 5  
No. New Jersey/New York
    15,912       14,694       9,191       8,965              
San Francisco Bay Area
    21,408       19,936       15,147       13,703             566  
Chicago
    8,922       9,527       5,053       5,930              
On-Tarmac
    12,396       12,863       5,673       6,482              
South Florida
    9,536       10,405       6,336       7,001              
Seattle
    4,658       3,771       3,558       2,713              
Toronto
    7,304       7,353       4,801       5,209              
Baltimore/Washington
    4,958       5,647       3,546       3,940              
Non — U.S. Markets
                                               
Europe
    7,236       5,673       4,334       2,860             (122 )
Japan
    10,484       8,015       7,558       5,456              
Other Markets
    31,144       28,816       19,971       18,970       1,637       4,354  
                                                 
Total markets
    154,511       146,240       100,906       96,383       1,637       4,803  
Straight-line rents and amortization
                                               
of lease intangibles
    5,972       4,289       5,972       4,289              
Discontinued operations
    (2,398 )     (3,884 )     (855 )     (2,145 )     (1,637 )      
Private capital income
    7,683       7,445                          
                                                 
Total
  $ 165,768     $ 154,090     $ 106,023     $ 98,527     $     $ 4,803  
                                                 
 
 
(1) The markets included in U.S. markets are a subset of the Company’s regions defined as East, West and Central in the Americas. Japan is a part of the Company’s Asia region.
 
(2) Property net operating income (“NOI”) is defined as rental revenues, including reimbursements, less property operating expenses. NOI excludes depreciation, amortization, general and administrative expenses, restructuring charges, real estate impairment losses, debt extinguishment losses, development profits (losses), gains (losses) from sale or contribution of real estate interests, and interest expense. The Company believes that net income, as defined by GAAP, is the most appropriate earnings measure. However, NOI is a useful supplemental measure calculated to help investors understand the Company’s operating performance, excluding the effects of gains (losses), costs and expenses which are not related to the performance of the assets. NOI is widely used by the real estate industry as a useful supplemental measure, which helps investors compare the Company’s operating performance with that of other companies. Real estate impairment losses have been excluded in deriving NOI because the Company does not consider its impairment losses to be a property operating expense.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company believes that the exclusion of impairment losses from NOI is a common methodology used in the real estate industry. Real estate impairment losses relate to the changing values of the Company’s assets but do not reflect the current operating performance of the assets with respect to their revenues or expenses. The Company’s real estate impairment losses are non-cash charges which represent the write down in the value of assets when estimated fair value over the holding period is lower than current carrying value. The impairment charges were principally a result of increases in estimated capitalization rates and deterioration in market conditions that adversely impacted underlying real estate values. Therefore, the impairment charges are not related to the current performance of the Company’s real estate operations and should be excluded from its calculation of NOI.
 
In addition, the Company believes that NOI helps investors compare the operating performance of its real estate as compared to other companies. While NOI is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered as an alternative to those measures in evaluating the Company’s liquidity or operating performance. NOI also does not reflect general and administrative expenses, interest expenses, real estate impairment losses, depreciation and amortization costs, capital expenditures and leasing costs, or trends in development and construction activities that could materially impact the Company’s results from operations. Further, the Company’s computation of NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. For a reconciliation of NOI to net income, see the table below.
 
The following table is a reconciliation from NOI to reported net income (loss), a financial measure under GAAP (dollars in thousands):
 
                 
    For the Three Months
 
    Ended March 31,  
    2011     2010  
 
Property NOI
  $ 106,023     $ 98,527  
Private capital revenues
    7,683       7,445  
Depreciation and amortization
    (54,986 )     (47,381 )
General and administrative
    (30,661 )     (31,951 )
Restructuring charges
          (2,973 )
Merger transaction costs
    (3,697 )      
Fund costs
    (241 )     (314 )
Other expenses
    (946 )     (1,191 )
Development profits, net of taxes
          4,803  
Equity in earnings of unconsolidated joint ventures, net
    7,800       3,875  
Other income
    1,238       289  
Interest expense, including amortization
    (34,942 )     (32,589 )
Total discontinued operations
    17,051       840  
                 
Net income (loss)
  $ 14,322     $ (620 )
                 


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company’s total assets by reportable segments were (dollars in thousands):
 
                 
    Total Assets as of  
    March 31,
    December 31,
 
    2011     2010  
 
U.S. Markets
               
Southern California
  $ 642,317     $ 640,329  
No. New Jersey/New York
    556,126       558,653  
San Francisco Bay Area
    761,172       754,632  
Chicago
    294,121       297,081  
On-Tarmac
    144,359       148,327  
South Florida
    402,348       401,298  
Seattle
    144,853       146,275  
Toronto
    313,649       307,472  
Baltimore/Washington
    133,118       133,197  
Non — U.S. Markets
               
Europe
    611,551       573,172  
Japan
    739,218       758,855  
Other Markets
    1,508,403       1,519,047  
                 
Total markets
    6,251,235       6,238,338  
Investments in unconsolidated joint ventures
    911,003       883,241  
Non-segment assets
    258,525       251,316  
                 
Total assets
  $ 7,420,763     $ 7,372,895  
                 
 
14.   Commitments and Contingencies
 
 
Lease Commitments.  The Company has entered into operating ground leases on certain land parcels, primarily on-tarmac facilities and office space with remaining lease terms of 1 to 79 years. Buildings and improvements subject to ground leases are depreciated ratably over the lesser of the terms of the related leases or 40 years.
 
Standby Letters of Credit.  As of March 31, 2011, the Company had provided approximately $13.2 million in letters of credit, of which $10.7 million was provided under the Operating Partnership’s $600.0 million unsecured credit facility. The letters of credit were required to be issued under certain ground lease provisions, bank guarantees and other commitments.
 
Guarantees and Contribution Obligations.  Excluding parent guarantees associated with debt or contribution obligations as discussed in Notes 5, 6 and 9 above, as of March 31, 2011, the Company had outstanding guarantees and contribution obligations in the aggregate amount of $406.2 million as described below.
 
As of March 31, 2011, 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 March 31, 2011, the Company also guaranteed $61.3 million and $84.0 million on outstanding loans on five of its consolidated joint ventures and three of its unconsolidated joint ventures, respectively.
 
Also, the Company has entered into contribution agreements with its unconsolidated co-investment ventures. These contribution agreements require the Company to make additional capital contributions to the applicable


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
co-investment venture upon certain defaults by the co-investment venture of certain 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 its 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 totaled $260.6 million as of March 31, 2011.
 
As of March 31, 2011, the Company may make additional capital contributions to current and planned co-investment ventures of up to $464.6 million pursuant to the terms of the co-investment venture agreements.
 
Performance and Surety Bonds.  As of March 31, 2011, the Company had outstanding performance and surety bonds in an aggregate amount of $4.8 million. These bonds were issued in connection with certain of its development projects and were posted to guarantee certain property tax obligations and the construction of certain real property improvements and infrastructure. The performance and surety bonds are renewable and expire upon the payment of the property taxes due or the completion of the improvements and infrastructure.
 
Promote Interests and Other Contractual Obligations.  Upon the achievement of certain return thresholds and the occurrence of certain events, the Company may be obligated to make payments to certain of its joint venture partners pursuant to the terms and provisions of their contractual agreements with the Operating Partnership. From time to time in the normal course of the Company’s business, the Company enters into various contracts with third parties that may obligate it to make payments, pay promotes or perform other obligations upon the occurrence of certain events.
 
 
Litigation.  In the normal course of business, from time to time, the Company may be involved in legal actions relating to the ownership and operations of its properties and its other business activities. Management does not expect that the liabilities, if any, that may ultimately result from such legal actions will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
 
The Parent Company and the Operating Partnership have been named as defendants in several pending putative shareholder class actions filed in connection with the combination of the Parent Company and ProLogis (the “Merger”).
 
Three of the actions were filed in the District Court for the City and County of Denver, Colorado. These cases have been consolidated, and on or about April 1, 2011, plaintiffs filed a consolidated class action complaint against ProLogis, the members of the ProLogis board of trustees, the Parent Company, New Pumpkin Inc., Upper Pumpkin LLC, Pumpkin LLC and the Operating Partnership. The complaint alleges that ProLogis’ trustees breached their fiduciary duties in connection with entering into the merger agreement and that ProLogis, the Parent Company, New Pumpkin Inc., Upper Pumpkin LLC, Pumpkin LLC and the Operating Partnership aided and abetted the breaches of those fiduciary duties. The complaint further alleges that the registration statement filed on Form S-4 in connection with the special meetings of the shareholders of each of the Parent Company and ProLogis to vote on the transaction (the “Registration Statement”) contains material omissions and misstatements. The plaintiffs seek, among other relief, an order to (i) enjoin the defendants from consummating the Merger unless and until ProLogis adopts and implements a procedure or process reasonably designed to enter into a merger agreement providing the best possible value for ProLogis’ shareholders, (ii) direct the defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of ProLogis’ shareholders and to refrain from entering into any transaction until the process for the sale or merger of ProLogis is completed and the highest possible value obtained, (iii) rescind the merger agreement, to the extent already implemented, and (iv) award plaintiffs’ costs and disbursements of the action. Defendants have moved to stay the Colorado action in favor of the Maryland action described below. Plaintiffs have moved for expedited discovery, and the defendants have opposed that motion.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Two of the actions were filed in the Circuit Court of Maryland for Baltimore City. The actions have been consolidated, and the plaintiffs filed a consolidated class action and derivative complaint on or about March 28, 2011. The Maryland consolidated complaint names the same defendants as the Colorado consolidated complaint. The complaint alleges that the members of the ProLogis board of trustees breached their fiduciary duties in connection with the Merger and that the Parent Company and the Operating Partnership aided and abetted the breaches of those fiduciary duties. The complaint further alleges that the Registration Statement is misleading and incomplete. The plaintiffs in this action seek, among other relief, an order to (i) enjoin, preliminarily and permanently, the Merger, (ii) rescind the Merger in the event it is consummated or award rescissory damages, (iii) direct the defendants to account to plaintiffs and all other members of the class for all damages, profits and any special benefits defendants obtained as a result of their breaches of fiduciary duties, and (iv) award plaintiffs the costs of the action. Defendants moved to dismiss the Maryland action for failure to state a claim and to stay all discovery pending a ruling on their motion to dismiss; the plaintiffs moved for expedited discovery in advance of a preliminary injunction hearing. On April 15, 2011, the parties to the Maryland action executed a memorandum of understanding that embodies their agreement in principle on the structure of a proposed settlement. The proposed settlement, which is subject to confirmatory discovery and court approval following notice to the class of all ProLogis shareholders during the period from January 30, 2011 through the date of the consummation of the proposed merger (the “Class”), would dismiss all causes of action asserted in the Maryland consolidated complaint and release all claims that members of the Class may have arising out of or relating in any manner to the proposed merger, including all claims being asserted in the Colorado action. Pursuant to the terms of the proposed settlement, defendants agreed to make certain supplemental disclosures to shareholders in the Registration Statement. The parties reported to the Maryland court on April 18, 2011 that they had reached agreement on a proposed settlement and executed a memorandum of understanding. On April 27, 2011, the parties to the consolidated action in Colorado reached an agreement in principle on the structure of a proposed settlement. Under the proposed settlement, which is subject to confirmatory discovery and approval of the Maryland court following notice to the Class, defendants agreed to make additional disclosures in the Registration Settlement.
 
The Parent Company and the Operating Partnership believe that the claims asserted against them in these lawsuits are without merit and intend to defend themselves vigorously against the claims.
 
Environmental Matters.  The Company monitors its properties for the presence of hazardous or toxic substances. The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability would have an adverse effect on the Company’s results of operations and cash flow. The Company carries environmental insurance and believes that the policy terms, conditions, limits and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage and current industry practice.
 
General Uninsured Losses.  The Company carries property and rental loss, liability, flood and terrorism insurance. The Company believes that the policy terms, conditions, limits and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage and current industry practice. In addition, a significant number of the Company’s properties are located in areas that are subject to earthquake activity. As a result, the Company has obtained limited earthquake insurance on those properties. There are, however, certain types of extraordinary losses, such as those due to acts of war, that may be either uninsurable or not economically insurable. Although the Company has obtained coverage for certain acts of terrorism, with policy specifications and insured limits that it believes are commercially reasonable, there can be no assurance that the Company will be able to collect under such policies. Should an uninsured loss occur, the Company could lose its investment in, and anticipated profits and cash flows from, a property.
 
Captive Insurance Company.  The Company has a wholly owned captive insurance company, Arcata National Insurance Ltd. (Arcata), which provides insurance coverage for all or a portion of losses below the


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
attachment point of the Company’s third-party insurance policies. The captive insurance company is one element of the Company’s overall risk management program. The Company capitalized Arcata in accordance with the applicable regulatory requirements. Arcata establishes annual premiums based on projections derived from the past loss experience at the Company’s properties. Like premiums paid to third-party insurance companies, premiums paid to Arcata may be reimbursed by customers pursuant to specific lease terms. Through this structure, the Company believes that it has more comprehensive insurance coverage at an overall lower cost than would otherwise be available in the market.
 
15.   Derivatives and Hedging Activities
 
 
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company’s derivative financial instruments in effect at March 31, 2011 used to manage these exposures and differences were 24 outstanding interest rate swaps and one interest rate cap hedging cash flows of variable rate borrowings based on U.S. LIBOR.
 
Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar. At March 31, 2011, the Company had four foreign exchange forward contracts hedging intercompany loans.
 
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium.
 
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive (loss) income as a separate component of stockholders’ equity for the Parent Company and within partners’ capital for the Operating Partnership and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended ended March 31, 2011, such derivatives were used to hedge the variable cash flows associated with existing variable-rate borrowings.
 
Amounts reported in accumulated other comprehensive (loss) income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. For the next twelve months from March 31, 2011, the Company estimates that an additional $0.1 million will be reclassified as a decrease to interest expense.


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of March 31, 2011, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
 
                 
    Number of
  Trade Notional
Related Derivatives   Instruments   Amount
        (in thousands)
 
Interest rate swaps (EUR)
    18     $ 1,121,109 (1)
Interest rate swap (JPY)
    5     $ 231,634  
Interest rate cap (USD)
    1     $ 26,500  
 
 
(1) Includes five interest rate swaps entered into for the same notional amount with each of three different lenders. See Part 1, Item 3: “Quantitative and Qualitative Disclosures About Market Risk” for a detail of the individual interest rate swaps.
 
Non-designated Derivatives
 
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to identified risks, such as foreign currency exchange rate fluctuations, but do not meet the strict hedge accounting requirements of the accounting policy for derivative instruments and hedging activities. At March 31, 2011, the Company had four foreign exchange forward contracts hedging intercompany loans, one interest rate swap and one interest rate cap hedging a construction loan and other variable rate borrowings which were not designated as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and are offset by changes in the fair value of the underlying assets or liabilities being hedged, which are also recorded in earnings.
 
As of March 31, 2011, the Company had the following outstanding derivatives that were non-designated hedges:
 
                 
    Number of
  Trade Notional
Related Derivatives   Instruments   Amount
        (in thousands)
 
Interest rate swap (EUR)
    1     $ 26,617  
Foreign exchange forward contracts
    4     $ 451,446  
 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2011 and December 31, 2010 (in thousands):
 
                                 
    Fair Value of Derivative Instruments at March 31, 2011  
    Asset Derivatives     Liability Derivatives  
    Balance Sheet
          Balance Sheet
       
    Location     Fair Value     Location     Fair Value  
 
Derivatives designated as hedging instruments
                               
Interest rate swaps
    Other assets     $ 5,607       Other liabilities     $ 727  
Interest rate cap
    Other assets       4       Other liabilities        
                                 
Total
          $ 5,611             $ 727  
                                 
Derivatives not designated as hedging instruments
                               
Interest rate swap
    Other assets     $ 977       Other liabilities     $  
Foreign exchange forward contracts
    Other assets       339       Other liabilities       477  
                                 
Total
          $ 1,316             $ 477  
                                 
Total derivative instruments
          $ 6,927             $ 1,204  
                                 


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AMB PROPERTY CORPORATION AND AMB PROPERTY, L.P.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                 
    Fair Value of Derivative Instruments at December 31, 2010  
    Asset Derivatives     Liability Derivatives  
    Balance Sheet
          Balance Sheet
       
    Location     Fair Value     Location     Fair Value  
 
Derivatives designated as hedging instruments
                               
Interest rate swap
    Other assets     $ 835       Other liabilities     $ 1,730  
Interest rate cap
    Other assets       8       Other liabilities        
                                 
Total
          $ 843             $ 1,730