2008-07-24 07:00:00
ProLogis Reports Second Quarter 2008 Results
- First Half FFO Results Up from 2007 -
- Company Confirms Full-year 2008 Guidance -
TOKYO, July 24 /EMWNews/ -- ProLogis (NYSE: PLD), the
world's largest owner, manager and developer of distribution facilities,
today reported funds from operations as defined by ProLogis (FFO) for the
quarter ended June 30, 2008, of $1.06 per diluted share, down from $1.16 in
2007. Growth in income from the company's Investment Management business
was offset by lower CDFS gains, as well as a reduced level of property
income due to disposition activity in the second quarter of 2007. Net
earnings per diluted share for the quarter were $0.80, compared with $1.50
in 2007. Net earnings in the second quarter of 2007 included approximately
$0.56 of gains associated with the disposition of non-CDFS properties,
which are not included in FFO, compared with $0.02 of similar gains during
the same period in 2008.
For the six months ended June 30, 2008, FFO was $2.44 per diluted
share, up from $2.41 in the first six months of 2007. Net earnings per
diluted share for the six months ended June 30, 2008, were $1.53, compared
with $2.39 in the same period of 2007, primarily due to the non-CDFS gains
noted above.
"Our solid results for the second quarter reflect the geographically
diversified nature of our global logistics infrastructure platform,"
Jeffrey H. Schwartz, ProLogis chairman and chief executive officer, said
from Tokyo. "Throughout Asia and Central Europe, growing domestic
consumption, exports and the lack of modern distribution space continue to
support strong demand. Operating property fundamentals held up well,
despite a difficult financial environment, and further signs of moderating
demand for industrial space in the United States and the United Kingdom.
"We continue to pursue our disciplined investment strategy, deploying
capital in the areas of the world where we see the greatest risk-adjusted
returns and the strongest logistics market opportunities. The breadth of
our platform allows us to take advantage of these opportunities."
During the second quarter, the company recognized increases in FFO and
fees from its Investment Management business and achieved growth in leased
space, rents and net operating income in its same-store pool. "Development
margins are moving toward more normalized levels, reflecting our
sustainable expectations for the business. New supply and the potential for
overbuilding have been significantly reduced by the return to historic
margin levels and continued capacity constraints in the debt markets.
Ultimately, we believe these factors will result in healthier market
conditions, and those companies with access to capital will be well
positioned to capture opportunities," Schwartz added.
Company Confirms 2008 Guidance
The company confirms its guidance for 2008 FFO of $4.65 to $4.85 per
share and net earnings of $3.15 to $3.35 per share. In addition, the
company stated that it slightly exceeded its prior expectations for first
half 2008 profitability primarily due to the recognition of certain CDFS
gains, which had originally been anticipated in the third quarter, as well
as lower losses related to the company's share of remeasurement and
settlement losses on interest rate derivative contracts entered into by
ProLogis' unconsolidated property funds. As a result, the company now
anticipates that approximately 47 to 49 percent of full-year FFO per share
will be recognized in the second half of the year, with roughly two-thirds
of that amount being recognized in the fourth quarter, due to a larger
expected volume of CDFS contributions. The weighting of earnings per share
is expected to be similar to the distribution of FFO per share for the
remaining quarters.
Continued Strength in International Demand
The company noted that global trade continues to be relatively strong,
particularly throughout Asia, driving demand for distribution space in key
global logistics markets. "Our concentration of existing facilities and
land positions near major seaports, inland ports and rail-served locations
allows us to address this demand and drives our development business," said
Ted R. Antenucci, ProLogis president and chief investment officer. "While
there is a greater degree of market uncertainty in the United States and
the United Kingdom, over 87 percent of our development starts year to date
are in markets outside these countries."
ProLogis began construction of $1.01 billion of new development during
the second quarter, including development within its retail and mixed-use
and industrial joint ventures, bringing the company's total CDFS asset
pipeline to $8.65 billion at June 30, 2008. Of this amount, total expected
investment in projects currently under construction is $4.47 billion, while
the space associated with the remaining $4.18 billion of completed
developments and repositioned properties was 55.1 percent leased at quarter
end based on expected investment, up from 53.7 percent at March 31, 2008.
During the quarter, the company signed approximately 34.3 million
square feet of leases worldwide, bringing the total for the first half of
the year to 60.8 million square feet. Of that total, 14.6 million square
feet were new CDFS leases, including those second quarter transactions with
repeat customers such as: Amazon.com in Las Vegas, Nippon Express in
Nagoya, Volkswagen in Beijing and Schenker in Paris.
Overall US Markets Impacted by Economic Conditions
"Compared with previous US downturns, industrial supply and demand are
better balanced, reflecting a significant decrease in new speculative
development activity," said Walter C. Rakowich, president and chief
operating officer. During the second quarter, the company reported that
overall net absorption in the top 30 North American logistics markets
declined to roughly 10.8 million square feet, and vacancies in these 30
markets increased to 8.5 percent from 7.9 percent at March 31, 2008.
"Our stabilized North American portfolio remains well leased at 94.4
percent. During the second quarter, all of our US development starts were
preleased, while we started two inventory projects outside the United
States in Toronto and Mexico City -- both relatively healthy markets," said
Diane S. Paddison, executive director of global operations.
Selected Financial and Operating Information
-- Increased same-store net operating income in the quarter by 1.6
percent, resulting from 1.3 percent growth in leased space and rent growth
on turnovers of 3.1 percent. For the first six months, same-store net
operating income increased 2.4 percent, resulting from a 1.6 percent
increase in leased space and rent growth on turnovers of 4.7 percent.
-- Maintained strong occupancy in the global stabilized portfolio of
94.2 percent, compared with 94.6 percent at March 31, 2008.
-- Recycled a total of $1.30 billion of capital through contributions
and dispositions during the quarter. Of the total, $1.28 billion was from
CDFS dispositions, with $79.8 million of that from acquired property
portfolios. The remaining $20.5 million was from non-CDFS dispositions.
Year-to-date total dispositions were $2.76 billion, with $2.70 billion from
CDFS dispositions.
-- Realized FFO from CDFS dispositions of $200.3 million for the
quarter. Pre-deferral, post-tax margins for developed and repositioned
properties during the second quarter averaged 24.5 percent, while post-tax,
post-deferral margins were 19.6 percent.
-- Increased total assets owned and under management to $40.4 billion,
up from $36.3 billion at December 31, 2007, a year-to-date increase of 11.3
percent.
-- Grew ProLogis' share of FFO from property funds to $41.1 million for
the quarter, compared with $33.2 million for the second quarter of 2007, an
increase of 23.8 percent.
-- Recognized fee income from property funds of $32.6 million, compared
with $23.9 million for the second quarter of 2007, an increase of 36.4
percent.
Copies of ProLogis' second quarter 2008 supplemental information will
be available from the company's website at http://ir.prologis.com. The
supplemental information also is available on the SEC's website at
http://www.sec.gov. The related conference call will be available via a
live webcast on the company's website at http://ir.prologis.com at 10:00
a.m. Eastern Time on Thursday, July 24, 2008. A replay of the webcast will
be available on the company's website until September 30, 2008.
Additionally, a podcast of the company's conference call will be available
on the company's website as well as on the REITCafe website located at
http://www.REITcafe.com.
About ProLogis
ProLogis is the world's largest owner, manager and developer of
distribution facilities, with operations in 132 markets across North
America, Europe and Asia. The company has $40.4 billion of assets owned,
managed and under development, comprising 542.3 million square feet (50.4
million square meters) in 2,884 properties as of June 30, 2008. ProLogis'
customers include manufacturers, retailers, transportation companies,
third-party logistics providers and other enterprises with large-scale
distribution needs. Headquartered in Denver, Colorado, ProLogis employs
over 1,500 people worldwide.
The statements above that are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in
which ProLogis operates, management's beliefs and assumptions made by
management, they involve uncertainties that could significantly impact
ProLogis' financial results. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such
words and similar expressions are intended to identify such forward-looking
statements, which generally are not historical in nature. All statements
that address operating performance, events or developments that we expect
or anticipate will occur in the future -- including statements relating to
rent and occupancy growth, development activity and changes in sales or
contribution volume of developed properties, general conditions in the
geographic areas where we operate and the availability of capital in
existing or new property funds -- are forward-looking statements. These
statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict.
Although we believe the expectations reflected in any forward-looking
statements are based on reasonable assumptions, we can give no assurance
that our expectations will be attained and therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. Some of the factors that may affect outcomes
and results include, but are not limited to: (i) national, international,
regional and local economic climates, (ii) changes in financial markets,
interest rates and foreign currency exchange rates, (iii) increased or
unanticipated competition for our properties, (iv) risks associated with
acquisitions, (v) maintenance of real estate investment trust ("REIT")
status, (vi) availability of financing and capital, (vii) changes in demand
for developed properties, and (viii) those additional factors discussed
under "Item 1A -Risk Factors" in ProLogis' Annual Report on Form 10-K for
the year ended December 31, 2007.
ProLogis
Second Quarter 2008
Unaudited Financial Results
Selected Financial Information
(in thousands, except per share amounts and percentages)
Three Months Ended Six Months Ended
SUMMARY OF RESULTS June 30, June 30,
2008 2007 2008 2007
Net earnings attributable
to common shares:
Net earnings attributable
to common shares $217,392 $400,104 $411,397 $636,195
Net earnings per share
attributable to common
shares - diluted $0.80 $1.50 $1.53 $2.39
FFO:
FFO attributable to
common shares $288,365 $309,905 $657,486 $639,618
FFO per share
attributable to common
shares - diluted $1.06 $1.16 $2.44 $2.41
Distributions declared
per common share (1) $0.5175 $0.46 $1.035 $0.92
OPERATING METRICS Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Same Store:
NOI + 1.62% + 6.16% + 2.43% + 5.89%
Rental Rates + 3.06% + 8.26% + 4.65% + 7.80%
Average Leasing + 1.29% + 2.66% + 1.58% + 2.92%
Total Expected Investment
of Development Starts $1,013,127 $687,811 $1,942,731 $1,303,411
See our definition of FFO and our definition of EBITDA.
Footnotes follow Consolidated Balance Sheets.
ProLogis
Second Quarter 2008
Unaudited Financial Results
Consolidated Statements of Earnings
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenues:
Rental income (2) $262,380 $270,840 $531,090 $527,386
CDFS disposition proceeds:
Developed and repositioned
properties 1,136,655 686,715 2,400,068 1,356,653
Acquired property
portfolios 79,843 - 163,175 -
Property management and
other fees and incentives 32,580 23,937 62,070 45,584
Development management and
other income 3,374 6,176 10,531 13,615
Total revenues 1,514,832 987,668 3,166,934 1,943,238
Expenses:
Rental expenses 86,186 75,052 177,159 142,180
Cost of CDFS dispositions:
Developed and repositioned
properties 936,610 476,684 1,921,917 915,675
Acquired property
portfolios 79,843 - 163,175 -
General and administrative(3) 59,215 48,423 115,687 96,765
Depreciation and amortization 84,866 74,004 162,238 151,973
Other expenses 5,633 15,068 8,103 17,934
Total expenses 1,252,353 689,231 2,548,279 1,324,527
Operating income 262,479 298,437 618,655 618,711
Other income (expense):
Earnings from unconsolidated
property funds (4) 36,553 15,804 17,986 34,768
(Losses) earnings from CDFS
joint ventures and other
unconsolidated investees (6,878) 1,773 (3,606) 2,317
Interest expense (5) (84,136) (90,640) (169,260) (179,291)
Interest and other income, net 9,644 9,735 15,260 20,909
Total other income(expense) (44,817) (63,328) (139,620) (121,297)
Earnings before minority
interest 217,662 235,109 479,035 497,414
Minority interest share in
loss (income) 4,585 (723) 3,479 (896)
Earnings before certain net
gains 222,247 234,386 482,514 496,518
Gains recognized on
dispositions of certain non-
CDFS business assets (6) 4,662 124,085 4,662 124,085
Foreign currency exchange
gains (losses), net 12,095 22,706 (24,606) 9,154
Earnings before income taxes 239,004 381,177 462,570 629,757
Income taxes:
Current income tax expense 12,692 26,645 37,524 44,745
Deferred income tax expense
(benefit) 6,236 (9,503) 8,736 (6,182)
Total income taxes 18,928 17,142 46,260 38,563
Earnings from continuing
operations 220,076 364,035 416,310 591,194
Discontinued operations (7):
(Loss) income attributable
to disposed properties and
assets held for sale (150) 1,069 32 3,050
Gains recognized on
dispositions:
Non-CDFS business assets 1,856 27,161 5,669 32,125
CDFS business assets 1,994 14,196 2,124 22,537
Total discontinued
operations 3,700 42,426 7,825 57,712
Net earnings 223,776 406,461 424,135 648,906
Less preferred share dividends 6,384 6,357 12,738 12,711
Net earnings attributable to
common shares $217,392 $400,104 $411,397 $636,195
Weighted average common shares
outstanding - Basic 262,715 257,086 260,827 255,677
Weighted average common shares
outstanding - Diluted 272,317 267,880 270,370 266,723
Net earnings per share
attributable to common shares
- Basic:
Continuing operations $0.82 $1.39 $1.55 $2.26
Discontinued operations 0.01 0.17 0.03 0.23
Net earnings per share
attributable to common shares -
Basic $0.83 $1.56 $1.58 $2.49
Net earnings per share
attributable to common shares
- Diluted:
Continuing operations $0.79 $1.34 $1.50 $2.17
Discontinued operations 0.01 0.16 0.03 0.22
Net earnings per share
attributable to common shares
- Diluted $0.80 $1.50 $1.53 $2.39
Calculation of Net Earnings per Share Attributable to Common
Shares - Diluted
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net earnings attributable to
common shares - Basic $217,392 $400,104 $411,397 $636,195
Minority interest (a) 1,087 1,474 2,238 2,462
Adjusted net earnings attributable
to common shares - Diluted $218,479 $401,578 $413,635 $638,657
Weighted average common shares
outstanding - Basic 262,715 257,086 260,827 255,677
Incremental weighted average
effect of conversion of limited
partnership units 5,053 5,108 5,053 5,124
Incremental weighted average
effect of potentially dilutive
instruments (b) 4,549 5,686 4,490 5,922
Weighted average common shares
outstanding - Diluted 272,317 267,880 270,370 266,723
Net earnings per share
attributable to common shares -
Diluted $0.80 $1.50 $1.53 $2.39
COMMENTS
(a) Includes only the minority interest related to the convertible limited
partnership units.
(b) Total weighted average potentially dilutive instruments outstanding
were 10,276 and 10,283 for the three months ended June 30, 2008 and
2007, respectively, and 10,453 and 10,557 for the six months ended
June 30, 2008 and 2007, respectively. Substantially all were dilutive
for all periods.
Footnotes follow Consolidated Balance Sheets.
ProLogis
Second Quarter 2008
Unaudited Financial Results
Consolidated Statements of Funds From Operations (FFO)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenues:
Rental income $262,501 $274,751 $531,977 $537,052
CDFS disposition proceeds:
Developed and
repositioned properties 1,151,862 792,524 2,415,275 1,529,951
Acquired property
portfolios 79,843 - 163,175 -
Property management and
other fees and incentives 32,580 23,937 62,070 45,584
Development management and
other income 3,374 6,176 10,531 13,615
Total revenues 1,530,160 1,097,388 3,183,028 2,126,202
Expenses:
Rental expenses 86,302 76,653 177,653 145,828
Cost of CDFS dispositions:
Developed and
repositioned properties 951,533 568,297 1,936,710 1,068,773
Acquired property
portfolios 79,843 - 163,175 -
General and administrative(3) 59,215 48,423 115,687 96,765
Depreciation of corporate
assets 4,731 2,585 8,151 5,291
Other expenses 5,633 15,068 8,103 17,934
Total expenses 1,187,257 711,026 2,409,479 1,334,591
342,903 386,362 773,549 791,611
Other income (expense):
FFO from unconsolidated
property funds (4) 41,075 33,249 78,387 63,869
FFO from CDFS joint
ventures and other
unconsolidated investees (4,685) 3,920 480 6,056
Interest expense (5) (84,136) (90,640) (169,260) (179,291)
Interest and other income, net 9,644 9,735 15,260 20,909
Foreign currency exchange
losses, net (1,945) (2,034) (3,805) (8,222)
Current income tax expense (12,692) (23,607) (27,866) (41,707)
Total other income
(expense) (52,739) (69,377) (106,804) (138,386)
FFO 290,164 316,985 666,745 653,225
Less preferred share
dividends 6,384 6,357 12,738 12,711
Less minority interest share
in (loss) income (4,585) 723 (3,479) 896
FFO attributable to common
shares $288,365 $309,905 $657,486 $639,618
Weighted average common
shares outstanding - Basic 262,715 257,086 260,827 255,677
Weighted average common
shares outstanding - Diluted 272,317 267,880 270,370 266,723
FFO per share attributable to
common shares:
Basic $1.10 $1.21 $2.52 $2.50
Diluted $1.06 $1.16 $2.44 $2.41
Calculation of FFO per Share Attributable to Common Shares - Diluted
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
FFO attributable to common shares
- Basic $288,365 $309,905 $657,486 $639,618
Minority interest attributable to
convertible limited partnership
units 1,087 1,474 2,238 2,462
FFO attributable to common shares
- Diluted $289,452 $311,379 659,724 642,080
Weighted average common shares
outstanding - Diluted 272,317 267,880 270,370 266,723
FFO per share attributable to
common shares - Diluted $1.06 $1.16 $2.44 $2.41
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
See our definition of FFO and our definition of EBITDA.
Footnotes follow Consolidated Balance Sheets.
Definition of FFO
FFO is a non-Generally Accepted Accounting Principles (GAAP) measure that
is commonly used in the real estate industry. The most directly comparable
GAAP measure to FFO is net earnings. Although the National Association of
Real Estate Investment Trusts (NAREIT) has published a definition of FFO,
modifications to the NAREIT calculation of FFO are common among REITs, as
companies seek to provide financial measures that meaningfully reflect
their business. FFO, as we define it, is presented as a supplemental
financial measure. FFO is not used by us as, nor should it be considered
to be, an alternative to net earnings computed under GAAP as an indicator
of our operating performance or as an alternative to cash from operating
activities computed under GAAP as an indicator of our ability to fund our
cash needs.
FFO is not meant to represent a comprehensive system of financial
reporting and does not present, nor do we intend it to present, a complete
picture of our financial condition and operating performance. We believe
that GAAP net earnings remains the primary measure of performance and that
FFO is only meaningful when it is used in conjunction with GAAP net
earnings. Further, we believe that our consolidated financial statements,
prepared in accordance with GAAP, provide the most meaningful picture of
our financial condition and our operating performance.
NAREIT's FFO measure adjusts GAAP net earnings to exclude historical cost
depreciation and gains from the sale of previously depreciated properties.
In addition to the NAREIT adjustments, we exclude additional items from
GAAP net earnings, although not infrequent or unusual, that are subject to
significant fluctuations from period to period that cause both positive
and negative effects on our results of operations, in inconsistent and
unpredictable directions, such as deferred income tax, current income tax
related to the reversal of any acquired tax liabilities in an acquisition,
foreign currency exchange gains/losses related to certain debt
transactions and gains/losses from remeasurement of certain derivative
instruments. We include gains from dispositions of properties acquired or
developed in our CDFS business segment in our definition of FFO. We
calculate FFO from our unconsolidated investees on the same basis.
We believe our adjustments to GAAP net earnings that are included in
arriving at our FFO measure are helpful to management in making real
estate investment decisions and evaluating our current operating
performance. We believe these adjustments are also helpful to industry
analysts, potential investors and shareholders in their understanding and
evaluation of our performance on the key measures of net asset value and
current operating returns generated on real estate investments. While we
believe that our defined FFO measure is an important supplemental measure,
neither NAREIT's nor our measure of FFO should be used alone because they
exclude significant economic components of GAAP net earnings and are,
therefore, limited as an analytical tool.
ProLogis
Second Quarter 2008
Unaudited Financial Results
Reconciliations of Net Earnings to FFO
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Reconciliation of net earnings to FFO:
Net earnings attributable to
common shares $217,392 $400,104 $411,397 $636,195
Add (deduct) NAREIT defined
adjustments:
Real estate related
depreciation and amortization 80,135 71,419 154,087 146,682
Adjustments to gains on CDFS
dispositions for depreciation (1,710) - (1,710) (2,337)
Gains recognized on
dispositions of certain non-
CDFS business assets (4,662) (124,085) (4,662) (124,085)
Reconciling items attributable
to discontinued operations(7):
Gains recognized on dispositions
of non-CDFS business assets (1,856) (27,161) (5,669) (32,125)
Real estate related depreciation
and amortization 155 1,241 361 2,968
Total discontinued operations (1,701) (25,920) (5,308) (29,157)
Our share of reconciling items
from unconsolidated investees:
Real estate related depreciation
and amortization 33,494 20,368 66,312 39,209
(Gains) adjustments on
dispositions of non-CDFS
business assets (111) 11 (165) (1,888)
Other amortization items (3,860) (2,040) (8,070) (3,949)
Total unconsolidated
investees 29,523 18,339 58,077 33,372
Total NAREIT defined
adjustments 101,585 (60,247) 200,484 24,475
Subtotal-NAREIT defined
FFO 318,977 339,857 611,881 660,670
Add (deduct) our defined
adjustments:
Foreign currency exchange
(gains) losses, net (14,040) (24,740) 20,801 (17,376)
Current income tax expense (8) - 3,038 9,658 3,038
Deferred income tax expense
(benefit) 6,236 (9,503) 8,736 (6,182)
Our share of reconciling items
from unconsolidated investees:
Foreign currency exchange
losses (gains), net 943 1,156 1,460 (173)
Unrealized (gains) losses on
derivative contracts (4) (23,817) - 4,815 -
Deferred income tax expense
(benefit) 66 97 135 (359)
Total unconsolidated
investees (22,808) 1,253 6,410 (532)
Total our defined
adjustments (30,612) (29,952) 45,605 (21,052)
FFO attributable to common shares $288,365 $309,905 $657,486 $639,618
See Consolidated Statements of Earnings, Consolidated Statements of FFO
and the definition of FFO.
See our definition of FFO and our definition of EBITDA.
Footnotes follow Consolidated Balance Sheets.
ProLogis
Second Quarter 2008
Unaudited Financial Results
Reconciliations of Net Earnings to EBITDA
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Reconciliation of net earnings to
EBITDA:
Net earnings attributable to
common shares $217,392 $400,104 $411,397 $636,195
Add (deduct):
NAREIT defined adjustments to
compute FFO 101,585 (60,247) 200,484 24,475
Our defined adjustments to
compute FFO (30,612) (29,952) 45,605 (21,052)
Add:
Interest expense 84,136 90,640 169,260 179,291
Depreciation of corporate
assets 4,731 2,585 8,151 5,291
Current income tax expense
included in FFO 12,692 23,607 27,866 41,707
Adjustments to CDFS gains on
dispositions for interest
capitalized 16,134 9,375 32,800 18,145
Preferred share dividends 6,384 6,357 12,738 12,711
Impairment charges - 12,600 - 12,600
Share of reconciling items
from unconsolidated
investees 47,131 26,415 87,534 49,977
EBITDA $459,573 $481,484 $995,835 $959,340
See Consolidated Statements of Earnings and the Reconciliations of Net
Earnings to FFO.
See our definition of FFO and our definition of EBITDA.
Definition of EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization):
We use earnings before interest, taxes, depreciation and amortization,
preferred dividends, unrealized foreign currency exchange gains/losses,
impairment charges and non-CDFS gains, or EBITDA, to measure both our
operating performance and liquidity. In addition, we adjust the gains from
the contributions and sales of developed properties recognized as CDFS
income to reflect these gains as if no interest cost had been capitalized
during the development of the properties. EBITDA of our unconsolidated
investees is calculated on the same basis. We consider EBITDA to provide
investors relevant and useful information because it permits fixed income
investors to view income from operations on an unleveraged basis before
the effects of non-operating related items.
By excluding interest expense, EBITDA allows investors to measure our
operating performance independent of our capital structure and
indebtedness and, therefore, allows for a more meaningful comparison of
our operating performance between periods and to compare our operating
performance to that of other companies. We consider EBITDA to be a useful
supplemental measure for reviewing our comparative performance with other
companies because, by excluding non-cash depreciation expense, EBITDA can
help the investing public compare the performance of a real estate company
to that of companies in other industries. As a liquidity measure, we
believe that EBITDA helps investors to analyze our ability to meet debt
service obligations and to make quarterly distributions.
We use EBITDA when measuring our operating performance and liquidity;
specifically when assessing our operating performance, and comparing that
performance to other companies, both in the real estate industry and in
other industries, and when evaluating our ability to meet debt service
obligations and to make quarterly share distributions. We believe
investors should consider EBITDA, which has limitations as an analytical
tool, in conjunction with net income (the primary measure of our
performance) and other GAAP measures of our performance and liquidity, to
improve their understanding of our operating results and liquidity, and to
make more meaningful comparisons of the performance of our assets between
periods and against other companies.
ProLogis
Second Quarter 2008
Unaudited Financial Results
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, December 31,
2008 2007
Assets:
Investments in real estate assets:
Industrial operating properties $10,986,903 $11,000,079
Retail operating properties 331,497 328,420
Land subject to ground leases and other 453,834 458,782
Properties under development
(including cost of land) 2,122,533 1,986,285
Land held for development 2,477,318 2,152,960
Other investments 733,895 652,319
17,105,980 16,578,845
Less accumulated depreciation 1,469,495 1,368,458
Net investments in real estate
assets 15,636,485 15,210,387
Investments in and advances to
unconsolidated investees:
Property funds 1,860,473 1,755,113
CDFS joint ventures and other
unconsolidated investees 661,328 590,164
Total investments in and advances
to unconsolidated investees 2,521,801 2,345,277
Cash and cash equivalents 523,846 399,910
Accounts and notes receivable 349,791 340,039
Other assets 1,434,482 1,408,814
Discontinued operations - assets held
for sale (7) 6,368 19,607
Total assets $20,472,773 $19,724,034
Liabilities and Shareholders' Equity:
Liabilities:
Lines of credit $2,162,153 $1,955,138
Senior notes and other unsecured debt 4,795,286 4,891,106
Convertible debt 2,881,710 2,332,905
Secured debt and assessment bonds 950,051 1,326,919
Accounts payable and accrued expenses 874,462 933,075
Other liabilities 763,014 769,408
Discontinued operations - assets
held for sale (7) 153 424
Total liabilities 12,426,829 12,208,975
Minority interest 115,582 78,661
Shareholders' equity:
Series C preferred shares at stated
liquidation preference of $50 per share 100,000 100,000
Series F preferred shares at stated
liquidation preference of $25 per share 125,000 125,000
Series G preferred shares at stated
liquidation preference of $25 per share 125,000 125,000
Common shares at $.01 par value per share 2,625 2,577
Additional paid-in capital 6,646,669 6,412,473
Accumulated other comprehensive income 401,228 275,322
Retained earnings 529,840 396,026
Total shareholders' equity 7,930,362 7,436,398
Total liabilities and
shareholders' equity $20,472,773 $19,724,034
ProLogis
Second Quarter 2008
Unaudited Financial Results
Notes to Consolidated Financial Statements
*** Please also refer to our annual and quarterly financial statements
filed with the Securities and Exchange Commission on Forms 10-K
and 10-Q for further information on ProLogis and our business.
Certain 2007 amounts included in this Supplemental Information
package have been reclassified to conform to the 2008
presentation.
(1) The annual distribution rate for 2008 is $2.07 per common share.
The payment of common share distributions is dependent upon our
financial condition and operating results and may be adjusted at
the discretion of the Board of Trustees during the year.
(2) In our Consolidated Statements of Earnings, rental income includes
the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Rental income $189,967 $203,904 $392,560 $399,206
Rental expense recoveries 63,474 56,652 122,777 104,933
Straight-lined rents 8,939 10,284 15,753 23,247
$262,380 $270,840 $531,090 $527,386
(3) During the first six months of 2008 and 2007, we recorded $4.0
million and $8.0 million, respectively, of employee departure
costs. In 2008, these costs relate to the planned retirement of our
Chief Operating Officer in January 2009. In 2007, these costs
include $5.0 million related to the departure of our Chief
Financial Officer in March 2007 and $3.0 million related to other
employees.
(4) The unconsolidated property funds that we manage, and in which we
have an equity ownership, may enter into interest rate swap
contracts that are designated as cash flow hedges to mitigate
interest expense volatility associated with movements of interest
rates for future debt issuances.
In 2007, certain of the property funds in North America issued
short-term bridge financing to finance their acquisitions of
properties from us and third parties. Based on the anticipated
refinancing of the bridge financings with long-term debt issuances,
certain of these derivative contracts no longer met the
requirements for hedge accounting and, therefore, the change in the
fair value of these contracts was recorded through earnings, along
with the gain or loss on settlement of certain contracts. Included
in earnings from unconsolidated property funds, in our Consolidated
Statements of Earnings for the three and six months ended June 30,
2008, are gains of $6.6 million and losses of $14.7 million,
respectively, representing our share of the remeasurement and
settlement gains or losses. When the contracts are settled, we
include the realized gain or loss in our calculation of FFO, which
amounted to losses of $2.8 million and $5.8 million during the
three and six months ended June 30, 2008, respectively.
In Japan, the property funds may enter into swap contracts that fix
the interest rate of their variable rate debt. As these contracts
did not qualify for hedge accounting, any change in value of these
contracts is recognized as an unrealized gain or loss on
remeasurement. These contracts have no cash settlement at the end
of the contract, and therefore, no impact on FFO. Included in
earnings from unconsolidated property funds, in our Consolidated
Statements of Earnings, are remeasurement gains of $14.3 million
and $4.0 million for the three and six months ended June 30, 2008,
respectively, representing our share of the remeasurement gains or
losses of these contracts.
(5) The following table presents the components of interest expense as
reflected in our Consolidated Statements of Earnings (in
thousands). The increase in interest expense before capitalization
is primarily the result of increased debt levels (a function of
increased development activities, partially offset by contribution
activity) offset by a decrease in our weighted-average borrowing
rate. The increase in development activities also accounts for the
increased capitalized interest.
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Gross interest expense $120,903 $117,854 $245,046 $232,876
Net premium amortization (1,958) (2,592) (2,550) (5,687)
Amortization of deferred
loan costs 3,040 2,862 5,952 5,291
Interest expense before
capitalization 121,985 118,124 248,448 232,480
Less: capitalized amounts (37,849) (27,484) (79,188) (53,189)
Net interest expense $84,136 $90,640 $169,260 $179,291
In May 2008, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. APB 14-1 "Accounting for Convertible
Debt Instruments that May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement)" that requires separate
accounting for the debt and equity components of convertible debt.
The value assigned to the debt component is the estimated fair
value of a similar bond without the conversion feature, which would
result in the debt being recorded at a discount. The resulting debt
discount would be amortized over the period during which the debt
is expected to be outstanding (i.e., through the first optional
redemption date) as additional non-cash interest expense. The
effective date is January 1, 2009 with the application of the new
accounting applied retrospectively to both new and existing
convertible instruments, including the notes issued in 2007 and
2008. As a result of the new accounting, beginning in 2009, we
will recognize an additional non-cash interest expense of between
$64 million and $82 million per annum, prior to the capitalization
of interest due to our development activities. Prior periods will
be restated for the partial year impact.
(6) In addition to contributions of CDFS properties, from time to
time, we contribute properties from our property operations
segment to unconsolidated property funds in which we have
continuing interests through our equity ownership. During the
three and six months ended June 30, 2008, we contributed one such
property to the ProLogis Mexico Industrial Fund. During the three
and six months ended June 30, 2007, we contributed 66 non -CDFS
properties to ProLogis North American Industrial Fund. The gains
related to the dispositions of properties from our property
operations segment are included in earnings but are not included
in our calculation of FFO. See our definition of FFO.
(7) The operations of the properties held for sale or disposed of to
third parties and the aggregate net gains recognized upon their
disposition are presented as discontinued operations in our
Consolidated Statements of Earnings for all periods presented.
During the first half of 2008, we disposed of five properties to
third parties, one of which was a CDFS property, as well as land
subject to a ground lease. During the full year of 2007, we
disposed of 80 properties to third parties, five of which were
CDFS properties, as well as land subject to ground leases. We had
one property and two properties classified as held for sale on
our Consolidated Balance Sheets as of June 30, 2008 and December
31, 2007, respectively. The two properties classified as held
for sale at December 31, 2007 were sold during the first quarter
of 2008.
The components that are presented as discontinued operations
(excluding the gains recognized upon disposition) are as follows
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Rental income $121 $3,911 $887 $9,666
Rental expenses (116) (1,601) (494) (3,648)
Depreciation and amortization (155) (1,241) (361) (2,968)
$(150) $1,069 $32 $3,050
For purposes of our Consolidated Statements of FFO, we do not
segregate discontinued operations. In addition, we include the
disposition proceeds and the cost of dispositions for all CDFS
properties disposed of during the period in the calculation of
FFO, including those classified as discontinued operations.
(8) In connection with purchase accounting, we record all of the
acquired assets and liabilities at the estimated fair values at
the date of acquisition. For our taxable subsidiaries, we
generally recognize the deferred tax liabilities that represent
the tax effect of the difference between the tax basis carried
over and the fair values of these assets at the date of
acquisition. As taxable income is generated in these
subsidiaries, we recognize a deferred tax benefit in earnings as
a result of the reversal of the deferred tax liability
previously recorded at the acquisition date and we record current
income tax expense representing the entire current income tax
liability. In our calculation of FFO, we only include the current
income tax expense to the extent the associated income is
recognized for financial reporting purposes.
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