01—Abstract
Summary
Summary of the 10-K filed February 23, 2007. Cited figures are marked; the original filing is the authoritative source.
AMB Property Corporation (NYSE: AMB) reported a strong 2006 in its FY2006 10-K, filed February 23, 2007.
Total revenues rose 10.4% to $729.9 milliona and net income available to common stockholders was $209.4 million ($2.30 diluted EPS), versus $250.4 million in 2005, which was inflated by large 2005 disposition gains. Funds from operations (FFO) rose 17.1% to $297.9 million, or $3.12 per diluted share and unit. Development profits roughly doubled to $106.4 million, and the company's strategy is shifting toward co-investment joint ventures and global expansion, with a target of about 50% of the owned and managed portfolio outside the U.S. by 2010 (14.1% at year-end 2006).
Portfolio fundamentals were mixed. Owned and managed occupancy ended 2006 at 96.1%b, but rent on renewals and rollovers was flat (-0.1%), with the San Francisco Bay Area down 13.2%. Cash-basis same-store NOI grew 2.6%, and management guides to 3-4% growth for 2007.
Balance sheet leverage stayed in line with policy: our share of total debt-to-market capitalization was 34.2% against a 45% ceiling, and total consolidated debt was $3.4 billionc. Investors should note that 14.3% of industrial ABR expires in 2007, that variable-rate debt rose to 37.1% of the total, and that the company deconsolidated AMB Institutional Alliance Fund III effective October 1, 2006, which limits comparability across periods.
02—Key points
Key Highlights
- Total revenues grew 10.4% to $729.9M (2005: $660.9M), led by a 10.8% increase in rental revenues to $683.8M and a 94% increase in private capital income... (private capital income itself rose 5.0% to $46.1M).
- Diluted EPS of $2.30 (2005: $2.85) fell as 2005 included large disposition gains; FFO per diluted share rose 13.5% to $3.12 (2005: $2.75).
- Development profits, net of taxes, nearly doubled to $106.4M, driven by contributions of nine completed projects into co-investment JVs for an after-tax gain of $94.1M.
- Operating metrics were stable but soft: occupancy of 96.1% on an owned and managed basis, same-store cash NOI up 2.6%, and renewal/rollover rents down 0.1% (SF Bay Area -13.2%).
- Leverage is within policy: our share of total debt-to-market capitalization was 34.2% versus a 45% ceiling, with total consolidated debt of $3.4B and a $1.1B unsecured senior note balance.
- Interest rate exposure rose: variable-rate debt grew to 37.1% of total debt ($1.3B) from 24.5% in 2005, driven by higher credit-facility balances.
- Strategic shift toward global and co-investment growth: target of ~50% non-U.S. ownership by 2010 (14.1% today), with a development pipeline of ~$1.3B and 45 projects totaling 13.7M sq ft.
03—Questions
Frequently Asked Questions
How did AMB's core earnings performance change in 2006 versus 2005?
Core earnings measured by FFO improved meaningfully, rising to $297.9M ($3.12 diluted per share and unit) from $254.4M ($2.75). Reported net income available to common stockholders fell to $209.4M from $250.4M, mainly because 2005 included a large $113.6M gain on the sale of AMB Institutional Alliance Fund I. Investors focused on recurring earnings should therefore weight FFO and same-store NOI over GAAP net income.
What is the near-term lease rollover risk?
About 14.3% of owned and managed annualized base rent (roughly $97M) expires in 2007, and 13.8% expires in 2008. Renewal rent growth was flat in 2006 overall, and San Francisco Bay Area rollovers fell 13.2%, so the 2007 expirations are a key sensitivity. Management guides to 3% to 4% same-store growth in 2007, which depends on rental rates holding up.
How much leverage does AMB carry, and is there refinancing risk?
Our share of total debt was $3.09B, and the debt-to-market-capitalization ratio was 34.2%, below the 45% policy ceiling. Total consolidated debt was $3.44B, with $1.0B due in 2010, largely from the credit facilities and joint venture debt. Since 37.1% of debt is variable-rate, rising interest rates would increase interest expense; a 10% rate move would change annual interest expense by about $4.9M net of swaps. The company also says it expects to refinance maturing debt rather than fully repay it from operating cash flow.
Why did the company deconsolidate AMB Institutional Alliance Fund III, and what does it change?
Effective October 1, 2006, AMB deconsolidated the fund after reassessing its accounting in light of partnership agreement changes to the general partner's rights. Its assets and debt no longer appear on the balance sheet, so balance sheet totals, revenues, and expenses are not comparable with prior years. The company's economic exposure is now a 23% equity interest, with net equity investment of $137M and a $60M planned capitalization.
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