01—Abstract
Summary
Summary of the 10-K filed March 2, 2009. Cited figures are marked; the original filing is the authoritative source.
AMB Property Corporation (NYSE: AMB) ended 2008 with a challenging year marked by a $193.9 milliona real estate impairment charge and a net loss of $49.3 million (net loss available to common stockholders of $65.1 million, or $0.67 per share), versus net income of $314.3 million in 2007.
Funds from operations fell sharply to $80.5 millionb ($0.78 diluted per share) from $365.5 million ($3.51) in 2007, reflecting the impairments, lower development profits, and reduced private capital income. The company is an industrial REIT focused on infill distribution markets tied to global trade, with 131.5 million square feet owned and managed at 95.1% occupancy and 15 countries of presence. Management has shifted to a defensive posture: acquisitions and development are limited to fulfilling prior commitments until markets stabilize, a 22% headcount reduction and $12.3 million restructuring charge were taken, and the quarterly common dividend was suspended in Q4 2008 (the full-year dividend declared was $1.56 versus $2.00 in 2007).
Leverage remains elevated, with the company's share of total debt-to-total market capitalization at 61.4% versus a stated target of about 45% or less, and $782.6 millionc of consolidated debt maturing in 2009 (with $340.7 million if extension options are exercised). Liquidity consists of $223.9 million in cash and $710.2 million of available credit facility capacity.
Key risks for investors include refinancing exposure, possible further impairments if real estate values decline, contingent obligations totaling $639.9 milliond (including $260.6 million of contribution agreements tied to unconsolidated co-investment ventures), and redemption requests of $132.7 million in one co-investment fund. The company's private capital business and co-investment ventures remain a significant source of fee income and capital, though the pace of new commitments has slowed significantly.
02—Key points
Key Highlights
- Net loss of $(49.3) million for 2008 versus net income of $314.3 million in 2007, driven primarily by $193.9 million of real estate impairment losses recognized in Q4 2008.
- Funds from operations declined to $80.5 million ($0.78 diluted per share) from $365.5 million ($3.51 per share) in 2007.
- Total revenues rose 6.5% to $715.0 million, supported by a $36.7 million increase in private capital revenues, including a $33.0 million incentive distribution from AMB Institutional Alliance Fund III.
- Common dividend suspended in Q4 2008; full-year 2008 dividends declared were $1.56 per share versus $2.00 in 2007, with the board aligning 2009 payments to recurring taxable income.
- Total consolidated debt of $4.0 billion; share of total debt-to-market capitalization at 61.4%, above the company's long-term target of roughly 45% or less.
- $782.6 million of consolidated debt matures in 2009, with $223.9 million of cash and $710.2 million of available credit facility borrowings as liquidity support.
- Development starts fell 50% in 2008 to $544.7 million; development pipeline of 53 projects (16.4 million sq ft, $1.3 billion estimated investment) is being limited to committed projects.
03—Questions
Frequently Asked Questions
Why did AMB report a net loss in 2008 after a strong 2007?
The loss was primarily caused by $193.9 million of non-cash real estate impairment charges recognized in the fourth quarter of 2008 on land, development projects and assets held for sale or contribution, as property values declined. Additional items included a $12.3 million restructuring charge, lower development profits ($81.1 million vs. $124.3 million), and lower gains from property contributions ($20.0 million vs. $73.4 million).
Is AMB's dividend at risk?
The board suspended the regular quarterly common dividend in Q4 2008 and aligned 2009 regular payments with projected taxable income from recurring operations alone, which the company estimates will save about $98 million over 2009. The company notes that special distributions may be made related to asset disposition gains, and that the REIT distribution requirement may be partially satisfied with stock for tax years ending on or before December 31, 2009.
How leveraged is AMB and can it refinance its 2009 maturities?
Leverage is elevated, with the share of total debt to total market capitalization at 61.4%, well above the stated target. Of $782.6 million in consolidated 2009 maturities, $340.7 million could be extended under available options. Management says it has sufficient liquidity ($223.9 million in cash plus $710.2 million of available credit) for operations as usual near-term, but acknowledges that refinancing risk and higher borrowing costs could arise if credit markets remain disrupted or ratings decline.
What contingent obligations should investors be aware of?
Total guarantees and contribution obligations were $639.9 million at year-end 2008, including $260.6 million in potential contribution obligations to unconsolidated co-investment ventures if those ventures default on debt, $231.8 million of guarantees on unconsolidated venture loans, $49.6 million on consolidated venture loans, and $27.8 million in bank guarantees. A 50.2 million euro loan guarantee for AMB Europe Fund I was also outstanding until security interests are granted in the first half of 2009.
What is the outlook for AMB's business and markets?
Management expects U.S. and global economies to decline further in 2009 and anticipates negative net absorption of industrial space in the U.S. in 2009, with U.S. availability at 11.4%. Management believes its infill coastal U.S. markets and non-U.S. markets, particularly Japan and Europe, will outperform. The company is focused on tenant retention and occupancy, has exploring asset sales and joint ventures to monetize development and operating assets, and has a 16.8% share of annualized base rent expiring in 2009.
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