Summary
AMB Property Corporation (predecessor to Prologis, Inc.) filed this 8-K on October 13, 2004, primarily to announce a restatement of prior period financial statements due to an error in depreciation expense recognition for 39 buildings. The company determined that certain buildings on leased land should have been depreciated over the remaining lease terms rather than a standard 40-year period. This restatement, identified as a material weakness, will reduce previously reported net income and earnings per share for fiscal years 2001-2003 and the first two quarters of 2004. Importantly, the company notes that this depreciation adjustment does not impact Funds From Operations (FFO), a key metric for REITs, as depreciation is added back in its calculation. The filing also provides an update on the company's operating performance for the third quarter of 2004, showing earnings per share exceeding guidance. The industrial operating portfolio saw improved occupancy, though same-store net operating income growth was modest, impacted by rental rate decreases on renewals. Investment activity remained robust with significant acquisitions and development starts, particularly in international markets like Japan and Singapore. The company also detailed financing activities, including securing a new loan facility and planning an equity raise for a new institutional fund.
Key Highlights
- 1AMB Property Corporation is restating prior period financial statements (2001-2003 and Q1-Q2 2004) due to a depreciation expense error for 39 buildings.
- 2The error involved depreciating certain buildings on ground leases over 40 years instead of the remaining lease term.
- 3The company identified this as a material weakness in internal control but believes it has been remediated.
- 4Restatement reduces previously reported net income and EPS, but Funds From Operations (FFO) are unaffected as depreciation is added back.
- 5Q3 2004 EPS of $0.35 exceeded guidance ($0.30-$0.33); nine-month EPS was $0.73.
- 6Industrial portfolio occupancy improved to 94.6% leased as of Q3 2004; same-store NOI growth was 4.8% (including lease termination fees) or 0.6% (excluding them).
- 7Significant investment activity during Q3 2004, including $51.6 million in acquisitions and $345.7 million in new development starts, with notable projects in Japan.