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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-14245
AMB PROPERTY, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3285362
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
505 MONTGOMERY ST., SAN FRANCISCO, CALIFORNIA 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(415) 394-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: Not applicable. No market for the Registrant's partnership
units exists and, therefore, a market value for such units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference AMB Property Corporation's Proxy
Statement for its Annual Meeting of Stockholders which the Registrant
anticipates will be filed no later than 120 days after the end of AMB Property
Corporation's fiscal year pursuant to Regulation 14A.
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PART I
ITEM 1. BUSINESS
GENERAL
AMB Property, L.P., a Delaware limited partnership, is one of the leading
owners and operators of industrial real estate nationwide. Our investment
strategy is to become a leading provider of High Throughput Distribution, or
HTD, properties located near key passenger and air cargo airports, key
interstate highways and ports in major metropolitan areas, such as Atlanta,
Chicago, Dallas/Fort Worth, Northern New Jersey, the San Francisco Bay Area and
Southern California. Within each of our markets, we focus our investments in in-
fill submarkets. In-fill submarkets are characterized by supply constraints on
the availability of land for competing projects. High Throughput Distribution
facilities are designed to serve the high-speed, high-volume freight handling
needs of today's supply chain, as opposed to functioning as long-term storage
facilities. We believe that the rapid growth of the air-freight business, the
outsourcing of supply chain management to third party logistics companies and
e-commerce are indicative of the changes that are occurring in the supply chain
and the manner in which goods are distributed. We intend to focus our investment
activities primarily on industrial properties that we believe will benefit from
these changes.
As of December 31, 1999, we owned and operated 724 industrial buildings and
9 community shopping centers, totaling approximately 66.8 million rentable
square feet, located in 24 markets nationwide. As of December 31, 1999, these
properties were 95.9% leased. As of December 31, 1999, through our subsidiary,
AMB Investment Management, we also managed 46 industrial properties and retail
centers, aggregating approximately 4.6 million rentable square feet, which were
97.4% leased, on behalf of various institutional investors. In addition, we have
invested in 36 industrial buildings, totaling approximately 4.0 million rentable
square feet, through an unconsolidated joint venture.
During 1999, we initiated a plan to dispose of substantially all of our
retail centers. In three separate transactions with BPP Retail, LLC, a
co-investment entity between Burnham Pacific and the California Public
Employees' Retirement System, we disposed of a total of 25 retail centers,
aggregating approximately 4.3 million rentable square feet, for an aggregate
price of $560.3 million. We also disposed of an additional five retail centers,
totaling approximately 1.1 million rentable square feet, during 1999. As of
December 31, 1999, we had four additional retail centers, aggregating
approximately 1.2 million rentable square feet, which were held for divestiture.
In addition, during 1999, we disposed of 15 industrial buildings,
aggregating approximately 1.2 million rentable square feet, for an aggregate
price of approximately $39.6 million. As of December 31, 1999, we had four
industrial buildings, aggregating approximately 0.3 million rentable square
feet, which were held for divestiture. Over the next few years, we currently
intend to dispose of non-strategic assets and redeploy the resulting capital
into High Throughput Distribution properties that better fit our current
investment focus.
During 1999, as part of our Institutional Alliance Program, we formed AMB
Institutional Alliance Fund I, L.P., a multi-investor fund including 14 pension
funds, as of December 31, 1999, foundations and endowments that co-invested with
us. As of December 31, 1999, the Alliance Fund I had a total equity commitment
from third party investors totaling $150 million, which, when combined with debt
financings and our investment, creates a total committed capitalization of
approximately $375 million. The Alliance Fund I's investment objectives parallel
our strategy of acquiring and developing industrial distribution facilities in
major U.S. cities near airports, ports and key interstate highways. We also
formed AIG AMB Greenfield Investment Alliance, L.L.C., a joint venture with AIG
Global Real Estate Investment Corp. Each of AMB and AIG Global Real Estate
Investment Corp. committed $50 million to the Greenfield Alliance to acquire and
develop environmentally impaired properties in major U.S. markets, with
particular emphasis on acquiring undervalued industrial properties with
environmental issues located near major airports, ports and intermodal
locations.
We are engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of primarily industrial properties in
target industrial markets nationwide. As of December 31, 1999, AMB Property
Corporation owned an approximate 95.0% general partnership interest in us,
excluding
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preferred units. As the sole general partner of the operating partnership, AMB
Property Corporation has the full, exclusive and complete responsibility and
discretion in our day-to-day management and control.
AMB Property Corporation is self-administered and self-managed and expects
that it has qualified and will continue to qualify as a real estate investment
trust for federal income tax purposes beginning with the year ending December
31, 1997. Because AMB Property Corporation is a self-administered and
self-managed real estate investment trust, our own employees perform our
administrative and management functions, rather than our relying on an outside
manager for these services. The principal executive office of AMB Property, L.P.
is located at 505 Montgomery Street, San Francisco, California 94111, and our
telephone number is (415) 394-9000. We also maintain a regional office in
Boston, Massachusetts. As of December 31, 1999, we employed 145 individuals, 109
at our San Francisco headquarters and 36 in our Boston office.
Unless the context otherwise requires, the terms "we," "us," "our" and
"AMB" refer to AMB Property, L.P. and our controlled subsidiaries. The following
marks are registered trademarks of AMB Property Corporation, our general
partner: AMB(R); Customer Alliance Program(R); Development Alliance Partners(R);
Development Alliance Program(R); Institutional Alliance Partners(R); Management
Alliance Partners(R); Management Alliance Program(R); UPREIT Alliance
Partners(R); and UPREIT Alliance Program(R). The following are unregistered
trademarks of AMB Property Corporation, our general partner: Broker Alliance
Partners(TM); Broker Alliance Program(TM); Customer Alliance Partners(TM);
eSpace(TM); HTD(TM); High Throughput Distribution(TM); Institutional Alliance
Program(TM); iSpace(TM); Strategic Alliance Partners(TM); and Strategic Alliance
Programs(TM).
OPERATING STRATEGIES
We are a full-service real estate company with in-house expertise in
acquisitions, development and redevelopment, asset management and leasing,
finance and accounting and market research. We have long-standing relationships
with many real estate management and development firms across the country
through our Strategic Alliance Programs, which provide local property
management, leasing and development services to us on a fee basis or in
development partnerships. We believe that real estate is fundamentally a local
business and that the most effective way for a national company such as us to
operate is by forging alliances with the best available partners in each of our
markets.
STRATEGIC ALLIANCE PROGRAMS
Our Strategic Alliance Programs are designed to build value by creating
mutually beneficial relationships. We believe that our strategy of forming
strategic alliances with local and regional real estate experts improves our
operating efficiency and flexibility, strengthens customer satisfaction and
retention and provides us with growth opportunities. Additionally, our strategic
alliances with institutional investors enhance our access to private capital and
our ability to finance transactions.
Our six Strategic Alliance Programs can be grouped into two categories:
- Operating Alliances, which allow us to form relationships with local or
regional real estate experts, thereby becoming their ally rather than
their competitor; and
- Investment Alliances, which allow us to establish relationships with a
variety of capital sources.
OPERATING ALLIANCES
Broker Alliance Program: Through our Broker Alliance Program, we work
closely with top local leasing companies in each of our markets, which brokers
provide us with access to high quality customers and local market knowledge.
Customer Alliance Program: Through our Customer Alliance Program, we seek
to build long-term working relationships with major customers. We are committed
to working with our customers, particularly our larger customers with multi-site
requirements, to make their property searches as efficient as possible.
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Development Alliance Program: Our strategy for the Development Alliance
Program is to form alliances with local development firms to jointly acquire,
renovate and develop properties to serve our customers' needs.
Management Alliance Program: Our strategy for the Management Alliance
Program is to develop close relationships with, and outsource property
management to, local property management firms that we believe to be among the
best in each of our markets. Our alliances with local property management firms
increase our flexibility, reduce our overhead expenses and improve our customer
service. In addition, these alliances provide us with local market information
related to customer activity and investment opportunities.
INVESTMENT ALLIANCES
Institutional Alliance Program: Our strategy for the Institutional Alliance
Program is to form alliances with institutional investors, which provide us with
access to private capital, including during those times when the public markets
are less attractive, and also provide us with a source of incremental fee income
and investment returns. This program allows our Institutional Alliance Partners
the opportunity to co-invest with us and to receive professional investment
management of their real estate assets.
UPREIT Alliance Program: Through our UPREIT Alliance Program, we issue our
limited partnership units to certain property owners in exchange for properties,
thus providing additional growth for the portfolio.
NATIONAL PROPERTY COMPANY
We own properties in 24 industrial markets throughout the U.S. We believe
that our national strategy enables us to:
- increase or decrease investments in certain regions to take advantage of
the relative strengths in different real estate markets;
- retain and accommodate customers as they consolidate or expand; and
- build brand awareness as well as customer loyalty through the delivery of
consistent service and quality product.
RESEARCH-DRIVEN, SELECT MARKET FOCUS
Within each of our markets, we focus on acquiring, redeveloping and
operating industrial properties in in-fill submarkets and within close proximity
to major passenger and air cargo airports, seaports or major highway systems. As
the strength of these markets continues to grow and the demand for well-located
properties increases, we believe that we will benefit from an upward pressure on
rents resulting from the increased demand combined with the relative lack of new
available space. Our decisions regarding the deployment of capital are
experience- and research-driven, and are based on thorough qualitative and
quantitative research and analysis of local markets. We employ a dedicated
research department using proprietary analyses, databases and systems.
We intend to focus our investment activities on HTD properties located in
the six largest industrial markets in the U.S., which dominate national
warehouse distribution activities -- Atlanta, Chicago, Dallas/ Fort Worth,
Northern New Jersey, the San Francisco Bay Area and Southern California -- as
well as properties located near major passenger and air cargo airports, seaports
or convenient to major highway systems. We also invest in selected regional
distribution markets including Boston, Houston, Miami, Minneapolis, Seattle and
Baltimore/Washington, D.C. We focus on these established industrial markets
because we believe they offer large and broadly diversified customer bases that
provide greater demand for properties over market cycles than secondary markets.
The in-fill submarkets in which we invest within these markets also typically
have significant barriers to new construction, including geographic or
regulatory supply constraints, and these markets typically benefit from an
access to large labor supplies and well-developed transportation networks. In
addition, we believe that these markets will benefit from the changes occurring
in the supply chain.
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DISCIPLINED INVESTMENT PROCESS
Over our 17-year history, we have established a disciplined approach to the
investment process. The investment process is subject to the overall policy
direction of our management's investment committee. The stages in the investment
process are highly integrated, with investment committee review at critical
points in the process.
Approval of each investment is the responsibility of our management's
investment committee with sponsorship from both an acquisitions officer and the
regional manager who will be responsible for managing the property. The initial
investment recommendation is thoroughly evaluated, with approval required in
order to proceed to contract and full due diligence. The terms of the
acquisition and its structure are determined as part of the initial approval and
are the responsibility of the acquisitions officer. The regional manager is
involved in providing and verifying underwriting assumptions and developing the
operating strategy. After the due diligence review and before removing
conditions to the contract, a final recommendation from our management's
investment committee is prepared by the acquisition and asset management team.
Our management's investment committee conducts a complete review of the
information developed during the due diligence process and either rejects or
gives final approval.
On an annual basis, each regional manager, with input from our research
department and the support of the acquisition officer with responsibility for
the applicable market, prepares a strategic plan for each of our significant
markets, which plan is presented to and reviewed by our investment committee.
Each strategic plan reviews the conformity of each of our properties with our
investment strategy and provides the basis for our acquisition and divestiture
strategies. We intend, over time, to strategically divest properties that do not
conform with our current investment focus.
We have also established proprietary systems and procedures to manage and
track a high volume of acquisition proposals, transactions and important market
data. This includes an on-line open issues database that provides us with
current information on the status of each transaction, highlighting the issues
that must be addressed prior to closing, and a database that includes and
compiles data on all transaction proposals and markets reviewed by us.
FINANCING STRATEGY
In order to maintain financial flexibility and facilitate the rapid
deployment of capital over market cycles, we intend to operate with a
debt-to-total market capitalization ratio of approximately 45% or less, although
our organizational documents do not limit the amount of indebtedness that we may
incur. Additionally, we intend to continue to structure our balance sheet in
order to maintain investment-grade ratings. We also intend to keep the majority
of our assets unencumbered to facilitate such ratings. As of December 31, 1999,
our debt-to-total market capitalization ratio was approximately 35.2% and our
debt-to-total book capitalization ratio was approximately 35.9%. We calculate
our debt-to-total market capitalization ratio by adding our share of
consolidated debt to our share of unconsolidated joint venture debt and dividing
by our total market capitalization, including preferred stock and preferred
units. We calculate our debt-to-total book capitalization ratio by dividing our
share of total debt by the sum of our total debt plus total equity and preferred
stock recorded at book value.
We have a $500 million unsecured revolving credit agreement with Morgan
Guaranty Trust Company of New York as agent, and a syndicate of twelve other
banks. The credit facility bears interest at a rate equal to LIBOR plus 90 to
120 basis points, depending upon our then current debt rating (currently LIBOR
plus 90 basis points). We presently plan to use available borrowings under our
unsecured credit facility for property acquisitions, developments and for
general corporate purposes. As of December 31, 1999, the available borrowings
under our unsecured credit facility were $417.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Item 14. Note 5 of Notes to
Consolidated Financial Statements" included in this report.
We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of our
properties will include cash flow from operations, borrowings
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under our unsecured credit facility, other forms of secured or unsecured
financing, proceeds from equity or debt offerings by us or AMB Property
Corporation (including issuances of units by us or a subsidiary or shares of
stock of AMB Property Corporation) and proceeds from divestitures of properties.
Additionally, our co-investment program will also serve as a significant source
of capital for acquisitions and developments.
AMB INVESTMENT MANAGEMENT
AMB Investment Management, Inc., a Maryland corporation, provides real
estate investment management services on a fee basis to clients. We hold all of
the non-voting preferred stock of AMB Investment Management, representing an
approximate 95% economic interest in AMB Investment Management. All of the
common stock of AMB Investment Management, representing an approximate 5%
economic interest in AMB Investment Management, is owned by AMB Property
Corporation's current or former executive officers and a former executive
officer of AMB Investment Management. AMB Investment Management, Inc. conducts
its operations through AMB Investment Management Limited Partnership, a Maryland
limited partnership, of which it is the sole general partner. We intend to grow
this business through our co-investment program.
We co-invest with clients of AMB Investment Management, to the extent such
clients newly commit investment capital, through partnerships, limited liability
companies or joint ventures. We currently use a co-investment formula with each
client whereby we will own at least a 20% interest in all ventures. During 1999,
we consummated two co-investments. The first was a separate account
co-investment venture, in which we own an approximate 50% interest, with total
gross book value at December 31, 1999 of approximately $159.7 million. The
second was a co-investment fund, in which we owned at December 31, 1999 an
approximate 25% interest, with total gross book value at December 31, 1999 of
approximately $98.5 million. In general, we control all significant operating
and investment decisions in our co-investment entities.
STRATEGIES FOR GROWTH
We intend to achieve our objectives of long-term sustainable growth in net
operating income, or NOI, and maximization of long-term value principally by
growth through:
- operations, resulting from rent increases, maintenance of above-average
occupancy rates and implementation of expense controls;
- continued property acquisitions and capital redeployment through
strategic divestitures of properties; and
- renovation, expansion and development of selected properties.
GROWTH THROUGH OPERATIONS
We seek to generate internal growth through rent increases on existing
space and renewal on re-tenanted space, by maintaining a high occupancy rate of
our properties and by controlling expenses by capitalizing on the economies of
owning, operating and growing a large national portfolio. As of December 31,
1999, our industrial properties and retail centers owned as of that date were
95.9% leased and 92.4% leased, respectively. During the 12 months ended December
31, 1999, we increased average base rental rates (on a cash basis) by 12.5% from
the expiring rent for that space, on leases entered into or renewed during such
period, representing 7.7 million rentable square feet. Annualized base rent
represents the monthly contractual amount under existing leases at the end of
the year, multiplied by 12. This amount excludes expense reimbursements, rental
abatements and percentage rents.
GROWTH THROUGH ACQUISITIONS AND CAPITAL REDEPLOYMENT
We believe that our significant acquisition experience, our alliance-based
operating strategy and our extensive network of property acquisition sources
will continue to provide opportunities for external growth. We believe that our
relationship with third party local property management firms through our
Management
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Alliance Program also will create acquisition opportunities as such managers
market properties on behalf of sellers. Our operating structure also enables us
to acquire properties through our UPREIT Alliance Program in exchange for our
limited partnership units, thereby enhancing our attractiveness to owners and
developers seeking to transfer properties on a tax-deferred basis. In addition
to acquisitions, we seek to redeploy capital from non-strategic assets into
properties that better fit our current investment focus.
Between January 1, 1999 and December 31, 1999, we disposed of 29 retail
centers and 15 industrial buildings and re-invested approximately $471.9 million
(including our share of co-investments) in:
- 154 industrial buildings, aggregating approximately 8.4 million rentable
square feet; and
- $7.8 million in an unconsolidated limited partnership joint venture for
the development of an industrial property, totaling approximately 0.5
million rentable square feet upon completion.
Of the total investment during such period, we invested approximately
$235.0 million through our UPREIT Alliance Program, approximately $59.0 million
through our Institutional Alliance Program, $39.1 million through our Management
Alliance Program, and $8.9 million through our Development Alliance Program.
We are generally in various stages of negotiations for a number of
acquisitions, which may include acquisitions of individual properties, large
multi-property portfolios and other real estate companies. There can be no
assurance that we will consummate any of these acquisitions. Such acquisitions,
if we consummate them, may be material individually or in the aggregate. Sources
of capital for acquisitions may include undistributed cash flow from operations,
borrowings under our unsecured credit facility, other forms of secured or
unsecured financing, issuances of debt or equity securities by us or AMB
Property Corporation (including issuances of units by us or a subsidiary or
shares of stock of AMB Property Corporation), proceeds from divestitures of
properties, and assumption of debt related to the acquired properties.
GROWTH THROUGH DEVELOPMENT
We believe that renovation and expansion of value-added properties and
development of well-located, high-quality industrial properties should continue
to provide us with attractive opportunities for increased cash flow and a higher
rate of return than we may obtain from the purchase of fully leased, renovated
properties. Value-added properties are typically characterized as properties
with available space or near-term leasing exposure, properties that are
well-located but require redevelopment or renovation, and occasionally
undeveloped land acquired in connection with another property that provides an
opportunity for development. Value-added properties require significant
management attention and/or capital investment to maximize their return. We have
developed the in-house expertise to create value through acquiring and managing
value-added properties and believe our national market presence and expertise
will enable us to continue to generate and capitalize on these opportunities.
Through our Development Alliance Program, we have established strategic
alliances with national and regional developers to enhance our development
capabilities.
The multidisciplinary backgrounds of our employees provide us with the
skills and experience to capitalize on strategic renovation, expansion and
development opportunities. Several of our managers have extensive experience in
real estate development, both with us and with national development firms. We
generally pursue development projects in joint ventures with local developers.
In this way, we leverage the development skill, access to opportunities and
capital of such developers, transferring a significant amount of the development
risk to them and eliminating the need and expense of an in-house development
staff. Under a typical joint venture agreement with a Development Alliance
Partner, we would fund 95% of the construction costs and our partner would fund
5%. Upon completion, we generally would purchase our partner's interest in the
joint venture.
As of December 31, 1999, we had committed to invest approximately $306.4
million to develop approximately 4.3 million rentable square feet. Approximately
$257.2 million of this investment is through our Development Alliance Program.
See "Development Pipeline."
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FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
See: "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors that May Affect Future Financial Results"
for a complete discussion of the various risks which could adversely affect us.
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ITEM 2. PROPERTIES
The properties that we owned as of December 31, 1999 are divided into two
operating divisions. We have broken down these two operating divisions into 24
identifiable markets. We have provided this breakdown for external reporting
purposes only. It reflects the key markets of interest to our unitholders and
noteholders and does not reflect how we are operationally managed. See "Item 14.
Note 13 of Notes to Consolidated Financial Statements" for segment information
related to our operations.
INDUSTRIAL PROPERTIES
At December 31, 1999, we owned 724 industrial buildings aggregating
approximately 65.2 million rentable square feet, located in 24 markets
nationwide. Our industrial properties accounted for $306.0 million, or 93.9%, of
our annualized base rent derived from our properties as of December 31, 1999.
Our industrial properties were 95.9% leased to over 2,240 customers as of the
same date, the largest of which accounted for no more than 1.6% of our
annualized base rent from our industrial properties.
Property Characteristics. Our industrial properties, which consist
primarily of warehouse distribution facilities suitable for single or multiple
customers, are typically comprised of multiple buildings. The following table
identifies characteristics of our typical industrial buildings:
TYPICAL BUILDING TYPICAL RANGE
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Rentable square feet.......................... 100,000 75,000 - 200,000
Clear height.................................. 24 ft 16 - 32 ft.
Building depth................................ 200 ft 120 - 300 ft.
Truck court depth............................. 110 ft 90 - 130 ft.
Loading dock & grade.......................... Dock or Dock & Grade
Parking spaces per 1,000 square feet.......... 1.0 0.5 - 2.0
Doors per 1,000 square feet................... 0.2 0.1 - 2.0
Square footage per customer................... 35,000 15,000 - 150,000
Office finish................................. 8% 3% - 20%
Site coverage................................. 40% 35% - 50%
Lease Terms. Our industrial properties are typically subject to lease on a
"triple net basis," defined as leases in which customers pay their proportionate
share of real estate taxes, insurance and operating costs, or subject to leases
on a "modified gross basis," defined as leases in which customers pay expenses
over certain threshold levels. Lease terms typically range from three to ten
years, with an average of seven years, excluding renewal options. The majority
of the industrial leases do not include renewal options.
Overview of Major Target Markets. Our industrial properties are located
near key passenger and air cargo airports, key interstate highways and ports in
major metropolitan areas, such as Atlanta, Chicago, Dallas/Fort Worth, Northern
New Jersey, the San Francisco Bay Area and Southern California. We believe our
industrial properties' strategic location, transportation network and
infrastructure, and large consumer and manufacturing bases support strong demand
for industrial space. According to statistics published by CB Richard
Ellis/Torto Wheaton Research, the national hub markets listed above are six of
the nation's eight largest warehouse markets and, as of December 31, 1999,
comprised 42% of the warehouse inventory of the 47 industrial markets tracked by
them. According to statistics published by Regional Financial Associates, as of
December 31, 1999, the combined population of these markets was approximately
44.2 million, and the amount of per capita warehouse space was 19.0% above the
average for those 47 industrial markets.
Within these metropolitan areas, our industrial properties are concentrated
in in-fill locations (which are characterized by limited new construction
opportunities due to high population densities and low levels of available land
that could be developed into competitive industrial properties) within
established, relatively large submarkets (markets within a metropolitan area in
which the competitive environment for one or more property types is largely
dependent upon the supply of such property type in such market rather than the
supply of such property type in other portions of such metropolitan area) which
we believe should provide a higher rate of occupancy and rent growth than
properties located elsewhere. These in-fill locations are
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typically near major passenger and air cargo facilities, seaports or convenient
to major highways and rail lines, and are proximate to a diverse labor pool.
There is typically broad demand for industrial space in these centrally located
submarkets due to a diverse mix of industries and types of industrial uses,
including warehouse distribution, light assembly and manufacturing. We generally
avoid locations at the periphery of metropolitan areas where there are fewer
supply constraints. Small metropolitan areas or cities without a heavy
concentration of warehouse activity typically have few, if any,
supply-constrained locations (those areas typified by significant population
densities, a limited number of existing industrial customers and a low
availability of land which could be developed into competitive space for
additional industrial customers).
INDUSTRIAL PROPERTY SUMMARY
As of December 31, 1999, the 724 industrial buildings were diversified
across 24 markets nationwide. The average age of our industrial properties is 12
years (since the property was built or substantially renovated), which we
believe should result in lower operating costs over the long term. The following
table represents properties in which we own a fee simple interest or a
controlling interest (consolidated), and excludes properties in which we only
own a non-controlling interest (unconsolidated).
PERCENTAGE PERCENTAGE
TOTAL OF TOTAL ANNUALIZED OF TOTAL
NUMBER OF RENTABLE RENTABLE PERCENTAGE BASE RENT ANNUALIZED NUMBER
INDUSTRIAL PROPERTIES BUILDINGS SQUARE FEET SQUARE FEET LEASED (000'S)(1) BASE RENT OF LEASES
--------------------- --------- ----------- ----------- ---------- ---------- ---------- ---------
HUB MARKETS:
Atlanta....................... 45 4,318,509 6.6% 95.3% $ 18,083 5.9% 149
Chicago....................... 81 7,397,815 11.3% 94.6% 28,096 9.2% 168
Dallas/Ft. Worth.............. 62 5,328,753 8.2% 95.0% 19,320 6.3% 174
Northern New Jersey........... 19 4,025,575 6.2% 94.2% 18,291 6.0% 37
San Francisco Bay Area........ 118 7,547,866 11.6% 97.4% 56,108 18.3% 325
Southern California........... 85 6,711,564 10.3% 97.4% 29,362 9.6% 184
--- ---------- ----- ----- -------- ----- -----
Subtotal/Weighted Average... 410 35,330,082 54.2% 95.8% 169,260 55.3% 1,037
OTHER MARKETS:
Austin........................ 6 735,240 1.1% 100.0% 5,054 1.7% 22
Baltimore/Washington D.C...... 59 4,075,570 6.3% 95.3% 24,463 8.0% 287
Boston........................ 39 4,549,181 7.0% 99.0% 19,506 6.4% 61
Charlotte..................... 12 831,974 1.3% 94.1% 3,735 1.2% 30
Cincinnati.................... 6 811,774 1.3% 94.9% 2,541 0.9% 10
Columbus...................... 2 465,433 0.7% 100.0% 1,363 0.5% 2
Denver........................ 2 63,080 0.1% 88.3% 263 0.1% 16
Houston....................... 22 1,951,787 3.0% 88.2% 6,272 2.0% 109
Memphis....................... 19 2,259,162 3.5% 93.7% 9,231 3.0% 58
Miami......................... 31 2,703,635 4.1% 98.4% 16,683 5.5% 123
Minneapolis................... 42 4,442,700 6.8% 97.6% 17,460 5.7% 206
New Orleans................... 5 411,689 0.6% 100.0% 1,906 0.6% 50
Orlando....................... 18 1,678,910 2.6% 94.9% 6,242 2.0% 78
Portland...................... 5 676,104 1.0% 100.0% 2,863 0.9% 10
Sacramento.................... 1 182,437 0.3% 100.0% 725 0.2% 1
San Diego..................... 5 276,167 0.4% 77.3% 1,643 0.5% 14
Seattle....................... 37 3,483,298 5.3% 98.8% 16,154 5.3% 127
Wilmington.................... 3 266,141 0.4% 54.0% 636 0.2% 4
--- ---------- ----- ----- -------- ----- -----
Subtotal/Weighted Average... 314 29,864,282 45.8% 96.1% 136,740 44.7% 1,208
--- ---------- ----- ----- -------- ----- -----
Total/Weighted
Average............... 724 65,194,364 100.0% 95.9% $306,000 100.0% 2,245
=== ========== ===== ===== ======== ===== =====
ANNUALIZED
BASE RENT
PER LEASED
INDUSTRIAL PROPERTIES SQUARE FOOT
--------------------- -----------
HUB MARKETS:
Atlanta....................... $4.40
Chicago....................... 4.02
Dallas/Ft. Worth.............. 3.82
Northern New Jersey........... 4.82
San Francisco Bay Area........ 7.63
Southern California........... 4.49
-----
Subtotal/Weighted Average... 5.00
OTHER MARKETS:
Austin........................ 6.87
Baltimore/Washington D.C...... 6.30
Boston........................ 4.33
Charlotte..................... 4.77
Cincinnati.................... 3.30
Columbus...................... 2.93
Denver........................ 4.72
Houston....................... 3.64
Memphis....................... 4.36
Miami......................... 6.27
Minneapolis................... 4.03
New Orleans................... 4.63
Orlando....................... 3.92
Portland...................... 4.23
Sacramento.................... 3.97
San Diego..................... 7.69
Seattle....................... 4.69
Wilmington.................... 4.43
-----
Subtotal/Weighted Average... 4.77
-----
Total/Weighted
Average............... $4.89
=====
- ---------------
(1) Annualized base rent represents the monthly contractual amount under
existing leases at December 31, 1999, multiplied by 12. This amount excludes
expense reimbursements and rental abatements.
9
10
INDUSTRIAL PROPERTY CUSTOMER INFORMATION
Largest Industrial Property Customers. Our 25 largest industrial property
customers by annualized base rent are set forth in the table below.
PERCENTAGE OF PERCENTAGE OF
NUMBER AGGREGATE AGGREGATE ANNUALIZED AGGREGATE
OF RENTABLE LEASED BASE RENT ANNUALIZED
INDUSTRIAL CUSTOMER NAME(1) PROPERTIES SQUARE FEET SQUARE FEET(2) (000S) BASE RENT(3)
--------------------------- ---------- ----------- -------------- ---------- -------------
Webvan Group, Inc..................... 3 991,598 1.5% $ 4,825 1.6%
Challenge Air Cargo................... 2 277,673 0.4% 2,562 0.8%
Norwest Mortgage, Inc................. 1 202,920 0.3% 2,461 0.8%
International Paper Company........... 4 446,422 0.7% 2,317 0.8%
Air Express International............. 2 265,996 0.4% 1,957 0.6%
Rite Aid.............................. 2 524,840 0.8% 1,779 0.6%
Exel Logistics........................ 2 471,296 0.7% 1,737 0.6%
Dell USA, L.P......................... 1 285,000 0.4% 1,700 0.6%
Home Depot USA, Inc................... 3 476,026 0.7% 1,697 0.6%
Sequus Pharmaceuticals................ 1 129,449 0.2% 1,687 0.6%
Federal Express Corporation........... 3 198,735 0.3% 1,658 0.5%
Sage Enterprises...................... 3 245,289 0.4% 1,652 0.5%
C&S Wholesale Grocers, Inc............ 1 167,812 0.3% 1,634 0.5%
Acer America.......................... 2 271,487 0.4% 1,612 0.5%
Office Depot.......................... 3 402,298 0.6% 1,567 0.5%
AM Cosmetics.......................... 1 326,500 0.5% 1,501 0.5%
Wakefern Food Corporation............. 1 419,900 0.6% 1,491 0.5%
Boise Cascade Corporation............. 2 400,655 0.6% 1,478 0.5%
Bradlees Stores, Inc.................. 1 600,000 0.9% 1,453 0.5%
Boeing Company........................ 2 207,345 0.3% 1,413 0.5%
United States Postal Service.......... 2 433,359 0.7% 1,372 0.4%
Eagle Hardware & Garden, Inc.......... 1 304,801 0.5% 1,310 0.4%
Cosmair, Inc.......................... 1 303,843 0.5% 1,291 0.4%
Fujitsu America....................... 2 179,628 0.3% 1,271 0.4%
Schmalbach-Lubeca..................... 2 339,104 0.5% 1,265 0.4%
--------- ---- ------- ----
Total/Weighted Average...... 8,871,976 13.6% $44,690 14.6%
========= ==== ======= ====
- ---------------
(1) Customer(s) may be a subsidiary of or an entity affiliated with the named
customer.
(2) Computed as aggregate rentable square feet divided by the aggregate leased
square feet of our industrial properties.
(3) Computed as annualized base rent divided by the aggregate annualized base
rent of our industrial properties.
10
11
INDUSTRIAL PROPERTY LEASE EXPIRATIONS
The following table summarizes the lease expirations for our industrial
properties for leases in place as of December 31, 1999, without giving effect to
the exercise of renewal options or termination rights, if any, at or prior to
the scheduled expirations.
ANNUALIZED
RENTABLE PERCENTAGE ANNUALIZED RENT OF PERCENTAGE OF
SQUARE OF TOTAL RENT OF EXPIRING ANNUALIZED
NUMBER OF FOOTAGE OF RENTABLE EXPIRING LEASES RENT OF
LEASES EXPIRING SQUARE LEASES PER SQUARE EXPIRING
YEAR OF LEASE EXPIRATION(5) EXPIRING LEASES FOOTAGE(4) (000S)(2) FOOT(3) LEASES(2)
--------------------------- --------- ---------- ---------- ---------- ---------- -------------
2000(4)........................ 567 10,080,536 16.1% $ 48,926 $4.85 14.5%
2001........................... 483 10,234,133 16.3% 54,996 5.37 16.3%
2002........................... 480 11,653,935 18.6% 61,013 5.24 18.1%
2003........................... 277 8,962,349 14.3% 47,785 5.33 14.2%
2004........................... 245 8,673,811 13.8% 50,034 5.77 14.8%
2005........................... 70 3,373,938 5.4% 18,611 5.52 5.5%
2006........................... 41 2,040,777 3.3% 12,375 6.06 3.7%
2007........................... 19 1,910,431 3.0% 10,471 5.48 3.1%
2008........................... 21 1,523,820 2.4% 10,560 6.93 3.1%
2009........................... 30 2,639,741 4.2% 14,624 5.54 4.3%
Thereafter..................... 17 1,552,025 2.5%_ 7,590 4.89 2.3%
----- ---------- ----- --------- ----- -----
Total/Weighted
Average............ 2,250 62,645,496 100.0% $ 336,985 $5.38 100.0%
===== ========== ===== ========= ===== =====
- ---------------
(1) Schedule includes executed leases that commence after December 31, 1999.
Schedule excludes leases expiring prior to January 1, 2000.
(2) Calculated as monthly rent at expiration multiplied by 12.
(3) Rent per square foot is calculated by dividing the annualized base rent of
expiring leases by the square footage expiring in any given year.
(4) Includes leases encompassing 488,800 square feet which are on a
month-to-month basis.
(5) Represents percentage of total square footage of expiring leases.
RETAIL PROPERTIES
At December 31, 1999, we owned 9 retail centers aggregating approximately
1.6 million rentable square feet, 5 of which are grocer-anchored. Our retail
properties accounted for $20.0 million, or 6.1%, of annualized base rent derived
from our properties as of December 31, 1999. Our retail properties were 92.4%
leased to over 240 customers, the largest of which accounted for 5.3% of
annualized base rent from our retail properties as of such date. Our retail
properties have an average age of six years since built, expanded or renovated.
During 1999, we initiated a plan to dispose of substantially all of our
retail centers. In three separate transactions with BPP Retail, LLC, we disposed
of a total of 25 retail centers, aggregating approximately 4.3 million rentable
square feet, for an aggregate price of $560.3 million. We also disposed of an
additional five retail centers, totaling approximately 1.1 million rentable
square feet, during 1999. As of December 31, 1999, we had four additional retail
centers, aggregating approximately 1.2 million rentable square feet, which were
held for divestiture.
11
12
RETAIL PROPERTY SUMMARY
Rentable square footage occupied by anchor customers accounted for 61.9% of
the aggregate square footage of our retail properties as of December 31, 1999.
Annualized base rent as of such date for our 25 largest customers was
approximately $10.2 million, representing approximately 51.1% of annualized base
rent for all of our retail properties. Annualized base rent for the remaining
retail customers was approximately $9.8 million as of the same date,
representing approximately 48.9% of the annualized base rent for all of our
retail properties. The following table sets forth, on a market basis, the
rentable square footage leased to anchor customers and non-anchor customers as
of December 31, 1999, and represents properties in which we own a fee simple
interest or a controlling interest (consolidated), and excludes properties in
which we only own a non-controlling interest (unconsolidated).
LEASED AVERAGE
ANCHOR TOTAL BASE RENT
RENTABLE RENTABLE PERCENTAGE ANNUALIZED NUMBER PER SQUARE
RETAIL PROPERTIES SQUARE FEET SQUARE FEET LEASED BASE RENT(1) OF LEASES FOOT(2)
----------------- ----------- ----------- ---------- ------------ --------- ----------
Around Lenox.................... 60,632 120,891 77.0% $ 1,540 13 $16.55
Howard & Western S.C. .......... 26,421 76,870 49.2% 515 5 13.63
Kendall Mall(3)(6).............. 194,550 299,582 97.2% 4,174 46 14.34
Manhattan Village S.C.(3)(6).... 225,791 424,112 99.2% 7,016 99 16.68
Mazzeo Drive.................... 88,420 88,420 100.0% 717 1 8.11
Northridge Plaza(3)(4).......... 124,650 182,049 90.9% 1,347 18 8.14
Palm Aire(3)(4)(6).............. 59,203 118,301 83.2% 1,071 22 10.88
Springs Gate(3)(5).............. n/a n/a n/a n/a n/a n/a
The Plaza at Delray(3)(6)....... 237,517 331,846 97.2% 3,642 43 11.29
--------- --------- ----- ------- --- ------
Total/Weighted
Average............. 1,017,184 1,642,071 92.4% $20,022 247 $13.19
========= ========= ===== ======= === ======
- ---------------
(1) Annualized base rent means the monthly contractual amount under existing
leases at December 31, 1999, multiplied by 12. This amount excludes expense
reimbursements, rental abatements and percentage rents.
(2) Calculated as total Annualized Base Rent divided by total rentable square
feet actually leased as of December 31, 1999.
(3) We hold an interest in this property through a joint venture interest in a
limited partnership.
(4) This property is being redeveloped. All calculations are based on rentable
square feet existing as of December 31,1999.
(5) This property consists of land held for future development.
(6) This property is being held for divestiture as of December 31, 1999.
12
13
OPERATING AND LEASING STATISTICS
TOTAL PORTFOLIO SUMMARY
The following table summarizes key operating and leasing statistics for all
of our properties as of and for the year ended December 31, 1999.
INDUSTRIAL RETAIL TOTAL
----------- ---------- -----------
Square feet owned at December 31, 1999(1).... 65,194,364 1,642,071 66,836,435
Occupancy percentage at December 31, 1999.... 95.9% 92.4% 95.9%
Lease expirations as percentage of annual
base rent (next 12 months)................. 14.5% 14.1% 14.5%
Weighted average lease term.................. 6 years 14 years 7 years
Tenant retention:
-- Year.................................... 72.0% 40.8% 72.0%
-- Trailing average (1/01/97 to
12/31/99)............................... 72.4% 84.0% 72.8%
Rent increases on renewals and rollovers:
-- Year.................................... 12.9% 6.8% 12.5%
Same store cash basis net operating income
growth(2)(3):
-- Year.................................... 5.9% 5.5% 5.9%
Second generation tenant improvements and
leasing commissions per sq. ft.:
-- Year:
Renewals................................ $ 1.22 $ 1.26 $ 1.22
Re-tenanted............................. 2.74 2.55 2.74
----------- ---------- -----------
Weighted average................... $ 1.64 $ 1.37 $ 1.64
=========== ========== ===========
-- Trailing average (1/01/97 to
12/31/99)............................... $ 1.41 $ 3.72 $ 1.50
=========== ========== ===========
Recurring capex(4)
-- Year.................................... $ 26,466 $ 823 $ 27,289
=========== ========== ===========
- ---------------
(1) In addition to owned square feet, we manage, through our subsidiary, AMB
Investment Management, 3.7 million, 0.7 million, and 0.1 million additional
square feet of industrial, retail, and other properties, respectively. We
also have an investment in 4.0 million square feet of industrial properties
through our investment in an unconsolidated joint venture.
(2) Consists of industrial buildings and retail centers aggregating 35.1 million
and 0.7 million square feet, respectively, that have been owned by us since
January 1, 1998, and excludes development properties prior to stabilization.
See "Item 14. Note 15 of Notes to Consolidated Financial Statements" for
total property net operating income by segment.
(3) Net operating income, or NOI, consists of rental revenues, including
reimbursements and excluding straight-line rents, less property level
operating expenses.
(4) Includes leasing costs and building improvements.
13
14
SAME STORE SUMMARY
The following table summarizes key operating and leasing statistics for our
same store properties as of and for the year ended December 31, 1999. For an
explanation of our same store properties, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
INDUSTRIAL RETAIL(1) TOTAL
---------- --------- ----------
Square feet in same store pool................... 35,128,748 723,694 35,852,442
Occupancy percentage at December 31, 1999........ 96.2% 98.4% 96.2%
Tenant retention:
-- Year........................................ 69.2% 5.9% 69.1%
Rent increases on renewals and rollovers:
-- Year........................................ 12.8% 6.8% 12.7%
Cash basis net operating income growth(2)
-- Year:
Revenues.................................... 4.3% 5.9% 4.3%
Expenses.................................... (0.6)% 6.8% 0.0%
NOI....................................... 5.9% 5.5% 5.9%
- ---------------
(1) Adjusted to remove the effects of divested properties.
(2) Net operating income, or NOI, consists of rental revenues, including
reimbursements and excluding straight-line rents, less property level
operating expenses.
HISTORICAL OCCUPANCY RATES, AVERAGE BASE RENTS, RENT INCREASES AND TENANT
RETENTION RATES
The following table sets forth weighted average occupancy rates and average
base rents based on square feet leased of our industrial properties and retail
centers as of and for the periods presented. The following table also sets forth
information relating to tenant retention rates and average rent increases (cash
basis) on renewal and re-tenanted space for our industrial properties and retail
properties for the periods presented.
INDUSTRIAL RETAIL TOTAL
---------- ------ -----
OCCUPANCY RATES:
1997................................................... 95.7% 96.1% 95.8%
1998................................................... 96.0% 94.6% 95.8%
1999................................................... 95.9% 92.4% 95.9%
AVERAGE BASE RENT(1):
1997................................................... $4.26 $11.98 n/a
1998................................................... $4.55 $11.98 n/a
1999................................................... $4.89 $13.19 n/a
RENTAL INCREASES:
1997................................................... 13.0% 10.1% 11.0%
1998................................................... 14.6% 13.3% 14.3%
1999................................................... 12.9% 6.8% 12.5%
TENANT RETENTION RATES:
1997................................................... 69.5% 87.8% 70.3%
1998................................................... 74.8% 84.1% 75.4%
1999................................................... 72.0% 40.8% 72.0%
- ---------------
(1) Average base rent per square foot represents the total annualized
contractual base rental revenue for the period divided by the average
occupied square feet leased for the period.
14
15
SAME STORE SUMMARY
The following table summarizes key operating and leasing statistics for our
same store properties as of and for the year ended December 31, 1999. For an
explanation of our same store properties, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
INDUSTRIAL RETAIL(1) TOTAL
---------- --------- ----------
Square feet in same store pool................... 35,128,748 723,694 35,852,442
Occupancy percentage at December 31, 1999........ 96.2% 98.4% 96.2%
Tenant retention:
-- Year........................................ 69.2% 5.9% 69.1%
Rent increases on renewals and rollovers:
-- Year........................................ 12.8% 6.8% 12.7%
Cash basis net operating income growth(2)
-- Year:
Revenues.................................... 4.3% 5.9% 4.3%
Expenses.................................... (0.6)% 6.8% 0.0%
NOI....................................... 5.9% 5.5% 5.9%
- ---------------
(1) Adjusted to remove the effects of divested properties.
(2) Net operating income, or NOI, consists of rental revenues, including
reimbursements and excluding straight-line rents, less property level
operating expenses.
HISTORICAL OCCUPANCY RATES, AVERAGE BASE RENTS, RENT INCREASES AND TENANT
RETENTION RATES
The following table sets forth weighted average occupancy rates and average
base rents based on square feet leased of our industrial properties and retail
centers as of and for the periods presented. The following table also sets forth
information relating to tenant retention rates and average rent increases (cash
basis) on renewal and re-tenanted space for our industrial properties and retail
properties for the periods presented.
INDUSTRIAL RETAIL TOTAL
---------- ------ -----
OCCUPANCY RATES:
1997................................................... 95.7% 96.1% 95.8%
1998................................................... 96.0% 94.6% 95.8%
1999................................................... 95.9% 92.4% 95.9%
AVERAGE BASE RENT(1):
1997................................................... $4.26 $11.98 n/a
1998................................................... $4.55 $11.98 n/a
1999................................................... $4.89 $13.19 n/a
RENTAL INCREASES:
1997................................................... 13.0% 10.1% 11.0%
1998................................................... 14.6% 13.3% 14.3%
1999................................................... 12.9% 6.8% 12.5%
TENANT RETENTION RATES:
1997................................................... 69.5% 87.8% 70.3%
1998................................................... 74.8% 84.1% 75.4%
1999................................................... 72.0% 40.8% 72.0%
- ---------------
(1) Average base rent per square foot represents the total annualized
contractual base rental revenue for the period divided by the average
occupied square feet leased for the period.
14
16
RECURRING TENANT IMPROVEMENTS AND LEASING COMMISSIONS PER SQUARE FOOT LEASED
The table below summarizes for our industrial properties and retail
properties, separately, the recurring tenant improvements and leasing
commissions per square feet leased for the periods presented. The recurring
tenant improvements and leasing commissions represent costs incurred to lease
space after the initial lease term of the initial customer, excluding costs
incurred to relocate customers as part of a re-tenanting strategy. The tenant
improvements and leasing commissions set forth below are not necessarily
indicative of future tenant improvements and leasing commissions.
YEAR ENDED DECEMBER 31,
----------------------- WEIGHTED
1997 1998 1999 AVERAGE
----- ----- ----- --------
INDUSTRIAL PROPERTIES:
Expenditures per renewed square foot leased..... $1.05 $0.92 $1.22 $1.07
Expenditures per re-tenanted square foot
leased....................................... 1.62 2.08 2.74 2.22
----- ----- ----- -----
Weighted average................................ $1.30 $1.10 $1.64 $1.39
===== ===== ===== =====
RETAIL PROPERTIES:
Expenditures per renewed square foot leased..... $4.25 $1.34 $1.26 $2.26
Expenditures per re-tenanted square foot
leased....................................... 7.92 9.99 2.55 7.66
----- ----- ----- -----
Weighted average................................ $6.41 $2.64 $1.37 $4.01
===== ===== ===== =====
TOTAL PROPERTIES:
Expenditures per renewed square foot leased..... $1.23 $0.95 $1.22 $1.11
Expenditures per re-tenanted square foot
leased....................................... 2.23 2.47 2.74 2.48
----- ----- ----- -----
Weighted average................................ $1.68 $1.18 $1.64 $1.50
===== ===== ===== =====
15
17
DEVELOPMENT PIPELINE
The following table sets forth the properties owned by us as of December
31, 1999 which were undergoing renovation, expansion or new development. No
assurance can be given that any of such projects will be completed on schedule
or within budgeted amounts.
INDUSTRIAL DEVELOPMENT PROJECTED DELIVERIES
(DOLLARS IN THOUSANDS)
ESTIMATED ESTIMATED ESTIMATED
DEVELOPMENT ALLIANCE STABILIZATION SQUARE FEET AT TOTAL
PROJECT LOCATION PARTNER(TM) DATE(1) COMPLETION INVESTMENT(2)
------- -------- -------------------- ------------- -------------- -------------
2000 DELIVERIES
1. Suwanee Creek (phase I)........ Atlanta, GA Seefried Properties January 2000 249,000 $ 8,500
2. North Great SW Industrial
Park........................... Dallas, TX Trammell Crow March 2000 215,000 10,500
Company
3. Hempstead Highway (phase I).... Houston, TX Cypress Realty May 2000 292,000 11,500
4. Northwest Crossing (phase I)... Houston, TX Trammell Crow June 2000 178,000 6,900
Company
5. Orlando Central Park (phase
I)............................. Orlando, FL Trammell Crow July 2000 306,000 12,100
Company
6. Suwanee Creek (phase II)....... Atlanta, GA Seefried Properties July 2000 241,000 8,000
7. South River Park (phase II).... Cranbury, NH Trammell Crow August 2000 281,000 13,300
Company
8. Cabot Business Park (phase
I)............................. Mansfield, MA National Development September 2000 98,000 8,900
of NE
9. Cabot Business Park (phase
II)............................ Mansfield, MA National Development December 2000 186,000 9,600
of NE
--------- --------
Total 2000 Deliveries.......... 2,046,000 89,300(5)
2001 DELIVERIES
10. DFWII/Air Cargo................ Dallas/Fort Trammell Crow February 2001 189,000 17,600
Worth, TX Company
11. Pico Rivera (phase I).......... Pico Rivera, CA Majestic Realty February 2001 520,000 24,300
12. LA Media Tech Center (phase
I)............................. Los Angeles, CA Legacy Partners April 2001 399,000 40,200
13. Pier I(6)...................... San Francisco, CA None June 2001 152,000 40,600
14. Port Northwest Industrial Park
(phase I)...................... Houston, TX Dienna Nelson September 2001 364,200 12,400
Augustine
15. Portland Air Cargo............. Portland, OR Trammell Crow December 2001 159,500 11,800
Company
--------- --------
Total 2001 Deliveries.......... 1,783,700 146,900(5)
--------- --------
Total Scheduled
Deliveries(3).................. 3,829,700(4) $236,200(3)
========= ========
- ---------------
(1) Estimated stabilization date represents management's current estimate of
when capital improvements for repositioning, development, and redevelopment
programs will have been completed and in effect for a period of time
sufficient to achieve market occupancy.
(2) Represents total estimated cost of renovation, expansion or development,
including initial acquisition costs, debt and equity carry, and partner
earnouts. The estimates are based on our current estimates and forecasts and
are therefore subject to change.
(3) Excludes 305 acres of land and other acquisition costs totaling
approximately $32.0 million which represents future phases of current
projects which have not been committed to, or for which final project
planning has not been completed, and other land inventory.
(4) Of such space, 24.9% was leased as of December 31, 1999.
(5) As of December 31, 1999, amounts funded to date for deliveries in 2000 and
2001 are approximately $64.4 million and $49.2 million, respectively.
(6) This project represents a redevelopment of an industrial warehouse into
office space. We will locate our corporate headquarters in approximately
one-third of the space.
16
18
RETAIL DEVELOPMENT PROJECTED DELIVERIES
(DOLLARS IN THOUSANDS)
DEVELOPMENT ESTIMATED ESTIMATED ESTIMATED
ALLIANCE STABILIZATION SQUARE FEET AT TOTAL
PROJECT(1) LOCATION PARTNER(TM) DATE(2) COMPLETION INVESTMENT(3)
---------- -------- ----------- ------------- -------------- -------------
2000 DELIVERIES
1. Around Lenox............. Atlanta, GA Alpine Partners August 2000 121,000 $24,100
2001 DELIVERIES
2. Howard & Western......... Chicago, IL None January 2001 89,000 8,600
3. Northridge............... Fort Lauderdale, FL Lefmark April 2001 259,000 37,500
------- -------
Total 2001
Deliveries.......... 348,000 46,100
------- -------
Total Scheduled
Deliveries(4)....... 469,000(5) $70,200(6)
======= =======
- ---------------
(1) Excludes one project that is held for divestiture.
(2) Estimated stabilization date represents management's current estimate of
when capital improvements for repositioning, development, and redevelopment
program will have been completed and in effect for a period of time
sufficient to achieve market occupancy.
(3) Represents total estimated cost of renovation, expansion or development,
including initial acquisition costs, debt and equity carry, and partner
earnouts. The estimates are based on our current estimates and forecasts and
are therefore subject to change.
(4) Excludes 39 acres of land and other acquisition costs totaling approximately
$14.9 million which represents further phases of current projects which have
not been committed to, or for which final project planning has not been
completed, and other land inventory.
(5) Of such space, 76% was leased as of December 31, 1999.
(6) As of December 31, 1999, approximately $50.9 million has been funded.
PROPERTIES HELD THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND
PARTNERSHIPS
Consolidated:
As of December 31, 1999, we held interests in 21 joint ventures, limited
liability companies and partnerships with certain unaffiliated third parties
through which 27 properties were held that are consolidated in our consolidated
financial statements. Pursuant to the existing agreements with respect to each
joint venture, we hold a greater than 50% interest in 17 of the joint ventures,
a 50% interest in two joint ventures, and less than 50% interest in two joint
ventures. In certain cases such agreements provide that we are a limited partner
or that the other party to the joint venture is principally responsible for
day-to-day management of the property (though in all such cases, we have
approval rights with respect to significant decisions involving the underlying
properties). Under the agreements governing the joint ventures, we and the other
party to the joint venture may be required to make additional capital
contributions, and subject to certain limitations, the joint ventures may incur
additional debt. Such agreements also impose certain restrictions on the
transfer of joint venture interests by us or the other party to the joint
venture, and provide certain rights to us and/or the other party to the joint
venture to sell its interest to the joint venture or to the other venturer on
terms specified in the agreement. All of the joint ventures terminate in 2024 or
later, but may end earlier if a joint venture ceases to hold any interest in or
have any obligations relating to the property held by the joint venture.
17
19
The following table sets forth certain information regarding our properties
owned through consolidated joint ventures as of December 31, 1999.
INDUSTRIAL CONSOLIDATED JOINT VENTURES
(DOLLARS IN THOUSANDS)
JV PARTNERS'
JV PARTNERS' SHARE OF
GROSS BOOK SHARE FUNDS FROM
PROPERTIES SQUARE FEET VALUE(1) DEBT OF DEBT OPERATIONS
---------- ----------- ---------- -------- ------------ ------------
SEPARATE ACCOUNT CO-INVESTORS(2)
1. Corporate Park/Hickory Hill............ 858,322 $ 27,627 $ 16,400 $ 8,200 50%
2. Garland Industrial..................... 1,018,637 34,279 19,600 9,800 50%
3. Jamesburg.............................. 821,712 47,540 23,500 11,750 50%
4. Minnetonka Industrial.................. 515,915 28,447 12,669 6,167 50%
5. South Point Business Park.............. 343,536 21,788 10,725 5,363 50%
--------- -------- -------- --------
Subtotal.......................... 3,558,122 159,681 82,894 41,280
ALLIANCE FUND I(3)
6. Concord Industrial Portfolio........... 246,087 15,744 -- -- 75%
7. Diablo Industrial Park................. 312,255 14,328 -- -- 75%
8. Gateway Corporate Center............... 430,603 43,229 -- -- 75%
9. Gateway North.......................... 266,476 25,189 -- -- 75%
--------- -------- -------- --------
Subtotal.......................... 1,255,421 98,490 80,000(8) 64,000(8)
DEVELOPMENT ALLIANCE JOINT VENTURES(4)(5)
10. LA Media Tech Center(6)................ 399,000 35,258 4,651 2,365 51%
11. Cabot Business Park (phase I and II)... 284,000 10,634 -- -- 10%
12. DFW II/Air Cargo....................... 189,000 5,996 -- -- 5%
13. Portland Air Cargo(7).................. 159,500 -- -- -- 5%
14. North Great SW Industrial Park......... 215,000 9,366 -- -- 5%
15. Northwest Crossing Distribution
Center................................... 178,000 6,371 -- -- 5%
16. Orlando Central Park (phase I)......... 306,000 11,614 -- -- 5%
17. South River Park (phase I and II)...... 626,000 24,640 -- -- 5%
--------- -------- -------- --------
Subtotal.......................... 2,356,500 103,879 4,651 2,365
OTHER JOINT VENTURES
18. Nippon Express......................... 148,941 6,361 -- -- 27%
19. Metric Center.......................... 397,440 44,390 -- -- 13%
20. Chancellor............................. 201,600 6,456 2,860 283 10%
--------- -------- -------- --------
Subtotal.......................... 747,981 57,207 2,860 283
--------- -------- -------- --------
Total............................. 7,918,024 $419,257 $170,405 $107,928
========= ======== ======== ========
- ---------------
(1) Represents the book value of the property (before accumulated depreciation)
owned by the joint venture entity and excludes net other assets.
(2) These properties are owned by a single co-investment joint venture partner
that is a client of AMB Investment Management.
(3) Represents a property held by the Alliance Fund I which is co-invested with
a private institutional real estate investment trust.
(4) Represents estimated square feet at completion of development project.
(5) Excludes projected building square footage on 86.4 acres of land
representing future phases of current projects which have not been committed
to, or for which final planning has not been completed.
(6) Represents a development project with a Development Alliance Partner in
which a separate account co-investor also has an interest. The Development
Alliance Partner's share of funds from operations is 2%.
(7) Represents our investment in a ground leased property.
(8) Represents a credit facility held by the Alliance Fund I. As of December 31,
1999, our projected ownership upon final closing of the Alliance Fund I was
estimated to be 20%.
18
20
RETAIL CONSOLIDATED JOINT VENTURES
(DOLLARS IN THOUSANDS)
GROSS BOOK JV PARTNERS' JV PARTNERS'
PROPERTIES SQUARE FEET VALUE(1) DEBT SHARE OF DEBT SHARE OF FFO
---------- ----------- ---------- ------- ------------- ------------
DEVELOPMENT ALLIANCE JOINT VENTURES(2)
1. Around Lenox.......................... 120,000 $ 19,585 $17,489 $ 1,027 10%
2. Northridge Plaza...................... 259,000 25,525 -- -- 0%
3. Palm Aire(3).......................... 133,000 17,325 7,139 1,021 0%
4. Springs Gate.......................... --(4) 14,906 -- -- 0%
--------- -------- ------- -------
Subtotal......................... 512,000 77,341 24,628 2,048
OTHER JOINT VENTURES
5. Kendall Mall.......................... 299,582 36,260 24,330 10,055 29%
6. Manhattan Village..................... 424,112 83,463 -- -- 10%
7. Plaza Delray.......................... 331,846 36,010 22,814 4,528 2%
--------- -------- ------- -------
Subtotal......................... 1,055,540 157,733 47,144 14,583
--------- -------- ------- -------
Total............................ 1,567,540 $233,074 $71,772 $16,631
========= ======== ======= =======
- ---------------
(1) Represents the book value of the property (before accumulated depreciation)
owned by the joint venture entity and excludes net other assets.
(2) Represents estimated square feet at completion of development project.
(3) Included as part of retail properties held for divestiture.
(4) Represents 39 acres of land for future phases of current projects which have
not been committed to, or for which final project planning has not been
completed.
We account for all of the above investments on a consolidated basis for
financial reporting purposes because of our ability to exercise control over
significant aspects of the investment as well as our significant economic
interest in the investments. See "Item 14. Note 2 of the Notes to Consolidated
Financial Statements."
Unconsolidated:
As of December 31, 1999, we held interests in two equity investment joint
ventures that are unconsolidated in our financial statements. The management and
control over significant aspects of these investments are with the third party
joint venture partner.
UNCONSOLIDATED JOINT VENTURES
(DOLLARS IN THOUSANDS)
AMB'S AMB'S AMB'S
TOTAL TOTAL OWNERSHIP SHARE OF
PROPERTIES MARKET SQUARE FEET INVESTMENT PERCENTAGE DEBT
---------- ------ ----------- ---------- ---------- --------
OPERATING JOINT VENTURES
1. Elk Grove Du Page.................. Chicago 4,046,721 $58,602 56.1% $18,754
DEVELOPMENT ALLIANCE JOINT VENTURES(1)
2. Pico Rivera........................ Southern California 520,000 7,789 50.0% 3,986
--------- ------- -------
Total......................... 4,566,721 $66,391 $22,740
========= ======= =======
- ---------------
(1) Represents estimated square feet at completion of development project.
19
21
SECURED DEBT
As of December 31, 1999, we had $696.9 million of indebtedness secured by
deeds of trust on 17 properties. As of December 31, 1999, the total gross
investment value of those properties secured by debt was $1.4 billion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Item 14. Note 5 of Notes to
Consolidated Financial Statements" included in this report. We believe that as
of December 31, 1999, the value of the properties securing the respective
obligations in each case exceeded the principal amount of the outstanding
obligations.
ITEM 3. LEGAL PROCEEDINGS
Neither we nor any of the properties is subject to any material litigation.
To our knowledge, there is no material litigation threatened against any of
them, other than routine litigation arising in the ordinary course of business,
which we generally expect to be covered by liability insurance, or to have an
immaterial effect on our financial results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no established public trading market for our partnership units. As
of December 31, 1999, we had outstanding 94,711,319 partnership units,
consisting of 88,903,630 general partnership units (consisting of 84,903,630
common units and 4,000,000 8 1/2% Series A Cumulative Redeemable Preferred
Units) held by AMB Property Corporation and 5,807,689 limited partnership units
(consisting of 4,507,689 common units and 1,300,000 8 5/8% Series B Cumulative
Redeemable Preferred Units). Subject to certain terms and conditions, the
limited partnership units are redeemable by the holders or, at the option of AMB
Property Corporation, exchangeable on a one-for-one basis for shares of the
common stock of AMB Property Corporation. As of December 31, 1999, there were 53
holders of our common partnership units (including AMB Property Corporation's
general partnership interest). As of the same date, AMB Property Corporation was
the only holder of the 8 1/2% Series A Cumulative Redeemable Preferred Units and
there was one holder of the 8 5/8% Series B Cumulative Redeemable Preferred
Units.
During 1999, we issued an aggregate of 626,713 limited partnership common
units in connection with the acquisition of certain properties, as follows: (1)
on February 9, 1999, an aggregate of 1,034 limited partnership units with an
aggregate value of approximately $0.02 million were issued to two corporations
and twelve individuals; (2) on April 30, 1999, an aggregate of 390,633 limited
partnership units with an aggregate value of approximately $9.4 million were
issued to two corporations and twelve individuals; (3) on May 21, 1999, an
aggregate of 18,638 limited partnership units with an aggregate value of
approximately $0.5 million were issued to a limited liability company; (4) on
May 26, 1999, an aggregate of 212,766 limited partnership units with an
aggregate value of approximately $5.0 million were issued to a limited liability
company; and (5) on September 30, 1999, an aggregate of 3,642 limited
partnership units with an aggregate value of approximately $0.1 million were
issued to five partnerships. Holders of limited partnership units may redeem
part or all of their units for cash, or at the election of AMB Property
Corporation, exchange their units for shares of the common stock of AMB Property
Corporation on a one-for-one basis. The issuance of limited partnership units in
connection with the acquisitions discussed above constituted private placements
of securities which were exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) and Rule 506 of Regulation D.
Set forth below are the distributions per limited partnership unit paid by
us during the period from November 26, 1997 through December 31, 1999.
YEAR DISTRIBUTION
---- ------------
1997
4th Quarter (from 11/21/97)............................... $0.1340
1998
1st Quarter............................................... 0.3425
2nd Quarter............................................... 0.3425
3rd Quarter............................................... 0.3425
4th Quarter............................................... 0.3425
1999
1st Quarter............................................... 0.3500
2nd Quarter............................................... 0.3500
3rd Quarter............................................... 0.3500
4th Quarter............................................... 0.3500
21
23
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
SELECTED OPERATING PARTNERSHIP FINANCIAL AND OTHER DATA
The following table sets forth selected consolidated historical financial
and other data for AMB Property, L.P. on an historical basis for the years ended
December 31, 1997, 1998 and 1999 and on a pro forma basis for 1997.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
OPERATING PARTNERSHIP
------------------------------------------------------
HISTORICAL(1) PRO FORMA(2)
------------- ------------
1997 1997 1998 1999
------------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)
OPERATING DATA:
Total revenues.................................... $ 27,110 $ 284,674 $ 358,887 $ 448,183
Income from operations before minority
interests....................................... 9,291 103,903 123,750 158,851
Net income available to common unitholders........ 9,174 102,606 113,838 176,392
Net income common per unit:
Basic(3)........................................ 0.10 1.16 1.27 1.94
Diluted(3)...................................... 0.10 1.16 1.26 1.94
Distributions per common unit..................... -- 1.37 1.37 1.40
Distributions per preferred unit(4)............... -- -- 0.99 2.13
OTHER DATA:
EBITDA(5)......................................... $ 195,218 $ 252,353 $ 318,319
Funds from Operations(6).......................... 147,409 170,407 191,147
Cash flows provided by (used in):
Operating activities............................ 131,621 177,180 190,391
Investing activities............................ (607,768) (793,366) 63,732
Financing activities............................ 553,199 604,202 (240,721)
BALANCE SHEET DATA:
Investments in real estate at cost................ $2,442,999 $3,369,060 $3,249,452
Total assets...................................... 2,506,255 3,562,885 3,621,550
Total consolidated debt(7)........................ 685,652 1,368,196 1,270,037
Our share of total debt........................... 672,945 1,348,107 1,168,218
Partners' capital................................. 1,717,398 1,914,257 1,983,549
- ---------------
(1) The historical 1997 results represent our historical financial and other
data for the period from November 26, 1997 to December 31, 1997.
(2) Pro forma 1997 financial and other data has been prepared as if our
formation transactions, our initial public offering (as described in "Item
14. Note 1 of Notes to Consolidated Financial Statements") and certain
property acquisitions and divestitures in 1997 had occurred on January 1,
1997.
(3) Basic and diluted net income per unit equals the pro forma net income
divided by 88,416,676 and 88,698,719 units, respectively, for 1997,
89,493,394 and 89,852,187 units, respectively, for 1998, and 90,792,310 and
90,867,934 units, respectively, for 1999.
(4) Distributions for the period commencing on July 27, 1998, the date of the
Series A Preferred Unit issuance.
(5) EBITDA is computed as income from operations before divestiture of
properties and minority interests plus interest expense, income taxes,
depreciation and amortization. We believe that in addition to cash flows and
net income, EBITDA is a useful financial performance measure for assessing
the operating performance of an equity real estate investment trust, such as
our general partner, because, together with net income and cash flows,
EBITDA provides investors with an additional basis to evaluate the ability
of a real estate investment trust to incur and service debt and to fund
acquisitions and other capital expenditures. Includes an adjustment to
reflect our pro rata share of EBITDA in unconsolidated joint ventures.
EBITDA is not a measurement of operating performance calculated in
accordance with U.S. generally accepted accounting principles and should not
be considered as a substitute for operating income, net income, cash flows
from operations or other statement of operations or cash flow data prepared
in accordance with U.S. generally accepted accounting principles. EBITDA may
not be indicative of our historical operating results nor be predictive of
potential future results. While EBITDA is frequently used as a measure of
operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other real
estate investment trusts.
(6) Funds from Operations, or FFO, is defined as income from operations before
minority interests, gains or losses from sale of real estate and
extraordinary losses plus real estate depreciation and adjustment to derive
our pro rata share of the funds from operations of unconsolidated joint
ventures, less minority interests' pro rata share of the funds from
operations of consolidated joint ventures and perpetual preferred stock
dividends. In accordance with the National Association of Real Estate
Investment Trust ("NAREIT") White Paper on funds from operations, we include
the effects of straight-line rents in funds from operations. We believe that
funds from operations is an appropriate measure of performance for an equity
real estate investment trust. While funds from operations 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 U.S. generally accepted accounting principles, and it should not
be considered as an alternative to these indicators in evaluating liquidity
or operating performance. Further, funds from operations as disclosed by
other real estate investment trusts may not be comparable.
(7) Secured debt includes unamortized debt premiums of approximately $18,286,
$15,217 and $10,106 as of December 31, 1997, 1998 and 1999, respectively.
See "Item 14. Notes 2 and 6 of Notes to Consolidated Financial Statements."
22
24
SELECTED PROPERTY FINANCIAL AND OTHER DATA
For comparative purposes, the table that follows provides selected
historical financial and other data of our properties. The historical results of
the properties for 1997 include the results achieved by us for the period from
November 26, 1997 to December 31, 1997 and the results achieved by the prior
owners of the properties for the period from January 1, 1997 to November 25,
1997. The historical results of operations of the properties for periods prior
to November 26, 1997 include properties that were managed by our general
partner's predecessor and exclude the results of four properties that were
contributed to us in our formation transactions that were not previously managed
by our general partner's predecessor. See "Item 14. Note 1 of Notes to
Consolidated Financial Statements" for a description of our formation
transactions. In addition, the historical results of operations include the
results of properties acquired after November 26, 1997, from the date of
acquisition of such properties to December 31, 1997.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
OPERATING PARTNERSHIP
------------------------------------------------------
PROPERTIES COMBINED(1) HISTORICAL(2) PRO FORMA(3)
----------------------- ------------- ------------
1995 1996 1997 1997 1998 1999
---------- ---------- ------------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
OPERATING DATA:
Rental revenues.................... $ 106,180 $ 166,415 $ 233,856 $282,665 $ 354,658 $ 439,658
BALANCE SHEET DATA:
Investment in real estate at
cost............................. 1,018,681 1,616,091 2,442,999 3,369,060 3,249,452
Secured debt(4).................... 254,067 522,634 535,652 734,196 707,037
PROPERTY DATA:
Industrial Properties
Property net operating
income(5)...................... 137,955 187,218 269,339
Total rentable square footage at
end of period.................. 21,598 29,609 37,329 56,611 65,194
Occupancy rate at end of
period......................... 97.3% 97.2% 95.7% 96.0% 95.9%
Retail Properties
Property net operating
income(5)...................... 64,716 79,025 62,396
Total rentable square footage at
end of period.................. 3,299 5,282 6,216 6,985 1,642
Occupancy rate at end of
period......................... 92.4% 92.4% 96.1% 94.6% 92.4%
- ---------------
(1) Represents the properties' combined historical financial and other data for
the years ended December 31, 1995 and 1996. The historical results of
operations of the properties for periods prior to November 26, 1997 include
properties that were managed by our general partner's predecessor and
exclude the results of four properties that were contributed to us in our
formation transactions that were not previously managed by our general
partner's predecessor. See "Item 14. Note 1 of Notes to Consolidated
Financial Statements" for a description of our formation transactions.
(2) The historical results of the properties for 1997 include our results for
the period from November 26, 1997 (commencement date) to December 31, 1997
and the results achieved by the prior owners of the properties for the
period from January 1, 1997 to November 25, 1997.
(3) The pro forma financial and other data has been prepared as if our formation
transactions, our initial public offering (see "Item 14. Note 1 of Notes to
Consolidated Financial Statements"), and certain 1997 property acquisitions
and divestitures had occurred on January 1, 1997.
(4) Secured debt as of December 31, 1997, 1998 and 1999 includes unamortized
debt premiums of approximately $18,286, $15,217 and $10,106, respectively.
See "Item 14. Notes 2 and 6 of Notes to Consolidated Financial Statements."
(5) Property net operating income is defined as rental revenue, including
reimbursements and straight-line rents, less property level operating
expenses and excluding depreciation, amortization and interest expense.
Internal asset management costs totaling $7,659 for 1998 have been
reclassified from property operating expenses to general and administrative
expenses to conform with current year presentation. See "Item 14. Note 15 of
Notes to Consolidated Financial Statements."
23
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of our consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward-looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of
these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, our failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, our failure to divest of properties we have
contracted to sell or to timely reinvest proceeds from any such divestitures,
risks and uncertainties affecting property development and construction
(including construction delays, cost overruns, our inability to obtain necessary
permits and public opposition to these activities), environmental uncertainties,
risks related to natural disasters, financial market fluctuations, changes in
real estate and zoning laws and increases in real property tax rates. Our
success also depends upon economic trends generally, including interest rates,
income tax laws, governmental regulation, legislation, population changes and
those risk factors discussed in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Factors that
May Affect Future Financial Results" in this report. We caution you not to place
undue reliance on forward-looking statements, which reflect our analysis only
and speak only as of the date of this report or the dates indicated in the
statements.
GENERAL
We commenced operations on November 26, 1997. See "Item 14. Note 1 of Notes
to Consolidated Financial Statements" for a discussion of our formation
transactions.
RESULTS OF OPERATIONS
The analysis below shows changes in our results of operations for the years
ended December 31, 1999, 1998 and 1997, which include changes attributable to
acquisitions, divestitures and development activity, and the changes resulting
from properties that we owned during both the current and prior year reporting
periods, excluding development properties prior to being stabilized (generally
defined as 95.0% leased). We refer to these properties as the "same store
properties". For the comparison between the years ended December 31, 1999 and
1998, and the years ended December 31, 1998 and 1997, the same store properties
consist of properties aggregating approximately 35.9 and 31.1 million square
feet, respectively. The properties acquired in 1998 consisted of 230 buildings,
aggregating approximately 19.2 million square feet, and the 1999 acquisitions
consisted of 154 buildings, aggregating approximately 8.4 million square feet.
In 1999, property divestitures consisted of 30 retail centers and 15 industrial
buildings, aggregating approximately 6.6 million square feet. There were no
property divestitures in 1998. The historical results of operations of the
properties for the period prior to November 26, 1997 (the commencement of our
operations) include properties that were managed by our general partner's
predecessor, an investment manager, and exclude the results of four properties
that were contributed to us in our formation transactions that our general
partner's predecessor did not previously manage. Our future financial condition
and results of operations, including rental revenues, may be impacted by the
acquisitions of additional properties. Our future revenues and expenses may vary
materially from their historical rates.
24
26
YEARS ENDED DECEMBER 31, 1999 AND 1998 (DOLLARS IN MILLIONS)
RENTAL REVENUES 1999 1998 $ CHANGE % CHANGE
--------------- ------ ------ -------- --------
Same store................................... $212.9 $206.1 $ 6.8 3.3%
1998 acquisitions............................ 117.8 55.9 61.9 110.7%
1999 acquisitions............................ 35.4 -- 35.4 --
Developments................................. 33.0 28.4 4.6 16.2%
Divestitures................................. 40.6 64.3 (23.7) (36.9)%
------ ------ ------ -----
Total.............................. $439.7 $354.7 $ 85.0 24.0%
====== ====== ====== =====
Rental revenues, including straight-line rents, tenant reimbursements and
other property related income, increased by $85.0 million, or 24.0%, for the
year ended December 31, 1999 to $439.7 million as compared with the same period
in 1998. Approximately $6.8 million, or 8.0%, of this increase was attributable
to same store properties. The growth in rental revenues in same store properties
resulted primarily from the incremental effect of rental rate increases, changes
in occupancy rates and reimbursement of expenses, offset by a decrease in
straight-line rents. During the year ended December 31, 1999, the increase in
base rents (cash basis) for same store properties was 12.7% on 6.8 million
square feet leased.
INVESTMENT MANAGEMENT AND OTHER INCOME 1999 1998 $ CHANGE % CHANGE
-------------------------------------- ---- ---- -------- --------
Equity earnings in unconsolidated joint
ventures....................................... $4.7 $2.7 $2.0 74.1%
Investment management income..................... 1.0 0.1 0.9 900.0%
Other............................................ 2.8 1.4 1.4 100.0%
---- ---- ---- -----
Total.................................. $8.5 $4.2 $4.3 102.4%
==== ==== ==== =====
Other revenues, including equity in earnings of unconsolidated joint
ventures, investment management income, and interest income, totaled $8.5
million for the year ended December 31, 1999 as compared to $4.2 million for the
year ended December 31, 1998. The $4.3 million increase was primarily
attributable to the earnings from our equity investment in our unconsolidated
joint ventures, acquisition fees related to the Alliance Fund I and an increase
in interest income as a result of higher cash balances.
PROPERTY OPERATING EXPENSES 1999 1998 $ CHANGE % CHANGE
--------------------------- ------ ----- -------- --------
Rental expenses............................... $ 51.7 $40.2 $11.5 28.6%
Real estate taxes............................. 56.2 48.2 8.0 16.6%
------ ----- ----- -----
Property operating expenses................. $107.9 $88.4 $19.5 22.1%
====== ===== ===== =====
Same store.................................... $ 50.2 $50.1 $ 0.1 0.2%
1998 acquisitions............................. 27.3 12.6 14.7 116.7%
1999 acquisitions............................. 9.3 -- 9.3 --
Developments.................................. 9.5 7.9 1.6 20.3%
Divestitures.................................. 11.6 17.8 (6.2) (34.8)%
------ ----- ----- -----
Total............................... $107.9 $88.4 $19.5 22.1%
====== ===== ===== =====
Property operating expenses increased by $19.5 million, or 22.1%, for the
year ended December 31, 1999, to $107.9 million, as compared with the same
period in 1998. Internal asset management costs of $7.7 million for 1998 have
been reclassified to general and administrative expenses to conform with current
year presentation. Same store properties' operating expenses increased by $0.1
million for the year ended December 31, 1999. The change in same store
properties' operating expenses primarily relates to increases in
25
27
same store properties' real estate taxes of approximately $1.0 million for the
year ended December 31, 1999, offset by decreases in same store properties'
insurance of $0.9 million.
OTHER EXPENSES 1999 1998 $ CHANGE % CHANGE
-------------- ------ ------ -------- --------
General and administrative expense........... $ 25.2 $ 19.6 $ 5.6 28.6%
Interest expense............................. 88.7 69.7 19.0 27.3%
Depreciation expense......................... 67.5 57.4 10.1 17.6%
------ ------ ----- ----
Total.............................. $181.4 $146.7 $34.7 23.7%
====== ====== ===== ====
General and administrative expense increased by $5.6 million, or 28.6%, for
the year ended December 31, 1999, to $25.2 million, as compared with the same
period in 1998. Internal asset management costs of $7.7 million for 1998 have
been reclassified from property operating expenses to general and administrative
expenses to conform with the current year presentation. The increase was
primarily attributable to additional staffing that resulted from the growth in
our portfolio, with the remainder of the increase due to the change in our
accounting policy for capitalizing internal acquisition costs. Effective during
the second quarter of 1998, we changed our policy to expense all internal
acquisition costs in accordance with EITF 97-11. The increase in interest
expense was primarily due to higher interest rates and a full year of interest
expense in 1999 attributable to the $400.0 million unsecured senior debt
securities and the increase in depreciation was due to the growth in our real
estate acquisitions in 1998 and 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997 (DOLLARS IN MILLIONS)
RENTAL REVENUES 1998 1997 $ CHANGE % CHANGE
--------------- ------ ------ -------- --------
Same store................................... $211.2 $201.6 $ 9.6 4.8%
Acquisitions and development................. 143.5 81.1 62.4 76.9%
------ ------ ----- ----
Total.............................. $354.7 $282.7 $72.0 25.5%
====== ====== ===== ====
Rental revenues, including straight-line rents, tenant reimbursements and
other property related income, increased by $72.0 million, or 25.5%, for the
year ended December 31, 1998. Approximately $9.6 million, or 13.3%, of this
increase, was attributable to same store properties with the remaining $62.4
million primarily attributable to properties acquired in 1998 and properties
under development. The growth in rental revenues in same store properties
resulted primarily from the incremental effect of rental rate increases and
changes in occupancy and reimbursement of expenses. During the year ended
December 31, 1998, the increase in average base rents (cash basis) was 14.3% on
7.7 million square feet leased.
PROPERTY OPERATING EXPENSES 1998 1997 $ CHANGE % CHANGE
--------------------------- ----- ----- -------- --------
Same store..................................... $54.4 $55.1 $(0.7) (1.3)%
Acquisitions and development................... 34.0 26.4 7.6