ProLogis Reports Fourth Quarter and Full-Year 2008 Results
DENVER, Feb. 9 /PRNewswire-FirstCall/ -- ProLogis (News), a leading global provider of distribution facilities, today reported funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $3.68 per diluted share for the year ended December 31, 2008, compared with $4.61 per share in 2007. FFO, including significant non-cash items, was $0.68 per share, compared with $4.61 in 2007. For 2008, the company reported a net loss of $1.65 per diluted share, compared with net earnings of $3.94 in 2007.
For the fourth quarter ended December 31, 2008, FFO, excluding significant non-cash items, was $0.61 per share, compared with $0.79 in 2007. FFO, including significant non-cash items, for the fourth quarter of 2008 was a net loss of $2.43 per diluted share, compared with a net gain of $0.79 in the fourth quarter of 2007. The company reported a net loss of $3.34 per diluted share for the fourth quarter of 2008, compared with net earnings of $0.43 per diluted share for the fourth quarter of 2007.
"After a thorough review of the assets on our balance sheet and in our unconsolidated investees, we recognized impairment charges where appropriate, given the current economic climate and our long-term intent for the properties," said Walter C. Rakowich, chief executive officer. "Excluding these adjustments, our results were in line with expectations, and these non-cash charges do not affect our liquidity or our conviction in the long-term value of our global portfolio."
Fundamentals Held Up in Fourth Quarter but Now Seeing Softening
"Our operating fundamentals held up reasonably well in the fourth quarter, with essentially flat same-store net operating income, stable levels of leasing activity and above-average customer retention, despite a decrease in activity levels toward the end of the year," Rakowich added.
"Companies are dealing with capital limitations and the uncertainties of the current economic environment and are therefore hesitant to incur the cost to relocate their facilities. As a result, our customer retention is healthy, but lease-up of newly developed inventory space is tepid. Fortunately, most markets are not significantly oversupplied, and new development deliveries in 2009 are expected to be at the lowest level in decades. We continue to closely monitor market conditions and believe that the quality of our people and strength of our customer relationships will help us maintain better leasing levels than overall market averages during these difficult times."
Disposition and Contribution Activity Supports De-leveraging Goal
In November 2008, ProLogis outlined a series of actions to achieve a reduction of roughly $2 billion in direct debt during 2009. The plan includes reducing the company's development pipeline through fund contributions, asset sales and a halt in all but previously committed development starts.
During the fourth quarter, ProLogis completed total dispositions with aggregate proceeds of $1.33 billion, including contributions to ProLogis property funds of $1.25 billion. Ted R. Antenucci, chief investment officer, said, "We pulled several development projects in the fourth quarter that were previously included in our year-to-date new construction starts, resulting in a reduction of over $345 million. For the full year, new development starts were just $2.1 billion in 2008, down by more than half from our initial expectation of $4.4 to $4.8 billion, in light of the rapidly deteriorating economic environment in the fourth quarter of 2008.
"While we have an additional $885 million of costs associated with completing and leasing our development pipeline, we do not anticipate significant commitments beyond that level because we intend to pursue development management opportunities and projects funded by venture partners that enable us to leverage our development infrastructure and monetize land. Between the reduction in new development spending, the sale of our China operations and 2008 disposition activity, we have reduced our development pipeline to just over $5 billion, from nearly $8 billion at the end of the third quarter."
Summary of Impairments and Non-cash Adjustments
In total, the company recorded impairments and non-cash adjustments of approximately $811 million.
Components of the non-cash charges recognized in the fourth quarter are as follows:
-- Impairment of goodwill and other assets of $320.6 million;
-- Impairment of land and operating properties of $274.7 million;
-- Impairment related to assets held for sale - China operations of $198.2 million;
-- ProLogis' share of losses and impairments in property funds of $108.2 million; and
-- Gain on early extinguishment of debt of $90.7 million.
The company also recognized a charge of $26.4 million, or $0.10 per diluted share, in the fourth quarter related to its reduction in workforce. This amount is reflected in FFO, excluding significant non-cash items.
Asia Transaction Closed
Additionally, the company said that it has closed the previously announced sale of its operations in China and property fund interests in Japan to affiliates of GIC Real Estate (GIC RE), the real estate investment arm of the Government of Singapore Investment Corporation. Total cash consideration for the transaction is $1.3 billion, which will be used to reduce debt and for general corporate purposes. The funding will occur in two phases; $500 million was received by ProLogis upon closing and the remaining $800 million will be funded upon completion of year-end audits of certain entities, which the company expects to provide as soon as possible, but no later than early in the second quarter.
GIC RE has assumed all liabilities associated with the properties acquired. In addition, GIC RE will reimburse ProLogis approximately $45 million of development funding expended by the company in China since November 1, 2008.
While the impairment charge of $198 million associated with the sale of the company's China operations is included in the non-cash charges taken in 2008 outlined above, the gain of approximately $140 million associated with the sale of the company's property fund interests in Japan will be recognized in 2009. As a result of the Asia transaction, ProLogis' development pipeline is reduced by $1.0 billion, including over $200 million in costs to complete development of the assets previously owned directly and within ProLogis' development joint ventures in China.
First Quarter Dividend to be Paid in Cash
William E. Sullivan, chief financial officer, added, "With our recently closed sale of certain Asian operations for $1.3 billion and other initiatives, we are making significant progress toward our de-leveraging goal. Additionally, the ProLogis Board has declared the company's first quarter dividend of $0.25 per common share, which will be paid in cash."
The company noted that it is the ProLogis Board's intent to pay regular quarterly dividends in cash; however, it reserves the right to review this decision in light of overall credit availability and the company's liquidity position each quarter. The $0.25 per share first quarter common dividend will be payable on February 27, 2009, to shareholders of record on February 19, 2009.
Business Drivers Support 2009 Guidance
Additionally, the company provided revised 2009 guidance of $1.85 to $2.05 in FFO per share and $1.05 to $1.15 in earnings per share. "With economic weakness anticipated to persist through 2009, we are focused on our core industrial business in our existing markets. Our guidance reflects that focus; however, sizeable asset sales or other corporate actions could alter our expectations, which we will reflect in future guidance," Sullivan added. For details on the key business drivers and assumptions that support the company's 2009 guidance, please use this link: http://ir.prologis.com/investors/business_drivers.cfm or visit the company's website at http://ir.prologis.com/.
Selected Financial and Operating Information -- Same-store net operating income in the quarter was essentially flat. Average full-year, same-store net operating income grew by 1.62 percent with a 0.84 percent increase in same-store leasing and 2.81 percent same-store rent growth on turnovers. -- Reported leasing of 94.7 percent in the direct owned, non-development portfolio, compared with 95.2 percent at December 31, 2007. -- Recycled a total of $4.9 billion of capital through contributions and dispositions during the year. Post-deferral, post-tax margins for all CDFS dispositions averaged 10.6 percent for the fourth quarter and 16.0 percent for full year 2008. -- Grew income from ProLogis' Investment Management business by 20.7 percent, to $306.6 million for the year, before our share of losses in ProLogis European Properties, compared with $254.1 million in 2007. -- Ended the year with total liquidity of $1.25 billion, including cash and availability under the company's global lines of credit.
Copies of ProLogis' fourth quarter/year-end 2008 supplemental information will be available from the company's website at http://ir.prologis.com/. The supplemental information also is available on the SEC's website at http://www.sec.gov/. The related conference call will be available via a live webcast on the company's website at http://ir.prologis.com/ at 10:00 a.m. Eastern Time on Tuesday, February 10, 2009. A replay of the webcast will be available on the company's website until February 24, 2009. Additionally, a podcast of the company's conference call will be available on the company's website as well as on the REITCafe website located at http://www.reitcafe.com/.
ProLogis is a leading global provider of distribution facilities, with more than 475 million square feet of industrial space (44 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,000 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. For additional information about the company, go to http://www.prologis.com/.
The statements above that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which ProLogis operates, management's beliefs and assumptions made by management, they involve uncertainties that could significantly impact ProLogis' financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future -- including statements relating to rent and occupancy growth, development activity and changes in sales or contribution volume of developed properties, general conditions in the geographic areas where we operate and the availability of capital in existing or new property funds -- are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, (v) maintenance of real estate investment trust ("REIT") status, (vi) availability of financing and capital, (vii) changes in demand for developed properties, and (viii) those additional factors discussed in "Item 1A. Risk Factors" of ProLogis' Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and in "Item 1A -Risk Factors" in ProLogis' Annual Report on Form 10-K for the year ended December 31, 2007. ProLogis undertakes no duty to update any forward-looking statements appearing in this press release.