AMB Property Corp. (AMB), a leading real estate investment trust (REIT), reported second quarter 2010 recurring fund from operations (FFO) of 30 cents per share compared with 37 cents in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income. The second quarter 2010 FFO was in line with the Zacks Consensus Estimate.
During the quarter, AMB commenced leases spanning approximately 7.9 million square feet in its global operating portfolio, compared with 5.8 million square feet in the year-ago quarter. The company also leased 1.6 million square feet of space in its worldwide development portfolio during second quarter 2010, compared with 434,000 square feet in the year-ago period.
Operating portfolio occupancy increased 130 bps sequentially from the first quarter to 91.8% at the end of the second quarter 2010. The average occupancy during the quarter was 90.1%. Occupancy in the operating portfolio was 90.5% at quarter-end 2009, while the average occupancy was 91.1%.
Same-store net operating income (cash basis), without the effect of lease termination fees, decreased 6.0% during the quarter compared with the year-ago period primarily due to lower-than-average same-store occupancies and increased free rents. Average rent change on lease renewals and rollovers in the operating portfolio of the company decreased 11.2% on trailing four-quarter basis.
During the quarter, AMB acquired properties worth $42.7 million across the globe and 48 acres of land in Brazil through a joint venture. The company also sold five properties during the quarter for $12.6 million and transferred two assets to AMB Europe Fund I at a fair-value price of $22.4 million at a stabilized cap rate of 6.0%.
Furthermore, AMB sold 18.2 million shares for $27.50 each resulting in net proceeds of $479 million during the quarter. The company utilized the proceeds to repay its debt. AMB completed its debt repayment and debt extension transactions totaling $428 million during the quarter.
By the end of second quarter 2010, the company’s share of total debt to total assets was 40.5%, with approximately $1.5 billion of liquidity (including $1.2 billion available under credit facility and $292 million of cash and cash equivalents). In the year-ago period, AMB’s share of total debt to total assets was 44.0% with $1.2 billion of liquidity (including $1.0 billion available under its credit facility and $209 million of cash and cash equivalents).
Subsequent to the end of the quarter, AMB closed two yen-denominated financing transactions in Japan, including a $113 million 10-year unsecured corporate term-loan at a fixed rate of 3.25% and a $76 million non-recourse seven-year mortgage loan at 2.9% fixed rate. The company utilized the proceeds to repay debt under its yen line of credit.
For full year 2010, AMB reduced its FFO guidance from the range of $1.26 to $1.33 per share to $1.20 to $1.26 as it expects its customers to remain cautious until the market uncertainty due to the global economic turmoil pans out completely. We maintain our Neutral rating on AMB with the Zacks #4 Rank, which translates into a short-term “Sell” recommendation.
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