AMB Posts Strong Q3 Results, Rising Rents

(Read more on the industrial market.)

SAN FRANCISCO-The third quarter for AMB Property Corp. saw stable occupancy, rising rents and extraordinary development profits. The locally based distribution real estate company said Tuesday evening its third quarter funds from operations (FFO) hit $0.99 per share, $0.17 higher than analysts’ average estimate, according to Thomson Financial, and $0.21 above the high end of AMB’s previous guidance.

Net income more than doubled in the quarter to $69.2 million, or $0.69 cents per share, from $30 million, or $0.33 cents per share, in the third quarter of 2006. Revenue fell 8% to $166.3 million from $180.3 million in the third quarter of 2006. Analysts expected revenue of $176.9 million.

AMB attributed the higher FFO and net income to better-than-expected profitability on development projects contributed to the company’s private capital funds and strong core operating performance. The lower revenue is due to lower rental revenue and higher general and administrative expenses, according to the company’s financial statement.

AMB owns or has investments in properties totaling 140.8 million sf in 44 markets in 13 countries. Its operating portfolio was 95.5% occupied at the end of September 2007, down from 96.1% at the end of June and 95.9% at the end of September 2006. Average occupancy during the third quarter, however, was up 50 basis points to 95.4% from 94.9% at the end of September 2006.

As a result of the increased average occupancy and rising rents in many markets, the company’s same store net operating income increased 5.3% in the third quarter over the same 2006 period. Rents on lease renewals and rollovers increased 8.9% in the third quarter of 2007. In the same period one year earlier, rents on lease renewals and rollovers increased by 9.9%.

In its conference call Wednesday afternoon, the company said its average year-to-date rental rate increases were held down by rent roll downs in the San Francisco Bay Area from rental agreements entered into at the top of the market. The company owns 10.1 million sf in the Bay Area that was 96.5% leased at an average base rent of $6.36 per sf per year. Average remaining lease term in the Bay Area is 2.5 years and tenant retention has been in the low 60% range. Year-to-date, rents in the Bay Area have dropped 5.6% but were up 5.6% in the third quarter and will be a driver in the future, the company said.

AMB’s new development starts in the quarter globally totaled approximately 2.8 million sf in 11 projects in North America and Europe, with an estimated total investment of $233 million. At quarter end, its industrial development pipeline totaled approximately 16.8 million sf in 47 projects globally, and four value-added conversion projects in North America.

During the third quarter, AMB contributed four development projects totaling 1.3 million sf to its private capital funds and sold three projects, generating gross proceeds of $245 million. The company acquired 1.5 million sf in nine properties for $116 million, $98 million of which was acquired for three of its private capital funds: AMB Institutional Alliance Fund III, AMB Japan Fund I and AMB Europe Fund I.