SAN FRANCISCO-AMB Property Corp. on Friday said it has let go 22% of its global workforce as part of an effort to reduce its cost structure “in a difficult global economic environment.” AMB is an industrial REIT that develops properties for sale to third parties or funds. The company employed 716 people at the end of September, 200 more than it employed at the start of the year. The layoffs are the first in the company’s history.
The value of the company’s development pipeline has decreased due to rising cap rates. News of the layoffs was combined with the announcement of fourth quarter impairment charges totaling $204 million or $1.90 per share related the write-down of its in-process development pipeline and land holdings, and $14 million in costs associated with the layoffs.
Prior to the layoffs, AMB employed 206 at its 100,000-square-foot San Francisco headquarters at Pier 1/Bay 1, which it owns; 55 in its Boston office, 63 in its Tokyo office, 59 in its Amsterdam office, 76 in its Mexico City office and the remainder in other offices.
“As previously outlined, our top two priorities are to further strengthen our balance sheet and reduce our cost structure so that it is in line with our current business plan,” company chairman/chief executive Hamid Moghadam said in a prepared statement. “We continue to manage the company for the long term and the actions we have taken in the fourth quarter put us in a strong position to meet the challenges presented by a difficult global economic environment.”
The impairment charges follow a comprehensive review of its land holdings and development assets. The company recognized a non-cash impairment charge when the book value of a land parcel or development asset exceeded the fair market value of the property, based on its intended holding period.
For its assets under development and assets held for sale or contribution the company expects to incur an impairment charge of approximately $97 million or $0.96 per share related to these assets which had an investment cost basis of $734 million. For its for its land holdings, the company expects to incur impairment charges of approximately $95 million or $0.94 per share related to these parcels which had an investment cost basis of $300 million.
In addition, the company expects to incur charges of approximately $12 million or $0.12 per share to write-off pursuit costs related to development projects it no longer plans to commence and to establish a reserve against tax assets associated with a reduction of development activities.
“The impairment charges were principally a result of increases in estimated capitalization rates and deterioration in market conditions that adversely impacted values,’ the company said. “These non-cash charges do not impact AMB’s liquidity, cost and availability of credit or affect the company’s continued compliance with its various financial covenants under its credit facilities and unsecured bonds.”
The company’s development gains for the fourth quarter will total just $3 million, well down from a prior forecast of $20 million to $25 million. The decrease was due primarily to a single parcel sale that fell through after being under contract. In preparation for the sale, the land was rezoned for retail use, “which the company expects will substantially enhance its value from its former industrial designation.”
Leasing activity related to AMB’s development pipeline for the year totaled 8.3 million square feet, a new record, the company said. The previous record was 2007, when activity totaled 8.2 million square feet. In addition, the company says it inked 23.8 million square feet of lease deals for its global operating portfolio, which maintained an average occupancy of 94.9% throughout the year and was 95.1% occupied at Dec. 31, 2008.
On the capital markets front, the company says it resolved its 2008 maturities of $106 million by refinancing and extending debt in Japan and China by one year; converted $84 million of short-term debt into five-year non-recourse mortgage debt for AMB Europe Fund I, at a floating rate that was 5.39% as of December 31, 2008; and closed on $97 million non-recourse loan in Japan, with a three-year term and a floating rate priced at a rate of less than 3% as of Dec. 31, 2008. The proceeds were used to pay down the Japanese Yen line of credit.On the equity front, the company as of the end of the year had approximately $934 million of capacity consisting of $224 million of consolidated cash and cash equivalents and $710 million of availability on its lines of credit.
“We continue to have sufficient capacity to fully fund the build-out of our development pipeline, to hold all of our current development and held for sale or contribution assets on our balance sheet, while maintaining compliance with our various financial covenants,” AMB chief financial officer Thomas Olinger says in a prepared statement. “We are extremely focused on our liquidity and addressing our near-term debt maturities.”
Zacks.com said Friday that it is maintaining its Hold rating on AMB “due in part to an attractive valuation, although 2009 earnings will take a large hit as the company holds more unsold development properties on its balance sheet. AMB eliminated its 4Q dividend; there could be another cut in 2009 if conditions do not improve.”