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To our fellow stockholders: For more than two decades, growth in global trade has outpaced world economic growth by a factor of three, a trend likely to continue as the world becomes more integrated and interdependent. Trade happens everywhere, but the critical business of trade — import, export, and rapid distribution of goods — is concentrated in locations with very specific characteristics: major metropolitan markets with access to large consumer populations and a well-developed transportation infrastructure. The highest-value distribution activities are situated even more specifically in infill locations near international airports, seaports, and highway systems.
Powerful Strategy Our decision to focus on major trade-linked markets was supported by input from our customers involved in the movement of goods around the world — leaders in air cargo, freight forwarding, and thirdparty logistics. Increasingly, customers we served in U.S. hub and gateway markets told us they were seeking multimarket relationships with experienced and well-capitalized distribution real estate partners to facilitate their growth. The services they had come to value from AMB in High Throughput Distribution® facilities in markets like Los Angeles, Miami, and New York were the same types of services and facilities they were looking for in Tokyo, Amsterdam, and Paris. On the strength of powerful macroeconomic and local market drivers, 20 years of distribution facility experience, and more than 2,500 customer relationships, we recalibrated our capital allocation plan. From 1999 through 2004, AMB disposed of $2.8 billion in properties and acquired or developed $4 billion in properties in markets better aligned with our strategy and growth expectations. In the process, we generated an unleveraged internal rate of return of 12.4% on our property dispositions, exited five non-core markets, and improved the profile of our portfolio by increasing the percent of rents coming from core markets to the 95% level.
Growing in 2004 In this improving environment, our 2004 transaction activity was a reflection of our capital allocation goals:
Today we have a record 30 development projects under way in North America, Europe, and Asia, totaling approximately 8.9 million square feet for an estimated total investment of $829 million. Our development capabilities and pipeline are important drivers of future earnings. The value creation margin in our current pipeline of developments built for sale, for contribution, or to hold is expected to be approximately 15%. Customer response has been very positive. We are 98% leased in the 2.1 million square feet of developments we delivered in 2004. In the 5.8 million square feet we expect to deliver by year-end 2005, we are already more than 50% preleased. Our primary source of equity funding for growth is private capital. Since our IPO in November 1997, we have raised more than $1 billion in private equity and formed eight co-investment vehicles with institutional investors to build private capital assets under management to $2.7 billion. The significance of the private capital raised goes well beyond financing. The fees, distributions, and promoted interests we receive for our acquisition, management, and total return performance of the ventures improve return on invested capital for our stockholders. At the beginning of our repositioning program, just 9% of our rents came from these return-enhancing co-investment vehicles. Today that number has risen to 40%. We advanced our private capital franchise with two landmark joint ventures in 2004:
Looking Ahead The importance of our development skill set to our future growth is worth noting. We are demonstrating the ability to create investment products for our stockholders at wholesale pricing, to provide our customers with build-to-suit facilities tailored to their needs, and to build a pipeline of assets for contribution to our growing private capital fund business. We are likely to expand our customer service, development, and capital-raising skills to new markets in 2005. Toronto, for example, is the world’s fourth-largest industrial market and a natural extension of our North American presence. We opened an office in China in 2004 and are actively evaluating opportunities in the port cities of this most populous of nations. Our strategy and its implementation have been supported by the insights and counsel of our board of directors. Since our IPO, AMB’s board has worked to achieve industry-leading governance practices, including the periodic rotation of its members. At AMB’s 2004 annual meeting of stockholders, Caryl B. Welborn will retire from our board after many years of dedicated service. She has been a valued and respected governance leader and a constant resource on our audit committee; we are grateful for her many contributions. In August 2004 we welcomed Lydia H. Kennard to our board. She is the former executive director of Los Angeles World Airports and is the chairman of KDG Development Construction Consulting. Her extensive experience in airport facilities, urban planning, and real estate development will benefit our global expansion plans, and we look forward to working with her.
The repositioning of our portfolio and the development of new earnings-producing activities have required the sustained talents and dedication of our employees and partners. We are grateful to them and convinced that they will be a continued source of pride. As we have grown, we have been honored by the confidence shown to AMB by our customers and our public and private capital investors. We want to continue to be worthy of that trust by producing enduring excellence for the AMB brand and outstanding long-term total returns for our investors.
March 30, 2005
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