The following table includes certain financial information on a consolidated historical basis. You should read this section in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.” Our selected operating data, other data and balance sheet data for the years ended 2002 through 2005 has been reclassified to conform to the presentation for the year ended 2006.
For the Year Ended December 31,
2006
2005
2004
2003
2002
(In thousands, except per share data and ratios)
Operating Data:
Rental income
$
438,201
$
393,548
$
368,299
$
334,865
$
297,286
Property operating income(1)
$
317,994
$
284,361
$
256,321
$
229,810
$
203,361
Income from continuing operations
$
95,076
$
84,433
$
64,041
$
67,500
$
38,648
Income before gain on sale of real estate
$
94,756
$
83,864
$
70,104
$
74,444
$
45,833
Gain on sale of real estate
$
23,956
$
30,748
$
14,052
$
20,053
$
19,101
Loss on abandoned developments held for sale
$
—
$
—
$
—
$
—
$
(9,647
)
Net income
$
118,712
$
114,612
$
84,156
$
94,497
$
55,287
Net income available for common shareholders
$
103,514
$
103,137
$
72,681
$
75,990
$
35,862
Net cash provided by operating activities(2)
$
184,401
$
174,941
$
174,148
$
136,393
$
131,372
Net cash used in investing activities(2)
$
(317,429
)
$
(152,730
)
$
(157,611
)
$
(98,166
)
$
(185,983
)
Net cash (used in ) provided by financing activities(2)
$
135,884
$
(44,047
)
$
(21,030
)
$
(26,382
)
$
60,171
Dividends declared on common shares
$
133,066
$
124,928
$
101,969
$
93,889
$
82,273
Weighted average number of common shares outstanding:
Basic
53,469
52,533
51,008
47,379
41,624
Diluted
53,962
53,050
51,547
48,619
42,882
Earnings per common share, basic:
Income from continuing operations
$
1.50
$
1.39
$
1.03
$
1.03
$
0.46
Discontinued operations
0.44
0.57
0.39
0.57
0.40
Total
$
1.94
$
1.96
$
1.42
$
1.60
$
0.86
Earnings per common share, diluted:
Income from continuing operations
$
1.48
$
1.37
$
1.02
$
1.03
$
0.46
Discontinued operations
0.44
0.57
0.39
0.56
0.39
Total
$
1.92
$
1.94
$
1.41
$
1.59
$
0.85
Dividends declared per common share
$
2.46
$
2.37
$
1.99
$
1.95
$
1.93
Other Data:
Funds from operations available to common shareholders(3)(4)
$
177,113
$
163,544
$
148,671
$
131,257
$
80,856
EBITDA(5)
$
316,783
$
292,465
$
258,143
$
243,956
$
183,488
Adjusted EBITDA(5)
$
292,827
$
261,717
$
244,091
$
223,903
$
174,034
Ratio of EBITDA to combined fixed charges and preferred share dividends(5)(6)
2.6x
2.7x
2.5x
2.2x
1.7x
Ratio of Adjusted EBITDA to combined fixed charges and preferred share dividends(5)(6)
Mortgage, construction loans and capital lease obligations
$
460,398
$
419,713
$
410,885
$
414,357
$
383,812
Notes payable
$
109,024
$
316,755
$
325,051
$
361,323
$
207,711
Senior notes and debentures
$
1,127,508
$
653,675
$
568,121
$
532,750
$
532,284
Convertible subordinated debentures
$
—
$
—
$
—
$
—
$
75,000
Redeemable preferred shares
$
—
$
135,000
$
135,000
$
135,000
$
235,000
Shareholders’ equity
$
784,078
$
774,847
$
790,534
$
691,374
$
644,287
Number of common shares outstanding
55,321
52,891
52,137
49,201
43,535
(1)
Property operating income consists of rental income, other property income and mortgage interest income, less rental expenses and real estate taxes. This measure is used internally to evaluate the performance of our regional operations, and we consider it to be a significant measure.
(2)
Determined in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 95, Statement of Cash Flows.
(3)
Funds from Operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net income, computed in accordance with the U.S. GAAP, plus depreciation and amortization of real estate assets and excluding extraordinary items and gains on the sale of real estate. We compute FFO in accordance with the NAREIT definition, and we have historically reported our FFO available for common shareholders in addition to our net income.
We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means of assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs. Additional information regarding our calculation of FFO is contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The reconciliation of net income to funds from operations available for common shareholders is as follows:
2006
2005
2004
2003
2002
(In thousands)
Net income
$
118,712
$
114,612
$
84,156
$
94,497
$
55,287
Gain on sale of real estate
(23,956
)
(30,748
)
(14,052
)
(20,053
)
(19,101
)
Depreciation and amortization of real estate assets
88,649
82,752
81,649
68,202
58,605
Amortization of initial direct costs of leases
7,390
6,972
7,151
5,801
4,750
Depreciation of joint venture real estate assets
768
630
187
—
—
Funds from operations
191,563
174,218
159,091
148,447
99,541
Dividends on preferred stock
(10,423
)
(11,475
)
(11,475
)
(15,084
)
(19,425
)
Income attributable to operating partnership units
748
801
1,055
1,317
740
Preferred stock redemption costs
(4,775
)
—
—
(3,423
)
—
Funds from operations available for common shareholders
Includes $3.1 million and $8.0 million of insurance recoveries in 2004 and 2003, respectively, attributable to rental income lost at Santana Row as a result of the August 2002 fire. Insurance recoveries received in 2005 were insignificant. Excluding these items, funds from operations available for common shareholders in 2004 and 2003 would have been $145.6 million and $123.3 million, respectively.
(5)
The SEC has stated that EBITDA is a non-GAAP measure as calculated in the table below. Adjusted EBITDA is a non-GAAP measure that means net income or loss plus net interest expense, income taxes, depreciation and amortization, gain or loss on sale of real estate and impairments of real estate if any. Adjusted EBITDA is presented because we believe that it provides useful information to investors regarding our ability to service debt and because it approximates a key covenant in material notes. Adjusted EBITDA should not be considered an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP. Adjusted EBITDA as presented may not be comparable to other similarly titled measures used by other REITs.
The reconciliation of Adjusted EBITDA to net income for the periods presented is as follows:
2006
2005
2004
2003
2002
(In thousands)
Net income
$
118,712
$
114,612
$
84,156
$
94,497
$
55,287
Depreciation and amortization
97,879
91,503
90,438
75,503
64,529
Interest expense
102,808
88,566
85,058
75,232
65,058
Other interest income
(2,616
)
(2,216
)
(1,509
)
(1,276
)
(1,386
)
EBITDA
316,783
292,465
258,143
243,956
183,488
Gain on sale of real estate
(23,956
)
(30,748
)
(14,052
)
(20,053
)
(19,101
)
Loss on abandoned developments held for sale
—
—
—
—
9,647
Adjusted EBITDA
$
292,827
$
261,717
$
244,091
$
223,903
$
174,034
(6)
Fixed charges consist of interest on borrowed funds (including capitalized interest), amortization of debt discount and expense and the portion of rent expense representing an interest factor. Preferred share dividends consist of dividends paid on preferred shares and preferred stock redemption costs. Our Series A preferred shares were redeemed in full in June 2003 and our Series B preferred shares were redeemed in full in November 2006.
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