Prior to its 2011 merger with AMB Property Corporation, ProLogis was a real estate investment trust that provided industrial distribution facilities.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On August 21, 1996, SCI commenced a rights offering to sell 6,787,806 common shares at $17.25 per common share and also authorized an additional 3,393,903 common shares for oversubscriptions or third party subscribers. In September 1996, SCI issued 7,865,645 common shares of the 10,181,709 common shares subscribed for and recorded subscriptions receivable of $40.0 million. October 1996, 2,316,064 common shares were issued and all subscriptions receivable were collected. Gross proceeds from the offering totaled $175.6 million.
On September 8, 1997, SCI's shareholders voted to approve an agreement with Security Capital to exchange Security Capital's REIT management and property management companies for 3,692,023 shares of SCI's common stock (the "Merger"). As a result, SCI became an internally managed REIT on September 9, 1997 with Security Capital remaining as SCI's largest shareholder... On August 6, 1997, in connection with the consummation of the Merger (see Note 9), SCI commenced a rights offering to sell 4,970,352 common shares at $21 per share.
On March 30, 1999, Meridian Industrial Trust Inc. ("Meridian"), a publicly traded REIT that owned industrial distribution facilities in the United States, was merged with and into ProLogis (the "Meridian Merger"). In accordance with the terms of the Agreement and Plan of Merger dated as of November 16, 1998, as amended (the "Merger Agreement"), the approximately 33.8 outstanding shares of Meridian common stock were exchanged (on a 1.10 for one basis) into approximately 37.2 million ProLogis common shares of beneficial interest, $0.01 par value ("Common Shares"). In addition, the holders of Meridian common stock received $2.00 in cash per outstanding share, approximately $67.6 million in total. The holders of Meridian's Series D cumulative redeemable preferred stock received a new series of ProLogis cumulative redeemable preferred shares ("Series E Preferred Shares") on a one for one basis. The Series E Preferred Shares have a 8.75% annual dividend rate ($2.1875 per share) and an aggregate liquidation value of $50.0 million. The total purchase price of Meridian was approximately $1.54 billion...
On September 15, 2005, Catellus Development Corporation, a publicly traded REIT, ("Catellus") merged with and into Palmtree Acquisition Corporation, a subsidiary of ProLogis, pursuant to an Agreement and Plan of Merger dated as of June 6, 2005 (the "Merger Agreement"), as amended, (the "Catellus Merger"). ProLogis believes this strategic combination of two industrial real estate companies will achieve key elements of ProLogis' strategic business plan to strengthen its position in the North American logistics market. ProLogis believes the Catellus Merger will enhance the North American property portfolio in key markets, increase the development property base and capabilities, reduce the overall property portfolio age and deepen its customer relationships. At the time of the Catellus Merger, Catellus owned or held an ownership interest in 41.8 million square feet of industrial, office and retail properties of which approximately 92% was industrial space. Under the terms of the Merger Agreement, Catellus stockholders had the opportunity to elect to receive cash or ProLogis shares for their Catellus stock. The Merger Agreement provided that each Catellus stockholder received either 0.822 of a ProLogis common share or $33.81 in cash, without interest, or a combination of both, for each share of Catellus common stock that the stockholder owned. Each stockholder's election was reallocated and prorated to fix the aggregate amount of cash issued in the Catellus Merger to Catellus' stockholders equal to approximately $1.3 billion. Fractional shares were paid in cash. In connection with the Catellus Merger, ProLogis issued approximately 55.9 million common shares of beneficial interest, par value $0.01, ("Common Shares") to former Catellus stockholders.
On April 14, 2009, we closed on a public offering of 174.8 million common shares at a price of $6.60 per share, including an overallotment option of 22.8 million shares, that was exercised by the underwriters in connection with the closing. We received net proceeds, after underwriters discount, of $1.1 billion.
On November 1, 2010, we closed on a public offering of 92 million common shares at a price of $12.30 per share, including an overallotment option of 12 million shares that was exercised by the underwriters in connection with the closing. We received net proceeds, after underwriters' discount, of $1.1 billion. A portion of the proceeds were used to repay borrowings under our Global Line. We expect to apply the remaining net proceeds, together with amounts reborrowed under our Global Line, for the repayment or repurchase of outstanding indebtedness and for general corporate purposes. We are planning to commence tender offers to repurchase between $1 billion and $2 billion of our senior notes and/or convertible senior notes.
ProLogis shareholders approved its proposed merger of equals with AMB Property Corporation (NYSE: AMB). Subject to approval by AMB's shareholders and satisfaction or waiver of the conditions to closing, the merger is expected to close on Friday, June 3. Each ProLogis common share will be exchanged into 0.4464 of a newly issued common share of AMB. ProLogis shares are expected to be delisted after the close of trading on June 2 and shares of AMB will continue trading on the NYSE but under the symbol PLD.