-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O97DfLuDjGw6vRN1UqPeuYoKbFR27CijCfn5he/scgIp4DmLh5ZGEPjtl3EvzMck JceP06TY8Towfjc+rgtqIg== 0000912057-99-006281.txt : 19991117 0000912057-99-006281.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006281 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALEXANDRIA REAL ESTATE EQUITIES INC CENTRAL INDEX KEY: 0001035443 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 954502084 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12993 FILM NUMBER: 99756792 BUSINESS ADDRESS: STREET 1: 135 NORTH LOS ROBLES AVE STREET 2: SUITE 250 CITY: PASEDENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8185780777 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-12993 ALEXANDRIA REAL ESTATE EQUITIES, INC. (Exact name of registrant as specified in its charter) Maryland 95-4502084 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 135 North Los Robles Avenue, Suite 250, Pasadena, California 91101 (Address of principal executive offices) (626) 578-0777 (Registrant's telephone number, including area code) N/A - - - - - - - - - - - - - - - - - - - - (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------ ------------ As of November 12, 1999, 13,740,622 shares of common stock, par value $.01 per share, were outstanding. TABLE OF CONTENTS PART I--FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated Balance Sheets of Alexandria Real Estate Equities, Inc. and Subsidiaries as of September 30, 1999 and December 31, 1998 Condensed Consolidated Income Statements of Alexandria Real Estate Equities, Inc. and Subsidiaries for the three months ended September 30, 1999 and 1998 and the nine months ended September 30, 1999 and 1998 Condensed Consolidated Statements of Cash Flows of Alexandria Real Estate Equities, Inc. and Subsidiaries for the nine months ended September 30, 1999 and 1998 Notes to Condensed Consolidated Financial Statements Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK PART II--OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Item 3. DEFAULTS UPON SENIOR SECURITIES Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Item 5. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K 2 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3 Alexandria Real Estate Equities, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ---------------------------------------------------- ASSETS Rental properties, net $550,020 $471,907 Property under development 29,091 21,839 Cash and cash equivalents 2,503 1,554 Tenant security deposits and other restricted cash 4,453 7,491 Secured note receivable 6,000 6,000 Tenant receivables 3,296 2,884 Deferred rent 8,015 5,595 Other assets 16,698 13,026 ---------------------------------------------------- Total assets $620,076 $530,296 ==================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable $127,557 $115,829 Unsecured line of credit 205,000 194,000 Accounts payable, accrued expenses and tenant security deposits 17,330 15,663 Dividends payable 6,671 5,035 ---------------------------------------------------- Total liabilities 356,558 330,527 Stockholders' equity: Series A preferred stock 38,588 - Common stock 137 126 Additional paid-in capital 224,793 199,643 Retained earnings - - ---------------------------------------------------- Total stockholders' equity 263,518 199,769 ---------------------------------------------------- Total liabilities and stockholders' equity $620,076 $530,296 ====================================================
SEE ACCOMPANYING NOTES 4 Alexandria Real Estate Equities, Inc. and Subsidiaries Condensed Consolidated Income Statements (Unaudited) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ------------------------------------------------------------------- Revenues: Rental $ 17,654 $ 12,540 $ 50,152 $ 33,583 Tenant recoveries 4,354 2,903 11,736 8,215 Interest and other income 387 368 1,140 869 ------------------------------------------------------------------- 22,395 15,811 63,028 42,667 Expenses: Rental operations 4,772 3,337 13,891 9,461 General and administrative 1,922 957 4,915 2,590 Interest 4,835 3,627 14,648 9,190 Depreciation and amortization 5,017 2,773 12,610 6,949 ------------------------------------------------------------------- 16,546 10,694 46,064 28,190 ------------------------------------------------------------------- Net income $ 5,849 $ 5,117 $ 16,964 $ 14,477 =================================================================== Dividends on preferred stock $ 916 $ -- $ 1,120 $ -- =================================================================== Net income available to common stockholders $ 4,933 $ 5,117 $ 15,844 $ 14,477 =================================================================== Net income per common share -Basic $ 0.36 $ 0.41 $ 1.18 $ 1.21 =================================================================== -Diluted $ 0.36 $ 0.40 $ 1.16 $ 1.19 =================================================================== Weighted average shares of common stock outstanding: -Basic 13,723,327 12,568,407 13,453,444 11,935,830 =================================================================== -Diluted 13,877,678 12,763,525 13,601,998 12,161,468 ===================================================================
SEE ACCOMPANYING NOTES 5 Alexandria Real Estate Equities, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 -------------------------------- Net cash provided by operating activities $ 27,606 $ 16,020 INVESTING ACTIVITIES Purchase of rental properties (60,821) (190,714) Additions to rental properties (9,867) (16,171) Property development costs (14,100) (11,502) Issuance of note receivable -- (6,000) -------------------------------- Net cash used in investing activities (84,788) (224,387) FINANCING ACTIVITIES Proceeds from secured notes payable 2,625 49,132 Net proceeds from issuance of preferred stock 36,888 -- Net proceeds from issuance of common stock 29,830 33,661 Redemption and retirement of common stock (3,459) -- Proceeds from exercise of stock options 774 -- Net borrowings on unsecured line of credit 11,000 139,800 Principal reductions of secured notes payable (2,800) (893) Dividends paid on common stock (16,371) (14,146) Dividends paid on preferred stock (356) -- -------------------------------- Net cash provided by financing activities 58,131 207,554 Net increase (decrease) in cash and cash equivalents 949 (813) Cash and cash equivalents at beginning of period 1,554 2,060 -------------------------------- Cash and cash equivalents at end of period $ 2,503 $ 1,247 ================================
SEE ACCOMPANYING NOTES. 6 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. BACKGROUND AND BASIS OF PRESENTATION BACKGROUND Alexandria Real Estate Equities, Inc. is a real estate investment trust ("REIT") formed in 1994. We are engaged primarily in the ownership, operation, management, acquisition, conversion, retrofit, expansion and selective development and redevelopment of properties containing a combination of office and laboratory space. We refer to these properties as "Life Science Facilities." Our Life Science Facilities are designed and improved for lease primarily to pharmaceutical, biotechnology, diagnostic, contract research and personal care products companies, major scientific research institutions, related government agencies and technology enterprises. As of September 30, 1999, our portfolio consisted of 58 properties with approximately 4.0 million rentable square feet. We have prepared the accompanying interim financial statements in accordance with generally accepted accounting principles and in conformity with the rules and regulations of the Securities and Exchange Commission. In our opinion, the interim financial statements presented herein reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. These financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 1998. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of Alexandria and its subsidiaries. All significant intercompany balances and transactions have been eliminated. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current period presentation. 7 2. RENTAL PROPERTIES Rental properties consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------------------------------------ Land $ 81,524 $ 76,254 Buildings and improvements 470,142 393,728 Tenant and other improvements 28,522 20,536 ------------------------------------------ 580,188 490,518 Less accumulated depreciation (30,168) (18,611) ------------------------------------------ $550,020 $471,907 ==========================================
During the three months ended September 30, 1999, we acquired four properties containing approximately 239,000 rentable square feet from unrelated third parties for an aggregate purchase price (including closing and transaction costs) of approximately $49 million. 3. UNSECURED LINE OF CREDIT We have an unsecured line of credit that provides for borrowings of up to $250 million. Borrowings under the line of credit bear interest at a floating rate based on our election of either a LIBOR based rate or the higher of the bank's reference rate and the Federal Funds rate plus 0.5%. For each LIBOR based advance, we must elect to fix the rate for a period of one, two, three or six months. The line of credit contains financial covenants, including, among other things, maintenance of minimum market net worth, a total liabilities to gross asset value ratio, and a fixed charge coverage ratio. In addition, the terms of the line of credit restrict, among other things, certain investments, indebtedness, distributions and mergers. Borrowings under the line of credit are limited to an amount based on a pool of unencumbered assets. Accordingly, as we acquire additional unencumbered properties, borrowings available under the line of credit will increase, but may not exceed $250 million. As of September 30, 1999, borrowings under the line of credit were limited to approximately $240,000,000, and carried a weighted average interest rate of 6.91%. The line of credit expires May 31, 2000 and provides for annual extensions (provided there is no default) for two additional one-year periods upon notice by the company and consent of the participating banks. 4. SECURED NOTES PAYABLE As of September 30, 1999, we had eight notes payable to certain banks and other entities, secured by first deeds of trust on 11 of our properties. The notes bear interest at fixed rates ranging from 7.17% to 9.125% and are due at various dates through 2016. 8 5. STOCKHOLDERS' EQUITY On September 24, 1999, we declared a cash dividend on our common stock aggregating $5,907,000 ($ 0.43 per share) for the calendar quarter ended September 30, 1999. We paid the dividend on October 15, 1999. On September 24, 1999, we also declared a cash dividend on our Series A preferred stock aggregating $916,000 ($ 0.59375 per share) for the period from July 16, 1999 through October 15, 1999. The portion relating to the period prior to September 30, 1999 ($764,000) has been included in accrued liabilities in the accompanying balance sheet. We paid the dividend on October 15, 1999. In June 1999, we completed a public offering of 1,543,500 shares (including the shares issued upon exercise of the underwriters' over-allotment option) of our 9.50% Series A Cumulative Redeemable Preferred Stock. The shares were issued at a price of $25.00 per share, resulting in aggregate proceeds of approximately $36.9 million, net of underwriters' discounts and commissions and other offering costs. 6. NET INCOME (LOSS) PER SHARE The following table shows the computation of net income per share of our common stock outstanding (dollars in thousands, except per share amounts):
THREE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 --------------------------------------------- Net income available to common stockholders $ 4,933 $ 5,117 ============================================= Weighted average shares of common stock outstanding - basic 13,723,327 12,568,407 Add: dilutive effect of stock options 154,351 195,118 --------------------------------------------- Weighted average shares of common stock outstanding - diluted 13,877,678 12,763,525 ============================================= Net income per common share: - Basic $ 0.36 $ 0.41 ============================================= - Diluted $ 0.36 $ 0.40 =============================================
9 6. NET INCOME (LOSS) PER SHARE (CONTINUED)
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 --------------------------------------------- Net income available to common stockholders $ 15,844 $ 14,477 ============================================= Weighted average shares of common stock outstanding - basic 13,453,444 11,935,830 Add: dilutive effect of stock options 148,554 225,638 --------------------------------------------- Weighted average shares of common stock outstanding - diluted 13,601,998 12,161,468 ============================================= Net income per common share: - Basic $ 1.18 $ 1.21 ============================================= - Diluted $ 1.16 $ 1.19 =============================================
7. SUBSEQUENT EVENT In October 1999, we obtained an unsecured construction loan that provides for borrowings of up to $19,000,000. The loan bears interest at LIBOR plus 1.75% per annum and is due on October 31, 2001. Proceeds from the loan will be used to complete the construction of the Life Science Facility at 1201 Clopper Road, Gaithersburg, Maryland. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information and statements included in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve known and unknown risks and uncertainties. Given these uncertainties, prospective and current investors are cautioned not to place undue reliance on such forward-looking statements. Our actual results, performance or achievements, or industry results may be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements as a result of many factors. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained in this or any other document. Readers of this Form 10-Q should also read our other publicly filed documents for further discussion regarding such factors. As used in this Form 10-Q, "we," "our," "ours" and "us" refer to Alexandria Real Estate Equities, Inc. and its subsidiaries. The following discussion should be read in conjunction with the financial statements and notes appearing elsewhere in this report. OVERVIEW Since our formation in October 1994, we have devoted substantially all of our resources to the ownership, operation, management, acquisition, conversion, retrofit, expansion and selective development and redevelopment of high quality, strategically located Life Science Facilities in our target markets. Our primary source of revenue is rental income and tenant recoveries from leases at the properties we own. Of the 58 properties we owned as of September 30, 1999, four were acquired in calendar year 1994, eight in 1996, 10 in 1997, 29 in 1998 (the "1998 Properties") and six in 1999. In addition, we completed the development of one property in 1999 (together with the six properties acquired in 1999, the "1999 Properties"). As a result of our acquisition and development activities, the financial data shows significant increases in total revenue and expenses for the 1999 periods compared to the 1998 periods. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 ("THIRD QUARTER 1999") TO THREE MONTHS ENDED SEPTEMBER 30, 1998 ("THIRD QUARTER 1998") Rental revenue increased by approximately $ 5.2 million, or 41%, to $17.7 million for Third Quarter 1999 compared to $12.5 million for Third Quarter 1998. The increase resulted primarily from rental revenue from the 1998 Properties purchased after July 1, 1998 and from the 1999 Properties. Rental revenue from the Properties acquired before July 1, 1998 (the "Third Quarter Same Properties") increased by $762,000, or 6.4%, due to increases in rental rates and occupancy. 11 Tenant recoveries increased by approximately $1.5 million, or 50%, to $4.4 million for Third Quarter 1999 compared to $2.9 million for Third Quarter 1998. The increase resulted primarily from tenant recoveries from the 1998 Properties purchased after July 1, 1998 and the 1999 Properties. Tenant recoveries from the Third Quarter Same Properties increased by $259,000, or 9.0%, primarily due to an increase in recoverable operating expenses. Interest and other income increased by $19,000, or 5%, to $387,000 for Third Quarter 1999 compared to $368,000 for Third Quarter 1998, resulting primarily from an increase in storage and parking income at two of our properties. Rental operating expenses increased by approximately $1.5 million, or 43%, to $4.8 million for Third Quarter 1999 compared to $3.3 million for Third Quarter 1998. The increase resulted primarily from the 1998 Properties purchased after July 1, 1998 and the 1999 Properties. Rental operating expenses for the Third Quarter Same Properties increased by $357,000, or 11.0%, primarily due to the increase in property taxes at our properties. The increase in property taxes, substantially all of which was recoverable from the tenants at the respective properties, was partially offset by lower premiums on our blanket property and liability insurance policies for all of our properties. The following is a comparison of property operating data computed under generally accepted accounting principles ("GAAP Basis") and under generally accepted accounting principles, adjusted to exclude the effect of straight line rent adjustments required by GAAP ("Cash Basis") for the Third Quarter Same Properties (dollars in thousands):
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 CHANGE ----------------------------------------------- GAAP BASIS: Revenue $ 16,124 $ 15,104 6.8% Rental operating expenses 3,595 3,238 11.0% ----------------------------------------------- Net operating income $ 12,529 $ 11,866 5.6% =============================================== CASH BASIS (1): Revenue $ 15,014 $ 13,772 9.0% Rental operating expenses 3,472 3,121 11.2% ----------------------------------------------- Net operating income $ 11,542 $ 10,651 8.4% ===============================================
- --------- (1)Revenue and operating expenses are computed in accordance with GAAP, except that revenue excludes the effect of straight line rent adjustments. In addition, the Cash Basis same property comparison excludes the results for 1431 Harbor Bay Parkway, Alameda, California. The lease for this property (which was in place when we acquired the property) contains significant step-down provisions that affected the cash rent paid by the tenant beginning in January 1999. As a result, cash rent paid was reduced from $737,000 for Third Quarter 1998 to $529,000 for Third Quarter 1999. The lease, which expires in January 2014, requires another step-down in rent beginning in January 2004 to $188,000 per quarter. If this property were included in the Cash Basis same property comparison for the three months ended September 30, 1999, the comparison would show that revenue increased 7.0%, rental operating expenses increased 11.0% and net operating income increased 5.8%. On a GAAP Basis, rental income from this property for the three months ended September 30, 1999 was $353,000 per quarter, the same as each quarter during 1998. 12 General and administrative expenses increased by $965,000, or 108%, to $1.9 million for Third Quarter 1999 compared to $957,000 for Third Quarter 1998. The increase was primarily due to the continued increase in the scope of our operations, including the expansion of our operations in our suburban Washington D.C. and eastern Massachusetts regions. Interest expense increased by approximately $1.2 million, or 33%, to $4.8 million for Third Quarter 1999 compared to $3.6 million for Third Quarter 1998. The increase resulted primarily from the indebtedness incurred to acquire the 1998 Properties purchased after July 1, 1998 and the 1999 Properties. Depreciation and amortization increased by approximately $2.2 million, or 81%, to $5.0 million for Third Quarter 1999 compared to $2.8 million for Third Quarter 1998. The increase resulted primarily from depreciation associated with the 1998 Properties purchased after July 1, 1998 and the addition of the 1999 Properties. As a result of the foregoing, net income was $5.8 million for Third Quarter 1999 compared to $5.1 million for Third Quarter 1998. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 ("NINE MONTHS 1999") TO NINE MONTHS ENDED SEPTEMBER1998 ("NINE MONTHS 1998") Rental revenue increased by approximately $16.6 million, or 49%, to $50.2 million for Nine Months 1999 compared to $33.6 million for Nine Months 1998. The increase resulted primarily from rental revenue from the 1998 Properties purchased after January 1, 1998 and from the 1999 Properties. Rental revenue from the Properties acquired before January 1, 1998 (the "Nine Months Same Properties") increased by $996,000, or 4.4%, primarily due to increases in rental rates and occupancy. Tenant recoveries increased by approximately $3.5 million, or 43%, to $11.7 million for Nine Months 1999 compared to $8.2 million for Nine Months 1998. The increase resulted primarily from tenant recoveries from the 1998 Properties purchased after January 1, 1998 and the 1999 Properties. Tenant recoveries from the Nine Months Same Properties increased by $225,000, or 3.7%, primarily due to an increase in recoverable operating expenses. Interest and other income increased by $271,000, or 31%, to $1.1 million for Nine Months 1999 compared to $869,000 for Nine Months 1998, resulting primarily from interest income from the secured note receivable, which was funded in March 1998. Rental operating expenses increased by approximately $4.4 million, or 47%, to $13.9 million for Nine Months 1999 compared to $9.5 million for Nine Months 1998. The increase resulted primarily from the 1998 Properties purchased after January 1, 1998 and the 1999 Properties. Rental operating expenses for the Nine Months Same Properties increased by $387,000, or 6.1%, primarily due to the increase in property taxes at our properties. The increase in property taxes, substantially all of which was recoverable from the tenants of the respective properties, was partially offset by lower premiums on our blanket property and liability insurance policies for all of our properties. 13 The following is a comparison of property operating data computed on a GAAP Basis and on a Cash Basis for the Nine Months Same Properties (dollars in thousands):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 CHANGE ----------------------------------------------- GAAP BASIS: Revenue $ 29,962 $ 28,791 4.1% Rental operating expenses 6,710 6,323 6.1% ----------------------------------------------- Net operating income $ 23,252 $ 22,468 3.5% =============================================== CASH BASIS (1): Revenue $ 27,932 $ 26,252 6.4% Rental operating expenses 6,302 5,933 6.2% ----------------------------------------------- Net operating income $ 21,630 $ 20,319 6.5% ===============================================
- --------- (1)Revenue and operating expenses are computed in accordance with GAAP, except that revenue excludes the effect of straight line rent adjustments. In addition, the Cash Basis same property comparison excludes the results for 1431 Harbor Bay Parkway, Alameda, California. The lease for this property (which was in place when we acquired the property) contains significant step-down provisions that affected the cash rent paid by the tenant beginning in January 1999. As a result, cash rent paid was reduced from $2,211,000 for Nine Months 1998 to $1,599,000 for Nine Months 1999. The lease, which expires in January 2014, requires another step-down in rent beginning in January 2004 to $188,000 per quarter. If this property were included in the Cash Basis same property comparison for the nine months ended September 30, 1999, the comparison would show that revenue increased 3.7%, rental operating expenses increased 6.1% and net operating income increased 3.0%. On a GAAP Basis, rental income from this property throughout 1998 and during the nine months ended September 30, 1999 was $353,000 per quarter. General and administrative expenses increased by approximately $2.3 million, or 90%, to $4.9 million for Nine Months 1999 compared to $2.6 million for Nine Months 1998. The increase was primarily due to the continued increase in the scope of our operations, including the expansion of our operations in our suburban Washington D.C. and eastern Massachusetts regions. Interest expense increased by approximately $5.4 million, or 59%, to $14.6 million for Nine Months 1999 compared to $9.2 million for Nine Months 1998. The increase resulted primarily from the indebtedness incurred to acquire the 1998 Properties purchased after January 1, 1998 and the 1999 Properties. Depreciation and amortization increased by approximately $ 5.7 million, or 81%, to $12.6 million for Nine Months 1999 compared to $6.9 million for Nine Months 1998. The increase resulted primarily from depreciation associated with the 1998 Properties purchased after January 1, 1998 and the addition of the 1999 Properties. As a result of the foregoing, net income was $17.0 million for Nine Months 1999 compared to $14.5 million for Nine Months 1998. 14 LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Net cash provided by operating activities for Nine Months 1999 increased by $11.6 million to $27.6 million compared to $16.0 million for Nine Months 1998. The increase resulted primarily from operating cash flows resulting from the addition of the 1998 Properties purchased after January 1, 1998 and the 1999 Properties. Net cash used in investing activities decreased by $139.6 million to $84.8 million for Nine Months 1999 compared to $224.4 million for Nine Months 1998. The decrease was primarily due to a lower level of property acquisitions during Nine Months 1999 compared to Nine Months 1998. Net cash provided by financing activities decreased by $149.5 million to $58.1 million for Nine Months 1999 compared to $207.6 million for Nine Months 1998. Cash provided by financing activities for Nine Months 1999 consisted of net proceeds from the issuance/redemption of our common stock, issuance of preferred stock, exercise of stock options, borrowings under our line of credit and secured debt, partially offset by principal reductions on our secured debt and dividends on our common stock. Cash provided by financing activities for Nine Months 1998 consisted of net proceeds from the issuance of our common stock, borrowings under our line of credit and secured debt, partially offset by distributions to stockholders. COMMITMENTS We are committed to complete the construction of buildings and certain related improvements in San Diego, California, Gaithersburg, Maryland and Research Triangle Park, North Carolina at a remaining aggregate cost of $30.9 million under the terms of certain leases. In March 1999, we acquired an 85% tenancy-in-common interest in a 4.9 acre parcel of land in Worcester, Massachusetts for $425,000. The seller retained the remaining 15% tenancy-in-common interest. The site will be developed as a Life Science Facility (the "Facility"). We are committed to complete the construction of a 94,000 square foot building and certain related improvements at a remaining cost of approximately $11.4 million under the terms of a lease with a third party that will cover 45,000 square feet of the completed Facility. The seller of the property provided us with a $2.6 million loan for use in the construction of the Facility, which is included in secured notes payable in our condensed consolidated balance sheet as of September 30, 1999 and related notes. The loan bears interest at a rate of 9% and is due on the earlier of (i) twenty days after a certificate of occupancy is issued for the Facility, or (ii) June 30, 2000. Upon completion of the Facility, the ownership of the Facility will be converted into a condominium structure and, concurrently, the seller may convert its 15% tenancy-in-common interest into a condominium interest in 13,000 square feet of the completed Facility. We have the right to purchase the seller's 15% tenancy-in-common interest at any time prior to such conversion for $300,000. We are also committed to fund approximately $23.0 million for investments in limited partnerships and rental properties, including the construction of tenant improvements under the terms of various leases. 15 RESTRICTED CASH As of September 30, 1999, we had $7.0 million in cash and cash equivalents, including $4.5 million in restricted cash accounts. Of the $4.5 million in restricted cash accounts, approximately $316,000 has been set aside to complete the conversion of existing space into higher rent generic laboratory space (as well as certain related improvements) at 1102/1124 Columbia Street, approximately $3.2 million is held in trust as additional security required under the terms of our secured notes payable and approximately $915,000 is held in security deposit reserve accounts based on the terms of certain lease agreements. SECURED DEBT Secured debt as of September 30, 1999 consists of the following (in thousands):
BALANCE AT STATED SEPTEMBER 30, INTEREST COLLATERAL 1999 RATE MATURITY DATE - ------------------------------------------------------------------------------------------------------ 3535/3565 General Atomics Court, San Diego, CA $ 17,196 9.00% December 2014 1431 Harbor Bay Parkway, Alameda, CA 7,146 7.165% January 2014 1102/1124 Columbia Street, Seattle, WA 20,298 7.75% May 2016 100/800/801 Capitola Drive, Durham, NC 12,464 8.68% December 2006 14225 Newbrook Drive, Chantilly, VA and 3000/3018 Western Avenue, Seattle, WA 36,081 7.22% May 2008 620 Memorial Drive, Cambridge, MA (1) 19,921 9.125% Oct 2007 One Innovation Drive, Worcester, MA (2) 11,826 8.75% January 2006 381 Plantation Street, (development project) Worcester, MA (3) 2,625 9.00% June 2000 --------------- $ 127,557 ===============
- -------------------- (1) The balance shown includes an unamortized premium of $2,114,000 so that the effective rate of the loan is 7.25%. (2) The balance shown includes an unamortized premium of $753,000 so that the effective rate of the loan is 7.25%. (3) The balance shown represents the amount drawn on the construction loan provided by the seller in connection with the acquisition of the 85% tenancy-in-common interest in the parcel of land. The loan provides for borrowings of up to $2,625,000. 16 The following is a summary of the scheduled principal payments for our secured debt as of September 30, 1999 (in thousands):
YEAR AMOUNT - ---------------------------------------------------- 1999 $ 504 2000 5,862 2001 3,505 2002 3,788 2003 4,095 Thereafter 106,936 --------------------- Subtotal 124,690 Unamortized premium 2,867 --------------------- $ 127,557 =====================
UNSECURED LINE OF CREDIT We have an unsecured line of credit that provides for borrowings of up to $250 million. Borrowings under the line of credit bear interest at a floating rate based on our election of either a LIBOR based rate or the higher of the bank's reference rate and the Federal Funds rate plus 0.5%. For each LIBOR based advance, we must elect to fix the rate for a period of one, two, three or six months. The line of credit contains financial covenants, including, among other things, maintenance of minimum market net worth, a total liabilities to gross asset value ratio, and a fixed charge coverage ratio. In addition, the terms of the line of credit restrict, among other things, certain investments, indebtedness, distributions and mergers. Borrowings under the line of credit are limited to an amount based on a pool of unencumbered assets. Accordingly, as we acquire additional unencumbered properties, borrowings available under the line of credit will increase, but may not exceed $250 million. As of September 30, 1999, borrowings under the line of credit were limited to approximately $240,000,000, and carried a weighted average interest rate of 6.91%. The line of credit expires May 31, 2000 and provides for annual extensions (provided there is no default) for two additional one-year periods upon notice by the company and consent of the participating banks. In September 1998, we entered into an interest rate swap agreement with BankBoston, N.A. (the "Bank") to hedge our exposure to variable interest rates associated with our line of credit. Interest paid is calculated at a fixed interest rate of 5.43% through May 31, 2000 on a notional amount of $50 million, and interest received is calculated at one month LIBOR. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense. The fair value of the swap agreement and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. We are exposed to loss in the event the Bank is unable to perform under the swap agreement or in the event one month LIBOR is less than 5.43%. 17 In October 1999, we entered into an additional interest rate swap agreement with the Bank to further hedge our exposure to variable interest rates associated with our line of credit. Effective December 8, 1999, interest paid will be calculated at a fixed interest rate of 6.5% through May 31, 2001 on a notional amount of $50 million, and interest received will be calculated at one month LIBOR. This agreement has no effect on our existing interest rate swap agreement. OTHER RESOURCES AND LIQUIDITY REQUIREMENTS We expect to continue meeting our short-term liquidity and capital requirements generally by using our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to make distributions necessary to enable us to continue qualifying as a real estate investment trust. We also believe that net cash provided by operations will be sufficient to fund our recurring non-revenue enhancing capital expenditures, tenant improvements and leasing commissions. We expect to meet certain long-term liquidity requirements, such as property acquisitions, property development activities, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness, including borrowings under our line of credit, and the issuance of additional debt and/or equity securities. EXPOSURE TO ENVIRONMENTAL LIABILITIES In connection with the acquisition of all of our properties, we have obtained Phase I environmental assessments to ascertain the existence of any environmental liabilities or other issues. The Phase I environmental assessments of our properties have not revealed any environmental liabilities that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any such material environmental liabilities. INFLATION Approximately 80% of our leases (on a square footage basis) are triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses (including increases thereto). In addition, approximately 85% of our leases (on a square footage basis) contain effective annual rent escalations that are either fixed (ranging from 2.5% to 4.0%) or indexed based on a CPI or other index. Accordingly, we do not believe that our earnings or cash flow are subject to any significant risk of inflation. An increase in inflation, however, could result in an increase in our variable rate borrowing cost, including borrowings under our unsecured line of credit. IMPACT OF THE YEAR 2000 The year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of our computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send tenant invoices, provide building services or engage in similar normal business activities. 18 We rely on computer technologies to operate our business. In October 1998, we formed an internal task force to identify, assess and evaluate our critical systems to determine which year 2000 related problems may cause system errors or failures. We have identified three major areas as critical systems: (i) internal accounting systems, (ii) systems of significant tenants, vendors and financial institutions; and (iii) internal building systems at our properties. We have engaged consulting professionals from a nationally recognized accounting firm to review our plans and assist us with our solutions. The following discussion of our year 2000 project contains numerous forward-looking statements based on inherently uncertain information. The cost of our evaluation and the date on which we plan to complete our projects are based on our best estimates. We derived these estimates using a number of assumptions of future events, including the continued availability of internal and external resources, third-party modifications and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results may be materially different from those anticipated. Moreover, although we believe that we will be operating in a year 2000 compliant manner prior to December 31, 1999, there can be no assurance that any failure to modify a critical system would not have a material adverse effect on our operations. READINESS Our year 2000 project has been designed to ensure that all critical systems have been evaluated and will be suitable for continued use into and beyond the year 2000. We completed our identification and initial evaluation of critical systems in the first quarter of 1999, and we have implemented substantially all of the necessary remedial actions. We have completed our review of our internal accounting systems. All of these systems are currently year 2000 compliant and testing has been completed. We place a high degree of reliance on computer systems of third parties, such as tenants, vendors and financial institutions. Although we have been assessing the readiness of these third parties, we cannot guarantee that they will be year 2000 compliant in a timely manner. The failure of these third parties to modify their systems in advance of December 31, 1999 could have a material adverse effect on our operations. We have surveyed significant third-party vendors and financial institutions, and all surveyed indicated that they have implemented year 2000 programs. In addition, we have surveyed our significant tenants for their year 2000 readiness. Approximately 80% of these tenants returned their surveys, and we have discussed year 2000 readiness with the others. Most have indicated that they have a year 2000 program in place and expect to be year 2000 compliant by the end of 1999. A few tenants have indicated that they have some concerns regarding their systems and that they are addressing their concerns. 19 We are continually participating in surveys with new tenants, vendors and other third-party suppliers. If future risk assessments of third-party suppliers or tenants indicate significant exposure from a supplier's year 2000 problem, the supplier or tenant will be asked to demonstrate how the problems will be addressed. We believe that we have viable alternatives for each of our major vendors. The task force has completed its evaluation of internal systems in our properties that may have embedded microprocessors with potential year 2000 problems, mainly building systems, including heating, ventilation and air conditioning systems, elevators and security systems. Based on the results of our review, certain of our properties had critical systems that required upgrades for year 2000 readiness. Upgrades were completed at all of these properties in the second and third quarters of 1999. In some instances, we have used the services of outside experts to test and review our findings and to confirm that our building systems are year 2000 compliant. COST We do not expect that our year 2000 project costs, including the costs of any remedial activities and outside experts, will be material. The aggregate cost of purchasing conversion packages for the accounting systems and the cost to survey tenants, vendors and financial institutions are not material. In addition, any costs incurred to review the building systems and to replace or upgrade them as appropriate constitute property maintenance cost, and are therefore generally recoverable from the tenants pursuant to the terms of their existing leases. RISKS We believe that the principal risks associated with the year 2000 issue include the risk of disruption of our operations due to operational failures of third parties, including tenants, vendors (particularly utility vendors), and financial institutions, and the risk of business interruption due to building system failures. The risk of disruptions due to operational failures of vendors or financial institutions should not be significant, because our major vendors and financial institutions have indicated that they are currently year 2000 compliant, and we believe we have viable alternatives for such suppliers. If any of our major tenants do not become year 2000 compliant on schedule, such tenant's operations and financial condition could be adversely affected, which may impact the tenant's ability to meet its rent obligations. Similarly, if our building systems failed due to year 2000 problems, services to our properties and tenants, such as mechanical and security services, could be interrupted, resulting in potential rent disputes with the tenants. We believe, however, that our early involvement in identifying, assessing and evaluating our critical systems and formulating our contingency plans should minimize the risk of year 2000 problems to our operations. CONTINGENCY PLANS The development of contingency plans for significant exposures to potential year 2000 problems is integral to our planning process. We continually develop and update our contingency plans based on our on-going risk assessment. Any failure of our contingency plans could have a material adverse effect on our operations. With respect to internal accounting systems, our contingency plans address hardware alternatives, power supply issues and electronic and paper back-ups of 20 critical databases. Complete printouts and full backups of all significant accounting records are scheduled for the last week in December in order to minimize any problems from unforeseen complications in the system. In addition, we have created a contingency plan for each of the properties in our portfolio. Our property contingency plans set forth various procedures with respect to facilities support in the event of a building system disruption or failure for the period December 31, 1999 through January 4, 2000. Twenty-four hour contact numbers for that critical period are being supplied to every tenant in our final year 2000 communication. We also have encouraged our tenants to develop detailed contingency plans of their own for their critical systems. FUNDS FROM OPERATIONS We believe that funds from operations (FFO) is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, FFO provides investors with an understanding of our ability to incur and service debt, to make capital expenditures and to make distributions. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (the "White Paper"), which may differ from the methodology for calculating FFO used by other equity REITs, and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for our discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. The White Paper defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. The following tables present our FFO for the three and nine months ended September 30, 1999 and 1998 (in thousands):
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 -------------------------------------------------------- Net income $ 5,849 $ 5,117 Add: Depreciation and amortization 5,017 2,773 Subtract: Dividends on preferred stock (916) - ------------------- ------------------- $ 9,950 $ 7,890 =================== ===================
21
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------ Net income $ 16,964 $ 14,477 Add: Depreciation and amortization 12,610 6,949 Subtract: Dividends on preferred stock (1,120) - ------------------- ------------------- FFO $ 28,454 $ 21,426 =================== ===================
PROPERTY AND LEASE INFORMATION The following table is a summary of our property portfolio as of September 30, 1999 (dollars in thousands):
NUMBER OF RENTABLE SQUARE ANNUALIZED OCCUPANCY PROPERTIES FEET BASE RENT PERCENTAGE ------------------------------------------------------------------- REGION: Suburban Washington D.C. 17 1,537,338 $ 21,160 95.1% (1) California - San Diego 10 569,467 13,272 89.3% California - San Francisco Bay 8 489,912 10,402 94.3% (1) Southeast 4 254,230 3,708 99.1% New Jersey/Suburban Philadelphia 5 268,418 3,871 98.6% Eastern Massachusetts 6 380,709 9,796 99.4% Washington - Seattle 3 328,221 8,938 96.0% ------------------------------------------------------------------- Subtotal 53 3,828,295 71,147 95.2% Renovation/Repositioning Properties 5 186,473 1,776 19.4% ------------------------------------------------------------------- Total 58 4,014,768 $ 72,923 91.6% ===================================================================
- --------- (1) All, or substantially all, of the vacant space is office or warehouse space. 22 The following table shows certain information with respect to the lease expirations of our properties as of September 30, 1999:
SQUARE PERCENTAGE OF ANNUALIZED BASE YEAR OF NUMBER OF FOOTAGE OF AGGREGATE RENT OF EXPIRING LEASE EXPIRING EXPIRING PORTFOLIO LEASE LEASE (PER EXPIRATION LEASES LEASES SQUARE FOOT SQUARE FOOT) - ----------------------------------------------------------------------------------------------- 1999 (1) 30 186,244 5.1% $ 24.82 2000 29 445,769 12.1% $ 21.36 2001 23 371,459 10.1% $ 19.60 2002 21 389,450 10.6% $ 17.05 2003 17 356,898 9.7% $ 15.53 Thereafter 46 1,929,286 52.4% $ 20.38
- --------- (1) Represents leases expiring between October 1, 1999 to December 31, 1999. 23 The following table is a summary of our lease activity for the quarter ended September 30, 1999 computed on a GAAP Basis and on a Cash Basis:
RENTAL TI'S/LEASE AVERAGE NUMBER SQUARE EXPIRING NEW RATE COMMISSIONS LEASE OF LEASES FOOTAGE RATE RATE INCREASE PER FOOT TERM ----------------------------------------------------------------------------------------- LEASE ACTIVITY - EXPIRED LEASES Lease Expirations Cash Rent 27 168,248 $ 18.86 - - - - GAAP Rent 27 168,248 $ 18.80 - - - - Renewed/Released Space Cash Rent 6 54,938 $ 19.63 $ 20.51 4.5% $ 5.74 4.2 Years GAAP Rent 6 54,938 $ 19.62 $ 21.14 7.7% $ 5.74 4.2 Years Month-to-Month Leases Cash Rent 15 49,588 $ 12.43 $ 12.43 0.0% - - GAAP Rent 15 49,588 $ 12.41 $ 12.43 0.2% - - Total Leasing Cash Rent 21 104,526 $ 16.21 $ 16.68 2.9% - - GAAP Rent 21 104,526 $ 16.20 $ 17.01 5.0% - - VACANT SPACE LEASED Cash Rent 4 24,113 - $ 23.35 - $ 11.96 4.2 Years GAAP Rent 4 24,113 - $ 24.79 - $ 11.96 4.2 Years ALL LEASE ACTIVITY Cash Rent 25 128,639 - $ 17.93 - - - GAAP Rent 25 128,639 - $ 18.47 - - -
24 The following table is a summary of our lease activity for the nine months ended September 30, 1999 computed on a GAAP Basis and on a Cash Basis:
RENTAL TI'S/LEASE AVERAGE NUMBER SQUARE EXPIRING NEW RATE COMMISSIONS LEASE OF LEASES FOOTAGE RATE RATE INCREASE PER FOOT TERM ----------------------------------------------------------------------------------------- LEASE ACTIVITY - EXPIRED LEASES Lease Expirations Cash Rent 45 389,367 $ 16.12 - - - - GAAP Rent 45 389,367 $ 16.62 - - - - Renewed/Released Space Cash Rent 18 256,307 $ 14.29 $ 16.95 18.6% $ 5.30 6.4 Years GAAP Rent 18 256,307 $ 15.08 $ 18.37 21.8% $ 5.30 6.4 Years Month-to-Month Leases Cash Rent 14 39,379 $ 13.01 $ 13.01 0.0% - - GAAP Rent 14 39,379 $ 12.99 $ 13.01 0.2% - - Total Leasing Cash Rent 32 295,686 $ 14.12 $ 16.43 16.3% - - GAAP Rent 32 295,686 $ 14.80 $ 17.65 19.2% - - VACANT SPACE LEASED Cash Rent 11 94,682 - $ 17.32 - $ 6.15 3.9 Years GAAP Rent 11 94,682 - $ 17.76 - $ 6.15 3.9 Years ALL LEASE ACTIVITY Cash Rent 43 390,368 - $ 16.64 - - - GAAP Rent 43 390,368 - $ 17.68 - - -
25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we are exposed is interest rate risk, which is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control. In order to modify and manage the interest characteristics of our outstanding debt and limit the effects of interest rates on our operations, we may utilize a variety of financial instruments, including interest rate swaps, caps, floors and other interest rate exchange contracts. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks such as counter-party credit risk and legal enforceability of hedging contracts. Our future earnings, cash flows and fair values relating to financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR. However, due to the purchase of our interest rate swap agreements, the effects of interest rate changes are reduced. Based on interest rates at, and our swap agreement in effect on, September 30, 1999, a 1% increase in interest rates on our line of credit would decrease annual future earnings and cash flows, after considering the effect of our interest rate swap agreement, by approximately $1.6 million. A 1% decrease in interest rates on our line of credit would increase annual future earnings and cash flows, after considering the effect of our interest rate swap agreement, by approximately $1.6 million. A 1% increase in interest rates on our secured debt and interest rate swap agreement would decrease their fair value by approximately $8.4 million. A 1% decrease in interest rates on our secured debt and interest rate swap agreement would increase their fair value by approximately $9.5 million. A 1% increase or decrease in interest rates on our secured note receivable would not have a material impact on its fair value. These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost and our interest rate swap agreement in effect on September 30, 1999. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure. If we were to include the impact of our new interest rate swap agreement effective December 1999 under the same conditions set forth above, a 1% increase in interest rates on our line of credit would decrease annual future earnings and cash flows, after considering the effect of both of our interest rate swap agreements, by approximately $1.1 million. A 1% decrease in interest rates on our line of credit would increase annual future earnings and cash flows, after considering the effect of both of our interest rate swap agreements, by approximately $1.1 million. A 1% increase in interest rates on our secured debt and both of our interest rate swap agreements would decrease their fair value by approximately $8.2 million. A 1% decrease in interest rates on our secured debt and both of our interest rate swap agreements would increase their fair value by approximately $9.3 million. A 1% increase or decrease in interest rates on our secured note receivable would not have a material impact on its fair value. 26 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS To our knowledge, no litigation is pending against us, other than routine actions and administrative proceedings, substantially all of which are expected to be covered by liability insurance or which, in the aggregate, are not expected to have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.20 Form of Employee Restricted Stock Agreement for use in connection with shares of restricted stock issued to employees pursuant to Alexandria's Amended and Restated 1997 Stock Award and Incentive Plan. 10.21 Form of Independent Contractor Restricted Stock Agreement for use in connection with shares of restricted stock issued to independent contractors pursuant to Alexandria's Amended and Restated 1997 Stock Award and Incentive Plan. 10.22 Amendment to Amended and Restated Executive Employment Agreement between Alexandria and Peter J. Nelson, dated August 31, 1999. 10.23 Amendment to Executive Employment Agreement between Alexandria and Vincent R. Ciruzzi, dated August 31, 1999. 10.24 Employment Letter Agreement between Alexandria and Tom Andrews, dated June 1, 1999. 27 12.1 Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 27.1 Financial Data Schedule (b) Reports on Form 8-K. On September 27, 1999, we filed a Current Report on Form 8-K to report the acquisition of certain properties. 28 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 15, 1999. ALEXANDRIA REAL ESTATE EQUITIES, INC. /s/ Joel S. Marcus ------------------------------------------------ Joel S. Marcus Chief Executive Officer (Principal Executive Officer) /s/ Peter J. Nelson ------------------------------------------------ Peter J. Nelson Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 29 EX-10.20 2 EXHIBIT 10.20 Exhibit 10.20 FORM OF EMPLOYEE RESTRICTED STOCK AGREEMENT This RESTRICTED STOCK AGREEMENT (this "Agreement"), dated as of the day of , , (the "Date of Grant") is entered into by and between Alexandria Real Estate Equities, Inc. (the "Company"), and , an employee of the Company (the "Grantee"). RECITALS WHEREAS, the Company's Board of Directors has determined to make a grant of restricted stock ("Restricted Stock") to the Grantee. THEREFORE, the Parties agree as follows: In consideration of the Recitals and the following mutual covenants, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree that the Grantee is hereby granted shares of Restricted Stock (the "Stock Grant") on the date hereof subject to the terms and conditions set forth herein. A. THE STOCK. The Grantee is entitled to shares of the Company's common stock, par value $.01 per share (the "Stock"), pursuant to the terms and conditions of this Agreement (the "Restricted Stock"). B. TERMS AND CONDITIONS OF THE STOCK GRANT. 1. RESTRICTIONS AND RESTRICTED PERIOD. a. RESTRICTIONS. Shares of Restricted Stock granted hereunder may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of and shall be subject to a risk of forfeiture as described in Paragraph 4 below until the lapse of the Restricted Period (as defined below). b. RESTRICTED PERIOD. Unless the Restricted Period is previous ly terminated pursuant to Paragraph 4 of this Agreement, the restrictions set forth above shall lapse and the Restricted Stock shall become fully and freely transferable (PROVIDED, THAT such transfer is otherwise in accordance with federal and state securities laws) and non-forfeitable as to one hundred percent (100%) of the shares of Restricted Stock on (the "Restricted Period"). 2. RIGHTS OF A STOCKHOLDER. From and after the Date of Grant and for so long as the Restricted Stock is held by or for the benefit of the Grantee, the Grantee shall have all the rights of a stockholder of the Company with respect to the Restricted Stock, including but not limited to the right to receive dividends and the right to vote such shares. 3. DIVIDENDS. Dividends paid on Restricted Stock shall be paid at the dividend payment date, or be deferred for payment to such date as determined by the Board of Directors, in cash or shares of unrestricted Stock having a fair market value equal to the amount of such dividends as determined by the Board of Directors. Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed. 4. CESSATION OF EMPLOYMENT. If the Grantee's employment status with the Company is (i) terminated by the Company for other than "Cause" (as defined below) or (ii) terminated by reason of death or Disability (as defined below) then the Restricted Period shall lapse with respect to all of the Restricted Stock subject to the Stock Grant as of such date of termination. If the Grantee's employ ment status with the Company is (i) terminated by the Company for "Cause" or (ii) terminated by the Grantee, then the Restricted Stock and any accrued but unpaid dividends that are at that time subject to restrictions set forth herein, shall be forfeited to the Company without payment of any consideration by the Company, and neither the Grantee nor any of [his/her] successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such shares of Restricted Stock or certificates. For purposes of this Agreement, unless otherwise defined in an effective employ ment agreement between the Grantee and the Company: a. The term "Cause" shall mean the following: 2 (1) The Grantee's material breach, repudiation or failure to comply with or perform any of the terms of an effective employment agreement, any of the Grantee's duties, or any of Company's policies or procedures (including without limitation any such policies or procedures relating to conflicts of interests or standards of business conduct) or deliberate interference with the compliance by any other employee of Company with any of the foregoing; (2) The conviction of the Grantee for, or pleading by the Grantee of no contest (or similar plea) to, fraud, embezzlement, misappropriation of assets, malicious mischief, or any felony, other than a crime for which vicarious liability is imposed upon the Grantee solely by reason of the Grantee's position with Company and not by reason of the Grantee's conduct; or (3) Any other act, omission, event or condition constitut ing cause for the discharge of any employee under applicable law. b. The term "Disability" shall mean a circumstance when the Grantee is unable to work by reason of disability for 180 days during any 365 day period. 5. CERTIFICATES. Restricted Stock granted herein may be evidence in such manner as the Board of Directors shall determine. If certificates representing Restricted Stock are registered in the name of the Grantee, then such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applica ble to such Restricted Stock, and the Company shall retain physical possession of the certificate. 6. NOTICES. Any notice required or permitted under this Agree ment shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Grantee either at [his/her] address herein below set forth or such other address as [he/she] may designate in writing to the Company, or to the Company: Joel S. Marcus, Chief Executive Officer (or his designee), at the Company's address or such other address as the Company may designate in writing to the Grantee. 7. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company or the Grantee to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 3 8. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Maryland. 9. AMENDMENTS. This Agreement may be amended or modified at any time by an instrument in writing signed by the Parties. 10. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Stock Grant, this Agreement nor any other action taken in connection herewith shall constitute or be evidence of any agreement or understanding, express or implied, that the Grantee is an employee of the Company or any subsidiary of the Company. 11. SECTION 83(b) ELECTION. The Grantee hereby acknowledges that he has been informed that, with respect to the Stock Grant of Restricted Shares, an election may be filed by the Grantee with the Internal Revenue Service, within 30 days of the Date of Grant, electing pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to be taxed currently on the fair market value of the Restricted Stock on the Date of Grant. THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON THE GRANTEE'S BEHALF. 12. TERMINATION OF THIS AGREEMENT. Upon termination of this Agreement, all rights of the Grantee hereunder shall cease. 4 IN WITNESS WHEREOF, the Parties have executed this Agree ment on the day and year first above written. ALEXANDRIA REAL ESTATE EQUITIES, INC. By ----------------------------------- The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Agreement. ----------------------------------- [Name] ----------------------------------- Number of Shares ----------------------------------- ----------------------------------- ----------------------------------- Address 5 EX-10.21 3 EXHIBIT 10.21 Exhibit 10.21 FORM OF INDEPENDENT CONTRACTOR RESTRICTED STOCK AGREEMENT This RESTRICTED STOCK AGREEMENT (this "Agreement"), dated as of the day of , (the "Date of Grant") is entered into by and between Alexandria Real Estate Equities, Inc. (the "Company"), and , an independent contractor of the Company (the "Grantee"). RECITALS WHEREAS, the Company's Board of Directors has determined to make a grant of restricted stock ("Restricted Stock") to the Grantee. THEREFORE, the Parties agree as follows: In consideration of the Recitals and the following mutual covenants, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree that the Grantee is hereby granted shares of Restricted Stock (the "Stock Grant") on the date hereof subject to the terms and conditions set forth herein. A. THE STOCK. The Grantee is entitled to shares of the Company's common stock, par value $.01 per share (the "Stock"), pursuant to the terms and conditions of this Agreement (the "Restricted Stock"). B. TERMS AND CONDITIONS OF THE STOCK GRANT. 1. RESTRICTIONS AND RESTRICTED PERIOD. a. RESTRICTIONS. Shares of Restricted Stock granted hereunder may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of and shall be subject to a risk of forfeiture until the lapse of the Restricted Period (as defined below). b. RESTRICTED PERIOD. The restrictions set forth above shall lapse and the Restricted Stock shall become fully and freely transferable (PROVIDED, THAT such transfer is otherwise in accordance with federal and state securities laws) and non-forfeitable as to one hundred percent (100%) of the shares of Restricted Stock on , (the "Restricted Period"). 2. RIGHTS OF A STOCKHOLDER. From and after the Date of Grant and for so long as the Restricted Stock is held by or for the benefit of the Grantee, the Grantee shall have all the rights of a stockholder of the Company with respect to the Restricted Stock, including but not limited to the right to receive dividends and the right to vote such shares. 3. DIVIDENDS. Dividends paid on Restricted Stock shall be paid at the dividend payment date, or be deferred for payment to such date as determined by the Board of Directors, in cash or shares of unrestricted Stock having a fair market value equal to the amount of such dividends as determined by the Board of Directors. Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed. 4. CERTIFICATES. Restricted Stock granted herein may be evidence in such manner as the Board of Directors shall determine. If certificates representing Restricted Stock are registered in the name of the Grantee, then such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applica ble to such Restricted Stock, and the Company shall retain physical possession of the certificate. 5. NOTICES. Any notice required or permitted under this Agree ment shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Grantee either at [his/her] address herein below set forth or such other address as [he/she] may designate in writing to the Company, or to the Company: Joel S. Marcus, Chief Executive Officer (or his designee), at the Company's address or such other address as the Company may designate in writing to the Grantee. 6. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company or the Grantee to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 2 7. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Maryland. 8. AMENDMENTS. This Agreement may be amended or modified at any time by an instrument in writing signed by the Parties. 9. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Stock Grant, this Agreement nor any other action taken in connection herewith shall constitute or be evidence of any agreement or understanding, express or implied, that the Grantee is an employee of the Company or any subsidiary of the Company. 10. SECTION 83(b) ELECTION. The Grantee hereby acknowledges that he has been informed that, with respect to the Stock Grant of Restricted Shares, an election may be filed by the Grantee with the Internal Revenue Service, WITHIN 30 DAYS of the Date of Grant, electing pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to be taxed currently on the fair market value of the Restricted Stock on the Date of Grant. THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON THE GRANTEE'S BEHALF. 11. TERMINATION OF THIS AGREEMENT. Upon termination of this Agreement, all rights of the Grantee hereunder shall cease. 3 IN WITNESS WHEREOF, the Parties have executed this Agree ment on the day and year first above written. ALEXANDRIA REAL ESTATE EQUITIES, INC. By ----------------------------------- The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Agreement. ----------------------------------- [Name] ----------------------------------- Number of Shares ----------------------------------- ----------------------------------- Address 4 EX-10.22 4 EXHIBIT 10.22 Exhibit 10.22 AMENDMENT TO AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT Whereas, the parties hereto desire to amend that certain Amended and Restated Executive Employment Agreement ("Agreement"), effective January 1, 1998, by and between Alexandria Real Estate Equities, Inc. ("Alexandria") and Peter J. Nelson; and Whereas, pursuant to section 6.4 of the Agreement, the Agreement may be modified and amended with the written agreement of Alexandria and Peter J. Nelson. Now therefore, effective as of August 1, 1999, the Agreement is hereby amended as follows: 1. Section 3.4(b) of the Agreement is hereby deleted in its entirety and replaced with the following: (b) VACATION. During the Term, Officer shall be entitled to up to four (4) weeks of paid vacation annualized during each calendar year during the Term and any extensions thereof, prorated for partial years. Accrued vacation not taken during any calendar year may be carried forward to subsequent years; PROVIDED, THAT, Officer may not accrue more than eight (8) weeks of unused vacation at any time. Except as otherwise provided hereinabove, the Agreement is ratified and affirmed. IN WITNESS WHEREOF, this Amendment is executed this 31st day of August, 1999. ALEXANDRIA REAL ESTATE EQUITIES, INC. By: /s/ Joel S. Marcus --------------------------------------- Joel S. Marcus, Chief Executive Officer PETER J. NELSON /s/ Peter J. Nelson --------------------------------------- 1 EX-10.23 5 EXHIBIT 10.23 Exhibit 10.23 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT Whereas, the parties hereto desire to amend that certain Executive Employment Agreement ("Agreement"), effective January 1, 1998, by and between Alexandria Real Estate Equities, Inc. ("Alexandria") and Vincent R. Ciruzzi; and Whereas, pursuant to section 6.3 of the Agreement, the Agreement may be modified and amended with the written agreement of Alexandria and Vincent R. Ciruzzi. Now therefore, effective as of August 1, 1999, the Agreement is hereby amended as follows: 1. Section 3.5 (b) of the Agreement is hereby deleted in its entirety and replaced with the following: (b) VACATION. During the Term, Officer shall be entitled to up to four (4) weeks of paid vacation annualized during each calendar year during the Term and any extensions thereof, prorated for partial years. Accrued vacation not taken during any calendar year may be carried forward to subsequent years; PROVIDED, THAT, Officer may not accrue more than eight (8) weeks of unused vacation at any time. Except as otherwise provided hereinabove, the Agreement is ratified and affirmed. IN WITNESS WHEREOF, this Amendment is executed this 31st day of August, 1999. ALEXANDRIA REAL ESTATE EQUITIES, INC. By: /s/ Joel S. Marcus --------------------------------------- Joel S. Marcus, Chief Executive Officer VINCENT R. CIRUZZI /s/ Vincent R. Ciruzzi ------------------------------------------ 1 EX-10.24 6 EXHIBIT 10.24 Exhibit 10.24 June 1, 1999 PERSONAL & CONFIDENTIAL ------------------- CONFIDENTIAL Mr. Tom Andrews DO NOT COPY 7 Brickyard Lane ------------------- Westborough, MA 01581 RE: EMPLOYMENT AGREEMENT Dear Tom: As usual, I enjoyed our brief time together at the BIO 99 conference. We are very excited about the prospect of finally bringing you on board with Alexandria Real Estate Equities, Inc. On behalf of Alexandria, I am pleased to offer you the position of Vice President, Regional Market Director - Massachusetts, beginning on June 15, 1999, on the following terms: 1. DUTIES. In your position as Vice President, you will perform the duties customarily associated with this position and such duties as may be assigned to you by me or other members of Alexandria's senior management. Initially, you will report to me, however, Alexandria may change your duties and reporting relationship at its discretion. At the outset of your employment, I would expect that your time would be utilized as follows:
RESPONSIBILITY TIME COMMITMENT -------------- --------------- - - Asset Management/LeasINg 25% - - Acquisition/Retrofit/BTS Sourcing and Management 30% - - Transaction Negotiation/Processing 25% - - Networking/Franchise Development 15% - - Miscellaneous Global Company Activity 5%
If you accept this Agreement, I would like to have a consolidated draft personal business plan detailing your approach to fulfilling these responsibilities no later than July 1, 1999. ------------------- CONFIDENTIAL DO NOT COPY ------------------- 2. TIME COMMITMENTS. Between the commencement date of your employment and December 31, 1999, you agree to commit approximately 20 hours per week to Alexandria's interests pursuant to the scope outlined in Paragraph 1. This 20 hours would be IN ADDITION to your current project management activities at 381 Plantation. Commencing January 1, 1999, your commitment will increase to approximately 30 hours per week. The expectation is that the construction of 381 Plantation would be complete at this point and the 30 hours would be exclusively committed to the activities detailed in Paragraph 1. 3. COMPENSATION AND BENEFITS. a. COMPENSATION. As compensation for your services and your obligations in this Agreement, Alexandria agrees to provide you with the following: (1) BASE SALARY. From your start date through December 31, 1999, you will be paid a salary of $6,250 per month, less payroll deductions and withholdings, paid bi-weekly. Beginning on January 1, 2000, your salary will be increased to $110,000 annually (or $9,167 per month), less payroll deductions and withholdings. (2) CONTINUATION OF PROJECT MANAGEMENT FEES. As you know, you currently are being paid a fee in the amount of $12,500 per month in connection with your project management contract for the development of the 5 Biotech property. Even though you will become an Alexandria employee if you accept this Agreement, Alexandria will continue to pay you this fee through December 31, 1999. You will continue to perform all activities necessary to fulfill your current contractual commitments on this property and these activities will be in addition to the duties set forth in Paragraph 1 herein. (3) INCENTIVE COMPENSATION. Subject to the approval of Alexandria's Compensation Committee, you will be eligible for a discretionary bonus based upon a combination of your performance and the performance of Alexandria during specific periods of your employment. Alexandria retains the sole discretion to determine whether you will be provided with such a bonus and the amount of any such bonus. b. EQUITY. Subject to the approval of Alexandria's Compensation Committee and to the terms set forth in a separate agreement, we will recommend that you be granted 900 shares of common stock of Alexandria on or about July 1, 1999 which will vest in equal 450 share increments on January 1, 2000 and June 30, 2000. Further, we will recommend that you be granted an additional 450 shares of common stock on or about July 1, 2000 which will vest on January 1, 2001. The Compensation Committee retains the sole discretion to determine whether to award any such stock grants. c. BENEFITS. Given that you will be considered a Regular Part-Time employee under Alexandria's policies, you will receive all legally mandated benefits (such as Social Security and Workers' Compensation Insurance). However, you shall not be eligible for any other Alexandria benefits. Alexandria will reimburse you for the reasonable cost of obtaining and maintaining health and dental insurance coverage for you and your family consistent with the coverages offered to Alexandria's Regular Full-Time employees. 2 ------------------- CONFIDENTIAL DO NOT COPY ------------------- d. VACATION. During 1999, you will be provided with one (1) week's paid vacation. After 1999, you will accrue vacation benefits at a rate of 2.31 hours each pay period. This will result in an annual vacation accrual of 60 hours over the course of a one-year period. You may accrue vacation time up to a maximum of 160 hours. After you reach this maximum accrual, you will not continue to accrue vacation time until your accrued balance drops below 160 hours. 4. COMPANY POLICIES AND PROPRIETARY INFORMATION AGREEMENT. As an employee of Alexandria, you will be expected to abide by all of Alexandria's policies and procedures, including its policies on corporate opportunities, conflicts of interest and securities trading. As a condition of your employment, you agree to sign and abide by the terms of Alexandria's Agreement Regarding Proprietary Information and its Employee Handbook. 5. OTHER AGREEMENTS. By accepting this Agreement, you represent and warrant that the performance of your duties for Alexandria will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. You agree not to make any unauthorized disclosure or use, on behalf of Alexandria, of any confidential information belonging to any of your former employers. You also represent that you are not in unauthorized possession of any materials containing a third party's confidential and proprietary information. Of course, during your employment with Alexandria, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain. 6. DUTY OF LOYALTY. While employed by Alexandria, you will not engage in any business activity in competition with Alexandria nor make preparations to do so, and you will not engage in any outside employment or consulting without prior written authorization from Alexandria. 7. TERMINATION. As an employee of Alexandria, you may terminate your employment at any time and for any reason whatsoever simply by notifying Alexandria. Similarly, Alexandria may terminate your employment at any time and for any reason whatsoever, with or without cause. This at-will employment relationship cannot be changed except in writing signed by a duly authorized officer of Alexandria. 8. DISPUTE RESOLUTION/ATTORNEYS' FEES. Unless otherwise prohibited by law or specified below, all disputes, claims, and causes of action (including but not limited to any claims of statutory discrimination of any type), in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation, or to your employment with Alexandria or the termination of that employment, shall be resolved solely and exclusively by final, binding and confidential arbitration through Judicial Arbitration & Mediation Services/Endispute, Inc. ("JAMS") under the then existing JAMS arbitration rules. You understand and agree that this provision waives your right to a jury trial on these claims. This arbitration shall be held in the San Francisco Bay Area. Nothing in this section is intended to 3 ------------------- CONFIDENTIAL DO NOT COPY ------------------- prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. 9. MISCELLANEOUS. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Alexandria with respect to the terms and conditions of your employment specified herein. This Agreement supersedes any other such promises, warranties, representations or agreements, and only may be modified in a writing signed by both parties. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement, and the Agreement, including the invalid or unenforceable provisions, should be enforced insofar as possible to achieve the intent of the parties. This Agreement will be binding upon and inure to the benefit of the personal representatives and successors of the respective parties hereto. This Agreement will be governed by and construed in accordance with the laws of the State of California. 10. RIGHT TO WORK. As required by law, this Agreement is subject to satisfactory proof of your right to work in the United States. If you choose to accept this Agreement under the terms described above, please sign below and return this letter to me. We look forward to your favorable reply, and to a productive and enjoyable work relationship. Very truly yours, ALEXANDRIA REAL ESTATE EQUITIES, INC. /s/ James H. Richardson ------------------------------------- James H. Richardson President ACCEPTED AND AGREED TO BY: /s/Thomas J. Andrews - ------------------------------------- Tom Andrews DATE: June 8, 1999 cc: Joel S. Marcus, CEO - Confidential Peter Nelson, Senior Vice President & CFO - Confidential 4 EX-12.1 7 EXHIBIT 12.1 EXHIBIT 12.1 ALEXANDRIA REAL ESTATE EQUITIES, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in thousands, except ratios)
The Period October 27, 1994 For the (inception) Nine Months Ended Year Ended December 31, through September 30, --------------------------------------- December 31, 1999 1998 1997 1996 1995 1994 ------------------ ------- ------- ------ ------ ------------ Earnings (Loss): .................................. $16,964 $19,403 $(2,797) $2,175 $ 866 $(648) Add Back: Interest Expense ............................... 14,648 14,033 7,043 6,327 3,553 328 Write-off of Unamortized Loan Costs ............ -- -- 2,295 -- -- -- Acquisition LLC Financing Costs ................ -- -- 6,973 -- -- -- ------- ------- ------- ------ ------ ----- Earnings Available for Fixed Charges ......... 31,612 33,436 $13,514 $8,502 $4,419 $(320) ------- ------- ------- ------ ------ ----- Combined Fixed Charges: Interest Incurred .............................. 17,116 16,232 $ 7,139 $6,327 $3,553 $ 328 Write-off of Unamortized Loan Costs(a) ......... -- -- 2,295 -- -- -- Acquisition LLC Financing Costs(b) ............. -- -- 6,973 -- -- -- Preferred Dividends ............................ 1,120 -- 3,038 1,590 -- -- ------- ------- ------- ------ ------ ----- Fixed Charges ................................ 18,236 16,232 $19,445 $7,917 $3,553 $ 328 ------- ------- ------- ------ ------ ----- Ratio of Earnings to Fixed Charges and Preferred Stock Dividends(c) ............................. 1.73 2.06 0.69 1.07 1.24 -- Excess of Fixed Charges Over Earnings ............ -- $ -- $ -- $ -- $ -- $ 648
- -------------------- (a) This amount represents unamortized loan costs associated with debt retired in connection with the IPO. (b) This amount represents the portion of the purchase price of the membership interests in ARE Acquisitions, LLC (the "Acquisition LLC") paid by the Company in excess of the cost incurred by the Acquisition LLC to acquire the three Life Science Facilities owned by it. (c) For purposes of calculating the consolidated ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of earnings before income taxes and fixed charges. Fixed charges consist of interest incurred (including amortization of deferred financing costs and capitalized interest), write-off of unamortized loan costs, Acquisition LLC Financing Costs (see Note (b)), and preferred stock dividends. EX-27.1 8 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED INCOME STATEMENTS FOUND IN THE COMPANY'S FORM 10-Q. 1,000 3-MOS DEC-31-1999 JUN-01-1999 SEP-30-1999 6,956 0 9,396 0 0 0 609,279 30,168 620,076 0 332,557 0 38,588 137 224,793 620,076 0 22,395 0 4,772 6,939 0 4,835 5,849 0 5,849 0 0 0 5,849 0.36 0.36
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