-----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, CiAfDx6OaOKnV+8MnIYInZ8hgDXsSkL8Oklh9JQ1XYwXtmEgBUqda2FsuIHgwfbu G5Jup7eBQISfDtEIERZr3A== 0001047469-98-035553.txt : 19980928 0001047469-98-035553.hdr.sgml : 19980928 ACCESSION NUMBER: 0001047469-98-035553 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980925 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980925 SROS: NYSE 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: 8-K SEC ACT: SEC FILE NUMBER: 001-12993 FILM NUMBER: 98715317 BUSINESS ADDRESS: STREET 1: 135 NORTH LOS ROBLES AVE STREET 2: SUITE 250 CITY: PASEDENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8185780777 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 25, 1998 (JUNE 11, 1998) ALEXANDRIA REAL ESTATE EQUITIES, INC. (Exact name of registrant as specified in its charter) MARYLAND 1-12993 95-4502084 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.) 135 NORTH LOS ROBLES AVENUE, SUITE 250 91101 PASADENA, CALIFORNIA (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (626) 578-0777 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS The properties listed below and in Item 5 hereof were acquired or are proposed to be acquired by Alexandria Real Estate Equities, Inc. or one of its wholly owned subsidiaries (collectively, the "Company"). The properties ("Life Science Facilities") contain a combination of office and laboratory space (with the exception of 15020 Shady Grove Road, 10505 Roselle Street and 3770 Tansy Street, which contain only office space) for lease principally to tenants in the life science industry. The Company is in the process of acquiring two Life Science Facilities located in Worcester, Massachusetts from related sellers. Each of the sellers is unaffiliated with the Company. On September 10, 1998, the Company acquired 377 Plantation Street, commonly known as Four Biotech, for a purchase price of $16,500,000. The acquisition was based on arm's length negotiations and was funded through a draw on the Company's unsecured line of credit. The property contains 92,700 rentable square feet. It is presently 100% leased. The property was purchased from Waldo Corporation, a Massachusetts corporation, as Trustee of Four Biotech Realty Trust u/d/t dated April 15, 1993. In addition, the Company expects to acquire One Innovation Drive, commonly known as Three Biotech and located adjacent to 377 Plantation Street in the fourth quarter of 1998. The purchase price is expected to be $16,500,000, which was based on arm's length negotiations. The Company expects that the purchase price will be funded partially through the assumption of a secured note payable to Teachers Insurance and Annuity Association of America in the amount of approximately $11,400,000 and partially through a draw on the Company's unsecured line of credit. The secured note bears interest at a rate of 8.75% per annum, with monthly payments of interest and principal based on a 20 year amortization schedule. The secured note matures in January 2006. The property contains 115,200 rentable square feet. It is presently 98% leased. The property will be purchased from Waldo Corporation, a Massachusetts corporation, as Trustee of Three Biotech Realty Trust u/d/t dated September 8, 1995. The acquisition is subject to customary closing conditions, and there can be no assurance that the Company will complete the acquisition of this property. ITEM 5. OTHER EVENTS Between June 11, 1998 and September 11, 1998, seven properties were acquired by the Company and one property was proposed to be acquired by the Company. Each of the properties acquired by the Company was purchased from sellers that were unrelated to each other and unaffiliated with the Company. 15020 Shady Grove Road is a Life Science Facility located in Gaithersburg, Maryland. The property was purchased for $3,700,000, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. The property contains 42,000 rentable square feet of office space. It is presently 100% leased. The property was purchased on June 11, 1998 from 15020 Shady Grove Associates, LLC, a Maryland limited liability company. 2 702 Electronic Drive is a Life Science Facility located in Horsham, Pennsylvania. The property was purchased for $3,400,000, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. Prior to acquisition by the Company, the property was occupied by the owner. The property contains 40,000 rentable square feet. It is presently 100% leased. The property was purchased on June 25, 1998 from Cell Pathways, Inc., a Delaware corporation. 5 Triangle Drive is a Life Science Facility located in Research Triangle Park, North Carolina. The property was purchased for $3,520,000, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. The property contains an aggregate of 32,100 rentable square feet. It is presently 75% leased. The property was purchased on August 5, 1998 from Secured Properties Investors II, L.P., a Georgia limited partnership. 10505 Roselle Street is a Life Science Facility located in San Diego, California. The property was purchased for $2,100,000, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. The property contains 16,000 rentable square feet of office space. It is presently 100% leased. The property was purchased on August 10, 1998 from RCS-1, Inc., a California corporation. 60 Westview Street is a Life Science Facility located in Lexington, Massachusetts. The property was purchased for $3,939,600, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. The property contains 40,000 rentable square feet of office space. It is presently 100% leased. The property was purchased on August 21, 1998 from The Equitable Life Assurance Society of the United States, a New York corporation. 3770 Tansy Street is a Life Science Facility located in San Diego, California. The property was purchased for $2,000,000, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. The property contains 16,000 rentable square feet of office space. It is presently 50% leased. The property was purchased on September 2, 1998 from RCS-1, Inc., a California corporation. 2001 Aliceanna Street is a Life Science Facility located in Baltimore, Maryland. The property and two parcels of land adjacent thereto were purchased simultaneously in a series of transactions from unrelated sellers for $7,396,663. The acquisitions were based on arm's length negotiations and funded through a draw on the Company's unsecured line of credit. The property contains 183,840 rentable square feet. It is presently 82% leased. The Life Science Facility and land were purchased on September 3, 1998 from Saga Limited Partnership, a Maryland limited partnership, and ASTA Enterprises, Inc., a Maryland corporation, respectively. 50 West Watkins Mill Road is a Life Science Facility located in Gaithersburg, Maryland. The property was purchased for $4,800,000, which was based on arm's length negotiations, funded through a draw on the Company's unsecured line of credit. The property contains 57,400 rentable square feet. It is presently 100% leased. The property was purchased on September 11, 1998 from Clopper Road Associates, a Maryland general partnership. 100 Phillips Parkway is a Life Science Facility located in Montvale, New Jersey. The Company expects to acquire the property in September of 1998 for a purchase price of $4,100,000, which was based on arm's length negotiations. The Company expects to fund the acquisition with a draw on its unsecured line of credit. The property contains 80,000 rentable square feet. It is presently vacant. The property will be purchased from NOREG Properties, L.L.C., a New Jersey limited liability company. The acquisition is subject to customary closing conditions, and there can be no assurance that the Company will complete the acquisition of this property. 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED1 15020 SHADY GROVE ROAD Statement of Revenues and Certain Expenses: Report of Independent Auditors Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997 Notes to Statement of Revenues and Certain Expenses 5 TRIANGLE DRIVE Statement of Revenues and Certain Expenses: Report of Independent Auditors Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997 Notes to Statement of Revenues and Certain Expenses 60 WESTVIEW STREET Statement of Revenues and Certain Expenses: Report of Independent Auditors Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997 Notes to Statement of Revenues and Certain Expenses 377 PLANTATION STREET / ONE INNOVATION DRIVE Statement of Revenues and Certain Expenses: Report of Independent Auditors Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997 Notes to Statement of Revenues and Certain Expenses 50 WEST WATKINS MILL ROAD Statement of Revenues and Certain Expenses: Report of Independent Auditors Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997 Notes to Statement of Revenues and Certain Expenses - -------- 1 The financial statement for 702 Electronic Drive has not been included because the property was owner-occupied prior to acquisition and as a result there are no historical operating results as a rental property. Subsequent to acquisition by the Company, a triple-net lease was executed for 100% of the rentable area requiring the tenant to pay substantially all expenses associated with the property. The financial statement for 100 Phillips Parkway has not been included because the property is vacant, and, as a result, there are no historical operating results as a rental property. Financial statements for 10505 Roselle Street, 3770 Tansy Street, and 2001 Aliceanna Street have not been included because such properties are not significant. 4 (b) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (c) EXHIBITS 23.1 Consent of Ernst & Young LLP 5 Report of Independent Auditors To the Board of Directors Alexandria Real Estate Equities, Inc. We have audited the accompanying statement of revenue and certain expenses of 15020 Shady Grove Road (the Property) for the year ended December 31, 1997. This statement of revenue and certain expenses is the responsibility of management of the Property. Our responsibility is to express an opinion on the statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission. Certain expenses (described in Note 1) that would not be comparable to those resulting from the proposed future operations of the Property are excluded and the statement is not intended to be a complete presentation of the revenue and expenses of the Property. In our opinion, the statement of revenue and certain expenses presents fairly, in all material respects, the revenue and certain expenses, as defined above, of the Property for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Los Angeles, California May 13, 1998 6 15020 Shady Grove Road Statement of Revenue and Certain Expenses Year ended December 31, 1997 (IN THOUSANDS)
Revenue: Rental $ 588 Tenant recoveries 8 ----- Total revenue 596 ----- Certain Expenses: Utilities 108 Repairs and maintenance 94 Insurance 5 Taxes and license 45 ----- Total certain expenses 252 ----- Excess of revenue over certain expenses $ 344 ----- -----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES. 7 15020 Shady Grove Road Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The accompanying statement of revenue and certain expenses includes the operations of 15020 Shady Grove Road located in Maryland (the "Property"), which was acquired by ARE-15020 Shady Grove, LLC, a Delaware limited liability company and indirect wholly owned subsidiary of Alexandria Real Estate Equities, Inc., a Maryland corporation (the "Company"), from a nonaffiliated third party. As of December 31, 1997, the Property was 100% occupied and leased under leases that require tenants either to pay their share of operating expenses, including operating and maintenance, utilities, taxes and insurance, or to pay their share of such expense in excess of the specified amounts. At December 31, 1997, three of the Property's tenants accounted for approximately 59% of the Property's aggregate annualized base rent. BASIS OF PRESENTATION The accompanying statement has been prepared to comply with the rules and regulations of the Securities and Exchange Commission. The Property is not a legal entity and the accompanying statement is not representative of the actual operations for the period presented, as certain expenses that may not be comparable to the expenses expected to be incurred by the Company in the future operations of the Property have been excluded. Excluded expenses consist of interest, depreciation and amortization and property general and administrative costs not directly comparable to the future operations of the Property. REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the related leases. RISKS AND UNCERTAINTIES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 8 15020 Shady Grove Road Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 2. RENTAL PROPERTY The future minimum lease payments to be received under noncancelable operating leases as of December 31, 1997 are as follows:
1998 $ 617,000 1999 490,000 2000 360,000 2001 350,000 2002 302,000 Thereafter 101,000 ----------- Total $ 2,220,000 ----------- -----------
The above future minimum lease payments do not include specified payments for tenant reimbursements of operating expenses. 9 Report of Independent Auditors Board of Directors and Stockholders Alexandria Real Estate Equities, Inc. We have audited the accompanying statement of revenue and certain expenses of 5 Triangle Drive (the Property) for the year ended December 31, 1997. This statement of revenue and certain expenses is the responsibility of the Management of the Property. Our responsibility is to express an opinion on the statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission. Certain expenses (described in Note 1) that would not be comparable to those resulting from the proposed future operations of the Property are excluded and the statement is not intended to be a complete presentation of the revenue and expenses of the Property. In our opinion, the statement of revenue and certain expenses presents fairly, in all material respects, the revenue and certain expenses, as defined above, of the Property for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young Los Angeles, California June 23, 1998 10 5 Triangle Drive Statement of Revenue and Certain Expenses Year ended December 31, 1997 (IN THOUSANDS)
Revenue: Rental $ 405 Tenant recoveries 8 ----- Total revenue 413 ----- Certain Expenses: Utilities 2 Repairs and maintenance 2 Insurance 2 Taxes and license 17 ----- Total certain expenses 23 ----- Excess of revenue over certain expenses $ 390 ----- -----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES. 11 5 Triangle Drive Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The accompanying statement of revenue and certain expenses includes the operations of 5 Triangle Drive located in North Carolina (the "Property"), which was acquired by ARE-5 Triangle Drive, LLC, a Delaware limited liability company and indirect wholly owned subsidiary of Alexandria Real Estate Equities, Inc., a Maryland corporation (the "Company"), from a nonaffiliated third party. This statement reflects the operations of the Property during 1997 under its prior ownership, and, as such, reflects the effect of vacancies that existed during that period. As of December 31, 1997, the Property was 75% occupied by one tenant under a lease that requires the tenant to pay operating expenses in excess of specified amounts, including operating and maintenance, utilities, taxes, and insurance. BASIS OF PRESENTATION The accompanying statement has been prepared to comply with the rules and regulations of the Securities and Exchange Commission. The Property is not a legal entity and the accompanying statement is not representative of the actual operations for the period presented, as certain expenses that may not be comparable to the expenses expected to be incurred by the Company in the future operations of the Property have been excluded. Excluded expenses consist of interest, depreciation and amortization and property general and administrative costs not directly comparable to the future operations of the Property. In addition, ground rent expense has been excluded because the Company purchased the interest in the land in connection with the acquisition of the Property. REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the term of the lease. USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 12 5 Triangle Drive Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 2. RENTAL PROPERTY The future minimum lease payments to be received under the noncancelable lease as of December 31, 1997 are as follows:
1998 $ 354,000 1999 365,000 2000 376,000 2001 387,000 2002 399,000 Thereafter 1,832,000 ----------- Total $ 3,713,000 ----------- -----------
The above future minimum lease payments do not include specified payments for the tenant's reimbursement of operating expenses. 13 Report of Independent Auditors To the Board of Directors and Stockholders Alexandria Real Estate Equities, Inc. We have audited the accompanying statement of revenue and certain expenses of 60 Westview Street (the Property) for the year ended December 31, 1997. This statement of revenue and certain expenses is the responsibility of the management of the Property. Our responsibility is to express an opinion on the statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission. Certain expenses (described in Note 1) that would not be comparable to those resulting from the proposed future operations of the Property are excluded and the statement is not intended to be a complete presentation of the revenue and expenses of the Property. In our opinion, the statement of revenue and certain expenses presents fairly, in all material respects, the revenue and certain expenses, as defined above, of the Property for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Los Angeles, California July 28, 1998 14 60 Westview Street Statement of Revenue and Certain Expenses Year ended December 31, 1997 (IN THOUSANDS)
Revenue: Rental $ 230 Tenant recoveries 155 ----- Total revenue 385 ----- Certain Expenses: Repairs and maintenance 191 Insurance 1 Taxes and license 45 ----- Total certain expenses 237 ----- Excess of revenue over certain expenses $ 148 ----- -----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES. 15 60 Westview Street Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The accompanying statement of revenue and certain expenses includes the operations of 60 Westview Street located in Massachusetts (the "Property"), which was acquired by ARE-60 Westview, LLC, a Delaware limited liability company and indirect wholly owned subsidiary of Alexandria Real Estate Equities, Inc., a Maryland Corporation (the "Company"), from a nonaffiliated third party. As of December 31, 1997, the space was 100% occupied by one tenant under a triple-net lease requiring the tenant to pay increases in expenses in excess of specified amounts associated with the Property, including operating and maintenance, taxes and insurance. BASIS OF PRESENTATION The accompanying statement has been prepared to comply with the rules and regulations of the Securities and Exchange Commission. The accompanying statement is not representative of the actual operations for the period presented, as certain expenses that may not be comparable to the expenses expected to be incurred by the Company in the future operations of the Property have been excluded. Excluded expenses consist of interest, depreciation and amortization and property general and administrative costs not directly comparable to the future operation of the Property. REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the related leases. RISKS AND UNCERTAINTIES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 16 60 Westview Street Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 2. RENTAL OFFICE PROPERTY The future minimum lease payments to be received under the noncancelable operating lease as of December 31, 1997 are as follows:
1998 $ 480,000 1999 480,000 --------- Total $ 960,000 --------- ---------
The above future minimum lease payments do not include specified payments for the tenant's reimbursement of operating expenses. 17 Report of Independent Auditors To the Board of Directors and Stockholders Alexandria Real Estate Equities, Inc. We have audited the accompanying statement of revenue and certain expenses of 377 Plantation Street/One Innovation Drive (the Property) for the year ended December 31, 1997. This statement of revenue and certain expenses is the responsibility of the management of the Property. Our responsibility is to express an opinion on the statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission. Certain expenses (described in Note 1) that would not be comparable to those resulting from the proposed future operations of the Property are excluded and the statement is not intended to be a complete presentation of the revenue and expenses of the Property. In our opinion, the statement of revenue and certain expenses presents fairly, in all material respects, the revenue and certain expenses, as defined above, of the Property for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Los Angeles, California July 9, 1998 18 377 Plantation Drive/One Innovation Drive Statement of Revenue and Certain Expenses Year ended December 31, 1997 (IN THOUSANDS)
Revenue: Rental $2,871 Tenant recoveries 1,336 ------ Total revenue 4,207 ------ Certain Expenses: Utilities 468 Repairs and maintenance 329 Insurance 38 Taxes and license 799 ------ Total certain expenses 1,634 ------ Excess of revenue over certain expenses $2,573 ------ ------
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES. 19 377 Plantation Street/One Innovation Drive Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The accompanying statement of revenue and certain expenses includes the operations of 377 Plantation Street/One Innovation Drive located in Massachusetts (the "Property"), which was acquired or is proposed to be acquired by ARE-377 Plantation, LLC and ARE-One Innovation Drive, LLC, respectively, each of which is a Delaware limited liability company and indirect wholly owned subsidiary of Alexandria Real Estate Equities, Inc., a Maryland Corporation (the "Company"), from nonaffiliated third parties. This statement reflects the operations of the Property during 1997 under its prior ownership, and, as such, reflects the effect of vacancies that existed during that period. As of December 31, 1997, the space was 65% occupied. Of the leased space, 95% was leased under triple-net leases requiring the tenants to pay their pro rata share of substantially all expenses associated with the Property, including operating and maintenance, utilities, taxes, and insurance, while the remainder of the leased space was leased under leases requiring the tenants to pay their share of these expenses over specified amounts. As of December 31, 1997, four tenants accounted for approximately 81% of the Property's aggregate annualized base rent. BASIS OF PRESENTATION The accompanying statement has been prepared to comply with the rules and regulations of the Securities and Exchange Commission. The accompanying statement is not representative of the actual operations for the period presented, as certain expenses that may not be comparable to the expenses expected to be incurred by the Company in the future operations of the Property have been excluded. Excluded expenses consist of interest, depreciation and amortization and property general and administrative costs not directly comparable to the future operation of the Property. REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the related leases. RISKS AND UNCERTAINTIES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 20 377 Plantation Street/One Innovation Drive Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 2. RENTAL OFFICE PROPERTY The future minimum lease payments to be received under the noncancelable operating lease as of December 31, 1997 are as follows:
1998 $ 3,252,000 1999 3,135,000 2000 3,124,000 2001 1,982,000 2002 1,382,000 Thereafter 2,238,000 ------------- Total $ 15,113,000 ------------- -------------
The above future minimum lease payments do not include specified payments for tenant reimbursements of operating expenses. 21 Report of Independent Auditors To the Board of Directors Alexandria Real Estate Equities, Inc. We have audited the accompanying statement of revenue and certain expenses of 50 West Watkins Mill Road (the Property) for the year ended December 31, 1997. This statement of revenue and certain expenses is the responsibility of the management of the Property. Our responsibility is to express an opinion on the statement of revenue and certain expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission. Certain expenses (described in Note 1) that would not be comparable to those resulting from the proposed future operations of the Property are excluded and the statement is not intended to be a complete presentation of the revenue and expenses of the Property. In our opinion, the statement of revenue and certain expenses presents fairly, in all material respects, the revenue and certain expenses, as defined above, of the Property for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Los Angeles, California August 25, 1998 22 50 West Watkins Mill Road Statement of Revenue and Certain Expenses Year ended December 31, 1997 (IN THOUSANDS)
Rental revenue $ 612 Certain expenses -- ----- Excess of revenue over certain expenses $ 612 ----- -----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES. 23 50 West Watkins Mill Road Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The accompanying statement of revenue and certain expenses includes the operations of 50 West Watkins Mill Road located in Maryland (the "Property"), which was acquired by ARE-50 West Watkins Mill, LLC, a Delaware limited liability company and indirect wholly owned subsidiary of Alexandria Real Estate Equities, Inc., a Maryland corporation (the "Company"), from a nonaffiliated third party. As of December 31, 1997, the Property was 100% occupied by one tenant under a triple-net lease that requires the tenant to pay for all of the operating expenses directly. BASIS OF PRESENTATION The accompanying statement has been prepared to comply with the rules and regulations of the Securities and Exchange Commission. The Property is not a legal entity and the accompanying statement is not representative of the actual operations for the period presented, as certain expenses that may not be comparable to the expenses expected to be incurred by the Company in the future operations of the Property have been excluded. Excluded expenses consist of interest, and property general and administrative costs not directly comparable to the future operations of the Property. REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the related leases. RISKS AND UNCERTAINTIES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 24 50 West Watkins Mill Road Notes to Statement of Revenue and Certain Expenses Year Ended December 31, 1997 2. RENTAL PROPERTY The future minimum lease payments to be received under the noncancelable operating lease as of December 31, 1997, are as follows:
1998 $ 677,000 1999 565,000 ------------- Total $ 1,242,000 ------------- -------------
The above future minimum lease payments do not include specified payments for the tenant's reimbursement of operating expenses. 25 Alexandria Real Estate Equities, Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements The following unaudited pro forma condensed consolidated balance sheet of Alexandria Real Estate Equities, Inc. (the "Company") as of June 30, 1998 is presented as if the acquisition of those properties acquired or proposed to be acquired subsequent to June 30, 1998 (the "Third Quarter 1998 Acquisitions") described in Item 2 and Item 5 had been acquired on June 30, 1998. The following unaudited pro forma condensed consolidated income statements of the Company for the six months ended June 30, 1998 and for the year ended December 31, 1997 are presented as if: (i) the consummation of the initial public offering of common stock of the Company in May 1997 (the "Offering") and related formation transactions in connection with the Offering, including the acquisition of certain properties (the "Acquisition LLC Properties"), and (ii) the acquisition of all of the properties described in Item 2 and Item 5 (the "Form 8-K Properties"), had occurred on January 1, 1997. The pro forma condensed consolidated financial statements are not necessarily indicative of what the actual financial position or results of operations would have been had the Company completed the transactions as described above, nor do they purport to represent the future financial position or results of operations of the Company. 26 Alexandria Real Estate Equities, Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet June 30, 1998 (DOLLARS IN THOUSANDS)
PRO FORMA COMPANY HISTORICAL ADJUSTMENTS PRO FORMA ------------------------------------------------- ASSETS Rental properties - net $ 376,195 $ 60,857 (A) $ 437,052 Land under development 14,281 - 14,281 Cash and cash equivalents 2,010 - 2,010 Tenant security deposit funds and other restricted cash 7,831 - 7,831 Secured note receivable 6,000 - 6,000 Tenant receivables and deferred rent 5,751 - 5,751 Other assets 8,829 - 8,829 ------------------------------------------------- Total assets $ 420,897 $ 60,857 $ 481,754 ------------------------------------------------- ------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable $ 96,409 $ 11,439 (A) $ 107,848 Unsecured line of credit 110,200 49,418 (A) 159,618 Accounts payable, accrued expenses and tenant security deposits 9,360 - 9,360 Dividends payable 5,022 - 5,022 ------------------------------------------------- Total liabilities 220,991 60,857 281,848 Stockholders' equity: Common stock 126 - 126 Additional paid-in capital 199,780 - 199,780 Accumulated deficit - - - ------------------------------------------------- Total stockholders' equity 199,906 - 199,906 ------------------------------------------------- Total liabilities and stockholders' equity $ 420,897 $ 60,857 $ 481,754 ------------------------------------------------- -------------------------------------------------
SEE ACCOMPANYING NOTES. 27 Alexandria Real Estate Equities, Inc. Unaudited Pro Forma Condensed Consolidated Income Statement Six Months Ended June 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA ----------------------------------- ADJUSTMENTS FOR FORM 8-K HISTORICAL PROPERTIES PRO FORMA ---------------------------------------------------- Revenues: Rental revenue $ 21,043 $ 3,074 (B) $ 24,117 Tenant recoveries and other income 5,813 1,123 (B) 6,936 ---------------------------------------------------- Total revenues 26,856 4,197 31,053 Expenses: Rental operations 6,124 1,029 (B) 7,153 General and administrative 1,633 - 1,633 Interest 5,563 2,505 (C) 8,068 Depreciation and amortization 4,177 768 (D) 4,945 ---------------------------------------------------- Total expenses 17,497 4,302 21,799 ---------------------------------------------------- Net income $ 9,359 $ (105) $ 9,254 ---------------------------------------------------- ---------------------------------------------------- Pro forma weighted average shares of Common Stock outstanding 11,854,843 11,854,843 --------------- -------------- --------------- -------------- Net income per pro forma share of Common Stock $ 0.79 $ 0.78 --------------- -------------- --------------- --------------
SEE ACCOMPANYING NOTES. 28 Alexandria Real Estate Equities, Inc. Unaudited Pro Forma Condensed Consolidated Income Statement Year ended December 31, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA --------------------------------------------------- OFFERING AND ADJUSTMENTS RELATED FOR FORM 8-K HISTORICAL TRANSACTIONS PROPERTIES PRO FORMA --------------------------------------------------------------- Revenues: Rental revenue $ 25,622 $ 2,658 (E) $ 5,513 (B) $ 33,793 Tenant recoveries and other income 9,224 100 (E) 1,509 (B) 11,332 499 (F) --------------------------------------------------------------- Total revenues 34,846 3,257 7,022 45,125 Expenses: Rental operations 8,766 91 (E) 2,146 (B) 11,003 General and administrative 2,476 186 (G) - 2,662 Interest 7,043 (2,225)(H) 4,901 (C) 9,719 Post retirement benefit 632 - - 632 Stock compensation 4,239 - - 4,239 Special bonus 353 - - 353 Acquisition LLC financing costs 6,973 (6,973)(I) - - Write-off of unamortized loan costs 2,295 (2,147)(J) - 148 Depreciation and amortization 4,866 403 (K) 1,545 (D) 6,814 --------------------------------------------------------------- Total expenses 37,643 (10,665) 8,592 35,570 --------------------------------------------------------------- Net (loss) income $ (2,797) $ 13,922 $ (1,570) $ 9,555 --------------------------------------------------------------- --------------------------------------------------------------- Pro forma shares of Common Stock outstanding (L) 8,075,864 11,404,631 ---------- ------------ ---------- ------------ Net (loss) income per pro forma share of Common Stock $ (0.35) $ 0.84 ---------- ------------ ---------- ------------
SEE ACCOMPANYING NOTES. 29 Alexandria Real Estate Equities, Inc. Adjustments to the Unaudited Pro Forma Condensed Consolidated Financial Statements 1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998 are as follows: (A) Acquisition of the Third Quarter 1998 Acquisitions with the related draw on the unsecured line of credit and the proposed assumption of the secured note payable to Teachers and Annuity Association of America in the amount of $11,439,000 associated with the proposed purchase of One Plantation Drive. The note bears interest at a rate of 8.75% per annum and matures in January 2006. Purchase price of the Third Quarter 1998 Acquisitions are as follows (in thousands):
Third Quarter 1998 Acquisitions Purchase Price ------------------------------- -------------- 5 Triangle Drive $ 3,520 10505 Roselle Street 2,100 60 Westview Street 3,940 3770 Tansy Street 2,000 2001 Aliceanna Street 7,397 377 Plantation Street 16,500 50 West Watkins Mill Road 4,800 100 Phillips Parkway 4,100 One Innovation Drive 16,500 ---------- Total $ 60,857 ---------- ----------
The above acquisitions closed in August and September 1998 except for 100 Phillips Parkway and One Innovation Drive, which are expected to close in the fourth quarter of 1998. 2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS The pro forma adjustments reflected in the Unaudited Pro Forma Condensed Consolidated Income Statements for the six months ended June 30, 1998 and for the year ended December 31, 1997 are as follows: 30 (B) Actual preacquisition results for the Form 8-K Properties (in thousands):
PREACQUISITION PERIOD FOR THE SIX MONTHS ENDED JUNE 30, 1998 15020 SHADY 702 ELECTRONIC 10505 ROSELLE GROVE ROAD DRIVE 5 TRIANGLE DRIVE STREET ----------------- ------------------- ------------------- ----------------- Acquisition Date June 11, 1998 June 25, 1998 August 5, 1998 August 10, 1998 Revenues: Rental revenue $ 263 $ - $ 199 $ 65 Tenant recoveries and other income 3 - 4 - ----------------- ------------------- ------------------- ----------------- 266 - 203 65 ----------------- ------------------- ------------------- ----------------- Expenses: Rental operations 80 $ - 11 $ - ----------------- ------------------- ------------------- ----------------- Operating Income $ 186 $ - $ 192 $ 65 ----------------- ------------------- ------------------- ----------------- ----------------- ------------------- ------------------- ----------------- 60 WESTVIEW 3770 TANSY 2001 ALICEANNA 377 PLANTATION STREET STREET STREET STREET ----------------- ------------------ ------------------- ------------------ Acquisition Date August 21, 1998 September 2, 1998 September 3, 1998 September 10, 1998 Revenues: Rental revenue $ 207 $ 35 $ 113 $ 948 Tenant recoveries and other income 91 - - 496 ----------------- ------------------ -------------------- ----------------- 298 35 113 1,444 ----------------- ------------------ -------------------- ----------------- Expenses: Rental operations 143 - - 382 ----------------- ------------------ -------------------- ----------------- Operating Income $ 155 $ 35 $ 113 1,062 ----------------- ------------------ -------------------- ----------------- ----------------- ------------------ -------------------- ----------------- 50 WEST WATKINS 100 PHILLIPS ONE INNOVATION MILL ROAD PARKWAY DRIVE TOTAL ------------------- ------------------- ----------------- ---------------- Acquisition Date September 11, 1998 Pending Pending Revenues: Rental revenue $ 334 $ - $ 910 $ 3,074 Tenant recoveries and other income - - 529 1,123 ------------------- ------------------- ----------------- ---------------- 334 - 1,439 4,197 ------------------- ------------------- ----------------- ---------------- Expenses: Rental operations - - 413 1,029 ------------------- ------------------- ----------------- ---------------- Operating Income $ 334 $ - $ 1,026 $ 3,168 ------------------- ------------------- ----------------- ---------------- ------------------- ------------------- ----------------- ----------------
31 (B) Actual preacquisition results for the Form 8-K Properties (in thousands) (continued):
FOR THE YEAR ENDED DECEMBER 31, 1997 15020 SHADY 702 ELECTRONIC 10505 ROSELLE GROVE ROAD DRIVE 5 TRIANGLE DRIVE STREET ----------------- ------------------- ------------------- ----------------- Acquisition Date June 11, 1998 June 25, 1998 August 5, 1998 August 10, 1998 Revenues: Rental revenue $ 607 $ - $ 413 $ 129 Tenant recoveries and other income 10 - 8 - ----------------- ------------------- ------------------- ----------------- 617 - 421 129 ----------------- ------------------- ------------------- ----------------- Expenses: Rental operations 251 - 23 - ----------------- ------------------- ------------------- ----------------- Operating Income $ 366 $ - $ 398 $ 129 ----------------- ------------------- ------------------- ----------------- ----------------- ------------------- ------------------- ----------------- 60 WESTVIEW 3770 TANSY 2001 ALICEANNA 377 PLANTATION STREET STREET STREET STREET ----------------- ------------------ ------------------- ------------------ Acquisition Date August 21, 1998 September 2, 1998 September 3, 1998 September 10, 1998 Revenues: Rental revenue $ 414 $ 70 $ 227 $ 1,316 Tenant recoveries and other income 155 - - 628 ----------------- ------------------ ------------------ ------------------- 569 70 227 1,944 ----------------- ------------------ ------------------ ------------------- Expenses: Rental operations 237 - - 756 ----------------- ------------------ ------------------ ------------------- Operating Income $ 332 $ 70 $ 227 $ 1,188 ----------------- ------------------ ------------------ ------------------- ----------------- ------------------ ------------------ ------------------- 50 WEST WATKINS 100 PHILLIPS ONE INNOVATION MILL ROAD PARKWAY DRIVE TOTAL ------------------- ------------------- ----------------- ---------------- Acquisition Date September 11, 1998 Pending Pending Revenues: Rental revenue $ 667 $ - $ 1,670 $ 5,513 Tenant recoveries and other income - - 708 1,509 ------------------- ------------------- ----------------- ---------------- 667 - 2,378 7,022 ------------------- ------------------- ----------------- ---------------- Expenses: Rental operations - - 879 2,146 ------------------- ------------------- ----------------- ---------------- Operating Income $ 667 $ - $ 1,499 $ 4,876 ------------------- ------------------- ----------------- ---------------- ------------------- ------------------- ----------------- ----------------
32 Alexandria Real Estate Equities, Inc. Adjustments to the Unaudited Pro Forma Condensed Consolidated Financial Statements (continued) 2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS No pro forma adjustments have been made for the periods prior to acquisition for 702 Electronic Drive because this property was owner- occupied prior to purchase, and, as a result, there were no operating results as a rental property. No pro forma adjustments have been made for the periods prior to acquisition for 100 Phillips Parkway because the property was vacant prior to acquisition. However, the pro forma condensed consolidated income statement has been adjusted to include additional interest expense due to assumed borrowings on the Company's unsecured line of credit and depreciation expense to reflect a full period of depreciation. (C) Increase in interest expense due to draws on the Company's unsecured line of credit and the proposed assumption of the secured note payable to Teachers Insurance and Annuity Association of America in the amount of $11,439,000 associated with the proposed purchase of One Plantation Drive. The note bears interest at a rate of 8.75% per annum and matures in January 2006. (D) Increase in depreciation expense to reflect a full period of depreciation for the Form 8-K Properties utilizing a 40 year useful life. (E) Represents the actual historical results of the Acquisition LLC Properties from the beginning of the period through the date of acquisition. The Company acquired ARE-Acquisitions, LLC (the "Acquisition LLC"), thereby acquiring the Acquisition LLC Properties, in connection with the Offering.
THE ACQUISITION LLC PROPERTIES ------------------------------------------------ FOR THE PERIOD JANUARY 1, 1997 TO ACQUISITION DATE ------------------------------------------------ HISTORICAL 14225 NEWBROOK 1550 EAST 1330 PICCARD ACQUISITION DRIVE GUDE DRIVE LLC TOTAL ----------------------------------------------------------------------- (IN THOUSANDS) Revenues: Rental revenue $ - $ 34 $ - $ 2,624 $ 2,658 Tenant recoveries and other income - 4 - 96 100 ----------------------------------------------------------------------- - 38 - 2,720 2,758 Expenses: Rental properties - 4 - 87 91 ----------------------------------------------------------------------- Net income $ - $ 34 $ - $ 2,633 $ 2,667 ----------------------------------------------------------------------- -----------------------------------------------------------------------
33 Alexandria Real Estate Equities, Inc. Adjustments to the Unaudited Pro Forma Condensed Consolidated Financial Statements (continued) 2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (F) Represents additional interest income from investing the proceeds of the exercise of the over-allotment option from the Offering at a rate of 5.4%. (G) Increase in general and administrative expenses related to operations as a public entity consisting of increased salaries and bonuses (including that of the chief financial officer), directors and officers insurance, investor relations and public entity and listing fees. (H) Decrease in interest expense due to repayment of certain mortgage loans in connection with the Offering, partially offset by new mortgage debt incurred in connection with the Offering, and the amortization of finance costs related to the unsecured line of credit. (I) In connection with the Offering, the Company acquired 100% of the membership interests in the Acquisition LLC for $58,844,000, which exceeded the purchase price paid by the Acquisition LLC for the Acquisition LLC Properties by $6,973,000. This difference was accounted for as a financing cost and is being eliminated on a pro forma basis due to its non-continuing nature. (J) In connection with the Offering, the Company repaid certain secured notes payable having an aggregate principal balance of $72,698,000. In connection with the repayment of these loans, the Company wrote off $2,147,000 of unamortized loan costs. This charge is being eliminated on a pro forma basis due to its non-continuing nature. (K) Increase in depreciation expense to reflect a full period of depreciation for the Acquisition LLC Properties utilizing a 40-year useful life. (L) Pro forma shares of common stock of the Company outstanding on a historical net income basis include all shares outstanding after giving effect to the conversion of all series of preferred stock, the 1,765.923 to one share common stock split, the issuance of stock grants and exercise of certain substitute stock options in connection with the Offering. Pro forma shares of common stock of the Company outstanding on a pro forma basis include all historical pro forma shares outstanding after giving effect to the Offering. 34 Signatures 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 hereunto duly authorized. ALEXANDRIA REAL ESTATE EQUITIES INC. Date: September 25, 1998 By: /s/ Peter J. Nelson ----------------------- Peter J. Nelson Chief Financial Officer 35 EX-23.1 2 EXHIBIT 23.1 EXHIBIT 23.1 We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-34223, Form S-8 No. 333-60075, Amendment No. 1 to Form S-3 No. 333-56451, and Amendment No. 1 to Form S-3 No. 333-56449) of Alexandria Real Estate Equities, Inc. of our report dated May 13, 1998 with respect to the statement of revenue and certain expenses of 15020 Shady Grove Road for the year ended December 31, 1997, and the incorporation by reference therein of our report dated June 23, 1998 with respect to the statement of revenue and certain expenses of 5 Triangle Drive for the year ended December 31, 1997, and the incorporation by reference therein of our report dated July 9, 1998 with respect to the statement of revenue and certain expenses of 377 Plantation Street/One Innovation Drive for the year ended December 31, 1997, and the incorporation by reference therein of our report dated July 28, 1998 with respect to the statement of revenue and certain expenses of 60 Westview Street for the year ended December 31, 1997, and the incorporation by reference therein of our report dated August 25, 1998 with respect to the statement of revenue and certain expenses of 50 West Watkins Mill Road for the year ended December 31, 1997, all of which are included in the Form 8-K of Alexandria Real Estate Equities, Inc. dated September 25, 1998. /s/ Ernst & Young LLP Los Angeles, California September 25, 1998 -----END PRIVACY-ENHANCED MESSAGE-----