Earnings per share

9 Months Ended

Sep. 30, 2012

Earnings per share

Earnings per share

8.       Earnings per share

We use income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders as the “control number” in determining whether potential common shares, including potential common shares issuable upon conversion of our 8.00% unsecured senior convertible notes (“8.00% Unsecured Senior Convertible Notes”), are dilutive or antidilutive to earnings per share.  Pursuant to the presentation and disclosure literature on gains or losses on sales or disposals by REITs and earnings per share required by the SEC and the FASB, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below (loss) income from discontinued operations in the condensed consolidated statements of income and included in the numerator for the computation of earnings per share for income from continuing operations.

The sale of a land parcel related to our investment in an unconsolidated real estate entity in March 2012 did not meet the criteria for discontinued operations because the land parcel did not have significant operations prior to disposition.  Accordingly, in March 2012, we classified the $1.9 million gain on sale of land parcel below (loss) income from discontinued operations, net, in the accompanying condensed consolidated statements of income, and included the gain in income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders in the “control number,” or numerator for computation of earnings per share.

We account for unvested restricted stock awards that contain nonforfeitable rights to dividends as participating securities and include these securities in the computation of earnings per share using the two-class method.  Under the two-class method, we allocate net income after preferred stock dividends, preferred stock redemption charge, and amounts attributable to noncontrolling interests to common stockholders and unvested restricted stock awards based on their respective participation rights to dividends declared (or accumulated) and undistributed earnings.  Diluted earnings per share is computed using the weighted average shares of common stock outstanding determined for the basic earnings per share computation plus the effect of any dilutive securities, including the dilutive effect of stock options using the treasury stock method.

The table below is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and nine months ended September 30, 2012 and 2011 (dollars in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September  30,
	2012			2011			2012			2011
Income from continuing operations	$	24,086		$	31,144		$	74,621		$	92,006
Gain on sale of land parcel	–			46			1,864			46
Net income attributable to noncontrolling interests	(828		)	(966		)	(2,390		)	(2,833		)
Dividends on preferred stock	(6,471		)	(7,089		)	(20,857		)	(21,267		)
Preferred stock redemption charge	–			–			(5,978		)	–
Net income attributable to unvested restricted stock awards	(360		)	(278		)	(866		)	(818		)
Income from continuing operations attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted	16,427			22,857			46,394			67,134
(Loss) income from discontinued operations:
Income from discontinued operations before impairment of real estate	4,018			2,799			10,035			8,873
Impairment of real estate	(9,799		)	(994		)	(9,799		)	(994		)
(Loss) income from discontinued operations, net	(5,781		)	1,805			236			7,879
Net income attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted	$	10,646		$	24,662		$	46,630		$	75,013
Weighted average shares of common stock outstanding – basic	62,364,210			61,295,659			61,847,023			58,271,270
Dilutive effect of stock options	–			8,310			448			13,475
Weighted average shares of common stock outstanding – diluted	62,364,210			61,303,969			61,847,471			58,284,745
Earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders – basic and diluted:
Continuing operations	$	0.26		$	0.37		$	0.75		$	1.15
Discontinued operations, net	(0.09		)	0.03			–			0.14
Earnings per share – basic and diluted	$	0.17		$	0.40		$	0.75		$	1.29

For purposes of calculating diluted earnings per share, we did not assume conversion of our 8.00% Unsecured Senior Convertible Notes for the three and nine months ended September 30, 2012 and 2011, since the impact was antidilutive to earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders from continuing operations during those periods.

For purposes of calculating diluted earnings per share, we did not assume conversion of our series D convertible preferred stock (“Series D Convertible Preferred Stock”) for the three and nine months ended September 30, 2012 and 2011, since the impact was antidilutive to earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders from continuing operations during those periods.

Our calculation of weighted average diluted shares for the three and nine months ending September  30, 2011, would include additional shares related to our 3.70% Unsecured Senior Convertible Notes if the average market price of our common stock had been higher than the conversion price ($117.36 as of September 30, 2011).  For the three and nine months ended September 30, 2011, the weighted average shares of common stock related to our 3.70% Unsecured Senior Convertible Notes have been excluded from diluted weighted average shares of common stock because the average market price of our common stock was lower than the conversion price and the impact of conversion would have been antidilutive to earnings per share attributable to Alexandria Real Estate Equities, Inc.’s common stockholders from continuing operations during the period.  In April 2012, we repurchased the remaining outstanding $1.0 million in principal amount of the notes.