Alexandria Real Estate Equities, Inc 10-Q, filed Nov 9, 2007
Alexandria Real Estate Equities, Inc. (ARE)
About this 10-Q
Alexandria Real Estate Equities, Inc filed this 10-Q on November 9, 2007, covering the quarter ended September 30, 2007.
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, 2007
OR
o 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) |
385 East Colorado Boulevard, Suite 299, Pasadena, California 91101
(Address of principal executive offices)(Zip Code)
(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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer x |
|
Accelerated filer o |
|
Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
As of November 5, 2007, 31,877,932 shares of common stock, par value $.01 per share, were outstanding.
TABLE OF CONTENTS
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
|
|
|
|
||
|
|
|
(Unaudited) |
|
|
|
||
|
Assets |
|
|
|
|
|
||
|
Rental properties, net |
|
$ |
3,255,989 |
|
$ |
2,924,881 |
|
|
Properties undergoing development and land held for development |
|
696,282 |
|
397,701 |
|
||
|
Cash and cash equivalents |
|
10,780 |
|
2,948 |
|
||
|
Tenant security deposits and other restricted cash |
|
56,399 |
|
34,360 |
|
||
|
Tenant receivables |
|
7,001 |
|
6,330 |
|
||
|
Deferred rent |
|
77,228 |
|
68,412 |
|
||
|
Investments |
|
79,290 |
|
74,824 |
|
||
|
Other assets |
|
124,034 |
|
108,021 |
|
||
|
Total assets |
|
$ |
4,307,003 |
|
$ |
3,617,477 |
|
|
|
|
|
|
|
|
||
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
||
|
Secured notes payable |
|
$ |
1,162,832 |
|
$ |
1,174,866 |
|
|
Unsecured line of credit and unsecured term loan |
|
880,000 |
|
850,000 |
|
||
|
Unsecured convertible notes |
|
460,000 |
|
- |
|
||
|
Accounts payable, accrued expenses and tenant security deposits |
|
227,140 |
|
158,119 |
|
||
|
Dividends payable |
|
26,604 |
|
25,363 |
|
||
|
Total liabilities |
|
2,756,576 |
|
2,208,348 |
|
||
|
|
|
|
|
|
|
||
|
Minority interest |
|
59,719 |
|
57,477 |
|
||
|
|
|
|
|
|
|
||
|
Stockholders’ equity: |
|
|
|
|
|
||
|
Series B preferred stock |
|
- |
|
57,500 |
|
||
|
Series C preferred stock |
|
129,638 |
|
129,638 |
|
||
|
Common stock |
|
312 |
|
290 |
|
||
|
Additional paid-in capital |
|
1,334,417 |
|
1,139,629 |
|
||
|
Accumulated other comprehensive income |
|
26,341 |
|
24,595 |
|
||
|
Total stockholders’ equity |
|
1,490,708 |
|
1,351,652 |
|
||
|
Total liabilities and stockholders’ equity |
|
$ |
4,307,003 |
|
$ |
3,617,477 |
|
See the accompanying Notes to Condensed Consolidated Financial Statements
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 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
Revenues |
|
|
|
|
|
|
|
|
|
||||
|
Rental |
|
$ |
78,636 |
|
$ |
63,877 |
|
$ |
225,047 |
|
$ |
170,417 |
|
|
Tenant recoveries |
|
21,762 |
|
17,446 |
|
61,428 |
|
44,594 |
|
||||
|
Other income |
|
3,734 |
|
3,431 |
|
10,894 |
|
7,909 |
|
||||
|
|
|
104,132 |
|
84,754 |
|
297,369 |
|
222,920 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Expenses |
|
|
|
|
|
|
|
|
|
||||
|
Rental operations |
|
25,522 |
|
19,797 |
|
72,428 |
|
49,305 |
|
||||
|
General and administrative |
|
8,343 |
|
6,652 |
|
24,342 |
|
19,371 |
|
||||
|
Interest |
|
23,947 |
|
19,041 |
|
64,374 |
|
50,223 |
|
||||
|
Depreciation and amortization |
|
24,080 |
|
19,808 |
|
70,025 |
|
50,976 |
|
||||
|
|
|
81,892 |
|
65,298 |
|
231,169 |
|
169,875 |
|
||||
|
Minority interest |
|
909 |
|
709 |
|
2,718 |
|
1,449 |
|
||||
|
Income from continuing operations |
|
21,331 |
|
18,747 |
|
63,482 |
|
51,596 |
|
||||
|
Income from discontinued operations, net |
|
1,569 |
|
217 |
|
5,250 |
|
1,285 |
|
||||
|
Net income |
|
22,900 |
|
18,964 |
|
68,732 |
|
52,881 |
|
||||
|
Dividends on preferred stock |
|
2,714 |
|
4,022 |
|
9,305 |
|
12,067 |
|
||||
|
Preferred stock redemption charge |
|
- |
|
- |
|
2,799 |
|
- |
|
||||
|
Net income available to common stockholders |
|
$ |
20,186 |
|
$ |
14,942 |
|
$ |
56,628 |
|
$ |
40,814 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share - basic |
|
|
|
|
|
|
|
|
|
||||
|
Continuing operations (net of preferred stock dividends and preferred stock redemption charge) |
|
$ |
0.64 |
|
$ |
0.56 |
|
$ |
1.77 |
|
$ |
1.66 |
|
|
Discontinued operations, net |
|
0.05 |
|
0.01 |
|
0.18 |
|
0.05 |
|
||||
|
Earnings per share - basic |
|
$ |
0.69 |
|
$ |
0.57 |
|
$ |
1.95 |
|
$ |
1.71 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share - diluted |
|
|
|
|
|
|
|
|
|
||||
|
Continuing operations (net of preferred stock dividends and preferred stock redemption charge) |
|
$ |
0.63 |
|
$ |
0.55 |
|
$ |
1.75 |
|
$ |
1.63 |
|
|
Discontinued operations, net |
|
0.05 |
|
0.01 |
|
0.18 |
|
0.05 |
|
||||
|
Earnings per share - diluted |
|
$ |
0.68 |
|
$ |
0.56 |
|
$ |
1.93 |
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
29,258,184 |
|
26,323,345 |
|
29,068,793 |
|
23,848,661 |
|
||||
|
Diluted |
|
29,507,316 |
|
26,714,050 |
|
29,406,687 |
|
24,268,236 |
|
||||
See the accompanying Notes to Condensed Consolidated Financial Statements
5
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
|
Nine Months Ended |
|
||||
|
|
|
2007 |
|
2006 |
|
||
|
Operating Activities |
|
|
|
|
|
||
|
Net income |
|
$ |
68,732 |
|
$ |
52,881 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
|
Minority interest |
|
2,718 |
|
1,449 |
|
||
|
Depreciation and amortization |
|
70,366 |
|
51,585 |
|
||
|
Amortization of loan fees and costs |
|
4,419 |
|
3,389 |
|
||
|
Amortization of premiums/discount on secured notes payable |
|
(479 |
) |
(767 |
) |
||
|
Stock compensation expense |
|
8,188 |
|
5,883 |
|
||
|
Equity in loss related to investments |
|
161 |
|
665 |
|
||
|
Gain on sales of investments |
|
(8,823 |
) |
(5,609 |
) |
||
|
Gain on sales of properties |
|
(5,075 |
) |
(59 |
) |
||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
Tenant security deposits and other restricted cash |
|
(22,039 |
) |
(22,759 |
) |
||
|
Tenant receivables |
|
(674 |
) |
(248 |
) |
||
|
Deferred rent |
|
(9,579 |
) |
(10,731 |
) |
||
|
Other assets |
|
(15,516 |
) |
(21,663 |
) |
||
|
Accounts payable, accrued expenses and tenant security deposits |
|
46,148 |
|
25,634 |
|
||
|
Net cash provided by operating activities |
|
138,547 |
|
79,650 |
|
||
|
|
|
|
|
|
|
||
|
Investing Activities |
|
|
|
|
|
||
|
Purchase of rental properties |
|
(390,840 |
) |
(509,636 |
) |
||
|
Proceeds from sale of rental properties |
|
60,776 |
|
33,040 |
|
||
|
Additions to rental properties |
|
(97,191 |
) |
(76,972 |
) |
||
|
Additions to properties undergoing development and development land |
|
(229,583 |
) |
(95,661 |
) |
||
|
Additions to investments |
|
(12,309 |
) |
(7,903 |
) |
||
|
Proceeds from investments |
|
15,606 |
|
14,466 |
|
||
|
Net cash used in investing activities |
|
(653,541 |
) |
(642,666 |
) |
||
|
|
|
|
|
|
|
||
|
Financing Activities |
|
|
|
|
|
||
|
Proceeds from secured notes payable |
|
202,700 |
|
474,000 |
|
||
|
Principal reductions of secured notes payable |
|
(215,268 |
) |
(194,271 |
) |
||
|
Principal borrowings from unsecured line of credit and term loan |
|
814,000 |
|
670,600 |
|
||
|
Repayments of unsecured line of credit |
|
(784,000 |
) |
(858,600 |
) |
||
|
Proceeds from unsecured convertible notes |
|
450,800 |
|
- |
|
||
|
Redemption of Series B Preferred Stock |
|
(57,500 |
) |
- |
|
||
|
Proceeds from issuance of common stock |
|
186,981 |
|
535,262 |
|
||
|
Proceeds from exercise of stock options |
|
1,937 |
|
3,634 |
|
||
|
Dividends paid on common stock |
|
(65,953 |
) |
(50,454 |
) |
||
|
Dividends paid on preferred stock |
|
(10,395 |
) |
(12,067 |
) |
||
|
Distributions to minority interest |
|
(2,761 |
) |
(1,178 |
) |
||
|
Contributions by minority interest |
|
2,285 |
|
- |
|
||
|
Net cash provided by financing activities |
|
522,826 |
|
566,926 |
|
||
|
Net increase in cash and cash equivalents |
|
7,832 |
|
3,910 |
|
||
|
Cash and cash equivalents at beginning of period |
|
2,948 |
|
3,911 |
|
||
|
Cash and cash equivalents at end of period |
|
$ |
10,780 |
|
$ |
7,821 |
|
See the accompanying Notes to Condensed Consolidated Financial Statements
6
Alexandria Real Estate Equities, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Background
As used in this Quarterly Report on Form 10-Q, references to the “Company”, “we”, “our” and “us” refer to Alexandria Real Estate Equities, Inc. and its subsidiaries.
Alexandria Real Estate Equities, Inc., Landlord and Developer of Choice to the Life Science Industry®, is a real estate investment trust (“REIT”) formed in 1994. We are engaged principally in the ownership, operation, management, selective development, redevelopment and acquisition of life science properties. Our properties are designed and improved for lease primarily to institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, life science product, service, biodefense and translational medicine entities, as well as governmental agencies. As of September 30, 2007, we had 167 properties (163 properties located in nine life science markets in the United States and four properties located in Canada) compared to 150 properties (147 properties in eight life science markets in the United States and three properties located in Canada) as of September 30, 2006.
2. Basis of Presentation
We have prepared the accompanying interim financial statements in accordance with accounting principles generally accepted in the United States 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, consisting solely of normal and recurring adjustments, which 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 ending December 31, 2007. These financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.
The accompanying condensed consolidated financial statements include the accounts of Alexandria Real Estate Equities, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
We hold interests, together with certain third parties, in joint ventures which we consolidate in our financial statements. Such interests are subject to provisions of FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities”, FASB Emerging Issues Task Force Issue No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights”, FASB Emerging Issues Task Force Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” and AICPA Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures”. Based on the provisions set forth in these rules, we consolidate the joint ventures because we exercise significant control over major decisions by these entities, such as investment activity and changes in financing.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
International Operations
The functional currency for our subsidiaries operating in the United States is the U.S. dollar. We own four operating properties and one land parcel in Canada; we also have the right to use one land parcel in China. The functional currency for our foreign subsidiaries operating in Canada and China is the local currency. The assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect as of the financial statement date. Income statement accounts of our foreign subsidiaries are translated using the average exchange rate for the period presented. Gains resulting from the translation are included in accumulated other comprehensive income as a separate component of stockholders’ equity.
7
2. Background and Basis of Presentation (continued)
International Operations (continued)
The appropriate amounts of exchange gains or losses included in accumulated other comprehensive income are reflected in income when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment.
Rental Properties, Properties Under Development and Land Held For Development
In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”), we allocate the purchase price of acquired properties to land, land improvements, buildings, building improvements, tenant improvements, equipment and identified intangibles (including intangible value to above, below and at-market leases, origination costs associated with in-place leases, tenant relationships and other intangible assets) based upon their relative fair values. The value of tangible assets acquired is based upon our estimation of value on an “as if vacant” basis. We assess fair value of tangible and intangible assets based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and market/economic conditions that may affect the property.
The purchase price of some of our acquisitions completed in 2007 has been allocated on a preliminary basis to the respective assets acquired and the liabilities assumed. We expect to finalize our purchase price accounting no later than twelve months from the date of acquisition.
Conditional Asset Retirement Obligations
Some of our properties may have asbestos which, under certain conditions, require remediation. Although we believe that the asbestos is appropriately contained in accordance with environmental regulations, our practice is to remediate the asbestos upon the development or redevelopment of the affected property. In accordance with Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143” (“FIN No. 47”), we recognize a liability for the fair value of a conditional asset retirement obligation (including asbestos) when the fair value of the liability can be reasonably estimated. In addition, for certain properties, we have not recognized an asset retirement obligation when there is an indeterminate settlement date for the obligation because the period in which we may remediate the obligation may not be estimated with any level of precision to provide for a meaningful estimate of the retirement obligation.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following (in thousands):
|
|
|
September 30, |
|
December
31, |
|
|
|
|
|
||
|
Unrealized gain on marketable securities |
|
$ |
20,838 |
|
$ |
21,737 |
|
|
|
|
|
|
Unrealized (loss) gain on interest rate swap agreements |
|
(6,770 |
) |
973 |
|
|
|
|
|
||
|
Unrealized gain on foreign currency translation |
|
12,273 |
|
1,885 |
|
|
|
|
|
||
|
|
|
$ |
26,341 |
|
$ |
24,595 |
|
|
|
|
|
The following table provides a reconciliation of comprehensive income (in thousands):
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
Net income |
|
$ |
22,900 |
|
$ |
18,964 |
|
$ |
68,732 |
|
$ |
52,881 |
|
|
Unrealized gain (loss) on marketable securities |
|
447 |
|
(4,416 |
) |
(899 |
) |
(8,295 |
) |
||||
|
Unrealized loss on interest rate swap agreements |
|
(15,505 |
) |
(10,509 |
) |
(7,743 |
) |
(3,508 |
) |
||||
|
Unrealized gain on foreign currency translation |
|
5,240 |
|
448 |
|
10,388 |
|
2,389 |
|
||||
|
Comprehensive income |
|
$ |
13,082 |
|
$ |
4,487 |
|
$ |
70,478 |
|
$ |
43,467 |
|
8
2. Background and Basis of Presentation (continued)
Income Taxes
We are organized and qualify as a Real Estate Investment Trust (“REIT”) pursuant to the Internal Revenue Code of 1986, as amended (the “Code”). Under the Code, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year and which meets certain other conditions is not subject to federal income taxes, but is subject to certain state and local taxes. We generally distribute 100% or more of our taxable income. Therefore, no provision for Federal income taxes is required. We file tax returns, including returns for our subsidiaries, with federal, state, and local jurisdictions located in the United States, Canada and China. Our tax returns are subject to examination in various jurisdictions for the calendar years 2003 through 2006.
In accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), the tax benefit of uncertain tax positions is recognized only if it is more likely than not that the tax position will be sustained, based solely on its technical merits, with the taxing authority having full knowledge of all relevant information. The measurement of a tax benefit for an uncertain tax position that meets the more likely than not threshold is based on a cumulative probability model under which the largest amount of tax benefit recognized is the amount with a greater than 50 percent likelihood of being realized upon ultimate settlement with the taxing authority having full knowledge of all the relevant information. As of September 30, 2007, there were no unrecognized tax benefits. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
Interest expense and penalties, if any, would be recognized in the first period the interest or penalty would begin accruing according to the provisions of the relevant tax law at the applicable statutory rate of interest. We did not incur any tax related interest expense or penalties for the nine months ended September 30, 2007.
Earnings Per Share and Dividends Declared
The following table shows the computation of earnings per share and dividends declared per common share (dollars in thousands, except per share amounts):
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income available to common stockholders |
|
$ |
20,186 |
|
$ |
14,942 |
|
$ |
56,628 |
|
$ |
40,814 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares of common stock outstanding - basic |
|
29,258,184 |
|
26,323,345 |
|
29,068,793 |
|
23,848,661 |
|
||||
|
Add: dilutive effect of stock options and stock grants |
|
249,132 |
|
390,705 |
|
337,894 |
|
419,575 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares of common stock outstanding - diluted |
|
29,507,316 |
|
26,714,050 |
|
29,406,687 |
|
24,268,236 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share – basic |
|
$ |
0.69 |
|
$ |
0.57 |
|
$ |
1.95 |
|
$ |
1.71 |
|
|
Earnings per share – diluted |
|
$ |
0.68 |
|
$ |
0.56 |
|
$ |
1.93 |
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Dividends declared per common share |
|
$ |
0.76 |
|
$ |
0.72 |
|
$ |
2.26 |
|
$ |
2.12 |
|
Emerging Issue Task Force Topic D-42, “The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock” (“EITF Topic D-42”) provides among other things, that any excess of (1) the fair value of the consideration transferred to the holders of preferred stock redeemed over (2) the carrying amount of preferred stock, should be subtracted from net earnings to determine net income available to common stockholders in the calculation of earnings per share. The cost to issue our preferred stock was recorded as a reduction to additional paid-in capital in the period that the preferred stock was issued. Upon any redemption of our preferred stock, the respective offering costs, representing the excess of the fair value of the consideration transferred to the holders over the carrying amount of the preferred stock, will be recognized as a dividend to preferred stockholders. In February 2007, we called for redemption of our 9.10% Series B Cumulative Redeemable Preferred Stock (“Series B
9
2. Background and Basis of Presentation (continued)
Earnings Per Share and Dividends Declared (continued)
Preferred Stock”). The Series B Preferred Stock was redeemed in March 2007 at a redemption price equal to $25.00 per share plus $0.4107639 per share representing accumulated and unpaid dividend to the redemption date. In accordance with EITF Topic D-42, we recorded a charge of approximately $2,799,000 to net income available to common stockholders during the nine months ended September 30, 2007 for costs related to the redemption of the Series B Preferred Stock. Dividends on preferred stock are deducted from net income to arrive at net income allocable to common stockholders.
Stock-Based Compensation Expense
Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). Under the modified-prospective transition method of SFAS 123R, compensation cost is recognized over the remaining service period for the portion of outstanding stock options for which the requisite service has not been rendered that were outstanding as of January 1, 2006. The compensation cost is based on the grant-date fair value of those awards. In addition, SFAS 123R requires that we account for an estimate of awards that are expected to vest and to revise the estimate for actual forfeitures. The adoption of SFAS 123R did not have a material impact on our financial statements since all awards accounted for under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) were fully vested prior to the adoption of SFAS 123R.
Impact of Recently Issued Accounting Standards
In August 2007, the FASB released for public comment a proposed FASB Staff Position (“FSP”) that would affect the accounting treatment for convertible debt instruments, such as our outstanding convertible notes, that may be settled wholly or partially in cash. The proposed FSP requires that instruments within its scope be separated into their liability and equity components at initial recognition by recording the liability component at the fair value of a similar liability that does not have an associated equity component and attributing the remaining proceeds from issuance to the equity component. The excess of the principal amount of the liability component over its initial fair value shall be amortized to interest expense using the interest method. The proposed FSP is expected to be effective for our financial statements for the year ended December 31, 2008 and the related interim periods, and would be applied retrospectively to prior periods. If the FSP is issued as proposed, we expect an increase in our non-cash interest expense associated with our $460 million aggregate principal amount outstanding of convertible notes that were issued in January 2007, including non-cash interest expense for prior periods as a result of its proposed retrospective application. We believe the additional interest expense we may recognize under the proposed FSP for the years ended December 31, 2007 and 2008 is in the range of approximately 8% to 9% of interest expense.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective January 1, 2008. We are currently evaluating the impact, if any, of SFAS 159 on our financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which provides a framework for measuring fair value, clarifies the definition of fair value within the framework and expands disclosures about the use of fair value measurements. SFAS 157 applies to all existing pronouncements under GAAP that require or permit the use of fair value measurements, except for SFAS 123R. SFAS 157 is effective for fair value measurements beginning in our first quarter of 2008. We do not expect the adoption of SFAS 157 to have a material impact on our financial statements.
10
3. Rental Properties, Net
Rental properties, net consist of the following (in thousands):
|
|
|
September 30, |
|
December 31, |
|
||
|
Land |
|
$ |
455,190 |
|
$ |
482,310 |
|
|
Buildings and building improvements |
|
2,951,763 |
|
2,536,542 |
|
||
|
Other improvements |
|
184,555 |
|
185,649 |
|
||
|
|
|
3,591,508 |
|
3,204,501 |
|
||
|
Less accumulated depreciation |
|
(335,519 |
) |
(279,620 |
) |
||
|
Total |
|
$ |
3,255,989 |
|
$ |
2,924,881 |
|
4. Investments
We hold equity investments in certain publicly-traded companies and privately held entities primarily involved in the life science industry. All of our investments in publicly-traded companies are considered “available-for-sale” in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and are recorded at fair value. Investments in privately held entities are generally accounted for under the cost method because we do not influence any operating and financial policies of the entities in which we invest. Certain investments are accounted for under the equity method in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”) and Emerging Issues Task Force Topic D-46, “Accounting for Limited Partnerships” (“EITF Topic D-46”). For all our investments, if a decline in the fair value of an investment below its carrying value is determined to be other than temporary, such investment is written down to its estimated fair value with a non-cash charge to current earnings. The factors that we consider in making these assessments include, but are not limited to, market prices, market conditions, prospects for favorable or unfavorable clinical trial results, new product initiatives and new collaborative agreements.
The following table summarizes our available-for-sale securities (in thousands):
|
|
|
September 30, |
|
December 31, |
|
||
|
Cost of available-for-sale securities |
|
$ |
5,256 |
|
$ |
4,445 |
|
|
Gross unrealized gains |
|
22,074 |
|
22,849 |
|
||
|
Gross unrealized losses |
|
(1,236 |
) |
(1,112 |
) |
||
|
Fair value of available-for-sale securities |
|
$ |
26,094 |
|
$ |
26,182 |
|
We believe that the gross unrealized losses shown above are temporary, and accordingly we have not recognized an other-than-temporary impairment related to available-for-sale securities as of September 30, 2007 and December 31, 2006.
Our investments in privately held entities as of September 30, 2007 and December 31, 2006 totaled $53,196,000 and $48,642,000, respectively. Of these totals, $52,743,000 and $48,013,000 are accounted for under the cost method. The remainder ($453,000 and $629,000 as of September 30, 2007 and December 31, 2006, respectively) are accounted for under the equity method in accordance with APB 18 and EITF Topic D-46. As of September 30, 2007, there were no unrealized losses in our investments in privately held entities.
5. Unsecured Line of Credit and Unsecured Term Loan
In May 2007, we entered into an amendment to our amended and restated credit agreement to increase the maximum permitted borrowings under our unsecured credit facilities from $1.4 billion to $1.9 billion consisting of a $1.15 billion unsecured line of credit and a $750 million unsecured term loan. We may in the future elect to increase commitments under the unsecured credit facilities by up to an additional $500 million.
Borrowings under our unsecured line of credit, as amended, 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 a LIBOR period of one, two, three or six months. Our unsecured line of credit matures in October 2010 and may be extended
11
5. Unsecured Line of Credit and Unsecured Term Loan (continued)
at our sole option for an additional one-year period. As of September 30, 2007, we had borrowings of $130 million outstanding under the unsecured line of credit with a weighted average interest rate of 6.91%.
Our unsecured term loan bears 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 for a period of one, two, three or six months. Our unsecured term loan matures in October 2011 and may be extended at our sole option for an additional one-year period. As of September 30, 2007, we had borrowings of $750 million outstanding under the unsecured term loan with a weighted average interest rate of 6.35%.
Our unsecured line of credit and our unsecured term loan contain financial covenants, including, among other things, maintenance of minimum net worth, a leverage ratio and a fixed charge coverage ratio. In addition, the terms of the unsecured line of credit and unsecured term loan restrict, among other things, certain investments, indebtedness, distributions and mergers.
Aggregate unsecured borrowings may be limited to an amount based primarily on the net operating income derived from a pool of unencumbered properties. Aggregate unsecured borrowings may increase as we complete the development, redevelopment or acquire additional unencumbered properties. As of September 30, 2007, aggregate unsecured borrowings were limited to approximately $1.8 billion.
6. Unsecured Convertible Notes
In January 2007, we completed a private offering of $460 million of convertible notes that are due in 2027 (the “Notes”) with a coupon of 3.70%. The Notes have an initial conversion rate of approximately 8.4774 common shares per $1,000 principal amount of the Notes representing a conversion price of approximately $117.96 per share of our common stock and a conversion premium of 20% based on the last reported sale price of $98.30 per share of our common stock on January 10, 2007. The net proceeds from this offering, after underwriters’ discount, were approximately $450.8 million.
Holders of the Notes may convert their Notes into cash and, if applicable, shares of our common stock prior to stated maturity only under the following circumstances: (1) the Notes will be convertible during any calendar quarter after the calendar quarter ending March 31, 2007, if the closing sale price of our common stock for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) the Notes will be convertible during the five consecutive business days immediately after any five consecutive trading day period (the “Note Measurement Period”) in which the average trading price per $1,000 principal amount of Notes was equal to or less than 98% of the average conversion value of the Notes during the Note Measurement Period; (3) the Notes will be convertible upon the occurrence of specified corporate transactions; (4) the Notes will be convertible if we call the Notes for redemption; and (5) the Notes will be convertible at any time from, and including, December 15, 2026 until the close of business on the business day immediately preceding January 15, 2027 or earlier redemption or repurchase.
Prior to January 15, 2012, we will not have the right to redeem the Notes, except to preserve our qualification as a real estate investment trust. On and after that date, we have the right to redeem the Notes, in whole or in part, at any time and from time to time, for cash equal to 100% of the principal amount of the Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.
Holders of the Notes may require us to repurchase their Notes, in whole or in part, on January 15, 2012, 2017 and 2022 for cash equal to 100% of the principal amount of the Notes to be purchased plus any accrued and unpaid interest to but excluding the repurchase date.
7. Interest Rate Swaps
We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates primarily associated with our unsecured line of credit and unsecured term loan. These agreements involve an exchange of fixed and floating rate interest payments without the exchange of the underlying principal amount (the “notional amount”). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
12
7. Interest Rate Swaps (continued)
The following table summarizes our interest rate swap agreements as of September 30, 2007 (dollars in thousands):
|
Transaction Dates |
|
Effective Dates |
|
Termination |
|
Interest |
|
Notional Amounts |
|
Effective at |
|
Fair |
|
|||
|
December 2004 |
|
December 31, 2004 |
|
January 2, 2008 |
|
3.590% |
|
$ |
50,000 |
|
$ |
50,000 |
|
$ |
266 |
|
|
December 2004 |
|
January 3, 2006 |
|
July 1, 2008 |
|
3.927 |
|
50,000 |
|
50,000 |
|
366 |
|
|||
|
June 2006 |
|
June 30, 2006 |
|
September 30, 2009 |
|
5.299 |
|
125,000 |
|
125,000 |
|
(2,007 |
) |
|||
|
May 2005 |
|
November 30, 2006 |
|
November 30, 2007 |
|
4.330 |
|
25,000 |
|
25,000 |
|
36 |
|
|||
|
December 2003 |
|
December 29, 2006 |
|
October 31, 2008 |
|
5.090 |
|
50,000 |
|
50,000 |
|
(266 |
) |
|||
|
December 2005 |
|
December 29, 2006 |
|
November 30, 2009 |
|
4.730 |
|
50,000 |
|
50,000 |
|
(260 |
) |
|||
|
December 2005 |
|
December 29, 2006 |
|
November 30, 2009 |
|
4.740 |
|
50,000 |
|
50,000 |
|
(271 |
) |
|||
|
December 2006 |
|
December 29, 2006 |
|
March 31, 2014 |
|
4.990 |
|
50,000 |
|
50,000 |
|
(440 |
) |
|||
|
December 2006 |
|
January 2, 2007 |
|
January 3, 2011 |
|
5.003 |
|
28,500 |
|
28,500 |
|
(372 |
) |
|||
|
April 2004 |
|
April 30, 2007 |
|
April 30, 2008 |
|
4.850 |
|
50,000 |
|
50,000 |
|
(7 |
) |
|||
|
May 2005 |
|
June 29, 2007 |
|
June 30, 2008 |
|
4.400 |
|
50,000 |
|
50,000 |
|
131 |
|
|||
|
December 2006 |
|
June 29, 2007 |
|
October 31, 2008 |
|
4.920 |
|
50,000 |
|
50,000 |
|
(174 |
) |
|||
|
May 2005 |
|
November 30, 2007 |
|
November 28, 2008 |
|
4.460 |
|
25,000 |
|
- |
|
6 |
|
|||
|
December 2005 |
|
January 2, 2008 |
|
December 31, 2010 |
|
4.768 |
|
50,000 |
|
- |
|
(356 |
) |
|||
|
May 2005 |
|
June 30, 2008 |
|
June 30, 2009 |
|
4.509 |
|
50,000 |
|
- |
|
(103 |
) |
|||
|
June 2006 |
|
June 30, 2008 |
|
June 30, 2010 |
|
5.325 |
|
50,000 |
|
- |
|
(844 |
) |
|||
|
June 2006 |
|
June 30, 2008 |
|
June 30, 2010 |
|
5.325 |
|
50,000 |
|
- |
|
(844 |
) |
|||
|
June 2006 |
|
October 31, 2008 |
|
December 31, 2010 |
|
5.340 |
|
50,000 |
|
- |
|
(812 |
) |
|||
|
June 2006 |
|
October 31, 2008 |
|
December 31, 2010 |
|
5.347 |
|
50,000 |
|
- |
|
(819 |
) |
|||
|
May 2005 |
|
November 28, 2008 |
|
November 30, 2009 |
|
4.615 |
|
25,000 |
|
- |
|
(58 |
) |
|||
|
December 2006 |
|
November 30, 2009 |
|
March 31, 2014 |
|
5.015 |
|
75,000 |
|
- |
|
33 |
|
|||
|
December 2006 |
|
November 30, 2009 |
|
March 31, 2014 |
|
5.023 |
|
75,000 |
|
- |
|
12 |
|
|||
|
December 2006 |
|
December 31, 2010 |
|
October 31, 2012 |
|
5.015 |
|
100,000 |
|
- |
|
13 |
|
|||
|
Total |
|
|
|
|
|
|
|
|
|
$ |
628,500 |
|
$ |
(6,770 |
) |
|
8. Minority Interest
Minority interest represents the third party interests in certain entities in which we have a controlling interest. These entities own nine properties and two development parcels and are included in our consolidated financial statements. Minority interest is adjusted for additional contributions, distributions to minority holders and the minority holders’ proportionate share of the net earnings or losses of each respective entity. Distributions, profits and losses related to these entities are allocated in accordance with the respective operating agreements. As of September 30, 2007 and December 31, 2006, the aggregate minority interest balances related to these entities were approximately $59.7 million and $57.5 million, respectively, and are classified as minority interest in the accompanying condensed consolidated balance sheets.
9. Stockholders’ Equity
In September 2007, we sold 2,000,000 shares of our common stock in an underwritten offering. The shares were issued at a price of $96.00 per share, resulting in aggregate proceeds of approximately $187 million (after deducting underwriting discounts and other offering costs). In October 2007, we sold 300,000 shares of our common stock in an exercise of the underwriters’ over-allotment option, resulting in aggregate proceeds of approximately $28 million.
In September 2007, we declared a cash dividend on our common stock aggregating $24,066,000 ($0.76 per share) for the calendar quarter ended September 30, 2007. In September 2007, we also declared cash dividends on our 8.375% Series C Cumulative Redeemable Preferred Stock aggregating $2,714,000 ($0.5234375 per share), for the period July 16, 2007 through October 15, 2007.
In February 2007, we called for redemption of our 9.10% Series B Preferred Stock. The Series B Preferred Stock was redeemed in March 2007 at a redemption price equal to $25.00 per share plus $0.4107639 per share representing accumulated and unpaid dividends to the redemption date. In accordance with EITF Topic D-42, we recorded a charge of approximately
13
9. Stockholders’ Equity (continued)
$2,799,000 to net income available to common stockholders in February 2007 for costs related to the redemption of the Series B Preferred Stock.
10. Discontinued Operations
In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), we classify a property as “held for sale” when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition, subject only to the terms that are usual and customary; (3) an active program to locate a buyer, and other actions required to complete the plan to sell, have been initiated; (4) the sale of the property is probable and is expected to be completed within one year; (5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When the property is classified as “held for sale”, its operations are classified as discontinued operations in our consolidated statements of income. When a property is designated as “held for sale”, amounts for all prior periods presented are reclassified from continuing operations to discontinued operations. A loss is recognized for any initial adjustment of the asset’s carrying amount to fair value less costs to sell in the period the asset qualifies as “held for sale”. Depreciation of assets is discontinued commencing on the date they are designated as “held for sale”.
The following is a summary of income from discontinued operations, net and net assets of discontinued operations (in thousands):
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
Total revenue |
|
$ |
160 |
|
$ |
454 |
|
$ |
761 |
|
$ |
2,565 |
|
|
Operating expenses |
|
91 |
|
72 |
|
245 |
|
730 |
|
||||
|
Revenue less operating expenses |
|
69 |
|
382 |
|
516 |
|
1,835 |
|
||||
|
Depreciation expense |
|
114 |
|
165 |
|
341 |
|
609 |
|
||||
|
(Loss)/income before gain on sales of property |
|
(45 |
) |
217 |
|
175 |
|
1,226 |
|
||||
|
Gains on sales of property |
|
1,614 |
|
- |
|
5,075 |
|
59 |
|
||||
|
Income from discontinued operations, net |
|
$ |
1,569 |
|
$ |
217 |
|
$ |
5,250 |
|
$ |
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
September 30, |
|
December 31, |
|
|
|
|
|
||||
|
Properties held for sale, net |
|
$ |
18,453 |
|
$ |
6,160 |
|
|
|
|
|
||
|
Other assets |
|
12 |
|
1,156 |
|
|
|
|
|
||||
|
Total assets |
|
$ |
18,465 |
|
$ |
7,316 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total liabilities |
|
71 |
|
- |
|
|
|
|
|
||||
|
Net assets of discontinued operations |
|
$ |
18,394 |
|
$ |
7,316 |
|
|
|
|
|
||
Income from discontinued operations, net for three months ended September 30, 2007, includes one property and four land parcels that were sold during the third quarter 2007 and one property classified as “held for sale” as of September 30, 2007. Income from discontinued operations, net for three months ended September 30, 2006, includes the results of operations and the gains on sales of one property that was sold during the first quarter of 2007, one property that was sold during the second quarter of 2007 and one property that was sold during the third quarter of 2007. Income from discontinued operations, net for nine months ended September 30, 2007, includes three properties and four land parcels that were sold during the nine months ended September 2007 and one property classified as “held for sale” as of September 30, 2007. Income from discontinued operations, net for nine months ended September 30, 2006, includes three properties and four land parcels that were sold during the nine months ended September 30, 2007 and three properties that were sold during the second quarter of 2006. During the third quarter of 2007, we sold one property located in the New Jersey/Suburban Philadelphia market and sold four land parcels located in the Eastern Massachusetts market.
14
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”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or “anticipates”, or the negative of these words or similar words, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to, those described below in this report and under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2006. We do not take any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any other document, whether as a result of new information, future events or otherwise. Readers of this Quarterly Report on Form 10-Q should also read our Securities and Exchange Commission and other publicly filed documents for further discussion regarding such factors.
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, selective development, redevelopment and acquisition of life science properties. Our properties are designed and improved for lease primarily to institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, life science product, service, biodefense and translational medicine entities, as well as governmental agencies.
As of September 30, 2007, we had 167 properties containing approximately 11.8 million rentable square feet of office/laboratory space. As of that date, our properties were approximately 94.1% leased, excluding spaces at properties undergoing a permanent change in use to office/laboratory space through redevelopment and one property that was classified as “held for sale” as of September 30, 2007. Our primary sources of revenue are rental income and tenant recoveries from leases of our properties. The comparability of financial data from period to period is affected by the timing of our property development, redevelopment and acquisition activities.
As of September 30, 2007, approximately 89% of our leases (on a square footage basis) were 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, as of September 30, 2007, approximately 4% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Additionally, as of September 30, 2007, approximately 90% of our leases (on a square footage basis) provided for the recapture of certain capital expenditures and approximately 94% of our leases (on a square footage basis) contained effective annual rent escalations that are either fixed or indexed based on the consumer price index or another index.
15
Results of Operations
Comparison of Three Months Ended September 30, 2007 (“Third Quarter 2007”) to Three Months Ended September 30, 2006 (“Third Quarter 2006”)
Rental revenues increased by $14.8 million, or 23%, to $78.6 million for Third Quarter 2007 compared to $63.9 million for Third Quarter 2006. The increase resulted primarily from rental revenues from properties acquired, placed in service or redeveloped during the periods after July 1, 2006 and increases in rental rates related to renewed and/or releasable space leased.
Tenant recoveries increased by $4.3 million, or 25%, to $21.8 million for Third Quarter 2007 compared to $17.4 million for Third Quarter 2006. The increase resulted primarily from tenant recoveries from properties acquired, placed in service or redeveloped during the periods after July 1, 2006.
Other income for Third Quarter 2007 and Third Quarter 2006 of $3.7 million and $3.4 million, respectively, represents construction management fees, interest, investment income and storage income. As a percentage of total revenues, other income for Third Quarter 2007 remained relatively consistent with Third Quarter 2006 at approximately 3% to 4% of total revenues.
Rental operating expenses increased by $5.7 million, or 29%, to $25.5 million for Third Quarter 2007 compared to $19.8 million for Third Quarter 2006. The increase resulted primarily from rental operating expenses (primarily property taxes, insurance and utilities) from properties acquired, placed in service or redeveloped during the periods after July 1, 2006. The majority of the increase in rental operating expenses is recoverable from our tenants through tenant recoveries.
General and administrative expenses increased by $1.7 million, or 25%, to $8.3 million for Third Quarter 2007 compared to $6.7 million for Third Quarter 2006 primarily due to the growth in both the depth and breadth of our operations in multiple markets, including internationally, from 150 properties with approximately 10.6 million rentable square feet at September 30, 2006 to 167 properties with approximately 11.8 million rentable square feet at September 30, 2007. As a percentage of total revenues, general and administrative expenses for Third Quarter 2007 remained relatively consistent with Third Quarter 2006 at approximately 8% of total revenues.
Interest expense increased by $4.9 million, or 26%, to $23.9 million for Third Quarter 2007 compared to $19.0 million for Third Quarter 2006. The increase resulted primarily from an increase in indebtedness on our unsecured line of credit and unsecured term loan and outstanding indebtedness related to our unsecured convertible notes. These borrowings were utilized to finance the development, redevelopment and acquisition of properties in 2006 and 2007. We have entered into certain swap agreements to hedge a portion of our exposure primarily related to variable interest rates associated with our unsecured line of credit and unsecured term loan (see “Liquidity and Capital Resources — Interest rate swaps”).
Depreciation and amortization increased by $4.3 million, or 22%, to $24.1 million for Third Quarter 2007 compared to $19.8 million for Third Quarter 2006. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped during the periods after July 1, 2006.
Income from discontinued operations, net of $1.6 million for Third Quarter 2007 reflects the results of operations and gains on sales of one property and four land parcels sold during the Third Quarter 2007 and the results of operations of one property classified as “held for sale” as of September 30, 2007.
Comparison of Nine Months Ended September 30, 2007 (“Nine Months 2007”) to Nine Months Ended September 30, 2006 (“Nine Months 2006”)
Rental revenues increased by $54.6 million, or 32%, to $225.0 million for Nine Months 2007 compared to $170.4 million for Nine Months 2006. The increase resulted primarily from rental revenue from properties acquired, placed in service or redeveloped during the periods after January 1, 2006 and increases in rental rates related to renewed and/or releasable space leased.
Tenant recoveries increased by $16.8 million, or 38%, to $61.4 million for Nine Months 2006 compared to $44.6 million for Nine Months 2006. The increase resulted primarily from properties acquired, placed in service or redeveloped during the periods after January 1, 2006.
16
Other income for Nine Months 2007 and Nine Months 2006 of $10.9 million and $7.9 million, respectively, represents construction management fees, interest, investment, and storage income. The increase in other income from Nine Months 2007 compared to Nine Months 2006 is due to overall increases in interest, investment and storage income offset by a decrease in construction management fees. As a percentage of total revenues, other income for Nine Months 2007 remained relatively consistent with Nine Months 2006 at approximately 3% to 4% of total revenues.
Rental operating expenses increased by $23.1 million, or 47%, to $72.4 million for Nine Months 2007 compared to $49.3 million for Nine Months 2006. The increase resulted primarily from increases in rental operating expenses (primarily property taxes, insurance and utilities) from properties acquired, placed in service or redeveloped during the periods after January 1, 2006. The majority of the increase in rental operating expenses is recoverable from our tenants through tenant recoveries.
General and administrative expenses increased by $5.0 million, or 26%, to $24.3 million for Nine Months 2007 compared to $19.4 million for Nine Months 2006 primarily due to the growth in both the depth and breadth of our operations in multiple markets, including internationally, from 150 properties with approximately 10.6 million rentable square feet at September 30, 2006 to 167 properties with approximately 11.8 million rentable square feet at September 30, 2007. As a percentage of total revenues, general and administrative expenses for Nine Months 2007 remained relatively consistent with Nine Months 2006 at approximately 8-9% of total revenues.
Interest expense increased by $14.2 million, or 28%, to $64.4 million for Nine Months 2007 compared to $50.2 million for Nine Months 2006. The increase resulted primarily from an increase in indebtedness on our unsecured line of credit and unsecured term loan and outstanding indebtedness related to our unsecured convertible notes. These borrowings were utilized to finance the development, redevelopment and acquisition of properties in 2006 and 2007. We have entered into certain swap agreements to hedge a portion of our exposure to variable interest rates with our unsecured line of credit and unsecured term loan (see “Liquidity and Capital Resources – Interest Rate Swaps”).
Depreciation and amortization increased by $19.0 million, or 37%, to $70.0 million for Nine Months 2007 compared to $51.0 million for Nine Months 2006. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped during the periods after January 1, 2006.
Income from discontinued operations, net of $5.3 million for Nine Months 2007, reflects the results of operations and gains on sales of three properties and four land parcels that were sold during the Nine Months 2007 and the results of operations of one property classified as “held for sale” as of September 30, 2007.
Liquidity and Capital Resources
Cash flows
Net cash provided by operating activities for Nine Months 2007 increased by $58.9 million to $138.5 million compared to $79.7 million for Nine Months 2006. The increase resulted primarily from an increase in cash flows from operations and cash flows from overall changes in operating assets and liabilities.
Net cash used in investing activities for Nine Months 2007 was $653.5 million as compared to $642.7 million for Nine Months 2006. Net cash used in investing activities was relatively consistent for the Nine Months 2007 and Nine Months 2006 with a higher level of investments in properties undergoing development offset by a lower level of purchases of rental properties during the Nine Months 2007 as compared to the Nine Months 2006.
Net cash provided by financing activities for Nine Months 2007 decreased by $44.1 million to $522.8 million compared to $566.9 million for Nine Months 2006. In Nine Months 2007, proceeds from secured notes payable, the issuance of unsecured convertible notes, borrowings from our unsecured line of credit and term loan, and the issuance of common stock were approximately $1,654 million and principal repayments on secured notes payable and our unsecured line of credit were approximately $999.3 million. In addition, funds totaling approximately $57.5 million were used to redeem our Series B preferred stock in Nine Months 2007. In Nine Months 2006, proceeds from secured notes payable, the issuance of common stock and borrowings from our unsecured line of credit and term loan were approximately $1,680 million and principal repayments on secured notes payable and our unsecured line of credit were approximately $1,053 million. In addition, dividends paid to common stockholders for Nine Months 2007 increased to
17
$66.0 million from $50.5 million for Nine Months 2006.
Contractual obligations and commitments
Contractual obligations as of September 30, 2007, consist of the following (in thousands):
|
|
|
|
|
Payments by Period |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Contractual Obligations |
|
Total |
|
2007 |
|
2008-2009 |
|
2010-2011 |
|
Thereafter |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Secured notes payable |
|
$ |
1,162,832 |
|
$ |
23,057 |
|
$ |
371,086 |
|
$ |
201,450 |
|
$ |
567,239 |
|
|
Unsecured line of credit and unsecured term loan |
|
880,000 |
|
- |
|
- |
|
880,000 |
|
- |
|
|||||
|
Unsecured convertible notes |
|
460,000 |
|
- |
|
- |
|
- |
|
460,000 |
|
|||||
|
Ground lease obligations |
|
532,586 |
|
1,464 |
|
12,237 |
|
15,328 |
|
503,557 |
|
|||||
|
Other obligations |
|
5,701 |
|
306 |
|
2,414 |
|
2,162 |
|
819 |
|
|||||
|
Total |
|
$ |
3,041,119 |
|
$ |
24,827 |
|
$ |
385,737 |
|
$ |
1,098,940 |
|
$ |
1,531,615 |
|
Secured notes payable as of September 30, 2007 included 33 notes secured by 74 properties and 5 land development parcels.
Our unsecured line of credit matures in October 2010 and may be extended at our sole option for an additional one-year period. Our unsecured term loan matures in October 2011 and may be extended at our sole option for an additional one-year period.
Ground lease obligations as of September 30, 2007 included leases for nineteen of our properties and three land development parcels. These lease obligations have remaining lease terms of 26 to 99 years, exclusive of extension options.
In addition to the above, we were committed as of September 30, 2007 under the terms of contracts to complete the construction of properties under development at a remaining aggregate cost of approximately $348.6 million.
As of September 30, 2007, we were also committed to fund approximately $59.9 million for the construction of building infrastructure improvements under the terms of leases and/or construction contracts and approximately $26.0 million for certain investments.
Tenant security deposits and other restricted cash
Tenant security deposits and other restricted cash consist of the following (in thousands):
|
|
|
September 30, |
|
December 31, |
|
||
|
Funds held in trust under the terms of certain secured notes payable |
|
$ |
22,963 |
|
$ |
19,993 |
|
|
Funds held in escrow related to construction projects |
|
21,966 |
|
5,814 |
|
||
|
Other funds |
|
11,470 |
|
8,553 |
|
||
|
Total |
|
$ |
56,399 |
|
$ |
34,360 |
|
Secured notes payable
Secured notes payable totaled $1.2 billion as of September 30, 2007 and December 31, 2006. Our secured notes payable had weighted average interest rates of 6.13% and 6.21% at September 30, 2007 and December 31, 2006, respectively, with maturity dates ranging from November 2007 to August 2016.
Our secured notes payable generally require monthly payments of principal and interest. At September 30, 2007, our secured notes payable were comprised of $891 million and $272 million of fixed and variable rate debt, respectively, compared to $940 million and $235 million of fixed and variable rate debt, respectively, at December 31, 2006.
18
The following is a summary of the scheduled principal payments for our secured debt and the weighted average interest rates as of September 30, 2007 (in thousands):
|
Year |
|
Amount |
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
23,057 |
|
6.13% (1) |
|
|
2008 |
|
125,100 |
|
6.12 (2) |
|
|
|
2009 |
|
245,986 |
|
6.26 (2) |
|
|
|
2010 |
|
93,259 |
|
6.22 (2) |
|
|
|
2011 |
|
108,191 |
|
6.08 (2) |
|
|
|
Thereafter |
|
567,239 |
|
6.00 (2) |
|
|
|
|
|
$ |
1,162,832 |
|
|
|
(1) The weighted average interest rate is calculated based on outstanding debt as of September 30, 2007.
(2) The weighted average interest rate is calculated based on outstanding debt as of December 31st of the year immediately preceding the year presented.
Unsecured line of credit and unsecured term loan
In May 2007, we entered into an amendment to our amended and restated credit agreement to increase the maximum permitted borrowings under our unsecured credit facilities from $1.4 billion to $1.9 billion consisting of a $1.15 billion unsecured line of credit and a $750 million unsecured term loan. We may in the future elect to increase commitments under the unsecured credit facilities by up to an additional $500 million.
Borrowings under our unsecured line of credit, as amended, 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 a LIBOR period of one, two, three or six months. Our unsecured line of credit matures in October 2010 and may be extended at our sole option for an additional one-year period. As of September 30, 2007, we had borrowings of $130 million outstanding under our unsecured line of credit with a weighted average interest rate of 6.91%.
Our unsecured term loan bears 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 for a period of one, two, three or six months. Our unsecured term loan matures in October 2011 and may be extended at our sole option for an additional one-year period. As of September 30, 2007, we had borrowings of $750 million outstanding under our unsecured term loan with a weighted average interest rate of 6.35%.
Our unsecured line of credit and our unsecured term loan contain financial covenants, including, among other things, maintenance of minimum net worth, a leverage ratio and a fixed charge coverage ratio. In addition, the terms of the unsecured line of credit and unsecured term loan restrict, among other things, certain investments, indebtedness, distributions and mergers.
Aggregate unsecured borrowings may be limited to an amount based primarily on the net operating income derived from a pool of unencumbered properties. Aggregate unsecured borrowings may increase as we complete the development, redevelopment or acquire additional unencumbered properties. As of September 30, 2007, aggregate unsecured borrowings were limited to approximately $1.8 billion.
Unsecured convertible notes
In January 2007, we completed a private offering of $460 million of convertible notes that are due in 2027 (the “Notes”) with a coupon of 3.70%. The Notes have an initial conversion rate of approximately 8.4774 common shares per $1,000 principal amount of the Notes representing a conversion price of approximately $117.96 per share of our common stock and a conversion premium of 20% based on the last reported sale price of $98.30 per share of our common stock on January 10, 2007. The net proceeds from this offering, after underwriters’ discount, were approximately $450.8 million.
Holders of the Notes may convert their Notes into cash and, if applicable, shares of our common stock prior to stated maturity only under the following circumstances: (1) the Notes will be convertible during any calendar quarter after the calendar quarter ending
19
March 31, 2007, if the closing sale price of our common stock for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) the Notes will be convertible during the five consecutive business days immediately after any five consecutive trading day period (the “Note Measurement Period”) in which the average trading price per $1,000 principal amount of Notes was equal to or less than 98% of the average conversion value of the Notes during the Note Measurement Period; (3) the Notes will convertible upon the occurrence of specified corporate transactions; (4) the Notes will be convertible if we call the Notes for redemption; and (5) the Notes will convertible at any time from, and including, December 15, 2026 until the close of business on the business day immediately preceding January 15, 2027 or earlier redemption or repurchase.
Prior to January 15, 2012, we will not have the right to redeem the Notes, except to preserve our qualification as a real estate investment trust. On and after that date, we have the right to redeem the Notes, in whole or in part, at any time and from time to time, for cash equal to 100% of the principal amount of the Notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date.
Holders of the Notes may require us to repurchase their Notes, in whole or in part, on January 15, 2012, 2017 and 2022 for cash equal to 100% of the principal amount of the Notes to be purchased plus any accrued and unpaid interest to but excluding the repurchase date.
Interest rate swaps
We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates primarily associated with our unsecured line of credit and unsecured term loan. These agreements involve an exchange of fixed and floating rate interest payments without the exchange of the underlying principal amount (the “notional amount”). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
20
The following table summarizes our interest rate swap agreements as of September 30, 2007 (dollars in thousands):
|
Transaction Dates |
|
Effective Dates |
|
Termination |
|
Interest |
|
Notional Amounts |
|
Effective at |
|
Fair |
|
|||
|
December 2004 |
|
December 31, 2004 |
|
January 2, 2008 |
|
3.590% |
|
$ |
50,000 |
|
$ |
50,000 |
|
$ |
266 |
|
|
December 2004 |
|
January 3, 2006 |
|
July 1, 2008 |
|
3.927 |
|
50,000 |
|
50,000 |
|
366 |
|
|||
|
June 2006 |
|
June 30, 2006 |
|
September 30, 2009 |
|
5.299 |
|
125,000 |
|
125,000 |
|
(2,007 |
) |
|||
|
May 2005 |
|
November 30, 2006 |
|
November 30, 2007 |
|
4.330 |
|
25,000 |
|
25,000 |
|
36 |
|
|||
|
December 2003 |
|
December 29, 2006 |
|
October 31, 2008 |
|
5.090 |
|
50,000 |
|
50,000 |
|
(266 |
) |
|||
|
December 2005 |
|
December 29, 2006 |
|
November 30, 2009 |
|
4.730 |
|
50,000 |
|
50,000 |
|
(260 |
) |
|||
|
December 2005 |
|
December 29, 2006 |
|
November 30, 2009 |
|
4.740 |
|
50,000 |
|
50,000 |
|
(271 |
) |
|||
|
December 2006 |
|
December 29, 2006 |
|
March 31, 2014 |
|
4.990 |
|
50,000 |
|
50,000 |
|
(440 |
) |
|||
|
December 2006 |
|
January 2, 2007 |
|
January 3, 2011 |
|
5.003 |
|
28,500 |
|
28,500 |
|
(372 |
) |
|||
|
April 2004 |
|
April 30, 2007 |
|
April 30, 2008 |
|
4.850 |
|
50,000 |
|
50,000 |
|
(7 |
) |
|||
|
May 2005 |
|
June 29, 2007 |
|
June 30, 2008 |
|
4.400 |
|
50,000 |
|
50,000 |
|
131 |
|
|||
|
December 2006 |
|
June 29, 2007 |
|
October 31, 2008 |
|
4.920 |
|
50,000 |
|
50,000 |
|
(174 |
) |
|||
|
May 2005 |
|
November 30, 2007 |
|
November 28, 2008 |
|
4.460 |
|
25,000 |
|
- |
|
6 |
|
|||
|
December 2005 |
|
January 2, 2008 |
|
December 31, 2010 |
|
4.768 |
|
50,000 |
|
- |
|
(356 |
) |
|||
|
May 2005 |
|
June 30, 2008 |
|
June 30, 2009 |
|
4.509 |
|
50,000 |
|
- |
|
(103 |
) |
|||
|
June 2006 |
|
June 30, 2008 |
|
June 30, 2010 |
|
5.325 |
|
50,000 |
|
- |
|
(844 |
) |
|||
|
June 2006 |
|
June 30, 2008 |
|
June 30, 2010 |
|
5.325 |
|
50,000 |
|
- |
|
(844 |
) |
|||
|
June 2006 |
|
October 31, 2008 |
|
December 31, 2010 |
|
5.340 |
|
50,000 |
|
- |
|
(812 |
) |
|||
|
June 2006 |
|
October 31, 2008 |
|
December 31, 2010 |
|
5.347 |
|
50,000 |
|
- |
|
(819 |
) |
|||
|
May 2005 |
|
November 28, 2008 |
|
November 30, 2009 |
|
4.615 |
|
25,000 |
|
- |
|
(58 |
) |
|||
|
December 2006 |
|
November 30, 2009 |
|
March 31, 2014 |
|
5.015 |
|
75,000 |
|
- |
|
33 |
|
|||
|
December 2006 |
|
November 30, 2009 |
|
March 31, 2014 |
|
5.023 |
|
75,000 |
|
- |
|
12 |
|
|||
|
December 2006 |
|
December 31, 2010 |
|
October 31, 2012 |
|
5.015 |
|
100,000 |
|
- |
|
13 |
|
|||
|
Total |
|
|
|
|
|
|
|
|
|
$ |
628,500 |
|
$ |
(6,770 |
) |
|
We do not believe we are exposed to a significant amount of credit risk in our interest rate swap agreements as our counterparties are established, well-capitalized financial institutions. In addition, we have entered into master derivative agreements with each counterparty. These master derivative agreements (all of which are on the standard International Swaps & Derivatives Association, Inc. form) define certain terms between us and each counterparty to address and minimize certain risks associated with our swap agreements, including a default by a counterparty.
As of September 30, 2007 and December 31, 2006, our interest rate swap agreements were classified in accounts payable, accrued expenses, tenant security deposits and other assets at their fair values aggregating approximately $6.8 million and $1.0 million, respectively, with the offsetting adjustment reflected as net unrealized gains/losses in accumulated other comprehensive income in stockholders’ equity. Balances in accumulated other comprehensive income/loss are recognized in earnings as swap payments are made.
Other resources and liquidity requirements
In September 2007, we sold 2,000,000 shares of our common stock in an underwritten offering. The shares were issued at a price of $96.00 per share, resulting in an aggregate proceeds of approximately $187 million (after deducting underwriting discounts and other offering costs). In October 2007, we sold 300,000 shares of our common stock in an exercise of the underwriters’ over-allotment option, resulting in an aggregate proceeds of approximately $28 million.
In February 2007, we called for redemption of our 9.10% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”). The Series B Preferred Stock was redeemed in March 2007 at a redemption price equal to $25.00 per share plus $0.4107639 per share representing accumulated and unpaid dividends to the redemption date. In accordance with EITF Topic D-42, we recorded a charge of approximately $2,799,000 to net income available to common stockholders in February 2007 for costs related to the redemption of the Series B Preferred Stock.
21
Under our current shelf registration statement filed with the Securities and Exchange Commission, we may offer common stock, preferred stock, debt and other securities. These securities may be issued from time to time and at our discretion based on our needs and market conditions.
We expect to continue meeting our short-term liquidity and capital requirements generally through 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 enable us to make distributions necessary to continue qualifying as a REIT. We also believe that net cash provided by operating activities will be sufficient to fund recurring non-revenue enhancing capital expenditures, tenant improvements and leasing commissions.
We expect to meet certain long-term liquidity requirements, such as for property development and redevelopment activities, property acquisitions, scheduled debt maturities, expansions and other non-recurring capital improvements, through net cash provided by operating activities, long-term secured and unsecured indebtedness, including borrowings under the unsecured line of credit and unsecured term loan, and the issuance of additional debt and/or equity securities.
Capital Expenditures and Leasing Costs
The following provides additional information with respect to capital expenditures and leasing costs incurred during the nine months ended September 30, 2007 (in thousands):
|
Property-related capital expenditures (1) |
|
$ |
1,603 |
|
|
Leasing costs (2) |
|
$ |
227 |
|
|
Property-related redevelopment costs (3) |
|
$ |
103,951 |
|
|
Property-related development costs (3) |
|
$ |
167,528 |
|
(1) Property-related capital expenditures include all capital and recurring capital expenditures, except capital expenditures that are recoverable from tenants, revenue-enhancing capital expenditures, or costs related to the redevelopment of a property. Major capital expenditures consist of roof replacements and HVAC systems which are typically identified and considered at the time the property is acquired. Capital expenditures fluctuate in any given period due to the nature, extent or timing of improvements required and the extent to which they are recoverable from tenants. Approximately 90% of our leases (based on rentable square feet) provide for the recapture of certain capital expenditures (such as HVAC systems maintenance and/or replacement, roof replacement and parking lot resurfacing). In addition, we implement an active preventative maintenance program at each of our properties to minimize capital expenditures.
(2) Leasing costs consist of tenant improvements and leasing commissions related to leasing of acquired vacant space and second generation space.
(3) Amount includes leasing costs related to development and redevelopment projects.
Inflation
As of September 30, 2007, approximately 89% of our leases (on a square footage basis) were 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, as of September 30, 2007, approximately 4% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Additionally, as of September 30, 2007, approximately 94% of our leases (on a square footage basis) contained effective annual rent escalations that are either fixed (generally ranging from 3% to 3.5%) or indexed based on the consumer price index or another index. Accordingly, we do not believe that our earnings or cash flow from real estate operations are subject to any significant risk from inflation. An increase in inflation, however, could result in an increase in the cost of our variable rate borrowings, including borrowings under our unsecured line of credit and unsecured term loan.
Funds from Operations
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) established the measurement tool of Funds From Operations (“FFO”). Since its introduction, FFO has become a widely used non-GAAP financial measure by REITs. We believe that FFO is helpful to investors as an additional measure of the performance of an equity REIT. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its April 2002 White Paper (the “White Paper”) and related
22
implementation guidance, which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. While FFO is a relevant and widely used measure of operating performance for REITs, it should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of 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. (See “Liquidity and Capital Resources - Cash flows” above for information regarding these measures of cash flow.)
The following table presents a reconciliation of net income available to common stockholders to funds from operations available to common stockholders for the three and nine months ended September 30, 2007 and 2006 (in thousands):
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
Net income available to common stockholders (1) |
|
$ |
20,186 |
|
$ |
14,942 |
|
$ |
56,628 |
|
$ |
40,814 |
|
|
Add: |
|
|
|
|
|
|
|
|
|
||||
|
Depreciation and amortization (2) |
|
24,194 |
|
19,973 |
|
70,366 |
|
51,585 |
|
||||
|
Minority interest |
|
909 |
|
709 |
|
2,718 |
|
1,449 |
|
||||
|
Subtract: |
|
|
|
|
|
|
|
|
|
||||
|
Gains on sales of property (3) |
|
(1,614 |
) |
- |
|
(5,075 |
) |
(59 |
) |
||||
|
FFO allocable to minority interest |
|
(952 |
) |
(394 |
) |
(2,761 |
) |
(1,178 |
) |
||||
|
Funds from operations available to common stockholders (1) |
|
$ |
42,723 |
|
$ |
35,230 |
|
$ |
121,876 |
|
$ |
92,611 |
|
(1) During the first quarter of 2007, we redeemed our 9.10% Series B Preferred Stock. Accordingly, in compliance with EITF Topic D-42, we recorded a charge of $2,799,000, or $0.10 per common share (diluted), in the first quarter of 2007 for costs related to the redemption of our Series B Preferred Stock.
(2) Includes depreciation and amortization on assets sold or “held for sale” reflected as discontinued operations (for the periods prior to when such assets were sold or designated as “held for sale”).
(3) Gain on sale of property relates to the disposition of four land parcels and one property during the third quarter of 2007, one property during the second quarter of 2007, one property during the first quarter of 2007, and three properties during the second quarter of 2006. Gain on sale of property is included in the income statement in income from discontinued operations, net.
23
Property and Lease Information
The following table is a summary of our property portfolio as of September 30, 2007 (dollars in thousands):
|
|
|
|
|
Rentable Square Feet |
|
Annualized |
|
|
|
||||||
|
|
|
Number of |
|
Operating |
|
Redevelopment |
|
Total |
|
Base |
|
Occupancy |
|
||
|
Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
California—Los Angeles Metro |
|
2 |
|
31,343 |
|
29,660 |
|
61,003 |
|
$ |
696 |
|
70.8% |
|
|
|
California—San Diego |
|
34 |
|
1,519,515 |
|
247,849 |
|
1,767,364 |
|
43,662 |
|
94.6 |
|
||
|
California—San Francisco Bay |
|
24 |
|
1,887,310 |
|
30,238 |
|
1,917,548 |
|
64,415 |
|
95.1 |
|
||
|
Eastern Massachusetts |
|
37 |
|
2,717,554 |
|
299,653 |
|
3,017,207 |
|
96,168 |
|
96.0 |
|
||
|
International—Canada |
|
4 |
|
296,362 |
|
46,032 |
|
342,394 |
|
6,676 |
|
100.0 |
|
||
|
New Jersey/Suburban Philadelphia |
|
7 |
|
406,349 |
|
- |
|
406,349 |
|
8,524 |
|
96.3 |
|
||
|
Southeast |
|
12 |
|
596,172 |
|
62,234 |
|
658,406 |
|
10,561 |
|
87.3 |
(3) |
||
|
Suburban Washington D.C. |
|
31 |
|
2,419,833 |
|
79,536 |
|
2,499,369 |
|
49,151 |
|
92.3 |
|
||
|
Washington—Seattle |
|
15 |
|
1,094,457 |
|
- |
|
1,094,457 |
|
30,630 |
|
93.4 |
|
||
|
Total Properties (Continuing Operations) |
|
166 |
|
10,968,895 |
|
795,202 |
|
11,764,097 |
|
$ |
310,483 |
|
94.1% |
|
|
(1) Excludes spaces at properties totaling 795,202 square feet undergoing a permanent change in use to office/laboratory space through redevelopment and one property totaling 49,437 square feet that is classified as “held for sale.”
(2) Including spaces undergoing a permanent change in use to office/laboratory space through redevelopment, occupancy as of September 30, 2007 was 87.4%.
(3) Substantially all of the vacant space is office or warehouse space.
24
The following table provides information with respect to the lease expirations at our properties as of September 30, 2007:
|
Year of Lease Expiration |
|
Number of |
|
Square |
|
Percentage of |
|
Annualized Base |
|
|
2007 |
|
42(1) |
|
343,610 |
|
3.3% |
|
$27.32 |
|
|
2008 |
|
48 |
|
740,247 |
|
7.2 |
|
26.12 |
|
|
2009 |
|
62 |
|
858,203 |
|
8.3 |
|
24.40 |
|
|
2010 |
|
48 |
|
1,014,972 |
|
9.8 |
|
27.80 |
|
|
2011 |
|
54 |
|
1,658,246 |
|
16.1 |
|
26.84 |
|
|
Thereafter |
|
135 |
|
5,710,892 |
|
55.3 |
|
32.94 |
|
(1) Includes 21 month-to-month leases for approximately 43,000 square feet.
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 believe we are exposed is interest rate risk, which may result from 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 rate characteristics of our outstanding debt and to limit the effects of interest rate risks 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 a portion of our exposure to changes in interest rates carries additional risks, such as counterparty credit risk and the legal enforceability of hedging contracts.
Our future earnings and fair values relating to financial instruments are primarily dependent upon prevailing market rates of interest, such as LIBOR. However, our interest rate swap agreements are intended to reduce the effects of interest rate changes. Based on interest rates at, and our swap agreements in effect on, September 30, 2007, we estimate that a 1% increase in interest rates on our variable debt, including our unsecured line of credit and unsecured term loan, after considering the effect of our interest rate swap agreements, would decrease annual future earnings by approximately $2.1 million. We further estimate that a 1% decrease in interest rates on our variable debt, including our unsecured line of credit and unsecured term loan, after considering the effect of our interest rate swap agreements in effect on September 30, 2007, would increase annual future earnings by approximately $2.1 million. A 1% increase in interest rates on our debt and interest rate swap agreements would decrease their aggregate fair values by approximately $67.3 million at September 30, 2007. A 1% decrease in interest rates on our debt and interest rate swap agreements would increase their aggregate fair values by approximately $70.6 million at September 30, 2007.
These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost and our interest rate swap agreements in effect on September 30, 2007. 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.
We have exposure to equity price market risk because of our equity investments in certain publicly-traded companies and privately held entities. We classify investments in publicly-traded companies as available-for-sale and, consequently, record them on our balance sheets at fair value with unrealized gains or losses reported as a component of comprehensive income or loss. Investments in privately held entities are generally accounted for under the cost method because we do not influence any of the operating or financial policies of the entities in which we invest. For all investments, we recognize other than temporary declines in value against earnings in the same period the decline in value was deemed to have occurred. There is no assurance that future declines in values will not have a material adverse impact on our future results of operations. By way of example, a 10% decrease in the fair values of our equity investments as of September 30, 2007 would decrease their fair values by approximately $7.9 million.
We have exposure to foreign currency exchange rate market risk related to our subsidiaries operating in Canada and China. The functional currency of our foreign subsidiaries operating in Canada and China is the local currency. Gains or losses resulting from the translation of our foreign subsidiaries’ balance sheets and income statements are included in accumulated other comprehensive income as a separate component of stockholders’ equity. Gains or losses will be reflected in our income statement when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment.
26
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2007, we performed an evaluation, under the supervision of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. These controls and procedures have been designed to ensure that information required for disclosure is recorded, processed, summarized and reported within the requisite time periods. Based on our evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2007.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
27
The following risk factors supplement the risk factors set forth in Item 1A of our annual report on Form 10-K for the year ended December 31, 2006.
Financing our future growth plan or refinancing existing debt maturities could be impacted by negative capital market conditions.
Recently, domestic financial markets have experienced unusual volatility and uncertainty. While this condition has occurred most visibly within the “subprime” mortgage lending sector of the credit market, liquidity has tightened in overall domestic financial markets, including the investment grade debt and equity capital markets. Consequently, there is greater uncertainty regarding our ability to access the credit market in order to attract financing on reasonable terms. Our ability to finance our pending or new acquisitions as well as our ability to refinance debt maturities could be adversely affected by our inability to secure permanent financing on reasonable terms, if at all.
Proposed accounting rule changes for certain convertible debt instruments could increase significantly the non-cash interest expense associated with our outstanding convertible notes and adversely affect our results of operations.
In August 2007, the FASB released for public comment a proposed FASB Staff Position (“FSP”) that would affect the accounting treatment for convertible debt instruments, such as our outstanding convertible notes, that may be settled wholly or partially in cash. The proposed FSP requires that instruments within its scope be separated into their liability and equity components at initial recognition by recording the liability component at the fair value of a similar liability that does not have an associated equity component and attributing the remaining proceeds from issuance to the equity component. The excess of the principal amount of the liability component over its initial fair value shall be amortized to interest expense using the interest method. The proposed FSP is expected to be effective for our financial statements for the year ended December 31, 2008 and the related interim periods, and would be applied retrospectively to prior periods. If the FSP is issued as proposed, we expect an increase in our non-cash interest expense associated with our $460 million aggregate principal amount outstanding of convertible notes that were issued in January 2007, including non-cash interest expense for prior periods as a result of its proposed retrospective application. We believe the additional interest expense we may recognize under the proposed FSP for the years ended December 31, 2007 and 2008 is in the range of approximately 8% to 9% of interest expense.
28
|
3.1* |
|
Articles of Amendment and Restatement of Alexandria, filed as an exhibit to Alexandria’s quarterly report on Form 10-Q filed with the Commission on August 14, 1997. |
|
3.2* |
|
Certificate of Correction of Alexandria, filed as an exhibit to Alexandria’s quarterly report on Form 10-Q filed with the Commission on August 14, 1997. |
|
3.3* |
|
Bylaws of Alexandria (as amended February 27, 2006), filed as an exhibit to Alexandria’s annual report on Form 10-K filed with the Commission on March 16, 2006. |
|
3.4* |
|
Articles Supplementary, dated February 10, 2000, relating to the election to be subject to Subtitle 8 of Title 3 of the Maryland General Corporation Law, filed as an exhibit to Alexandria’s current report on Form 8-K filed with the Commission on February 10, 2000. |
|
3.5* |
|
Articles Supplementary, dated February 10, 2000, relating to the Series A Junior Participating Preferred Stock, filed as an exhibit to Alexandria’s current report on Form 8-K filed with the Commission on February 10, 2000. |
|
3.6* |
|
Articles Supplementary, dated June 9, 1999, relating to the 9.50% Series A Cumulative Redeemable Preferred Stock, filed as an exhibit to Alexandria’s quarterly report on Form 10-Q filed with the Commission on August 13, 1999. |
|
3.7* |
|
Articles Supplementary, dated January 28, 2002, relating to the 9.10% Series B Cumulative Redeemable Preferred Stock, filed as an exhibit to Alexandria’s current report on Form 8-A filed with the Commission on February 17, 2002. |
|
3.8* |
|
Articles Supplementary, dated June 22, 2004, relating to the 8.375% Series C Cumulative Redeemable Preferred Stock of the Company as corrected by the certificate of correction thereto, filed as an exhibit to Alexandria’s Form 8-A filed with the Commission on June 28, 2004. |
|
4.1* |
|
Indenture, dated January 17, 2007, among the Company, Alexandria Real Estate Equities, L.P., as Guarantor, and Wilmington Trust Company, as Trustee filed as an exhibit to Alexandria’s current report on Form 8-K filed with the Commission on January 19, 2007. |
|
4.2* |
|
Registration Rights Agreement, dated as of January 17, 2007, among the Company, Alexandria Real Estate Equities, L.P., UBS Securities LLC., Citigroup Global Markets, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated filed as an exhibit to Alexandria’s current report on Form 8-K filed with the Commission on January 19, 2007. |
|
10.10(1) |
|
Executive Employment Agreement between Alexandria Real Estate Equities, Inc. and Dean A. Shigenaga, dated August 8, 2007. |
|
11.1 |
|
Computation of Per Share Earnings (included in Note 2 to the Condensed Consolidated Financial Statements). |
|
12.1 |
|
Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. |
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32 |
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(*) Incorporated by reference.
(1) Management contract or compensatory arrangement.
29
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 5, 2007.
|
|
ALEXANDRIA REAL ESTATE EQUITIES, INC. |
|
|
|
|
|
|
|
|
/s/ Joel S. Marcus |
|
|
Joel S. Marcus |
|
|
|
|
|
/s/ Dean A. Shigenaga |
|
|
Dean A. Shigenaga |
30
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (“Agreement”) is made between Alexandria Real Estate Equities, Inc. (the “Company”) and Dean Shigenaga (“Employee”), effective as of January 1, 2007 (the “Effective Date”).
RECITALS
Whereas, Employee is currently employed by the Company as its Chief Financial Officer (“CFO”), pursuant to an offer letter agreement dated December 5, 2000 (the “Offer Letter”); and
Whereas, the Company desires to continue to employ Employee as a Senior Vice President and its CFO, and Employee is willing to continue such employment by the Company, on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
Now, Therefore, in consideration of the mutual promises and subject to the terms and conditions set forth herein, the parties hereto agree as follows:
SECTION 1. POSITION; DUTIES; LOCATION.
Employee agrees to be employed by and to serve the Company as a Senior Vice President and CFO, and the Company agrees to employ and retain Employee in such capacity. In addition, Employee agrees to serve in such capacities for the Company’s subsidiaries, and in such additional capacities consistent with Employee’s current position as a senior executive of the Company, as may be determined by the Board of Directors of the Company (the “Board”). Employee shall devote such of his business time, energy, and skill to the affairs of the Company and its subsidiaries as shall be necessary to perform the duties of such positions. Notwithstanding the foregoing, and subject to any written policies of the Company, nothing in this Agreement shall preclude Employee from (i) engaging in charitable and community affairs and not-for-profit activities, so long as they are consistent with his duties and responsibilities under this Agreement; (ii) managing his personal investments; (iii) serving on the boards of directors of non-profit companies; and (iv) serving on the boards of directors of other for-profit companies; provided, however, that, prior to accepting a position on any such for-profit board of directors, Employee shall obtain the approval of the Board (or, if applicable, the appropriate committee thereof), which shall not be unreasonably withheld; and provided, further, however, that Employee shall submit to the Board (or the appropriate committee thereof) a list of any for-profit boards of directors on which Employee is serving as of the Effective Date of this Agreement. Employee shall report to the Company’s Chief Executive Officer. Employee shall be based in Los Angeles, except for required travel on the Company’s business.
SECTION 2. COMPENSATION AND OTHER BENEFITS.
In consideration of Employee’s employment, and except as otherwise provided herein, Employee shall receive from the Company the compensation and benefits described in this Section 2. Employee authorizes the Company to deduct and withhold from all compensation to be paid to Employee any and all sums required to be deducted or withheld by the Company pursuant to the provisions of any federal, state, or local law, regulation, ruling, or ordinance, including, but not limited to, income tax withholding and payroll taxes.
2.1 Base Salary. Subject to the terms and conditions set forth herein, the Company agrees to pay Employee a base salary at the rate of $275,000 per year, less standard payroll deductions and withholdings, payable on the Company’s regular payroll schedule (the “Base Salary”). Employee’s Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Employee shall be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate) to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive annual increase; provided, however, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the “Consumer Price Index, Los Angeles, California, All Items,” published by the U.S. Department of Labor (using January 1, 2007 as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of the Company hereunder and, once established at an increased specified rate, Employee’s Base Salary shall not be reduced unless Employee otherwise agrees in writing.
2.2 Bonus. Employee shall be eligible to receive a bonus for each fiscal year of the Company in an amount to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Employee’s performance and the performance of the Company during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Any such bonus shall be payable within 185 days after the end of the Company’s fiscal year to which such bonus relates (the “Bonus Year”); provided that, in the event that Employee terminates employment with the Company for any reason other than a termination by the Company for Cause, after the end of the Bonus Year and prior to the date when such bonuses are paid by the Company to senior executives, then Employee shall receive the same bonus that would have been awarded to Employee in the absence of such termination and it shall be paid to Employee at the same time that bonuses are paid by the Company to other senior executives.
2.3 Restricted Stock; Options. Effective as of the date of approval by the Compensation Committee of the Board (the “Compensation Committee”), Employee shall be granted 1,000 shares (the “Signing Bonus Shares”) of restricted Company stock, as a signing bonus in recognition of, among other things, Employee’s performance during Employee’s previous period of employment, which shares shall vest in two equal annual increments as follows, provided that Employee remains employed at the Company on the applicable vesting date: 500 shares shall vest on May 31, 2008, and 500 shares shall vest on May 31, 2009. Employee shall also be eligible for additional equity awards from time to time as shall be determined by the Compensation Committee in its sole discretion, and subject to such vesting, exercisability, and other provisions as the Compensation Committee may determine in its discretion, after reviewing the performance of both Employee and the Company. Any new equity awards and any equity awards that Employee has already been granted by the Company prior to the execution of this Agreement shall be governed in all respects by the terms of the applicable stock option or restricted stock agreements, grant notice and plan documents. This Agreement does not
alter or affect any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock), except as specifically provided in Sections 3.4(b) and 3.7(b) hereof.
2.4 Vacation. Employee shall be entitled to accrue and use paid vacation in accordance with the terms of the Company’s vacation policy and practices.
2.5 Other Benefits. Employee shall be eligible to participate in such of the Company’s benefit and deferred compensation plans as may be made available to executive officers of the Company, including, without limitation, the Company’s stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental plans, vision plans, sick pay, medical plans, personal catastrophe and accidental death insurance plans, financial planning, automobile arrangements, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of the Company, Employee’s employment with the Company shall be deemed to have commenced on December 27, 2000.
2.6 Reimbursement for Expenses. The Company shall reimburse Employee for all reasonable out-of-pocket business expenses (including, but not limited to, business entertainment expenses) incurred by Employee for the purpose of and in connection with the performance of his services pursuant to this Agreement. Employee shall be entitled to such reimbursement upon the presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail consistent with the Company’s policies. In addition, Employee shall be entitled to reimbursement for: (i) dues and membership fees in professional organizations and industry associations in which Employee is currently a member or becomes a member; and (ii) appropriate industry seminars and mandatory continuing education.
SECTION 3. TERMINATION; SEVERANCE.
3.1 Termination. Employee is employed at-will, meaning that either the Company or Employee may terminate Employee’s employment at any time, with or without Cause, subject to the terms and conditions set forth herein.
3.2 Compensation and Benefits Upon Termination. Upon the termination of Employee’s employment for any reason, the Company shall pay Employee all of Employee’s accrued and unused vacation and unpaid Base Salary earned through Employee’s last day of employment (the “Separation Date”).
3.3 Termination For Cause. The Company shall be entitled to terminate this Agreement for Cause (as defined herein) immediately upon written notice to Employee, which notice shall specify the reason for and the effective date of such termination. In that event, the Company shall pay Employee the compensation set forth in Section 3.2 of this Agreement, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.
3.4 Termination Without Cause. The Company shall be entitled to terminate Employee’s employment without Cause (as defined herein) immediately upon written notice to Employee. In that event, the Employee shall receive the following severance benefits:
(a) Salary Continuation. The Company shall pay Employee severance in the form of continuation of Base Salary for a period of one (1) year following the Separation Date, less standard payroll deductions and withholdings. The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that you materially breach any of your continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement (as defined in Section 4.1)).
(b) Accelerated Vesting. The Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that the shares that would have vested in the one (1) year period following the Separation Date, had Employee’s employment not been terminated, shall be deemed vested as of the Separation Date; provided, however, that if Employee’s employment is terminated without Cause following a Change in Control, the Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company such that all of the unvested shares shall be deemed vested as of the Separation Date.
(c) Bonus. The Company shall pay Employee a bonus for the year in which the Separation Date occurs in the amount that Employee earned for the previous year, if any.
(d) Restricted Stock Grants. The Company shall grant to Employee, fully vested, the pro rata amount of: (1) any annual performance-based grants of restricted stock that may have been determined by the Compensation Committee for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs but which have not yet been made to Employee as of the Separation Date; or (2) in the event that such annual performance-based grants have not yet been determined for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs, the average of the amounts of any such grants that Employee received during the preceding two fiscal years. In either event, the proration shall be based on the number of months of completed service during the fiscal year of termination divided by twelve (12).
3.5 Termination Upon Death or Disability. The Agreement shall terminate immediately upon Employee’s death or Disability (as defined herein). In that event, the Company shall provide Employee with the compensation set forth in Section 3.2 of this Agreement, as well as the severance benefits set forth in Sections 3.4(a) and (b); provided that the full acceleration of vesting provided for a termination without Cause following a Change in Control shall not apply in the event of a termination for death or Disability.
3.6 Resignation. Employee shall be entitled to resign at any time upon written notice to the Company thirty (30) days prior to the effective date of such resignation, which shall be specified in Employee’s notice of resignation. Unless Employee’s resignation is for Good Reason following a Change in Control, upon Employee’s resignation, the Company shall pay Employee the compensation set forth in Section 3.2 of this Agreement, and Employee shall not be entitled to any further compensation from the Company, including severance benefits.
3.7 Resignation For Good Reason Following A Change In Control. Employee shall be entitled to terminate this Agreement for Good Reason following a Change in Control (as defined in Section 3.9(c)). In that event, the Employee shall receive the following severance benefits:
(a) Salary Continuation. The Company shall pay Employee severance in the form of continuation of Base Salary for a period of one (1) year following the Separation Date, less standard payroll deductions and withholdings.
The Company’s obligation to provide, or continue to provide, such severance payments will cease immediately and in full in the event that you materially breach any of your continuing obligations to the Company (including, but not limited to, any continuing obligations under this Agreement or the Proprietary Information Agreement).
(b) Accelerated Vesting. The Company shall accelerate the vesting of any equity awards previously granted to Employee by the Company (whether in the form of stock options or shares of restricted stock) such that all of the unvested shares shall be deemed vested as of the Separation Date.
(c) Bonus. The Company shall pay Employee a bonus for the year in which the Separation Date occurs in the amount that Employee earned for the previous year, if any.
(d) Restricted Stock Grants. The Company shall grant to Employee, fully vested, the pro rata amount of: (1) any annual performance-based grants of restricted stock that may have been determined by the Compensation Committee for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs but which have not yet been made to Employee as of the Separation Date; or (2) in the event that such annual performance-based grants have not yet been determined for the Company’s fiscal year prior to the fiscal year in which the Separation Date occurs, the average of the amounts of any such grants that Employee received during the preceding two fiscal years. In either event, the proration shall be based on the number of months of completed service during the fiscal year of termination divided by twelve (12).
3.8 Release. As a condition to receipt of any severance benefits under this Agreement, Employee shall be required to provide the Company with an effective general release of any and all known and unknown claims against the Company and its officers, directors, employees, shareholders, parents, subsidiaries, successors, agents, and affiliates, substantially in the form attached hereto as Exhibit A.
3.9 Definitions. For purposes of this Agreement, the following definitions shall apply:
(a) Disability. The term “disability” shall mean a physical or mental disability that renders Employee unable to perform one or more of the essential functions of his job, as determined by the Board, for a period of 180 days during any 365 day period.
(b) Cause. For purposes of this Agreement, “Cause” shall mean (1) Employee’s conviction of any felony involving moral turpitude, fraud or dishonesty; (2) Employee’s persistent unsatisfactory performance of job duties; or (3) Employee’s material violation or breach of any Company policy or statutory, fiduciary, or contractual duty to the Company, provided that in the event that the Cause described above is reasonably susceptible of being cured, the Company shall provide notice to the Employee describing the nature of such Cause and the Employee shall thereafter have fifteen (15) days to cure.
(c) Good Reason Following A Change In Control. Following a Change in Control (as defined in Section 3.9(d) below), “Good Reason” shall mean, without the Employee’s express written consent, the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to the Company: (1) the assignment to the Employee of any duties inconsistent with the
position in the Company that the Employee held immediately prior to the Change in Control, or an adverse alteration in the nature or status of the Employee’s responsibilities from those in effect immediately prior to such change; (2) a reduction by the Company in the Employee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Employee’s offices to a location outside the greater Los Angeles metropolitan area (or, if different, the metropolitan area in which such offices are located immediately prior to the Change in Control), or requiring Employee to travel on Company business to an extent not substantially consistent with Employee’s business travel obligations immediately prior to the Change in Control; (4) the failure by the Company to pay the Employee any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all the Employees of the Company and all the Employees of any entity whose actions resulted in a Change in Control, or to pay Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which the Employee participates immediately prior to the Change in Control which is material to the Employee’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (6) the failure by the Company to continue to provide Employee with benefits substantially similar to those under any of the Company’s directors and officers liability insurance, life insurance, medical, health and accident, or disability plans in which the Employee was participating at the time of the Change in Control, or the failure by the Company to provide the Employee with the number of paid vacation days to which he is entitled in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control; or (7) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement.
(d) Change in Control. A “Change in Control” shall be deemed to have occurred if:
(i) any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or
(ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for
election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the Company with any other Company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
3.10 No Offset. Employee shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, nor shall Employee’s entitlement to any severance benefit hereunder be offset by any earned income Employee may receive from employment or consulting with a third party after his employment with the Company.
3.11 Deferred Compensation. In the event that the Company determines that any payments hereunder (including but not limited to any severance benefits under Sections 3.4 (Termination Without Cause), 3.5 (Termination Upon Death or Disability) or 3.7 (Resignation for Good Reason Following A Change in Control)) fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code of 1986 as amended (the “Code”) as a result of Section 409A(a)(2)(B)(i) of the Code, then the payment of such benefits shall not be made pursuant to the payment schedules provided herein and instead the payment of such benefits shall be delayed or otherwise restructured to the minimum extent necessary so that such benefits are not subject to the provisions of Section 409A(a)(1) of the Code.
SECTION 4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT.
Employee shall be required to continue compliance with his obligations under the Employee Proprietary Information and Inventions Agreement with the Company that Employee executed on December 10, 2000 (the “Proprietary Information Agreement”), a copy of which is attached as Exhibit B.
SECTION 5. COMPANY POLICIES.
Employee shall be required to continue compliance with the Company’s employee policies and procedures established by the Company from time to time.
Section 6. ASSIGNABILITY.
This Agreement is binding upon and inures to the benefit of the parties and their respective heirs, executors, administrators, personal representatives, successors and assigns. The Company may assign its rights or delegate its duties under this Agreement at any time and from time to time. However, the parties acknowledge that the availability of Employee to perform services and the covenants provided by Employee hereunder are personal to Employee and have been a material consideration for the Company to enter into this Agreement. Accordingly, Employee may not assign any of Employee’s rights or delegate any of Employee’s duties under this Agreement, either voluntarily or by operation of law, without the prior written consent of the Company, which may be given or withheld by the Company in its sole and absolute discretion.
SECTION 7. NOTICES.
All notices and other communications under this Agreement shall be in writing and shall be given by facsimile, first class mail (certified or registered with return receipt requested), or Federal Express overnight delivery, and shall be deemed to have been duly given three days after mailing or twenty-four (24) hours after transmission of a facsimile or Federal Express overnight delivery (if the receipt of the facsimile or Federal Express overnight delivery is confirmed) to the respective persons named below:
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If to the Company: |
Alexandria Real Estate Equities, Inc. |
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385 E. Colorado Boulevard |
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Suite 299 |
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Pasadena, CA 91101 |
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Phone: (626) 578 0777 |
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If to Employee: |
Dean Shigenaga |
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c/o Alexandria Real Estate Equities, Inc. |
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385 East Colorado Boulevard, Suite 299 |
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Pasadena, CA 91101 |
Any Party may change such Party’s address for notices by notice duly given pursuant hereto.
SECTION 8. ARBITRATION.
To ensure the timely and economical resolution of disputes that may arise in connection with Employee’s employment with the Company, Employee and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Employee’s employment, or the termination of Employee’s employment, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Los Angeles, California, conducted by JAMS under the then applicable JAMS rules. By agreeing to this arbitration procedure, both Employee and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that Employee or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Employee or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
SECTION 9. MISCELLANEOUS.
9.1 Entire Agreement. This Agreement, including its exhibits, contains the full, complete, and exclusive embodiment of the entire agreement of the parties with regard to the subject matter hereof and supersedes all prior communications, representations, or agreements, oral or written, including but not limited to the Offer Letter, and all negotiations and communications between the parties relating to this Agreement. Employee has not entered into this Agreement in reliance on any representations, written or oral, other than those contained herein. Any ambiguity in this document shall not be construed against either party as the drafter.
9.2 Amendment. This Agreement may not be amended or modified except by an instrument in writing duly executed by Employee and the Company’s Chief Executive Officer.
9.3 Applicable Law; Choice of Forum. This Agreement has been made and executed under, and will be construed and interpreted in accordance with, the laws of the State of California, without regard to conflict of laws principles.
9.4 Provisions Severable. Every provision of this Agreement is intended to be severable from every other provision of this Agreement. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or in part, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement; and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein except to the extent that such provision may be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the parties to the extent compatible with the applicable law as it shall then appear.
9.5 Non-Waiver of Rights and Breaches. Any waiver by a party of any breach of any provision of this Agreement will not be deemed to be a waiver of any subsequent breach of that provision, or of any breach of any other provision of this Agreement. No failure or delay in exercising any right, power, or privilege granted to a party under any provision of this Agreement will be deemed a waiver of that or any other right, power or privilege. No single or partial exercise of any right, power
or privilege granted to a party under any provision of this Agreement will preclude any other or further exercise of that or any other right, power or privilege.
9.6 Headings. The headings of the Sections and Paragraphs of this Agreement are inserted for ease of reference only, and will have no effect in the construction or interpretation of this Agreement.
9.7 Counterparts. This Agreement and any amendment or supplement to this Agreement may be executed in two or more counterparts, each of which will constitute an original but all of which will together constitute a single instrument. Transmission by facsimile of an executed counterpart signature page hereof by a party hereto shall constitute due execution and delivery of this Agreement by such party.
9.8 Indemnification. In addition to any rights to indemnification to which Employee may be entitled under the Company’s Charter and By-Laws, the Company shall indemnify Employee at all times during and after Employee’s employment to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland or any successor provision thereof and any other applicable state law, and shall pay Employee’s expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws.
In Witness Whereof, the parties hereto have caused this Agreement to be duly executed on August 8, 2007, effective as of the Effective Date.
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ALEXANDRIA REAL ESTATE EQUITIES, INC. |
DEAN SHIGENAGA |
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By: |
/s/ Joel S. Marcus |
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/s/ Dean Shigenaga |
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Joel S. Marcus |
Dean Shigenaga |
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Chief Executive Officer |
Chief Financial Officer |
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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)
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Nine Months |
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Year Ended December 31, (a) |
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September 30, |
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||||||
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2007 |
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2006 |
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2005 |
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2004 |
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2003 |
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2002 (d) |
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Income from continuing operations before minority interest |
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$ |
66,200 |
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$ |
74,189 |
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$ |
60,551 |
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$ |
55,961 |
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$ |
45,092 |
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$ |
34,867 |
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Add: Interest expense |
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64,374 |
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71,371 |
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49,116 |
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28,670 |
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26,416 |
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24,984 |
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Subtract: Minority interest in income of subsidiaries which have not incurred fixed charges |
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(1,055 |
) |
(1,404 |
) |
(571 |
) |
- |
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- |
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- |
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||||||
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Earnings available for fixed charges |
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$ |
129,519 |
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$ |
144,156 |
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$ |
109,096 |
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$ |
84,631 |
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$ |
71,508 |
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$ |
59,851 |
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||||||
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Combined fixed charges and preferred stock dividends: |
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|
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|
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|
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||||||
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Interest incurred |
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$ |
104,281 |
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$ |
107,643 |
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$ |
77,695 |
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$ |
46,733 |
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$ |
40,647 |
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$ |
39,865 |
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Preferred stock dividends |
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9,305 |
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16,090 |
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16,090 |
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12,595 |
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8,898 |
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8,579 |
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||||||
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Preferred stock redemption charge |
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2,799 |
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- |
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- |
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1,876 |
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- |
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- |
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||||||
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Total combined fixed charges and preferred stock dividends |
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$ |
116,385 |
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$ |
123,733 |
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$ |
93,785 |
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$ |
61,204 |
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$ |
49,545 |
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$ |
48,444 |
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|
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|
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||||||
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Ratio of earnings to combined fixed charges and preferred stock dividends (b) |
|
1.11 |
(c) |
1.17 |
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1.16 |
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1.38 |
(c) |
1.44 |
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1.24 |
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(a) Amounts disclosed for prior periods have been reclassified to conform to the current year presentation related to discontinued operations.
(b) For purposes of calculating the consolidated ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of earnings from continuing operations before income taxes and fixed charges less minority interest in income of subsidiaries which have not incurred fixed charges. Fixed charges consist of interest incurred (including amortization of deferred financing costs and capitalized interest) and preferred stock dividends.
(c) Ratio of earnings to combined fixed charges and preferred stock dividends for the nine months ended September 30, 2007 and year ended December 31, 2004 include the effect of the preferred stock redemption charge pursuant to Emerging Issues Task Force Topic D-42. Excluding the impact of these charges, the ratio of earnings to combined fixed charges and preferred stock dividends for the nine months ended September 30, 2007 and year ended December 31, 2004 is 1.17 and 1.43, respectively.
(d) Pursuant to SFAS 145, “Rescission of FASB Statement Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, in 2003 we reclassified the 2002 loss on early extinguishment of debt to continuing operations. In 2002, this loss was classified as an extraordinary item as previously required under SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt”. Amounts shown for 2002 have been adjusted to reflect this reclassification.
EXHIBIT 31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joel S. Marcus, Chief Executive Officer (Principal Executive Officer) of Alexandria Real Estate Equities, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alexandria Real Estate Equities, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 5, 2007
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/s/ Joel S. Marcus |
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Joel S. Marcus |
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Chief Executive Officer |
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(Principal Executive Officer) |
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EXHIBIT 31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER PURSUANT
TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dean A. Shigenaga, Chief Financial Officer (Principal Financial and Accounting Officer) of Alexandria Real Estate Equities, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alexandria Real Estate Equities, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 5, 2007
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/s/ Dean A. Shigenaga |
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Dean A. Shigenaga |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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EXHIBIT 32
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350.
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Joel S. Marcus, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Alexandria Real Estate Equities, Inc. for the quarter ended September 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Alexandria Real Estate Equities, Inc.
Date: November 5, 2007
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/s/ Joel S. Marcus |
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Joel S. Marcus |
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Chief Executive Officer |
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I, Dean A. Shigenaga, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Alexandria Real Estate Equities, Inc. for the quarter ended September 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Alexandria Real Estate Equities, Inc.
Date: November 5, 2007
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/s/ Dean A. Shigenaga |
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Dean A. Shigenaga |
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Chief Financial Officer |
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