Alexandria Real Estate Equities, Inc 10-Q, filed May 10, 2005
Alexandria Real Estate Equities, Inc. (ARE)
About this 10-Q
Alexandria Real Estate Equities, Inc filed this 10-Q on May 10, 2005, covering the quarter ended March 31, 2005.
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 March 31, 2005 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 1-12993
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
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135 North Los Robles Avenue, Suite 250, Pasadena, CA 91101
(Address of principal executive offices including 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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ],
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ],
As of May 6, 2005, 21,171,230 shares of common stock, par value $.01 per share, were outstanding.
TABLE OF CONTENTS
| PART I. Financial Information | Page No. |
| Item 1. Financial Statements (unaudited): |
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Condensed Consolidated Balance Sheets - As of March 31, 2005 and December 31, 2004 |
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Condensed Consolidated Income Statements - For The Three Months Ended March 31, 2005 and 2004 |
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Condensed Consolidated Statements of Cash Flows - For The Three Months ended March 31, 2005 and 2004 |
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| Notes to Condensed Consolidated Financial Statements |
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| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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| Item 4. Controls and Procedures |
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| PART II. Other Information |
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| Item 6. Exhibits |
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| Signatures |
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Alexandria Real Estate Equities, Inc. and
Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2005 2004
------------ ------------
(Unaudited)
Assets
Rental properties, net $1,521,845 $1,427,853
Properties under development 281,713 252,249
Cash and cash equivalents 3,770 3,158
Tenant security deposits and other restricted cash 18,688 17,669
Tenant receivables 3,579 2,542
Deferred rent 46,298 43,166
Investments 65,970 67,419
Other assets 62,348 58,228
------------ ------------
Total assets $2,004,211 $1,872,284
============ ============
Liabilities and Stockholders' Equity
Secured notes payable $680,917 $638,946
Unsecured line of credit and unsecured term loan 537,000 548,000
Accounts payable, accrued expenses and
tenant security deposits 57,091 48,581
Dividends payable 17,262 16,284
------------ ------------
Total liabilities 1,292,270 1,251,811
Stockholders' equity:
Series B preferred stock 57,500 57,500
Series C preferred stock 129,638 129,638
Common stock 211 196
Additional paid-in capital 512,996 421,835
Deferred compensation (7,762) (7,807)
Retained earnings 2,322 5,267
Accumulated other comprehensive income 17,036 13,844
------------ ------------
Total stockholders' equity 711,941 620,473
------------ ------------
Total liabilities and stockholders' equity $2,004,211 $1,872,284
============ ============
See the accompanying Notes to Condensed Consolidated Financial Statements.
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------
2005 2004
----------- -----------
Revenues
Rental $43,776 $33,774
Tenant recoveries 11,592 8,314
Other income 721 687
----------- -----------
56,089 42,775
Expenses
Rental operations 12,693 8,735
General and administrative 4,445 3,636
Interest 11,321 6,709
Depreciation and amortization 12,641 9,981
----------- -----------
41,100 29,061
----------- -----------
Income from continuing operations 14,989 13,714
Income from discontinued operations, net -- 1,626
----------- -----------
Net income $14,989 $15,340
=========== ===========
Dividends on preferred stock 4,022 2,225
----------- -----------
Net income available to common stockholders $10,967 $13,115
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Earnings per share - basic:
Continuing operations (net of preferred stock dividends) $0.56 $0.60
Discontinued operations, net -- 0.08
----------- -----------
Earnings per share - basic $0.56 $0.68
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Earnings per share - diluted:
Continuing operations (net of preferred stock dividends) $0.55 $0.59
Discontinued operations, net -- 0.08
----------- -----------
Earnings per share - diluted $0.55 $0.67
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Weighted average shares of common stock outstanding:
Basic 19,468,620 19,206,954
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Diluted 19,789,798 19,584,003
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See the accompanying Notes to Condensed Consolidated Financial Statements.
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
----------------------
2005 2004
---------- ----------
Operating Activities
Net income $14,989 $15,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of property -- (1,627)
Depreciation and amortization 12,641 9,981
Amortization of loan fees and costs 1,969 558
Amortization of premiums on secured notes payable (224) (31)
Stock compensation expense 992 926
Changes in operating assets and liabilties:
Tenant security deposits and other restricted cash (1,019) (2,852)
Tenant receivables (1,042) (535)
Deferred rent (3,142) (3,064)
Other assets (7,073) (4,386)
Accounts payable, accrued expenses and tenant
security deposits 13,567 5,206
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Net cash provided by operating activities 31,658 19,516
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Investing Activities
Purchase of rental properties (62,025) --
Proceeds from sales of property -- 5,454
Additions to rental properties (22,371) (18,359)
Additions to properties under development (39,561) (6,112)
Additions to investments, net (890) (1,371)
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Net cash used in investing activities (124,847) (20,388)
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Financing Activities
Proceeds from secured notes payable 33,580 38,000
Principal reductions of secured notes payable (2,051) (2,078)
Net reductions of unsecured line of credit (11,000) (26,000)
Proceeds from exercise of stock options 1,111 3,722
Net proceeds from issuances of common stock 89,118 --
Dividends paid on common stock (12,935) (11,176)
Dividends paid on preferred stock (4,022) (2,225)
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Net cash provided by financing activities 93,801 243
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Net increase (decrease) in cash and cash equivalents 612 (629)
Cash and cash equivalents at beginning of period 3,158 4,985
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Cash and cash equivalents at end of period $3,770 $4,356
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See the accompanying Notes to Condensed Consolidated Financial Statements.
Alexandria Real Estate Equities, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Background and Basis of Presentation
Background
As used in this 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. is a real estate investment trust ("REIT") formed in 1994. We are engaged primarily in the ownership, operation, management, acquisition, expansion and selective redevelopment and development of properties containing office/laboratory space. We refer to these properties as "life science properties". Our life science properties are designed and improved for lease primarily to pharmaceutical, biotechnology, life science product, service, biodefense, educational and translational medicine institutions/entities, as well as related government agencies. As of March 31, 2005, our portfolio consisted of 120 properties (119 properties located in nine states and one property located in Canada) with approximately 7.8 million rentable square feet of office/laboratory space.
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, 2005. 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, 2004.
Basis of Presentation and Significant Accounting Policies
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.
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. During the current quarter ended March 31, 2005, we completed our first international acquisition of one operating property through a wholly-owned Canadian subsidiary. The functional currency for our foreign subsidiary operating in Canada is the local currency, the Canadian dollar. The assets and liabilities of our foreign subsidiary are translated into U.S. dollars at the exchange rate in effect as of the financial statement date. Income statement accounts of our foreign subsidiary 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.
Gains or losses are recognized in the income statement when a transaction with a third party, denominated in a currency other than the entity's functional currency, is settled and the functional currency cash flows realized are more or less than the exchange rate in effect when the transaction was initiated.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following (in thousands):
March 31, December 31,
2005 2004
------------ ------------
Unrealized gain on marketable securities $13,595 $15,934
Unrealized gain (loss) on interest rate swap agreements 2,962 (2,090)
Unrealized foreign currency translation gain 479 --
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$17,036 $13,844
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The following table provides a reconciliation of comprehensive income (in thousands):
Three Months Ended
March 31,
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2005 2004
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Net income $14,989 $15,340
Unrealized (loss) gain on marketable securities (2,339) 345
Unrealized gain (loss) on interest rate swap agreements 5,052 (1,889)
Unrealized foreign currency translation gain 479 --
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Comprehensive income $18,181 $13,796
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Stock-Based Compensation Expense
For 2002 and all prior years, we have elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for our employee and non-employee director stock options, stock grants and stock appreciation rights. Effective January 1, 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), prospectively to all employee awards granted, modified or settled after January 1, 2003. We have not granted any stock options since 2002. Under APB 25, because the exercise price of the options we granted equals the market price of the underlying stock on the date of grant, no compensation expense had been recognized. Although we have elected to follow APB 25 for previously granted options, pro forma information regarding net income and net income per share is required by SFAS 123. This information has been determined as if we had accounted for stock options under the fair value method under SFAS 123.
For purposes of the following pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods (in thousands, except per share information):
Three Months Ended
March 31,
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2005 2004
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Net income available to common stockholders, as reported $ 10,967 $ 13,115
Fair value of stock-based compensation cost (93) (190)
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Pro forma net income available to common stockholders $ 10,874 $ 12,925
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Earnings per share:
Basic - as reported $ 0.56 $ 0.68
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Basic - pro forma $ 0.56 $ 0.67
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Diluted - as reported $ 0.55 $ 0.67
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Diluted - pro forma $ 0.55 $ 0.66
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Statement of Financial Accounting Standards No. 123 (revised 2004), "Share- Based Payment" ("SFAS 123R") requires measurement of all employee stock-based compensation awards using a fair value method and the recording of such expense in the financial statements. SFAS 123R eliminates the accounting for such awards using the intrinsic method pursuant to APB 25. In April 2005, the Securities and Exchange Commission amended the compliance date for SFAS 123R to no later than the beginning of the registrant's first fiscal year beginning after June 15, 2005. Accordingly, we plan to adopt SFAS 123R on January 1, 2006. We intend to use the modified-prospective transition method whereby compensation expense will be recognized relating to the remaining unvested portion of outstanding stock options at the time of adoption, and the expense will be recognized over the remaining service period. We do not expect the adoption of SFAS 123R to have a material impact on our financial statements since all awards accounted for pursuant to APB 25 will be fully vested by December 31, 2005.
2. Rental Properties, Net
Rental properties, net consist of the following (in thousands):
March 31, December 31,
2005 2004
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Land $ 228,963 $ 217,201
Buildings and improvements 1,342,140 1,246,888
Tenant and other improvements 137,329 139,823
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1,708,432 1,603,912
Less accumulated depreciation (186,587) (176,059)
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$ 1,521,845 $ 1,427,853
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3. 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):
March 31, December 31,
2005 2004
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Adjusted cost of available-for-sale securities $ 3,336 $ 3,190
Gross unrealized gains 14,029 16,110
Gross unrealized losses (434) (176)
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Fair value of available-for-sale securities $ 16,931 $ 19,124
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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 March 31, 2005 and December 31, 2004.
Our investments in privately held entities as of March 31, 2005 and December 31, 2004 totaled $49,039,000 and $48,295,000, respectively. Of these totals, $48,295,000 and $47,433,000 are accounted for under the cost method. The remainder ($744,000 and $862,000 as of March 31, 2005 and December 31, 2004, respectively) are accounted for under the equity method in accordance with APB 18 and EITF Topic D-46. As of March 31, 2005, there were no unrealized losses in our investments in privately held entities.
4. Unsecured Line of Credit and Unsecured Term Loan
We have an unsecured line of credit that provides for borrowings of up to $500 million. The unsecured line of credit expires December 2007 and may be extended at our sole option for an additional one-year period. As of March 31, 2005, we had borrowings of $287 million outstanding on the unsecured line of credit with a weighted average interest rate of 4.15%. As of March 31, 2005, we have an unsecured term loan with outstanding borrowings of $250 million with a weighted average interest rate of 4.15%. The unsecured term loan expires in December 2009.
Borrowings under our unsecured line of credit and unsecured term loan bear interest at a London Interbank Offered Rate ("LIBOR")-based rate. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months.
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 borrowings under the unsecured line of credit and unsecured term loan may be limited to an amount based on the net operating income derived from a pool of unencumbered properties. Accordingly, as we acquire or complete the development or redevelopment of additional unencumbered properties, aggregate borrowings available under the unsecured line of credit and unsecured term loan will increase up to a maximum combined amount of $750 million. Under these provisions, as of March 31, 2005, aggregate borrowings under our unsecured line of credit and unsecured term loan were limited to $724 million. Under the unsecured line of credit and unsecured term loan, we have an option to increase our maximum available commitment by an additional $100 million.
We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates associated with our unsecured line of credit and unsecured term loan. These agreements involve an exchange of fixed and floating 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.
The following table summarizes our interest rate swap agreements as of March 31, 2005 (dollars in thousands):
Notional Effective at Interest Termination Fair
Transaction Dates Effective Dates Amounts March 31, 2005 Pay Rates Dates Values
- ---------------------- ----------------- ------------- ------------------ ---------- ----------------- ------------
July 2002 January 1, 2003 $ 25,000 $ 25,000 3.855% June 30, 2005 (51)
July 2002 January 1, 2003 25,000 25,000 3.865% June 30, 2005 (51)
November 2002 June 1, 2003 25,000 25,000 3.115% December 31, 2005 72
November 2002 June 1, 2003 25,000 25,000 3.155% December 31, 2005 64
December 2002 January 2, 2003 25,000 25,000 3.285% June 30, 2006 160
December 2002 January 2, 2003 25,000 25,000 3.285% June 30, 2006 160
December 2003 December 31, 2004 50,000 50,000 3.000% December 30, 2005 186
December 2003 December 30, 2005 50,000 - 4.150% December 29, 2006 98
December 2003 December 29, 2006 50,000 - 5.090% October 31, 2008 (338)
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 437
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 437
April 2004 April 30, 2004 50,000 50,000 1.550% April 29, 2005 52
April 2004 April 29, 2005 50,000 - 3.140% April 28, 2006 319
April 2004 April 28, 2006 50,000 - 4.230% April 30, 2007 107
April 2004 April 30, 2007 50,000 - 4.850% April 30, 2008 (69)
June 2004 June 30, 2005 50,000 - 4.343% June 30, 2007 (102)
December 2004 December 31, 2004 50,000 50,000 3.590% January 2, 2008 770
December 2004 January 3, 2006 50,000 - 3.927% July 1, 2008 711
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Total Interest Rate Swap Agreements in Effect
at March 31, 2005 $ 350,000 $ 2,962
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5. Stockholders' Equity
In March 2005, we sold 1,437,500 shares of our common stock in an underwritten offering (including the shares issued upon exercise of the underwriter's over-allotment option). The shares were issued at a price of $62.51 per share, resulting in aggregate proceeds of approximately $89.1 million (after deducting underwriting discounts and other offering costs).
In March 2005, we declared a cash dividend on our common stock aggregating $13,910,000 ($0.66 per share) for the calendar quarter ended March 31, 2005. In March 2005, we also declared cash dividends on our 9.10% Series B Cumulative Redeemable Preferred Stock ("Series B preferred stock") and 8.375% Series C Cumulative Redeemable Preferred Stock ("Series C preferred stock") aggregating $1,308,000 ($0.56875 per share) and $2,714,000 ($0.5234375 per share), respectively, for the period January 15, 2005 through April 14, 2005. The dividends on our common stock, Series B preferred stock and Series C preferred stock were paid on April 15, 2005.
6. Non-Cash Transactions
In connection with the acquisitions of two properties, in two separate transactions, located in the San Francisco Bay and Suburban Washington D.C. markets, we assumed two secured notes payable. The following table summarizes these transactions (in thousands):
Three Months Ended
March 31,
--------------------------
2005 2004
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Aggregate purchase price $ 16,550 $ --
Secured notes payable assumed 10,104 --
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Cash paid for properties $ 6,446 $ --
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For the three months ended March 31, 2005 and 2004, we incurred $992,000 and $926,000, respectively in non-cash stock compensation expense.
7. Earnings Per Share
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
March 31,
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2005 2004
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Net income available to common stockholders $ 10,967 $ 13,115
=========== ===========
Weighted average shares of common stock
outstanding - basic 19,468,620 19,206,954
Add: dilutive effect of stock options and
stock grants 321,178 377,049
----------- -----------
Weighted average shares of common stock
outstanding - diluted 19,789,798 19,584,003
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Earnings per share - basic $ 0.56 $ 0.68
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Earnings per share - diluted $ 0.55 $ 0.67
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Dividends declared per common share $ 0.66 $ 0.60
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8. 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 discontinued operations (in thousands):
Three Months Ended
March 31,
---------------------
2005 2004
--------- ----------
Total revenue $ -- $ 14
Operating expenses -- 15
--------- ----------
Loss before gain on sale of property -- (1)
Gain on sale of property -- 1,627
--------- ----------
Income from discontinued operations, net $ -- $ 1,626
========= ==========
During the first quarter of 2004, we sold one property located in the Suburban Washington D.C. market that had been designated as "held for sale" during the fourth quarter of 2003. The total sale price for the property was approximately $5.7 million. In connection with the sale, we recorded a gain on sale of property of approximately $1.6 million.
No properties have been designated as "held for sale" as of March 31, 2005 and December 31, 2004.
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 "Business Risks" 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, 2004. 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 Form 10-Q should also read our Securities and Exchange Commission and other publicly filed documents for further discussion regarding such factors.
As used in this Form 10-Q, references to the "Company", "we", "our" and "us" refer to Alexandria Real Estate Equities, Inc. and its subsidiaries.
The following discussion should be read in conjunction with the financial statements and notes appearing elsewhere in this report.
Overview
Since our formation in October 1994, we have devoted substantially all of our resources to the ownership, operation, management, acquisition, expansion and selective redevelopment and development of high quality, strategically located properties containing office/laboratory space leased principally to tenants in the life science industry. We refer to these properties as "life science properties".
As of March 31, 2005, our portfolio consisted of 120 properties containing approximately 7.8 million rentable square feet of office/laboratory space. As of that date, our properties were approximately 94% leased, excluding those properties in our redevelopment program. Our primary sources of revenue are rental income and tenant recoveries from leases at the properties we own. The comparability of financial data from period to period is affected by the timing of our property acquisition, development and redevelopment activities.
Results of Operations
Comparison of Three Months Ended March 31, 2005 ("First Quarter 2005") to Three Months Ended March 31, 2004 ("First Quarter 2004")
Rental revenues increased by $10.0 million, or 30%, to $43.8 million for First Quarter 2005 compared to $33.8 million for First Quarter 2004. The increase resulted primarily from rental revenues from properties acquired, placed in service or redeveloped after January 1, 2004.
Tenant recoveries increased by $3.3 million, or 39%, to $11.6 million for First Quarter 2005 compared to $8.3 million for First Quarter 2004. The increase resulted primarily from tenant recoveries from properties acquired, placed in service or redeveloped after January 1, 2004.
Other income was $721,000 for First Quarter 2005 compared to $687,000 for First Quarter 2004.
Rental operating expenses increased by $4.0 million, or 45%, to $12.7 million for First Quarter 2005 compared to $8.7 million for First Quarter 2004. The increase resulted primarily from rental operating expenses (the majority of which are recoverable from our tenants through tenant recoveries) from properties acquired, placed in service or redeveloped after January 1, 2004.
General and administrative expenses increased by $809,000, or 22%, to $4.4 million for First Quarter 2005 compared to $3.6 million for First Quarter 2004 primarily due to increases in payroll related expenses and increases related to other administrative costs. These increases were associated with the growth in both the depth and breadth of our operations from 91 properties with approximately 5.7 million rentable square feet at March 31, 2004 to 120 properties with approximately 7.8 million rentable square feet at March 31, 2005.
Interest expense increased by $4.6 million, or 69%, to $11.3 million for First Quarter 2005 compared to $6.7 million for First Quarter 2004. The increase resulted from increases in indebtedness on our unsecured line of credit, unsecured term loan and secured notes payable, and increases in the floating interest rates on our unsecured line of credit and unsecured term loan. These borrowings were utilized to finance the acquisition of properties in 2004 and 2005, and the development and redevelopment of properties. The weighted average effective interest rate on our unsecured line of credit and unsecured term loan (not including the effect of interest rate swap agreements) increased from 2.63% as of March 31, 2004 to 4.15% as of March 31, 2005. 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 - Unsecured Line of Credit and Unsecured Term Loan").
Depreciation and amortization increased by $2.7 million, or 27%, to $12.6 million for First Quarter 2005 compared to $10.0 million for First Quarter 2004. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped after January 1, 2004.
Income from discontinued operations, net was $1.6 million for First Quarter 2004. It reflects the results of operations of one property in the Suburban Washington D.C. market that was sold in First Quarter 2004. In connection with this sale, we recorded a gain of approximately $1.6 million. No properties were sold or designated as "held for sale" during First Quarter 2005.
Liquidity and Capital Resources
Cash flows
Net cash provided by operating activities for First Quarter 2005 increased by $12.1 million to $31.7 million compared to $19.5 million for First Quarter 2004. The increase resulted primarily from increases in cash flows from our portfolio of operating properties and an increase in net cash provided by operating activities primarily from an increase in certain operating liabilities (accounts payable, accrued expenses and tenant security deposits).
Net cash used in investing activities for First Quarter 2005 increased by $104.5 million to $124.8 million compared to $20.4 million for First Quarter 2004. This increase was primarily due to the purchase of rental properties and additions to properties under development for the First Quarter 2005.
Net cash provided by financing activities for First Quarter 2005 increased by $93.6 million to $93.8 million compared to $0.2 million for First Quarter 2004. This increase was primarily due to the net proceeds from our common stock offering in First Quarter 2005.
Contractual obligations and commitments
Contractual obligations as of March 31, 2005, consist of the following (dollars in thousands):
Payments by Period
---------------------------------------------
Total 2005 2006-2007 2008-2009 Thereafter
------------- -------- --------- --------- ----------
Contractual Obligations
Secured notes payable (1) $ 677,065 $ 21,396 $ 256,538 $ 158,068 $ 241,063
Unsecured line of credit and
unsecured term loan 537,000 -- 287,000 250,000 --
Ground lease obligations 64,896 1,355 3,683 3,801 56,057
Other obligations 4,740 351 1,277 1,208 1,904
------------- -------- --------- --------- ----------
Total $ 1,283,701 $ 23,102 $ 548,498 $ 413,077 $ 299,024
============= ======== ========= ========= ==========
- Excludes unamortized premiums of $3.9 million as of March 31, 2005.
Secured notes payable as of March 31, 2005 included 30 notes secured by 57 properties and eight land development parcels.
The unsecured line of credit expires December 2007 and may be extended at our sole option for an additional one-year period. The unsecured term loan expires December 2009.
Ground lease obligations as of March 31, 2005 include leases for seven of our properties and one land development parcel. These lease obligations have remaining lease terms of 28 to 51 years, exclusive of extension options.
In addition to the above, we were committed as of March 31, 2005 under the terms of contracts to complete the construction of properties under development at a remaining aggregate cost of approximately $15.5 million.
As of March 31, 2005, we were also committed to fund approximately $17.8 million for the construction of building infrastructure improvements under the terms of leases and/or construction contracts and approximately $15.7 million for certain investments.
Tenant security deposits and restricted cash
Tenant security deposits and other restricted cash as of March 31, 2005 consist of the following (in thousands):
Amount
---------
Funds held in trust under the terms of certain
secured notes payable $ 12,210
Security deposit funds based on the terms of certain
lease agreements 2,072
Other funds held in escrow 4,406
---------
$ 18,688
=========
Secured debt
Secured debt as of March 31, 2005 consists of the following (dollars in thousands):
March 31, December 31,
2005 2004
------------ ------------
Secured debt, interest rates varying from 3.69% to 8.71%,
(weighted average effective interest rate of 5.88% and 5.67%
at March 31, 2005 and December 31, 2004, respectively),
maturity dates ranging from September 2005 to August 2021 $ 677,065 $ 635,432
Unamortized premiums 3,852 3,514
------------ ------------
Total secured debt $ 680,917 $ 638,946
============ ============
Our secured notes payable generally require monthly payments of principal and interest. At March 31, 2005, our secured notes payable were comprised of $472.0 million and $208.9 million of fixed and variable rate debt, respectively, compared to $437.2 million and $201.7 million of fixed and variable rate debt, respectively, at December 31, 2004.
The following is a summary of the scheduled principal payments for our secured debt and the weighted average interest rates as of March 31, 2005 (in thousands):
Weighted
Average
Year Amount Interest Rate(1)
----------------------- ----------- ------------
2005 $21,396 5.88%
2006 207,124 5.90%
2007 49,414 6.34%
2008 115,641 6.27%
2009 42,427 6.83%
Thereafter 241,063 6.83%
-----------
Subtotal 677,065
Unamortized premiums 3,852
-----------
Total secured debt $680,917
===========
(1) The weighted average interest rate is calculated based on the outstanding debt as of April 1st for 2005, and as of January 1st for each year thereafter.
Unsecured Line of Credit and Unsecured Term Loan
We have an unsecured line of credit that provides for borrowings of up to $500 million. The unsecured line of credit expires December 2007 and may be extended at our sole option for an additional one-year period. As of March 31, 2005, we had borrowings of $287 million outstanding on the unsecured line of credit with a weighted average interest rate of 4.15%. As of March 31, 2005, we have an unsecured term loan with outstanding borrowings of $250 million with a weighted average interest rate of 4.15%. The unsecured term loan expires December 2009.
Borrowings under our unsecured line of credit and unsecured term loan bear interest at a LIBOR-based rate. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months.
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 borrowings under the unsecured line of credit and unsecured term loan may be limited to an amount based on the net operating income derived from a pool of unencumbered properties. Accordingly, as we acquire or complete the development or redevelopment of additional unencumbered properties, aggregate borrowings available under the unsecured line of credit and unsecured term loan will increase up to a maximum combined amount of $750 million. Under these provisions, as of March 31, 2005, aggregate borrowings under our unsecured line of credit and unsecured term loan were limited to $724 million. Under the unsecured line of credit and unsecured term loan, we have an option to increase our maximum available commitment by an additional $100 million.
We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates associated with our unsecured line of credit and unsecured term loan. These agreements involve an exchange of fixed and floating 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.
The following table summarizes our interest rate swap agreements as of March 31, 2005 (dollars in thousands):
Notional Effective at Interest Termination Fair
Transaction Dates Effective Dates Amounts March 31, 2005 Pay Rates Dates Values
- ---------------------- ----------------- ------------- ------------------ ---------- ----------------- ------------
July 2002 January 1, 2003 $ 25,000 $ 25,000 3.855% June 30, 2005 (51)
July 2002 January 1, 2003 25,000 25,000 3.865% June 30, 2005 (51)
November 2002 June 1, 2003 25,000 25,000 3.115% December 31, 2005 72
November 2002 June 1, 2003 25,000 25,000 3.155% December 31, 2005 64
December 2002 January 2, 2003 25,000 25,000 3.285% June 30, 2006 160
December 2002 January 2, 2003 25,000 25,000 3.285% June 30, 2006 160
December 2003 December 31, 2004 50,000 50,000 3.000% December 30, 2005 186
December 2003 December 30, 2005 50,000 - 4.150% December 29, 2006 98
December 2003 December 29, 2006 50,000 - 5.090% October 31, 2008 (338)
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 437
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 437
April 2004 April 30, 2004 50,000 50,000 1.550% April 29, 2005 52
April 2004 April 29, 2005 50,000 - 3.140% April 28, 2006 319
April 2004 April 28, 2006 50,000 - 4.230% April 30, 2007 107
April 2004 April 30, 2007 50,000 - 4.850% April 30, 2008 (69)
June 2004 June 30, 2005 50,000 - 4.343% June 30, 2007 (102)
December 2004 December 31, 2004 50,000 50,000 3.590% January 2, 2008 770
December 2004 January 3, 2006 50,000 - 3.927% July 1, 2008 711
------------------ ------------
Total Interest Rate Swap Agreements in Effect
at March 31, 2005 $ 350,000 $ 2,962
================== ============
We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap agreements as the 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 March 31, 2005 and December 31, 2004, our interest rate swap agreements have been classified at their fair values in our consolidated balance sheets. The offsetting adjustments were reflected as deferred gains (losses) in accumulated other comprehensive income (loss) in the stockholders' equity section of our consolidated balance sheets. Balances in accumulated other comprehensive income (loss) are recognized in earnings as swap payments are made.
Other Resources and Liquidity Requirements
In March 2005, we sold 1,437,500 shares of our common stock in an underwritten offering (including the shares issued upon exercise of the underwriter's over-allotment option). The shares were issued at a price of $62.51 per share, resulting in aggregate proceeds of approximately $89.1 million (after deducting underwriting discounts and other offering costs).
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 acquisitions, property development and redevelopment activities, 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 our 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 three months ended March 31, 2005 (dollars in thousands):
|
Property-related capital expenditures (1) |
$ 932 |
|
Leasing costs (2) |
$ 73 |
|
Property-related redevelopment costs |
$ 17,303 |
|
Property-related development costs |
$ 41,294 |
_______
- Property-related capital expenditures include all capital expenditures except capital expenditures that are recoverable from tenants, revenue-enhancing capital expenditures and costs related to the redevelopment of a property. 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 91% 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.
- Leasing costs consist of tenant improvements and leasing commissions related to leasing of acquired vacant space and second generation space.
Inflation
As of March 31, 2005, approximately 83% 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 March 31, 2005, approximately 6% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Approximately 88% 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 our unsecured line of credit and unsecured term loan.
Funds from Operations
Generally accepted accounting principles ("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 miscorrelation 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 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, the most directly comparable GAAP financial measure to FFO, to funds from operations available to common stockholders for the three months ended March 31, 2005 and 2004 (in thousands):
Three Months Ended
March 31,
-----------------------
2005 2004
----------- -----------
Net income available to common stockholders $10,967 $13,115
Add: Depreciation and amortization (1) 12,641 9,981
Subtract: Gain on sale of property (2) -- (1,627)
----------- -----------
Funds from operations available to
common stockholders $23,608 $21,469
=========== ===========
- Includes depreciation and amortization on assets "held for sale" reflected as discontinued operations (for the periods prior to when such assets were designated as "held for sale").
- Gain on sale of property consists of a $1.6 million gain related to the sale of one property in the Suburban Washington D.C. market in the first quarter of 2004 that had been designated as "held for sale" during the quarter ended December 31, 2003.
Property and Lease Information
The following table is a summary of our property portfolio as of March 31, 2005 (dollars in thousands):
Number of Rentable Annualized
Operating Square Base Occupancy
Properties Feet Rent Percentages
----------- ----------- ---------- -----------
Markets
California - Pasadena 1 31,343 $807 98.9%
California - San Diego 22 1,052,304 29,003 94.4%
California - San Francisco Bay 11 674,652 21,006 100.0%
Eastern Massachusetts 15 853,383 25,412 92.5%
New Jersey/Suburban Philadelphia 7 458,623 7,825 100.0%
Southeast 8 400,391 6,030 84.5%(1)
Suburban Washington D.C. 29 2,218,550 43,598 95.3%
Washington - Seattle 10 787,795 22,445 87.3%
International - Canada 1 68,000 2,587 100.0%
----------- ----------- ---------- -----------
Total 104 6,545,041 158,713 94.0%(2)
=========== =========== ========== ===========
________
- All, or substantially all, of the vacant space is office or warehouse space.
- Excludes 16 properties under full or partial redevelopment. The total rentable square feet associated with these properties was 1,217,948, of which 613,691 square feet were under redevelopment as of March 31, 2005. Including properties under full or partial redevelopment, occupancy as of March 31, 2005 was 87.1%.
The following table summarizes certain information with respect to the lease expirations of our properties as of March 31, 2005:
Square Percentage of Annualized Base
Year of Number of Footage of Aggregate Rent of Expiring
Lease Expiring Expiring Portfolio Leased Leases (per
Expiration Leases Leases Square Footage square foot)
- ----------- -------------- -------------- ---------------- ----------------
2005 62 (1) 337,209 5.0% $23.77
2006 46 968,898 14.3% $24.02
2007 28 663,528 9.8% $26.73
2008 17 418,307 6.2% $26.04
2009 22 543,159 8.0% $23.79
Thereafter 80 3,828,703 56.7% $27.61
_________
(1) Includes 25 month-to-month leases for approximately 71,000 square feet.
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 counter-party credit risk and the legal enforceability of hedging contracts.
Our future earnings, cash flows and fair values relating to financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR. However, 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 March 31, 2005, we estimate that a 1% increase in interest rates on our variable rate 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 and cash flows by approximately $4.0 million. We further estimate that a 1% decrease in interest rates on our variable rate debt, including our unsecured line of credit and unsecured term loan, after considering the effect of our interest rate swap agreements in effect on March 31, 2005, would increase annual future earnings and cash flows by approximately $4.0 million. A 1% increase in interest rates on our secured debt and interest rate swap agreements would decrease their aggregate fair value by approximately $11.5 million at March 31, 2005. A 1% decrease in interest rates on our secured debt and interest rate swap agreements would increase their aggregate fair value by approximately $18.6 million at March 31, 2005.
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 March 31, 2005. 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 sheet 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 value of our equity investments as of March 31, 2005 would decrease their fair value by approximately $6.6 million.
We have exposure to foreign currency exchange rate market risk related to our wholly-owned subsidiary operating in Canada. The functional currency of our foreign subsidiary operating in Canada is the local currency, the Canadian dollar. Gains or losses resulting from the translation of our foreign subsidiary's balance sheet and income statement 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 a transaction with a third party, denominated in a currency other than the entity's functional currency, is settled and the functional currency cash flows realized are more or less than the exchange rate in effect when the transaction was initiated.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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 as of the end of the period covered by this report. Based on our evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective to ensure that information required for disclosure is recorded, processed, summarized and reported within the requisite time periods as of March 31, 2005.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
|
Exhibit Number |
Description |
|
10.1 |
Executive Employment Agreement between Alexandria Real Estate Equities, Inc. and Nancy J. Kelley, dated January 31, 2005 |
|
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 |
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 May 10, 2005.
|
ALEXANDRIA REAL ESTATE EQUITIES INC. |
|
/s/ Joel S. Marcus |
|
|
Joel S. Marcus |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
/s/ Dean A. Shigenaga |
|
|
Dean A. Shigenaga |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
by and between
ALEXANDRIA REAL ESTATE EQUITIES, INC.
a Maryland corporation
and
NANCY J. KELLEY,
an individual
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation ("Corporation"), and NANCY J. KELLEY, an individual (the "Officer") (hereinafter, Corporation and Officer will be referred to collectively as the "Parties"), effective as of the 31st day of January, 2005 (the "Effective Date").
RECITAL
WHEREAS, Corporation desires to employ Officer as its Senior Vice President-Business Development and Strategic Operations, and Officer is willing to accept such employment by Corporation, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows.
- Position and Duties; Location.
- Compensation, Benefits and Reimbursement.
- Base Salary. Corporation agrees to pay Officer an annual Base Salary ("Base Salary") of three hundred thousand dollars ($300,000), or such other amount as may from time-to- time be determined by Corporation. Unless otherwise agreed in writing by Officer and Corporation, Base Salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Corporation in existence from time-to-time.
- Adjustments in Base Salary. Officer's Base Salary shall be reviewed for the possibility of adjustments 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 Officer may be increased on each such date (and such other times as the Board or a committee of the Board may deem appropriate) to an amount determined by the CEO with the concurrence of the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive year increase. Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Corporation hereunder. Once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing.
- Executive Benefits. Officer shall be eligible to participate in such Corporation's benefit and deferred compensation plans as are made available to executive officers of Corporation in accordance with the terms and conditions of such plans, including, without limitation, Corporation's stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, disability, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary Officer retirement plans, if any. Corporation shall pay one hundred percent (100%) of Officer's medical premiums under Corporation's medical plan and any other welfare benefit plans for which Officer qualifies that are in existence from time-to-time.
- Vacation. Officer shall be entitled to up to four (4) weeks of paid vacation annualized during each calendar year, prorated for partial years. Accrued vacation not taken during any calendar year may be carried forward to subsequent years; provided, that Officer may not accrue more than six (6) weeks of unused vacation at any time.
- Life Insurance. Corporation shall, at its sole cost and expense, procure and keep in effect, during Officer's employment with Corporation, term life insurance on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Dollars ($1,000,000). Such policy shall be owned by Officer or by a member of her immediate family. Corporation shall have no incidents of ownership therein.
- Disability Insurance. Corporation shall, at its sole cost and expense, procure and keep in effect disability insurance, payable to Officer in an annual amount not less than sixty percent (60%) of Officer's then existing Base Salary ("Disability Policy").
- A lump sum payment equal to Officer's annual Base Salary then in effect, subject to standard payroll deductions and withholdings, payable within ten (10) days after Officer's last day of employment (the "Termination Date").
- Officer's target bonus for the fiscal year in which such termination occurs, as determined by the Board (or a Committee of the Board). If such target has not yet been determined, then Officer shall receive the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the Termination Date (or if there are less than two (2) years immediately preceding the Termination Date, then Officer shall receive an amount equal to the bonus received in the immediately preceding year).
- Full and immediate vesting of any awards granted to Officer under Corporation's stock option or incentive compensation plans, including, but not limited to, any restricted stock awards.
- Officer's Material (as defined below) breach, repudiation or failure to comply with or perform any of the terms of this Agreement, Officer's Proprietary Information and Inventions Agreement, any of Officer's duties, or any of Corporation's policies or procedures (including without limitation any such policies or procedures relating to conflicts of interests or standards of business conduct) or deliberate interference with the compliance by any other employee of Corporation with any of the foregoing;
- The conviction or guilty plea of Officer for, or pleading by Officer of no contest (or similar plea) to, fraud, embezzlement, misappropriation of assets, malicious mischief, or any felony, other than a crime for which vicarious liability is imposed upon Officer solely by reason of Officer's position with Corporation and not by reason of Officer's conduct; or
- Substantial and continual nonperformance of Officer's duties under this Agreement that the Board determines has resulted in, or is likely to result in, material injury to Corporation.
- A material breach of this Agreement by Corporation, if such breach is not cured by Corporation within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation; or
- Following a Change in Control, without Officer's express written consent, a material breach of this Agreement by Corporation, including the occurrence of any of the following circumstances, which breach is not cured within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation:
- the assignment to Officer of any duties inconsistent with the position in Corporation that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change;
- a reduction by Corporation in Officer's annual Base Salary as in effect on the date thereof or as the same may be increased from time-to-time, except pursuant to an across-the-board salary reduction similarly affecting all officers of Corporation and all officers of any person or entity whose actions resulted in a Change in Control;
- the involuntary relocation of Officer's offices to a location outside the Boston metropolitan area, or Corporation's requiring Officer to travel on Corporation's business to an extent not substantially consistent with Officer's business travel obligations immediately prior to the Change in Control;
- the failure by Corporation to pay Officer any portion of Officer's current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Corporation and all officers of any person or entity whose actions resulted in a Change in Control;
- the failure by Corporation to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Corporation, within seven (7) days of the date such compensation is due;
- the failure by Corporation to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer'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 Corporation to continue Officer'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;
- the failure by Corporation to continue to provide Officer with benefits substantially similar to those under any of Corporation's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Corporation which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by Officer at the time of the Change in Control, or the failure by Corporation to provide Officer with the number of paid vacation days to which Officer is entitled in accordance with Corporation's normal vacation policy in effect at the time of the Change in Control; or
- the failure of Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement.
- 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, (other than (A) the Corporation or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act) 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 Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or
- 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 Corporation) whose appointment or election by the Board or nomination for election by the Corporation'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
- There is consummated a merger or consolidation of the Corporation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Corporation 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 Corporation or any subsidiary of the Corporation, at least fifty percent (50%) of the combined voting power of the securities of the Corporation 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 Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or
- The stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale.
Officer agrees to be employed by and to serve Corporation as its Senior Vice President-Business Development and Strategic Operations or in such other capacity as may be determined by the Board of Directors of Corporation (the "Board"). Corporation agrees to employ and retain Officer in such capacities. Officer shall devote Officer's full business time, energy, and skill to the affairs of Corporation as shall be necessary to perform the duties of such positions. Officer shall report to the Chief Executive Officer of Corporation ("CEO") or such other officer as the CEO shall direct, and shall perform such duties as are assigned by the CEO, consistent with a Senior Vice President-level position within the Corporation. Officer shall be based in a new office of Corporation offices in Cambridge, Massachusetts, except for required travel on Corporation's business. CEO will consult with Officer about the terms of any lease for the new Cambridge office prior to entering into the lease. Corporation acknowledges and agrees that Officer is permitted to continue serving on the boards of directors for the non-profit organizations listed in Exhibit A, provided that: (a) such organizations provide Officer with directors and officers insurance coverage that is reasonably deemed to be a prudent level of coverage by the CEO; and (b) Officer's activities for such organizations do not interfere unreasonably with Officer's performance of her duties for the Corporation.
2.1 Salary.
2.2 Signing and Retention Bonus. On the Effective Date, Officer will receive a signing and retention bonus of fifty thousand dollars ($50,000), subject to standard payroll deductions and withholdings (the "Signing Bonus"). If, prior to the first anniversary of the Effective Date, Officer's employment terminates at Officer's request or Corporation terminates Officer's employment for Cause (as defined herein), then Officer must repay a portion of the Signing Bonus to Corporation, prorated based on Officer's actual length of employment during the period from the Effective Date through one year after the Effective Date.
2.3 Annual Discretionary Cash Performance and Retention Bonus. If Officer is in good standing as determined by the CEO with the concurrence of the Board (or a committee of the Board), Officer shall be eligible for a discretionary annual bonus that rewards performance and promotes employee retention. Officer shall be eligible to receive such a discretionary bonus for each fiscal year of Corporation (or portion thereof) during which Officer is employed by Corporation, with the actual amount of any such bonus to be determined by the CEO with the concurrence of the Board (or a committee of the Board) based upon an evaluation of the Corporation's and Officer's performance during such year and such other factors and conditions as the CEO with the concurrence of the Board (or a committee of the Board) deems relevant. Any such bonus shall be payable, to the extent practicable, within one hundred and eighty-five (185) days after the end of Corporation's fiscal year to which such bonus relates. Annual discretionary cash bonuses are not deemed to be earned and payable unless Officer is employed by Corporation on the payment date.
2.4 Annual Discretionary Restricted Stock Bonus. At the end of each fiscal year, Officer shall be eligible to be considered for an annual discretionary restricted stock bonus to be determined in Corporation's sole discretion, at the recommendation of the CEO, and by action of the Compensation Committee of the Board. Officer's performance and Corporation's performance will be the primary considerations in determining such bonus. Annual discretionary restricted stock bonuses are determined based on performance during the fiscal year.
2.5 Equity Compensation. Subject to approval of the Compensation Committee of the Board, on the Effective Date, Officer will receive a restricted stock grant (the "Grant") of ten thousand (10,000) shares of restricted common stock of Corporation, subject to the following vesting schedule under which the shares will vest contingent upon Officer's continued employment as of each scheduled vesting date: (1) one quarter (1/4) of the Grant shares (2,500 shares) to vest on February 1, 2006; (2) one quarter (1/4) of the Grant shares (2,500 shares) to vest on February 1, 2007; (3) one quarter (1/4) of the Grant shares (2,500 shares) to vest on February 1, 2008; and (4) one quarter (1/4) of the Grant shares (2,500 shares) to vest on February 1, 2009. The Grant will be governed by the terms and conditions of the Corporation's standard form of Restricted Stock Agreement to be provided to Officer by the Corporation.
2.6 Additional Benefits. Officer shall be entitled to the following additional benefits:
2.7 Reimbursement for Expenses. Corporation shall reimburse Officer for all reasonable and necessary out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of services pursuant to this Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to Corporation of vouchers or other statements itemizing such expenses in reasonable detail consistent with Corporation's then existing policies. In addition, Officer shall be entitled to reimbursement for (i) dues and membership fees in professional organizations and/or industry associations in which Officer is currently a member or becomes a member, and (ii) appropriate industry seminars and mandatory continuing education.
2.8 Withholding. Compensation and benefits paid to Officer under this Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law.
3. Confidential Information.
Officer is required to sign, and abide by, the Corporation's Employee Proprietary Information and Inventions Agreement for Massachusetts employees (the "Proprietary Information Agreement"). Furthermore, in performing services under this Agreement, Officer is expected not to make unauthorized use or disclosure of any confidential or proprietary information of any former employer or other third party. Officer is expected to use only that information generally known and used by persons with training and experience comparable to Officer's, common knowledge in the industry or otherwise legally in the public domain, or otherwise provided or developed by Corporation or by Officer in the course of Officer's employment by Corporation. Officer represents that Officer is able to perform Officer's job duties within these guidelines, and that Officer is not in unauthorized possession of any confidential documents or other property belonging to any former employer or other third party. Officer further represents that Officer has disclosed to Corporation any contract Officer has signed that may restrict Officer's activities on behalf of the Corporation.
4. Policies.
Officer is required to acknowledge receipt of Corporation's Employee Handbook, as evidenced by signing and returning the acknowledgment form contained in the Handbook, and to abide by all of Corporation's policies and procedures as they may be adopted from time to time, including but not limited to those set forth in the Handbook. Officer is also required to sign and abide by the Corporation's Securities Trading Policies.
5. Termination.
5.1 At-Will Employment. Officer's employment relationship with Corporation is at-will. Accordingly, both Officer and Corporation may terminate the employment relationship at any time with or without Cause or Good Reason, and with or without advance notice.
5.2 Termination Without Cause; Resignation for Good Reason. If at any time this Agreement is terminated by Corporation without Cause (as defined herein) or Officer resigns for Good Reason (as defined herein), and Officer provides Corporation with a signed general release of all claims substantially in the form attached hereto as Exhibit B and allows that release to become effective, then Corporation shall provide Officer with the following severance benefits:
5.3 Termination for Cause; Resignation Without Good Reason; Death or Disability. If Corporation terminates Officer's employment at any time for Cause, or Officer resigns employment without Good Reason, or the Agreement is terminated due to Officer's death or Disability (as defined below), then Officer's Base Salary shall cease as of the Termination Date, and Officer will not be entitled to severance pay, accelerated vesting, or any other such compensation, other than payment of accrued salary, any earned compensation that has been deferred, and such other benefits as expressly required in such event by applicable law or the terms of any applicable benefit plans. Any awards granted to Officer under Corporation's stock option or incentive compensation plans shall cease vesting as of the Termination Date.
5.4 Gross-Up. If any of the Total Payments (as hereinafter defined) will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (the "Excise Tax"), Corporation shall pay to Officer, no later than the tenth (10th) day following the Termination Date, an additional amount (the "Gross-Up Payment") such that the net amount retained by Officer, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and excise tax upon the payment provided for by this Paragraph, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with the termination of Officer's employment following a Change in Control (whether payable pursuant to the terms of this Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(l) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes.
6. Definitions.
6.1 Definition of Cause. For purposes of this Agreement, "Cause" shall mean any of the following:
For purposes of this Agreement, "Material" shall mean a breach, repudiation or failure that the Board determines has resulted, or is likely to result, in material injury to Corporation. Before terminating the Agreement for Cause, Corporation first shall have given Officer written notice specifying the circumstances constituting Cause and thirty (30) days thereafter in which to cure such circumstances, and Officer shall have failed to cure; provided, however, that no such notice is required if the circumstances are not reasonably susceptible of cure.
6.2 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. To terminate the Agreement for Good Reason, Officer shall deliver a written notice to Corporation within thirty (30) days after the occurrence constituting Good Reason, such notice to be provided at least thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the Termination Date).
6.3 Definition of Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if:
6.4 Definition of Disability. For purposes of this Agreement, Disability means that Officer is unable to work by reason of disability for 180 days during any 365 day period for disability.
7. Miscellaneous.
7.1 Payment Obligations. Corporation's obligation to pay Officer the compensation and to make the arrangements provided herein shall be unconditional, and Officer shall have no obligation whatsoever to mitigate damages hereunder. If an arbitration after a Change in Control is brought to enforce or interpret any provision contained herein, Corporation shall, to the extent permitted by applicable law and Corporation's Charter and By-Laws, indemnify Officer for Officer's reasonable attorneys' fees and disbursements incurred in such arbitration, if the arbitrator makes a finding that all such claims were made in good faith upon a reasonable belief about probability of success on the merits.
7.2 Waiver. Any waiver of the breach of any provision of this Agreement shall be in writing to be effective and shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof.
7.3 Entire Agreement; Modifications. Except as otherwise provided herein, this Agreement (together with the Proprietary Information Agreement and any other agreements and plans referred to herein) represents the entire understanding among the Parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, representations, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Corporation. All modifications to this Agreement must be in writing and signed by the party against whom enforcement of such modification is sought.
7.4 Notices. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first-class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below:
If to Corporation: Alexandria Real Estate Equities, Inc.
135 North Los Robles Avenue, Suite 250
Pasadena, California 91101
Phone: (626) 578-0777
Facsimile: (626) 578-0770
Attn: Joel S. Marcus, CEO
Any party may change such party's address for notices by notice duly given pursuant hereto.
7.5 Headings. The Paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of this Agreement.
7.6 Arbitration. To ensure the rapid and economical resolution of disputes that may arise in connection with Officer's employment with the Corporation, Officer and the Corporation agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the execution, enforcement, breach, performance, or interpretation of this Agreement, Officer's employment with the Corporation, or the termination of that employment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in Los Angeles, California conducted by JAMS, Inc. ("JAMS") or its successor, under JAMS' then applicable rules and procedures. Officer acknowledges that by agreeing to this arbitration procedure, both Officer and the Corporation waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. Officer will have the right to be represented by legal counsel at any arbitration 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 statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator's essential findings and conclusions on which the award is based. The arbitrator shall be authorized to award all relief that Officer or the Corporation would be entitled to seek in a court of law. The Corporation shall pay all JAMS arbitration fees in excess of the administrative fees that Officer would be required to pay if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Officer or the Corporation from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.
7.7 Severability. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted and modified consistent with the intent of the parties insofar as possible rather than voided, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent lawfully permitted.
7.8 Survival of Corporation's Obligations. Corporation's obligations hereunder (including any indemnification or severance obligations) shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of Corporation. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the Parties; provided, however, that except as herein expressly provided, this Agreement shall not be assignable either by Corporation (except to an affiliate of the Corporation, in which event Corporation shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer.
7.9 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement.
7.10 Indemnification. In addition to any rights to indemnification to which Officer is entitled under the Corporation's Charter and By-Laws, Corporation shall indemnify Officer at all times during and after Officer'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 Officer'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.
7.11 Reference and Background Checks. Officer agrees that the offer of employment embodied in this Agreement is contingent upon completion of a reference check and background check (performed pursuant to Officer's specific written authorization) in a form satisfactory to Corporation. Corporation agrees to notify Officer upon the completion of such checks.
7.12 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts, without regard to conflict of laws principles.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement.
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CORPORATION: |
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ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By:/s/ Joel S. Marcus Joel S. Marcus |
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OFFICER: /s/ Nancy J. Kelley Nancy J. Kelley Date: January 14, 2005 |
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)
Three Months Year Ended December 31, (a)
Ended -----------------------------------------
3/31/05 2004 2003 2002 (b) 2001
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Income From Continuing Operations........ $14,989 $58,569 $48,504 $38,271 $27,582
Add Back:
Interest Expense....................... 11,321 28,670 26,416 24,984 27,666
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Earnings Available for Fixed Charges $26,310 $87,239 $74,920 $63,255 $55,248
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Combined Fixed Charges and Preferred
Stock Dividends:
Interest Incurred...................... $17,952 $46,733 $40,647 $39,865 $39,380
Preferred Stock Dividends.............. 4,022 12,595 8,898 8,579 3,666
Preferred Stock Redemption Charge...... - 1,876 - - -
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Total Combined Fixed Charges and
Preferred Stock Dividends............ $21,974 $61,204 $49,545 $48,444 $43,046
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Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends(c)....... 1.20 1.43(d) 1.51 1.31 1.28
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- Amounts disclosed for periods prior to 2003 have been reclassified to conform to the current year presentation related to discontinued operations.
- 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.
- For purposes of calculating the consolidated ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of earnings from continuting operations before income taxes and fixed charges. Fixed charges consist of interest incurred (including amortization of deferred financing costs and capitalized interest) and preferred stock dividends.
- Ratio of earnings to combined fixed charges and preferred stock dividends for the year ended December 31, 2004 includes the effect of the preferred stock redemption charge pursuant to Emerging Issues Task Force Topic D-42. Excluding the impact of this charge, the ratio of earnings to combined fixed charges and preferred stock dividends for the year ended December 31, 2004 is 1.47.
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:
- I have reviewed this quarterly report on Form 10-Q of Alexandria Real Estate Equities, Inc.;
- 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;
- 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;
- 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:
- 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;
- 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;
- 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
- 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
- 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):
- 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
- 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: May 10, 2005
/s/ Joel S. Marcus
Joel S. Marcus
Chief Executive Officer
(Principal Executive Officer)
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:
- I have reviewed this quarterly report on Form 10-Q of Alexandria Real Estate Equities, Inc.;
- 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;
- 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;
- 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:
- 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;
- 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;
- 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
- 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
- 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 registrant's the board of directors (or persons performing the equivalent functions):
- 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
- 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: May 10, 2005
/s/ Dean A. Shigenaga
Dean A. Shigenaga
Chief Financial Officer
(Principal Financial and Accounting Officer)
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 March 31, 2005 fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934 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: May 10, 2005
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/s/ Joel S. Marcus |
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Joel S. Marcus |
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Chief Executive Officer |
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 March 31, 2005 fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934 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: May 10, 2005
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/s/ Dean A. Shigenaga |
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Dean A. Shigenaga |
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Chief Financial Officer |