Alexandria Real Estate Equities, Inc 10-Q, filed Nov 9, 2006
Alexandria Real Estate Equities, Inc. (ARE)
About this 10-Q
Alexandria Real Estate Equities, Inc filed this 10-Q on November 9, 2006, covering the quarter ended September 30, 2006.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006 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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385 East Colorado Boulevard, Suite 299, Pasadena, California 91101
(Address of principal executive offices) (Zip Code)
(626) 578-0777
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of November 6, 2006, 29,271,223 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 September 30, 2006 and December 31, 2005 |
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Condensed Consolidated Income Statements - For the Three and Nine Months Ended September 30, 2006 and 2005 |
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Condensed Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2006 and 2005 |
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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 (UNAUDITED)
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
September 30, December 31,
2006 2005
------------ ------------
(Unaudited)
Assets
Rental properties, net $ 2,683,222 $ 1,788,818
Properties under development and development land 326,392 329,338
Cash and cash equivalents 7,821 3,911
Tenant security deposits and other restricted cash 43,772 21,013
Tenant receivables 5,012 4,764
Deferred rent 62,820 54,573
Investments 72,096 82,010
Other assets 104,707 78,023
------------ ------------
Total assets $ 3,305,842 $ 2,362,450
============ ============
Liabilities and Stockholders' Equity
Secured notes payable $ 1,169,348 $ 666,666
Unsecured line of credit and unsecured term loan 552,000 740,000
Accounts payable, accrued expenses and
tenant security deposits 149,278 86,391
Dividends payable 24,692 19,478
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Total liabilities 1,895,318 1,512,535
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Minority interests' share of income 57,389 20,115
Stockholders' equity:
Series B preferred stock 57,500 57,500
Series C preferred stock 129,638 129,638
Common stock 290 224
Additional paid-in capital 1,140,088 607,405
Accumulated other comprehensive income 25,619 35,033
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Total stockholders' equity 1,353,135 829,800
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Total liabilities and stockholders' equity $ 3,305,842 $ 2,362,450
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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 Nine Months Ended
September 30, September 30,
------------ ----------- ------------ -----------
2006 2005 2006 2005
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Revenues
Rental $ 64,250 $ 47,523 $ 171,535 $ 135,596
Tenant recoveries 17,527 13,153 44,839 35,622
Other income 3,431 1,350 7,909 3,140
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85,208 62,026 224,283 174,358
Expenses
Rental operations 19,868 13,950 49,641 38,836
General and administrative 6,653 5,993 19,374 15,180
Interest 19,041 13,160 50,223 35,729
Depreciation and amortization 19,973 13,744 51,416 39,338
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65,535 46,847 170,654 129,083
Minority interests' share of income 709 234 1,449 257
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Income from continuing operations 18,964 14,945 52,180 45,018
Income from discontinued operations, net -- 1,046 701 2,235
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Net income 18,964 15,991 52,881 47,253
Dividends on preferred stock 4,022 4,022 12,067 12,067
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Net income available to common stockholders $ 14,942 $ 11,969 $ 40,814 $ 35,186
=========== =========== =========== ===========
Earnings per share - basic
Continuing operations (net of preferred stock dividends) $ 0.57 $ 0.52 $ 1.68 $ 1.61
Discontinued operations, net -- 0.05 0.03 0.11
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Earnings per share - basic $ 0.57 $ 0.57 $ 1.71 $ 1.72
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Earnings per share - diluted
Continuing operations (net of preferred stock dividends) $ 0.56 $ 0.51 $ 1.65 $ 1.58
Discontinued operations, net -- 0.05 0.03 0.11
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Earnings per share - diluted $ 0.56 $ 0.56 $ 1.68 $ 1.69
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Weighted average shares of common stock oustanding
Basic 26,323,345 21,091,183 23,848,661 20,504,633
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Diluted 26,714,050 21,486,731 24,268,236 20,857,755
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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)
Nine Months Ended
September 30,
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2006 2005
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Operating Activities
Net income $ 52,881 $ 47,253
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of property (59) (36)
Minority interests' share of income 1,449 257
Depreciation and amortization 51,585 39,965
Amortization of loan fees and costs 3,389 5,211
Amortization of premiums on secured notes payable (767) (787)
Stock compensation expense 5,883 4,635
Equity in loss (income) related to investments 665 (404)
Gain on sale of investments (5,609) (1,288)
Changes in operating assets and liabilties:
Tenant security deposits and other restricted cash (22,759) (1,765)
Tenant receivables (248) (715)
Deferred rent (10,731) (8,660)
Other assets (21,663) (19,546)
Accounts payable, accrued expenses and tenant security deposits 25,634 22,546
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Net cash provided by operating activities 79,650 86,666
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Investing Activities
Purchase of rental properties (509,636) (169,129)
Proceeds from sale of rental property 33,040 1,182
Additions to rental properties (76,972) (56,073)
Additions to properties under development and development land (95,661) (60,519)
Additions to investments (7,903) (7,290)
Proceeds from investments 14,466 7,521
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Net cash used in investing activities (642,666) (284,308)
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Financing Activities
Proceeds from secured notes payable 474,000 33,580
Principal reductions of secured notes payable (194,271) (27,080)
Principal borrowings from unsecured line of credit and unsecured
term loan 670,600 279,000
Repayments of unsecured line of credit (858,600) (222,000)
Proceeds from issuance of common stock 535,262 185,562
Proceeds from exercise of stock options 3,634 3,424
Dividends paid on common stock (50,454) (41,109)
Dividends paid on preferred stock (12,067) (12,067)
Distributions to minority interest (1,178) (275)
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Net cash provided by financing activities 566,926 199,035
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Net increase in cash and cash equivalents 3,910 1,393
Cash and cash equivalents at beginning of period 3,911 3,158
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Cash and cash equivalents at end of period $ 7,821 $ 4,551
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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 principally in the ownership, operation, management, acquisition, and selective redevelopment and development for our Life Science Real Estate NicheSM. We refer to these properties as "life science properties". Our life science properties are designed and improved for lease primarily to institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, life science product, service, biodefense and translational research entities, as well as government agencies. As of September 30, 2006, we had 151 properties (148 properties located in eight life science markets in the United States and three properties located in Canada) with approximately 10.6 million rentable square feet of office/laboratory space, compared to 127 properties (126 properties in eight life science markets in the United States and one property located in Canada) with approximately 8.4 million rentable square feet of office/laboratory space as of September 30, 2005.
As of September 30, 2006, approximately 88% of our leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses, including increases thereto. In addition, as of September 30, 2006, approximately 5% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Additionally, as of September 30, 2006, approximately 91% of our leases (on a square footage basis) provided for the recapture of certain capital expenditures and approximately 89% of our leases (on a square footage basis) contained effective annual rent escalations that are either fixed or indexed based on the consumer price index or another index.
2. Basis of Presentation
We have prepared the accompanying interim financial statements in accordance with accounting principles generally accepted in the United States and in conformity with the rules and regulations of the Securities and Exchange Commission. In our opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. 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, 2005.
The accompanying condensed consolidated financial statements include the accounts of Alexandria Real Estate Equities, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
We hold interests, together with certain third parties, in a limited partnership and in limited liability companies which we consolidate in our financial statements. Such interests are subject to provisions of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities", FASB Emerging Issues Task Force Issue No. 96-16, "Investor's Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights", FASB Emerging Issues Task Force Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights" and AICPA Statement of Position 78-9, "Accounting for Investments in Real Estate Ventures". Based on the provisions set forth in these rules, we consolidate the limited partnership and limited liability companies because we exercise significant control over major decisions by these entities, such as investment activity and changes in financing.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
International Operations
The functional currency for our subsidiaries operating in the United States is the U.S. dollar. We own three operating properties in Canada through wholly-owned Canadian subsidiaries. The functional currency for our foreign subsidiaries operating in Canada is the local currency, the Canadian dollar. The assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect as of the financial statement date. Income statement accounts of our foreign subsidiaries are translated using the average exchange rate for the period presented. Gains resulting from the translation are included in accumulated other comprehensive income as a separate component of stockholders' equity.
The appropriate amounts of exchange gains or losses included in accumulated other comprehensive income are reflected in income when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment.
Rental Properties, Properties Under Development and Land Held For Development
In accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations", we perform the following procedures when making an allocation of the purchase price of real estate: (1) estimate the fair value of the real estate as of the acquisition date on an "as if vacant" basis; (2) allocate the "as if vacant" value among land, land improvements, buildings, buildings improvements, tenant improvements and equipment; (3) calculate the value of the intangibles as the difference between the "as if vacant" value and the purchase price; and (4) allocate the intangible value to above, below, and at market leases, origination costs associated with in-place leases, tenant relationships and other intangible assets.
The purchase price of some of our acquisitions completed in 2006 has been allocated on a preliminary basis to the respective assets acquired and the liabilities assumed. We expect to finalize our purchase price accounting no later than twelve months from the date of acquisition.
Conditional Asset Retirement Obligations
Some of our properties may have asbestos which, under certain conditions, must be remediated. Although we believe that the asbestos is appropriately contained in accordance with environmental regulations, our practice is to remediate the asbestos upon the development or redevelopment of the affected property. In accordance with Financial Accounting Standards Board Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - - an Interpretation of FASB Statement No. 143" ("FIN No. 47"), we recognize a liability for the fair value of a conditional asset retirement obligation (including asbestos) when the fair value of the liability can be reasonably estimated. In addition, for certain properties, we have not recognized an asset retirement obligation when there is an indeterminate settlement date for the obligation because the period in which we may remediate the obligation may not be estimated with any level of precision to provide for a meaningful estimate of the retirement obligation.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following (in thousands):
September 30, December 31,
2006 2005
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Unrealized gain on marketable securities $ 20,078 $ 28,373
Unrealized gain on interest rate
swap agreements 1,359 4,867
Unrealized foreign currency translation gain 4,182 1,793
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$ 25,619 $ 35,033
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The following table provides a reconciliation of comprehensive income (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
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2006 2005 2006 2005
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Net income $ 18,964 $ 15,991 $ 52,881 $ 47,253
Unrealized (loss) gain on marketable securities (4,416) 2,646 (8,295) 8,222
Unrealized (loss) gain on interest rate swap agreements (10,509) 4,620 (3,508) 5,712
Unrealized foreign currency translation gain 448 1,011 2,389 1,126
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Comprehensive income $ 4,487 $ 24,268 $ 43,467 $ 62,313
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Earnings Per Share and Dividends Declared
The following table shows the computation of earnings per share, and dividends declared per common share (dollars in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
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2006 2005 2006 2005
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Net income available to common stockholders $ 14,942 $ 11,969 $ 40,814 $ 35,186
=========== =========== =========== ============
Weighted average shares of common stock
outstanding - basic 26,323,345 21,091,183 23,848,661 20,504,633
Add: dilutive effect of stock options and
stock grants 390,705 395,548 419,575 353,122
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Weighted average shares of common stock
outstanding - diluted 26,714,050 21,486,731 24,268,236 20,857,755
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Earnings per share - basic $ 0.57 $ 0.57 $ 1.71 $ 1.72
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Earnings per share - diluted $ 0.56 $ 0.56 $ 1.68 $ 1.69
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Dividends declared per common share $ 0.72 $ 0.68 $ 2.12 $ 2.02
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Stock-Based Compensation Expense
Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R") under the modified-prospective transition method whereby compensation expense is recognized relating to the remaining unvested portion of outstanding stock options at the time of adoption, and the expense is recognized over the remaining service period. In addition, SFAS 123R requires that we account for an estimate of awards that are expected to vest and to revise the estimate for actual forfeitures. The adoption of SFAS 123R did not have a material impact on our financial statements since all awards accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") were fully vested prior to the adoption of SFAS 123R. Effective January 1, 2003, we had 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. For 2002 and all prior years, we had elected to follow ABP 25 and related interpretations in accounting for our employee and non-employee director stock options, stock grants and stock appreciation rights. We have not granted any stock options since 2002.
Under APB 25, because the exercise price of the options we granted equaled the market price of the underlying stock on the date of grant, no compensation expense related to stock options had been recognized prior to the adoption of SFAS 123R. Although we have elected to follow APB 25 for previously granted options prior to January 1, 2003, pro forma information regarding net income and net income per share is required by SFAS 123R for all periods presented prior to 2006. 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 Nine Months Ended
September 30, September 30,
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2006 2005 2006 2005
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Net income available to common
stockholders, as reported $ 14,942 $ 11,969 $ 40,814 $ 35,186
Fair value of stock-based compensation cost -- (22) -- (152)
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Pro forma net income available to common
stockholders $ 14,942 $ 11,947 $ 40,814 $ 35,034
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Income per common share:
Basic - as reported $ 0.57 $ 0.57 $ 1.71 $ 1.72
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Basic - pro forma $ 0.57 $ 0.57 $ 1.71 $ 1.71
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Diluted - as reported $ 0.56 $ 0.56 $ 1.68 $ 1.69
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Diluted - pro forma $ 0.56 $ 0.56 $ 1.68 $ 1.68
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3. Rental Properties, Net
Rental properties, net consist of the following (in thousands):
September 30, December 31,
2006 2005
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Land $ 357,807 $ 296,841
Buildings and building improvements 2,389,842 1,559,385
Other improvements 195,668 153,482
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2,943,317 2,009,708
Less accumulated depreciation (260,095) (220,890)
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$ 2,683,222 $ 1,788,818
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In July 2006, we completed the acquisition of a 90% equity interest in the leasehold interest in 10.4 acres commonly known as Technology Square ("Tech Square") at Massachusetts Institute of Technology ("MIT") in Cambridge, Massachusetts. The remaining 10% equity interest was retained by MIT. MIT is also a tenant at Tech Square occupying 178,952 rentable square feet as of September 30, 2006. The results of Tech Square's operations have been included in the Company's consolidated financial statements since that date. Tech Square consists of a seven building campus (including a 1,593 space covered car parking garage and a 49 space surface parking lot) containing approximately 1.2 million square feet and is subject to a ground lease with an affiliate of MIT through December 31, 2064.
In accordance with FAS 141, we allocated the purchase price based upon the relative fair values of the assets acquired and liabilities assumed including rental properties of $620 million, other assets of $5 million, secured notes payable of $233 million, accounts payable, accrued expenses and tenant security deposits of $26 million and minority interest of $37 million.
On an unaudited pro forma basis, reflecting the acquisitions of Tech Square, the issuance of common 2.5 million shares of common stock with proceeds of approximately $232 million and borrowings on our unsecured line of credit of approximately $106 million as if it had occurred on January 1, 2006 and 2005, the Company would have reflected total consolidated revenues of $255.0 million and $211.4 million for the nine months ended September 30, 2006 and 2005, respectively. Net income available to common stockholders would have been approximately $43.9 million and $38.4 million for the nine months ended September 30, 2006 and 2005, respectively. Net income available to common stockholders on a diluted per share basis would have been $1.64 for the nine months ended September 30, 2006 and 2005.
4. Investments
We hold equity investments in certain publicly-traded companies and privately held entities primarily involved in the life science industry. All of our investments in publicly-traded companies are considered "available for sale" in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", and are recorded at fair value. Investments in privately held entities are generally
accounted for under the cost method because we do not influence any operating and financial policies of the entities in which we invest. Certain investments are accounted for under the equity method in accordance with Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB 18") and Emerging Issues Task Force Topic D- 46, "Accounting for Limited Partnerships" ("EITF Topic D-46"). For all our investments, if a decline in the fair value of an investment below its carrying value is determined to be other than temporary, such investment is written down to its estimated fair value with a non-cash charge to current earnings. The factors that we consider in making these assessments include, but are not limited to, market prices, market conditions, prospects for favorable or unfavorable clinical trial results, new product initiatives and new collaborative agreements.
The following table summarizes our available-for-sale securities (in thousands):
September 30, December 31,
2006 2005
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Adjusted cost of available-for-sale securities $ 4,793 $ 4,740
Gross unrealized gains 21,487 29,135
Gross unrealized losses (1,409) (762)
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Fair value of available-for-sale securities $ 24,871 $ 33,113
============ ============
We believe that the gross unrealized losses shown above are temporary and accordingly we have not recognized an other-than-temporary impairment related to available-for-sale securities as of September 30, 2006 and December 31, 2005.
Our investments in privately held entities as of September 30, 2006 and December 31, 2005 totaled $47,225,000 and $48,897,000, respectively. Of these totals, $46,628,000 and $47,164,000 are accounted for under the cost method. The remainder ($597,000 and $1,733,000 as of September 30, 2006 and December 31, 2005, respectively) are accounted for under the equity method in accordance with APB 18 and EITF Topic D-46. As of September 30, 2006, there were no unrealized losses in our investments in privately held entities.
5. Unsecured Line of Credit and Unsecured Term Loan
As of September 30, 2006, we had an unsecured line of credit that provides for borrowings of up to $500 million. As of September 30, 2006, we had borrowings of $52 million outstanding on the unsecured line of credit with a weighted average interest rate of 6.48% and a maturity date of December 2007. As of September 30, 2006, we had an unsecured term loan with outstanding borrowings of $500 million with a weighted average interest rate of 6.48% and a maturity date of December 2009.
In October 2006, we entered into an amendment to our amended and restated credit agreement to increase the maximum permitted borrowings under our unsecured credit facilities from $1 billion to $1.4 billion consisting of a $800 million unsecured revolving credit facility and a $600 million unsecured term loan. We may in the future elect to increase commitments under the unsecured credit facilities by up to an additional $350 million.
Borrowings under our unsecured line of credit, as amended, bear interest at a floating rate based on our election of either a LIBOR-based rate or the higher of the bank's reference rate and the Federal Funds rate, plus 0.5%. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months. The unsecured line of credit and unsecured term loan, as amended, matures in October 2010 and October 2011, respectively. The unsecured line of credit and unsecured term loan may be extended at our sole option for an additional one-year period.
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 primarily 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 may increase up to a maximum combined amount of $1.4 billion.
6. Interest Rate Swaps
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 rate interest payments without the exchange of the underlying principal amount (the "notional amount"). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
The following table summarizes our interest rate swap agreements as of September 30, 2006 (dollars in thousands):
Notional Effective at Interest Termination Fair
Transaction Dates Effective Dates Amounts Sept. 30, 2006 Pay Rates Dates Values
- ------------------ --------------- ------------ ------------- -------- ---------------- --------
December 2003 December 30, 2005 50,000 $ 50,000 4.150% December 29, 2006 $ 144
December 2003 December 29, 2006 50,000 -- 5.090% October 31, 2008 (153)
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 147
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 147
April 2004 April 28, 2006 50,000 50,000 4.230% April 30, 2007 302
April 2004 April 30, 2007 50,000 -- 4.850% April 30, 2008 25
June 2004 June 30, 2005 50,000 50,000 4.343% June 30, 2007 334
December 2004 December 31, 2004 50,000 50,000 3.590% January 2, 2008 1,007
December 2004 January 3, 2006 50,000 50,000 3.927% July 1, 2008 978
May 2005 December 30, 2005 25,000 25,000 4.120% November 30, 2006 51
May 2005 June 30, 2006 50,000 50,000 4.270% June 29, 2007 363
May 2005 November 30, 2006 25,000 -- 4.330% November 30, 2007 189
May 2005 June 29, 2007 50,000 -- 4.400% June 30, 2008 214
May 2005 November 30, 2007 25,000 -- 4.460% November 28, 2008 74
May 2005 June 30, 2008 50,000 -- 4.509% June 30, 2009 131
May 2005 November 28, 2008 25,000 -- 4.615% November 30, 2009 47
December 2005 December 29, 2006 50,000 -- 4.730% November 30, 2009 203
December 2005 December 29, 2006 50,000 -- 4.740% November 30, 2009 190
December 2005 January 2, 2008 50,000 -- 4.768% December 31, 2010 86
June 2006 June 30, 2006 125,000 125,000 5.299% September 30, 2009 (1,353)
June 2006 October 31, 2008 50,000 -- 5.340% December 31, 2010 (436)
June 2006 October 31, 2008 50,000 -- 5.347% December 31, 2010 (443)
June 2006 June 30, 2008 50,000 -- 5.325% June 30, 2010 (444)
June 2006 June 30, 2008 50,000 -- 5.325% June 30, 2010 (444)
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Total Notional Amount in Effect at Sept. 30, 2006 $ 500,000 $ 1,359
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7. Minority Interest
Minority interest represents the third party interests in certain entities, which own nine properties and one development parcel and are included in our consolidated financial statements. We have a controlling interest in these entities. Minority interest is adjusted for additional contributions, distributions to minority holders and the minority holders' proportionate share of the net earnings or losses of each respective entity. Distributions, profits and losses related to these entities are allocated in accordance with the respective operating agreements. As of September 30, 2006 and December 31, 2005 the aggregate minority interest balances related to these entities were approximately $57.4 million and $20.1 million, respectively, and are classified as minority interest in the accompanying condensed consolidated balance sheets.
8. Stockholders' Equity
In September 2006, we sold 2,500,000 shares of our common stock in an underwritten offering. The shares were issued at a price of $94.75 per share, resulting in aggregate proceeds of approximately $232.2 million (after deducting underwriting discounts and other offering costs).
In June 2006, we sold 3,795,000 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 $84.00 per share, resulting in aggregate proceeds of approximately $303.1 million (after deducting underwriting discounts and other offering costs).
In September 2006, we declared a cash dividend on our common stock aggregating $21,012,000 ($0.72 per share) for the calendar quarter ended September 30, 2006. In September 2006, 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 July 15, 2006 through October 13, 2006. The dividends on our common stock, Series B preferred stock and Series C preferred stock were paid on October 13, 2006.
9. Non-Cash Transactions
During the nine months ended September 30, 2006, we assumed one secured note payable and minority interest in connection with the acquisition of seven properties, in one transaction, located in the Eastern Massachusetts market. During the nine months ended September 30, 2005, we assumed six secured notes payable in connection with the acquisition of six properties, in six separate transactions, located in the San Francisco Bay, Suburban Washington D.C., Eastern Massachusetts and Washington - Seattle markets. The following table summarizes these transactions (in thousands):
Nine Months Ended
September 30,
----------------------------
2006 2005
------------ ------------
Aggregate purchase price $ 600,000 $ 44,959
Minority interest 36,898 --
Secured notes payable assumed 224,998 25,466
------------ ------------
Cash paid for properties $ 338,104 $ 19,493
============ ============
10. Discontinued Operations
In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), we classify a property as "held for sale" when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition, subject only to the terms that are usual and customary; (3) an active program to locate a buyer, and other actions required to complete the plan to sell, have been initiated; (4) the sale of the property is probable and is expected to be completed within one year; (5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When the property is classified as "held for sale", its operations are classified as discontinued operations in our consolidated statements of income. When a property is designated as "held for sale", amounts for all prior periods presented are reclassified from continuing operations to discontinued operations. A loss is recognized for any initial adjustment of the asset's carrying amount to fair value less costs to sell in the period the asset qualifies as "held for sale". Depreciation of assets is discontinued commencing on the date they are designated as "held for sale".
The following is a summary of income from discontinued operations, net and net assets of discontinued operations (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Total revenue $ -- $ 1,753 $ 1,202 $ 3,777
Operating expenses -- 414 391 951
------------ ------------ ------------ ------------
Revenue less operating expenses -- 1,339 811 2,826
Depreciation expense -- 329 169 627
Income before gain/(loss) on ------------ ------------ ------------ ------------
sales of property -- 1,010 642 2,199
Gain/(loss) on sales of property -- 36 59 36
------------ ------------ ------------ ------------
Income from discontinued operations, net $ -- $ 1,046 $ 701 $ 2,235
============ ============ ============ ============
September 30, December 31,
2006 2005
------------ ------------
Properties held for sale, net $ -- $ 37,329
Other assets -- 3,403
------------ ------------
Total assets $ -- $ 40,732
============ ============
Total liabilities -- 373
------------ ------------
Net assets of discontinued operations $ -- $ 40,359
============ ============
Income from discontinued operations, net includes the results of operations of one property we sold during the third quarter of 2005, and three properties we sold during the second quarter of 2006. During the second quarter of 2006, we sold one property located in the New Jersey/Suburban Philadelphia market and we sold two properties located in the Suburban Washington D.C. market that had been designated as "held for sale" during the first quarter of 2006. The total sale price for the properties sold in the second quarter of 2006 was approximately $41.8 million. In connection with these sales, we recorded a gain on sales of property of approximately $59,000. During the third quarter of 2005, we sold one property located in the Southeast market. The total sale price for the property sold in the third quarter of 2005 was approximately $1.3 million. In connection with this sale, we recorded a gain of approximately $36,000.
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, 2005. 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 and selective redevelopment and development for the Life Science Real Estate NicheSM. Such properties are designed and improved for lease primarily to institutional (universities and independent not-for-profit institutions), pharmaceutical, biotechnology, medical device, life science product, service, biodefense and translational research entities, as well as government agencies.
As of September 30, 2006, we had 151 properties containing approximately 10.6 million rentable square feet of office/laboratory space. As of that date, our properties were approximately 93% leased, excluding spaces at properties undergoing a permanent change in use to office/laboratory space through redevelopment. Our primary sources of revenue are rental income and tenant recoveries from leases of our properties. The comparability of financial data from period to period is affected by the timing of our property acquisition, development and redevelopment activities.
As of September 30, 2006, approximately 88% of our leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses, including increases thereto. In addition, as of September 30, 2006, approximately 5% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Additionally, as of September 30, 2006, approximately 91% of our leases (on a square footage basis) provided for the recapture of certain capital expenditures and approximately 89% of our leases (on a square footage basis) contained effective annual rent escalations that are either fixed or indexed based on the consumer price index or another index.
Results of Operations
Comparison of Three Months Ended September 30, 2006 ("Third Quarter 2006") to Three Months Ended September 30, 2005 ("Third Quarter 2005")
Rental revenues increased by $16.7 million, or 35%, to $64.3 million for Third Quarter 2006 compared to $47.5 million for Third Quarter 2005. The increase resulted primarily from rental revenues from properties acquired, placed in service or redeveloped after July 1, 2005 and increases in rental rates related to renewed and/or releasable space leased.
Tenant recoveries increased by $4.4 million, or 33%, to $17.5 million for Third Quarter 2006 compared to $13.2 million for Third Quarter 2005. The increase resulted primarily from tenant recoveries from properties acquired, placed in service or redeveloped after July 1, 2005.
Other income for Third Quarter 2006 of $3.4 million and $1.4 million for Third Quarter 2005 represents construction management fees, storage, interest and investment income. The increase in other income from Third Quarter 2006 compared to Third Quarter 2005 is due to overall increases from each of these sources of other income. As a percentage of total revenues, other income for Third Quarter 2006 remained relatively consistent with Third Quarter 2005 at approximately 2-4% of total revenues.
Rental operating expenses increased by $5.9 million, or 42%, to $19.9 million for Third Quarter 2006 compared to $14.0 million for Third Quarter 2005. The increase resulted primarily from rental operating expenses (primarily property taxes and utilities) from properties acquired, placed in service or redeveloped after July 1, 2005. The majority of the increase in rental operating expenses is recoverable from our tenants through tenant recoveries.
General and administrative expenses increased by $0.7 million, or 11%, to $6.7 million for Third Quarter 2006 compared to $6.0 million for Third Quarter 2005 primarily due to the growth in both the depth and breadth of our operations in multiple markets, including internationally, from 127 properties with approximately 8.4 million rentable square feet at September 30, 2005 to 151 properties with approximately 10.6 million rentable square feet at September 30, 2006. As a percentage of total revenues, general and administrative expenses for Third Quarter 2006 remained relatively consistent with Third Quarter 2005 at approximately 8-9% of total revenues.
Interest expense increased by $5.9 million, or 45%, to $19.0 million for Third Quarter 2006 compared to $13.2 million for Third Quarter 2005. The increase resulted primarily from increases in indebtedness on our unsecured line of credit, unsecured term loan and secured notes payable, and increases in the variable interest rates on our unsecured line of credit, unsecured term loan and other variable rate debt. These borrowings were utilized to finance the acquisition of properties in 2005 and 2006, and the development and redevelopment of properties. The weighted average interest rate on our unsecured line of credit and unsecured term loan (not including the effect of interest rate swap agreements) increased from 5.17% as of September 30, 2005 to 6.48% as of September 30, 2006. We have entered into certain swap agreements to hedge a portion of our exposure to variable interest rates with our unsecured line of credit and unsecured term loan (see "Liquidity and Capital Resources - Interest Rate Swaps").
Depreciation and amortization increased by $6.2 million, or 45%, to $20.0 million for Third Quarter 2006 compared to $13.7 million for Third Quarter 2005. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped after July 1, 2005.
Income from discontinued operations of $1.0 million for Third Quarter 2005 reflects the results of operations of three properties that were designated as "held for sale" as of March 31, 2006, and one property that was designated as "held for sale" as of June 30, 2005. There were no properties designated as "held for sale" as of September 30, 2006.
Comparison of Nine Months Ended September 30, 2006 ("Nine Months 2006") to Nine Months Ended September 30, 2005 ("Nine Months 2005")
Rental revenues increased by $35.9 million, or 27%, to $171.5 million for Nine Months 2006 compared to $135.6 million for Nine Months 2005. The increase resulted primarily from rental revenue from properties acquired, placed in service or redeveloped after January 1, 2005 and increases in rental rates related to renewed and/or releasable space leased.
Tenant recoveries increased by $9.2 million, or 26%, to $44.8 million for Nine Months 2006 compared to $35.6 million for Nine Months 2005. The increase resulted primarily from properties acquired, placed in service or redeveloped after January 1, 2005.
Other income for Nine Months 2006 of $7.9 million and $3.1 million for Nine Months 2005 represents construction management fees, storage, interest and investment income. The increase in other income from Nine Months 2006 compared to Nine Months 2005 is due to overall increases in each of these sources of other income. As a percentage of total revenues, other income for Nine Months 2006 remained relatively consistent with Nine Months 2005 at approximately 2-4% of total revenues.
Rental operating expenses increased by $10.8 million, or 28%, to $49.6 million for Nine Months 2006 compared to $38.8 million for Nine Months 2005. The increase resulted primarily from increases in rental operating expenses (primarily property taxes and utilities) from properties acquired, placed in service or redeveloped after January 1, 2005. The majority of the increase in rental operating expenses is recoverable from our tenants through tenant recoveries.
General and administrative expenses increased by $4.2 million, or 28%, to $19.4 million for Nine Months 2006 compared to $15.2 million for Nine Months 2005 primarily due to the growth in both the depth and breadth of our operations in multiple markets, including internationally, from 127 properties with approximately 8.4 million rentable square feet at September 30, 2005 to 151 properties with approximately 10.6 million rentable square feet at September 30, 2006. As a percentage of total revenues, general and administrative expenses for Nine Months 2006 remained relatively consistent with Nine Months 2005 at approximately 8-9% of total revenues.
Interest expense increased by $14.5 million, or 41%, to $50.2 million for Nine Months 2006 compared to $35.7 million for Nine Months 2005. 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, unsecured term loan and other floating rate debt. These borrowings were utilized to finance the acquisition of properties in 2005 and 2006, 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 5.17% as of September 30, 2005 to 6.48% as of September 30, 2006. We have entered into certain swap agreements to hedge a portion of our exposure to variable interest rates with our unsecured line of credit and unsecured term loan (see "Liquidity and Capital Resources - Interest Rate Swaps ").
Depreciation and amortization increased by $12.1 million, or 31%, to $51.4 million for Nine Months 2006 compared to $39.3 million for Nine Months 2005. The increase resulted primarily from depreciation associated with the properties acquired, placed in service or redeveloped after January 1, 2005.
Income from discontinued operations, net was $0.7 million and $2.2 million for Nine Months 2006 and Nine Months 2005, respectively. It reflects the results of operations of three properties that were designated as "held for sale" as of March 31, 2006, and one property that was designated as "held for sale" as of June 30, 2005.
Liquidity and Capital Resources
Cash flows
Net cash provided by operating activities for Nine Months 2006 decreased by $7.0 million to $79.7 million compared to $86.7 million for Nine Months 2005. The decrease resulted primarily from an increase in tenant security deposits and other restricted cash offset by an increase in cash flows from our operating activities.
Net cash used in investing activities for Nine Months 2006 increased by $358.4 million to $642.7 million compared to $284.3 million for Nine Months 2005. This increase was primarily due to a higher amount of purchases of rental properties including redevelopment properties, and additions to properties under development and development land for the Nine Months 2006.
Net cash provided by financing activities for Nine Months 2006 increased by $367.9 million to $566.9 million compared to $199.0 million for Nine Months 2005. This increase was primarily due to the net proceeds from the issuance of common stock and proceeds from secured debt financings offset by repayment of debt during the Nine Months 2006.
Contractual obligations and commitments
Contractual obligations as of September 30, 2006, consist of the following (dollars in thousands):
Payments by Period
------------------------------------------
Total 2006 2007-2008 2009-2010 Thereafter
------------- -------- --------- --------- ----------
Contractual Obligations
Secured notes payable (1) $ 1,167,162 $ 14,034 $ 375,054 $ 139,313 $ 638,761
Unsecured line of credit and
unsecured term loan 552,000 -- 52,000 500,000 --
Ground lease obligations 177,977 933 7,538 7,664 161,842
Other obligations 6,121 273 2,051 1,963 1,834
------------- -------- --------- --------- ----------
Total $ 1,903,260 $ 15,240 $ 436,643 $ 648,940 $ 802,437
============= ======== ========= ========= ==========
(1) Excludes unamortized premiums of $2.2 million as of September 30, 2006.
Secured notes payable as of September 30, 2006 included 35 notes secured by 79 properties and 11 land development parcels.
As of September 30, 2006, the unsecured line of credit matures in December 2007 and may be extended at our sole option for an additional one-year period. The unsecured term loan matures in December 2009.
Ground lease obligations as of September 30, 2006 include leases for fourteen of our properties and one land development parcel. These lease obligations have remaining lease terms of 27 to 58 years, exclusive of extension options.
In addition to the above, we were committed as of September 30, 2006 under the terms of contracts to complete the construction of properties under development at a remaining aggregate cost of approximately $80.5 million.
As of September 30, 2006, we were also committed to fund approximately $35.3 million for the construction of building infrastructure improvements under the terms of leases and/or construction contracts and approximately $24.1 million for certain investments.
Tenant security deposits and other restricted cash
Tenant security deposits and other restricted cash consist of the following (in thousands):
September 30, December 31,
2006 2005
-------- ---------
Funds held in trust under the terms of
certain secured notes payable $ 32,071 $ 13,838
Other funds 11,701 5,128
--------- ---------
$ 43,772 $ 18,966
========= =========
Secured notes payable
Secured notes payable consists of the following (dollars in thousands):
September 30, December 31,
2006 2005
------------ ------------
Secured notes payable (1) $ 1,167,162 $ 662,147
Unamortized premiums 2,186 4,519
------------ ------------
Total secured notes payable $ 1,169,348 $ 666,666
============ ============
- Interest rates varying from 3.73% to 8.71%, (weighted average interest rates of 6.26% and 6.31% at September 30, 2006 and December 31, 2005, respectively), maturity dates ranging from December 2006 to August 2016.
Our secured notes payable generally require monthly payments of principal and interest. At September 30, 2006, our secured notes payable were comprised of $949.7 million and $219.6 million of fixed and variable rate debt, respectively, compared to $595.9 million and $70.8 million of fixed and variable rate debt, respectively, at December 31, 2005.
The following is a summary of the scheduled principal payments for our secured debt and the weighted average interest rates as of September 30, 2006 (in thousands):
Weighted
Average
Year Amount Interest Rate (1)
- ---------------------- ----------- -----------
2006 $ 14,034 6.26%
2007 85,144 6.23%
2008 289,910 6.17%
2009 45,955 6.26%
2010 93,358 6.23%
Thereafter 638,761 6.09%
-----------
Subtotal 1,167,162
Unamortized premiums 2,186
-----------
Total $ 1,169,348
===========
(1) The weighted average interest rate is calculated based on the outstanding debt as of October 1st for 2006, and as of January 1st for each year thereafter.
Unsecured line of credit and unsecured term loan
As of September 30, 2006, we had an unsecured line of credit that provides for borrowings of up to $500 million. As of September 30, 2006, we had borrowings of $52 million outstanding on the unsecured line of credit with a weighted average interest rate of 6.48% and a maturity date of December 2007. As of September 30, 2006, we had an unsecured term loan with outstanding borrowings of $500 million with a weighted average interest rate of 6.48% and a maturity date of December 2009.
In October 2006, we entered into an amendment to our amended and restated credit agreement to increase the maximum permitted borrowings under our unsecured credit facilities from $1 billion to $1.4 billion consisting of a $800 million unsecured revolving credit facility and a $600 million unsecured term loan. We may in the future elect to increase commitments under the unsecured credit facilities by up to an additional $350 million.
Borrowings under our unsecured line of credit, as amended, bear interest at a floating rate based on our election of either a LIBOR-based rate or the higher of the bank's reference rate and the Federal Funds rate, plus 0.5%. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months. The unsecured line of credit and unsecured term loan, as amended, matures in October 2010 and October 2011, respectively. The unsecured line of credit and unsecured term loan may be extended at our sole option for an additional one-year period.
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 primarily 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 may increase up to a maximum combined amount of $1.4 billion.
Interest Rate Swaps
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 rate interest payments without the exchange of the underlying principal amount (the "notional amount"). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
The following table summarizes our interest rate swap agreements as of September 30, 2006 (dollars in thousands):
Notional Effective at Interest Termination Fair
Transaction Dates Effective Dates Amounts Sept. 30, 2006 Pay Rates Dates Values
- ------------------ --------------- ------------ ------------- -------- ---------------- --------
December 2003 December 30, 2005 50,000 $ 50,000 4.150% December 29, 2006 $ 144
December 2003 December 29, 2006 50,000 -- 5.090% October 31, 2008 (153)
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 147
March 2004 December 31, 2004 25,000 25,000 2.956% December 31, 2006 147
April 2004 April 28, 2006 50,000 50,000 4.230% April 30, 2007 302
April 2004 April 30, 2007 50,000 -- 4.850% April 30, 2008 25
June 2004 June 30, 2005 50,000 50,000 4.343% June 30, 2007 334
December 2004 December 31, 2004 50,000 50,000 3.590% January 2, 2008 1,007
December 2004 January 3, 2006 50,000 50,000 3.927% July 1, 2008 978
May 2005 December 30, 2005 25,000 25,000 4.120% November 30, 2006 51
May 2005 June 30, 2006 50,000 50,000 4.270% June 29, 2007 363
May 2005 November 30, 2006 25,000 -- 4.330% November 30, 2007 189
May 2005 June 29, 2007 50,000 -- 4.400% June 30, 2008 214
May 2005 November 30, 2007 25,000 -- 4.460% November 28, 2008 74
May 2005 June 30, 2008 50,000 -- 4.509% June 30, 2009 131
May 2005 November 28, 2008 25,000 -- 4.615% November 30, 2009 47
December 2005 December 29, 2006 50,000 -- 4.730% November 30, 2009 203
December 2005 December 29, 2006 50,000 -- 4.740% November 30, 2009 190
December 2005 January 2, 2008 50,000 -- 4.768% December 31, 2010 86
June 2006 June 30, 2006 125,000 125,000 5.299% September 30, 2009 (1,353)
June 2006 October 31, 2008 50,000 -- 5.340% December 31, 2010 (436)
June 2006 October 31, 2008 50,000 -- 5.347% December 31, 2010 (443)
June 2006 June 30, 2008 50,000 -- 5.325% June 30, 2010 (444)
June 2006 June 30, 2008 50,000 -- 5.325% June 30, 2010 (444)
------------- --------
Total Notional Amount in Effect at Sept. 30, 2006 $ 500,000 $ 1,359
============= ========
We do not believe we are exposed to a significant amount of credit risk in our interest rate swap agreements as our counterparties are established, well- capitalized financial institutions. In addition, we have entered into master derivative agreements with each counterparty. These master derivative agreements (all of which are on the standard International Swaps & Derivatives Association, Inc. form) define certain terms between us and each counterparty to address and minimize certain risks associated with our swap agreements, including a default by a counterparty.
As of September 30, 2006 and December 31, 2005, our interest rate swap agreements were classified in other assets and accounts payable, accrued expenses, and tenant security deposits at their fair values aggregating approximately $1.4 million and $4.9 million, respectively, with the offsetting adjustment reflected as net unrealized gains in accumulated other comprehensive income in stockholders' equity. Balances in accumulated other comprehensive income are recognized in earnings as swap payments are made.
Other Resources and Liquidity Requirements
In September 2006, we sold 2,500,000 shares of our common stock in an underwritten offering. The shares were issued at a price of $94.75 per share, resulting in aggregate proceeds of approximately $232.2 million (after deducting underwriting discounts and other offering costs).
In June 2006, we sold 3,795,000 shares of our common stock in an underwritten offering (including the shares issued upon exercise of the underwriters' over- allotment option). The shares were issued at a price of $84.00 per share, resulting in aggregate proceeds of approximately $303.1 million (after deducting underwriting discounts and other offering costs).
Under our current shelf registration statement filed with the Securities and Exchange Commission on April 24, 2006, we may offer common stock, preferred stock, debt and other securities. These securities may be issued from time to time and at our discretion based on our needs and market conditions.
We expect to continue meeting our short-term liquidity and capital requirements generally through our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to enable us to make distributions necessary to continue qualifying as a REIT. We also believe that net cash provided by operating activities will be sufficient to fund recurring non- revenue enhancing capital expenditures, tenant improvements and leasing commissions.
We expect to meet certain long-term liquidity requirements, such as for property 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 the unsecured line of credit and unsecured term loan, and the issuance of additional debt and/or equity securities.
Capital Expenditures and Leasing Costs
The following provides additional information with respect to capital expenditures and leasing costs incurred during the nine months ended September 30, 2006 (in thousands):
|
Property-related capital expenditures (1) |
$ 952 |
|
Leasing costs (2) |
$ 289 |
|
Property-related redevelopment costs (3) |
$ 81,610 |
|
Property-related development costs (3) |
$ 96,971 |
_______
- Property-related capital expenditures include all capital and recurring capital expenditures except capital expenditures that are recoverable from tenants, revenue-enhancing capital expenditures, or costs related to the redevelopment of a property. Major capital expenditures consist of roof replacements and HVAC systems which are typically identified and considered at the time the property is acquired. Capital expenditures fluctuate in any given period due to the nature, extent or timing of improvements required and the extent to which they are recoverable from tenants. Approximately 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.
- Amount includes leasing costs related to development and redevelopment projects.
Inflation
As of September 30, 2006, approximately 88% of our leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses, including increases thereto. In addition, as of September 30, 2006, approximately 5% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Approximately 89% 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
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") established the measurement tool of Funds From Operations ("FFO"). Since its introduction, FFO has become a widely used non-GAAP financial measure by REITs. We believe that FFO is helpful to investors as an additional measure of the performance of an equity REIT. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its April 2002 White Paper (the "White Paper") and related implementation guidance, which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. While FFO is a relevant and widely used measure of operating performance for REITs, it should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. (See "Liquidity and Capital Resources - Cash Flows" above for information regarding these measures of cash flow.)
The following table presents a reconciliation of net income available to common stockholders to funds from operations available to common stockholders for the three and nine months ended September 30, 2006 and 2005 (in thousands):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------- ------------------------
2006 2005 2006 2005
---------- ---------- ---------- ------------
Net income available to common stockholders $14,942 $11,969 $40,814 $35,186
Add:
Depreciation and amortization (1) 19,973 14,073 51,585 39,965
Minority interests' share of income 709 234 1,449 257
Subtract:
Gain on sales of property (2) -- (36) (59) (36)
FFO allocable to minority interest (394) (271) (1,178) (275)
---------- ---------- ---------- ------------
Funds from operations available to
common stockholders $35,230 $25,969 $92,611 $75,097
========== ========== ========== ============
- Includes depreciation and amortization on assets sold or "held for sale" reflected as discontinued operations (for the periods prior to when such assets were sold or designated as "held for sale").
- Gain on sales of property relates to the disposition of one property in the New Jersey/Suburban Philadelphia market and two properties in the Suburban Washington D.C. market during the second quarter of 2006 and one property in the Southeast market during the third quarter of 2005.
Property and Lease Information
The following table is a summary of our property portfolio as of September 30, 2006 (dollars in thousands):
Rentable Square Feet Annualized
Number of ----------------------------------- Base Occupancy
Properties Operating Redevelopment Total Rent (1) Percentages (1)
----------- ----------- ----------- ----------- ----------- ------------
Markets
California - Los Angeles Metro 2 40,443 20,560 61,003 $ 882 86.4%
California - San Diego 27 1,151,606 158,650 1,310,256 29,955 93.3%
California - San Francisco Bay 21 1,493,891 88,400 1,582,291 44,853 94.4%
Eastern Massachusetts 35 2,722,031 207,526 2,929,557 92,433 95.3%
New Jersey/Suburban Philadelphia 8 443,349 -- 443,349 8,906 96.6%
Southeast 11 539,203 45,841 585,044 8,802 78.8%(2)
Suburban Washington D.C. 32 2,575,370 -- 2,575,370 53,805 92.8%
Washington - Seattle 12 837,335 12,719 850,054 24,937 89.0%
International - Canada 3 296,362 -- 296,362 6,490 100.0%
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Total 151 10,099,590 533,696 10,633,286 $ 271,063 93.1%
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- Excludes spaces at properties totaling 533,696 square feet undergoing a permanent change in use to office/laboratory space through redevelopment. Including spaces undergoing a permanent change in use to office/laboratory space through redevelopment, occupancy as of September 30, 2006 was 88.4%.
- All, or substantially all, of the vacant space is office or warehouse space.
The following table provides information with respect to the lease expirations at our properties as of September 30, 2006:
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 Feet square foot)
- ------------- ------------ -------------- ---------------- ----------------
2006 44 (1) 440,647 4.7% $23.21
2007 55 1,007,782 10.7% $27.71
2008 37 717,550 7.6% $26.85
2009 43 658,136 7.0% $21.81
2010 34 795,862 8.5% $26.50
Thereafter 126 5,777,835 61.5% $30.84
_________
- Includes month-to-month leases for approximately 58,000 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 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, September 30, 2006, we estimate that a 1% increase in interest rates on our variable debt, including our unsecured line of credit and unsecured term loan, after considering the effect of our interest rate swap agreements, would decrease annual future earnings by approximately $1.2 million. We further estimate that a 1% decrease in interest rates on our variable debt, including our unsecured line of credit and unsecured term loan, after considering the effect of our interest rate swap agreements in effect on September 30, 2006 would increase annual future earnings by approximately $1.2 million. A 1% increase in interest rates on our secured debt and interest rate swap agreements would decrease their aggregate fair values by approximately $59.5 million at September 30, 2006. A 1% decrease in interest rates on our secured debt and interest rate swap agreements would increase their aggregate fair values by approximately $62.6 million at September 30, 2006.
These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost and our interest rate swap agreements in effect on September 30, 2006. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.
We have exposure to equity price market risk because of our equity investments in certain publicly-traded companies and privately held entities. We classify investments in publicly-traded companies as available-for-sale and, consequently, record them on our balance sheets at fair value with unrealized gains or losses reported as a component of comprehensive income or loss. Investments in privately held entities are generally accounted for under the cost method because we do not influence any of the operating or financial policies of the entities in which we invest. For all investments, we recognize other than temporary declines in value against earnings in the same period the decline in value was deemed to have occurred. There is no assurance that future declines in values will not have a material adverse impact on our future results of operations.
By way of example, a 10% decrease in the fair values of our equity investments as of September 30, 2006 would decrease their fair values by approximately $7.2 million.
We have exposure to foreign currency exchange rate market risk related to our wholly-owned subsidiaries operating in Canada. The functional currency of our foreign subsidiaries operating in Canada is the local currency, the Canadian dollar. Gains or losses resulting from the translation of our foreign subsidiaries' balance sheets and income statements are included in accumulated other comprehensive income as a separate component of stockholders' equity. Gains or losses will be reflected in our income statement when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2006, we performed an evaluation, under the supervision of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures. These controls and procedures have been designed to ensure that information required for disclosure is recorded, processed, summarized and reported within the requisite time periods. Based on our evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2006.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. EXHIBITS
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10.1 |
Purchase and Sale Contract Between Technology Square Finance, LLC as Seller and ARE-MA Region No. 31, LLC as Buyer as of July 3, 2006 |
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10.2 |
First Amendment to Purchase and Sale Contract Between Technology Square Finance, LLC and ARE-MA Region No. 31, LLC as of July 10, 2006 |
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10.3 |
Second Amendment to Purchase and Sale Contract Between Technology Square Finance, LLC and ARE-MA Region No. 31, LLC as of July 14, 2006 |
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10.4 |
Third Amendment to Purchase and Sale Contract Between Technology Square Finance, LLC and ARE-MA Region No. 31, LLC as of July 26, 2006 |
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10.5 |
Fourth Amendment to Purchase and Sale Contract Between Technology Square Finance, LLC and ARE-MA Region No. 31, LLC as of July 27, 2006 |
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12.1 |
Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. |
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31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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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. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 9, 2006.
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ALEXANDRIA REAL ESTATE EQUITIES INC. |
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/s/ Joel S. Marcus |
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/s/ Dean A. Shigenaga |
Exhibit 10.1
PURCHASE AND SALE CONTRACT
between
TECHNOLOGY SQUARE FINANCE, LLC
as SELLER
and
ARE-MA REGION NO. 31, LLC
as BUYER
as of July 3, 2006
TABLE OF CONTENTS
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Article 1. |
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Article 2. |
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Article 3. |
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Article 4. |
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Article 5. |
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Article 6. |
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Article 7. |
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Article 8. |
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Article 9. |
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Article 10. |
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Article 11. |
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Article 12. |
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Article 13. |
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Article 14. |
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Article 15. |
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Article 16. |
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Article 17. |
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Article 18. |
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Article 19. |
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Article 20. |
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Article 21. |
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Article 22. |
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Article 23. |
Exhibits
Exhibit A List of Defined Terms
Exhibit B Description of Real Property
Exhibit C Form of Lease Assignment
Exhibit D Space Leases and Security Deposits
Exhibit E Form of Bill of Sale
Exhibit F Form of Assignment and Assumption Agreement re: Space Leases
Exhibit G Form of FIRPTA Affidavit
Exhibit H Operating Contracts
Exhibit I Section 6045 Designation
Exhibit J-1 Form of Estoppel Certificate from Space Tenants
Exhibit J-2 Form of Seller Estoppel Certificate from Space Tenants
Exhibit J-3 Form of Estoppel Certificate from Master Lessor
Exhibit K List of Environmental Reports
Exhibit L Seller's Title Insurance Policy
Exhibit M Violations of Law
Exhibit N Form of Assignment and Assumption of Contracts
Exhibit O-1 Form of Tenant Notification
Exhibit O-2 Form of Vendor Notification
Exhibit P Form of Development Agreement
Exhibit Q Schedule of Plans
Exhibit R Schedule of Development Contracts
Exhibit S Prospective Tenants
Exhibit T Rent Roll (including outstanding brokerage commissions and tenant improvement allowances)
PURCHASE AND SALE CONTRACT
THIS PURCHASE AND SALE CONTRACT (the "Contract") is made as of the 3rd day of July, 2006 ("Execution Date"), by and between TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company with an address c/o Massachusetts Institute of Technology, 238 Main Street, Suite 200, Cambridge, MA 02142, Facsimile No. (617) 258-6675, Attention: John McQuaid ("Seller"), and ARE REGION NO. 31, LLC, a Delaware limited liability corporation, with an address of 385 E. Colorado Boulevard, Suite 299, Pasadena, CA 911901, Attention: General Counsel, Facsimile No. (626) 578-0770 ("Buyer").
RECITALS
WITNESSETH THAT, Seller holds the entire tenant's right, title and interest (the "Interest") under that certain Ground Lease Agreement (the "Ground Lease") dated as of March 15, 2004 with respect to the Improvements and the Appurtenances (each as defined in the Master Lease) (collectively, the "Premises"). The parties intend that, on or before the Closing under this Agreement, the Ground Lease Agreement will be amended by an Amended and Restated Ground Lease Agreement to be mutually agreed upon the parties and approved by the Lender, as hereinafter set forth ("Amended Ground Lease"). The land on which the Improvements are located (the "Real Property") is more particularly described in Exhibit B attached hereto and incorporated herein.
WITNESSETH FURTHER THAT, Seller desires to sell and Buyer desires to purchase the Interest on the terms and subject to the conditions set forth herein.
WITNESSETH FURTHER THAT, for the consideration hereinafter named, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged hereby, the parties do hereby agree as follows:
Article 1. Description of Property
Seller agrees to sell and Buyer agrees to buy upon the terms and conditions hereinafter set forth: (i) the Interest, (ii) all items of personal property owned by Seller and located on the Premises or used in connection with the ownership or operation of the Premises, including, without implied limitation, all furniture, fixtures, equipment, machines, apparatus, appliances, supplies and personal property of (the "Personal Property"), and (iii) any intangible and other property now or hereafter owned by Seller and used in the ownership or operation of the Premises including, without limitation, all plans and specifications, surveys, catalogs, booklets, manuals, files, logs, records, correspondence, tenant lists, tenant prospect lists and other mailing lists, sales brochures and materials, leasing brochures and materials, advertising materials and other similar items, and all title inspections, reports and studies, market studies and similar inspections with respect to the sale, management, leasing, promotion, ownership, maintenance, use, occupancy and operation of the Premises, permits, licenses, approvals, guaranties, warranties, contracts, utility contracts or other rights relating to the ownership, use or operation of the Premises (excluding attorney and accountant work product) and trademarks and tradenames (collectively, the "Intangibles"). All items referred to in clauses (i), (ii) and (iii) are herein sometimes collectively referred to as the "Property".
Article 2. Construction and Development
2.1 Development Contracts Building 200, Building 300 and Building 500.
The Property is presently improved with seven office/research and development buildings now known as 100, 200, 300, 400, 500, 600 and 700 Technology Square respectively and a parking garage. Seller has the benefit of a building permit and special permit from the Zoning Board of Appeal of the City of Cambridge (collectively, the "B200 Permit") which authorizes the Building 200 Work (as defined in the Development Agreement, as hereinafter defined) and has begun the process of obtaining the necessary development permits and approvals for the Building 500 Work (as defined in the Development Agreement) (collectively, the "B500 Permit") and the Building 700 Work (as defined in the Development Agreement) (collectively, the "B700 Permit" and together with the B200 Permit and the B500 Permit, the "Permit") (the Building 200 Work, the Building 500 Work and the Building 700 Work are hereinafter collectively referred to as the "New Improvements"). In furtherance of the New Improvements, Seller has (i) caused plans and specifications relating to the Building 200 Work to be prepared by Arrowstreet, Inc. (the "Architect"), a schedule of which along with a schedule of superseding modifications and clarifications are attached hereto as Exhibit Q (the "Plans"), (ii) has begun the process of compiling design and architectural plans for the performance of the Building 500 Work and the Building 700 Work, (iii) entered into certain contracts for architectural, engineering, construction and related services, a schedule of which is attached hereto as Exhibit R, and intends to enter into, prior to the expiration of the Due Diligence Period, the remaining contracts to perform such services (collectively the "Development Contracts") and (iii) commenced construction of the New Improvements. The sale of the Property will occur with work in process. Buyer shall receive the benefit of the Permits in effect as of the Closing Date and the work performed to the Closing Date. Seller shall cause the completion of all of the work described in the Plans (the "Work"), as the same may be amended, in accordance with and subject to the provisions of a development agreement in the form attached hereto as Exhibit P and made a part hereof (the "Development Agreement"), and Seller shall bear the risk of, and shall be obligated to pay, all costs of completion of the Work, as well as damages for late delivery, all as set forth in the Development Agreement. In the event of any direct conflict between the terms of this Contract and the Development Agreement, after Closing the Development Agreement shall govern.
2.2 Progress of Work.
During the Due Diligence Period (described in Section 7.3), Seller shall make available to Buyer all of Seller's books and records relating to the New Improvements, including without limitation all Development Contracts, Plans, Permits, invoices, bills, contract addenda, field changes, change orders, work orders and the like. Buyer shall be entitled to review such information, interview parties to the Development Contracts or public officials (provided that interviews and conversations with any such parties to the Development Contracts or public officials shall be only when accompanied by a representative of Seller) and attend job meetings in order for Buyer to satisfy itself with respect to the development, the costs incurred and the costs remaining to complete the Work. During the Due Diligence Period, Seller shall promptly notify Buyer of any bulletins, clarifications, requests for information, addenda, field changes, change orders or modifications to the Development Contracts or the Plans. After the expiration of the Due Diligence Period, Seller's ability to effect any of the foregoing shall be governed by the provisions of the Development Agreement, as if the Closing had occurred. Within five (5) business days after execution of this Contract, Buyer shall designate its authorized representative to review any such items submitted to Buyer. To the extent approval is required of Buyer, such representative's written approval thereof shall be binding upon Buyer. Other than for extenuating circumstances, Buyer's designee shall be at the Property only during normal and customary construction/development operating hours and shall attend any job meetings only during such hours.
Article 3. Sale Subject to Leases:
Subject to the provisions of Article 5 hereof, the Property will be conveyed subject to, and with the benefit of, Seller's right, title and interest under those certain leases together with any amendments, renewals, modifications, and extensions thereto and any guaranties, security deposits, and to any letters of credit or other forms of security related thereto described in Exhibit C attached hereto and incorporated herein by reference, or as hereafter entered into by Seller pursuant to the provisions of Article 14 hereof (hereinafter called the "Space Leases").
Article 4. Purchase Price and Payment:
4.1 Purchase Price. The total purchase price (the "Purchase Price") for the Property is Six Hundred Million and 00/100 Dollars ($600,000,000.00), which shall include assumption of the amounts due from and after the Closing Date under the Note (hereinafter defined), with the balance payable at the Closing, as hereinafter defined, in lawful currency of the United States of America in immediately available Boston Clearing House funds by certified check, or by wire transfer of immediately available federal funds to an account designated by Seller not less than one (1) business day prior to the Closing.
Article 5. Form of Conveyance:
5.1 The Interest.
The Interest shall be conveyed by an Assignment and Assumption of Lease (the "Lease Assignment") in substantially the form attached hereto as Exhibit C. The Lease Assignment shall be in proper form for recording and shall be duly executed, acknowledged and delivered by Seller and Buyer at the Closing.
5.2 Personal Property
The Personal Property and Intangibles shall be conveyed free by one or more bills of sale (collectively, the "Bill of Sale") in substantially the form attached hereto as Exhibit E to be delivered by Seller to Buyer at Closing.
5.3 Buyer Entity Formation: The parties intend to enter into a limited liability agreement ("LLC Agreement") for the purpose of forming the entity ("Buyer Entity") to which title to the Property will be transferred at the Closing. The parties intend to negotiate the terms of the LLC Agreement prior to the expiration of the Due Diligence Period. Title to the Property shall be transferred directly from Seller to the Buyer Entity at the time of Closing.
Article 6. Closing
6.1 Closing Date. Unless extended pursuant to the terms of this Contract, the closing of the transactions contemplated hereunder (the "Closing") shall take place at 10:00 a.m. on July 26, 2006 (such date, as the same may be extended pursuant to the terms of this Contract, the "Closing Date"), at the offices of Goulston & Storrs, P.C., 400 Atlantic Avenue, Boston, Massachusetts.
6.2 Seller Deliveries. At the Closing (except as noted below), Seller shall deliver the following documents, in the form attached hereto, and, if not attached, reasonably satisfactory in form and substance to Buyer and Buyer's counsel, properly executed and acknowledged as required:
- The LLC Agreement;
- The Lease Assignment;
- The Bill of Sale;
- An original assignment and assumption of Space Leases in the form attached hereto as Exhibit F and otherwise in proper form for recording (collectively, the "Space Leases Assignment");
- Originals (or true and complete copies, if originals are not in Seller's possession or control) of the Master Lease and all Space Leases and copies of all records and correspondence relating thereto;
- An original assignment and assumption in the form attached hereto as Exhibit N relating to those Operating Contracts (as hereinafter defined), if any, which Buyer elects to assume in accordance with 12.1(c) hereof (the "Contract Assignment") and originals (or true and complete copies, if originals are not in Seller's possession or control) of those Operating Contracts so assigned;
- Originals or copies in Seller's possession or control of the Plans and all unexpired warranties, guaranties and operating manuals, if any, with respect to the Property, including without limitation, any from any contractors, subcontractors, suppliers or materialmen in connection with any construction, repair or alteration of the Improvements, systems or any tenant improvements;
- Originals or copies of all land use, environmental, traffic and building permits, certificates of occupancy, licenses, variances and the like relating to the Property in Seller's possession or control, including without limitation the Permits;
- A certification of non-foreign status in the form attached hereto as
Exhibit G; - Evidence reasonably satisfactory to Buyer and to Buyer's title insurance company (the "Title Company") that all necessary approvals and/or consents by Seller and any constituent person of Seller otherwise required under Seller's organizational documents, have been delivered and such other evidence reasonably satisfactory to Buyer and the Title Company of Seller's authority and the authority of the signatory on behalf of Seller to convey the Property pursuant to this Contract;
- Evidence of notice of termination of all Operating Contracts not being assumed by Buyer in accordance with Section 12.1(c) hereof;
- Affidavits reasonably sufficient for the Title Company to delete any exceptions for parties in possession (other than tenants under the Space Leases, as tenants only) and mechanics' or materialmen's liens from the leasehold title insurance policy (the "Title Insurance");
- A certificate restating as of the Closing Date all of Seller's representations and warranties contained herein or to the extent that such representations and warranties are no longer true and correct, a certificate setting forth all exclusions and exceptions to such representations and warranties then known to Seller (subject to the provisions of Section 8.1(a) and Section 9.1 below);
- An original of a closing statement setting forth the Purchase Price and the closing adjustments and prorations (the "Closing Statement") in form reasonably satisfactory to Buyer and Seller;
- Original tenant notification letters (notifying tenants of the transfer of the Property to Buyer) for each tenant under a Space Lease or other occupant of any portion of the Property, and original notification letters to all parties to operating and other contracts assigned to Buyer, in substantially the form attached hereto as Exhibits O-1 and O-2, respectively;
- A Designation of Person Responsible for Tax Reporting under Internal Revenue Code Section 6045 in the form of Exhibit I annexed hereto;
- Evidence of payment to the Broker (hereinafter defined);
- Keys to all locks at the Premises in Seller's possession or control;
- Original Estoppel Certificates ("Tenant Estoppels") from tenants representing at least eighty percent (80%) of the rental income derived from the Premises, which tenants must include Novartis, the Massachusetts Institute of Technology, Forrester Research, and Dyax ("Estoppel Threshold"), together with a Seller's Estoppel Certificate(s) ("Seller Estoppel Certificates") in the form attached hereto as Exhibit J-2 for any leases of any portion of the Property for which Seller does not obtain a Tenant Estoppel Certificate (Buyer hereby acknowledging and agreeing that Seller's liability under all Seller's Estoppel Certificates shall be subject to the limitations on Seller's liability set forth in Article 13). The Tenant Estoppels shall be substantially in the form attached as Exhibit J-1 hereto. Buyer agrees not to unreasonably object to any changes made by any tenant to the form attached hereto provided such changes do not represent the lesser of (x) a five percent annual impact on the total rent payable by such tenant (including escalations) in reasonably determined potential loss or cost, or (y) a $30,000 annual impact on the total rent payable by such tenant (including escalations) in reasonably determined potential loss or cost. Buyer agrees to accept Tenant Estoppels which are qualified by matters disclosed in Article 9 hereof or any exhibits to this Contract but no estoppels shall be accepted which are at variance with any representations contained herein or which shall indicate any breach on the part of Seller or any tenant provided, however, that in the event that Buyer has knowledge of any such variance or breach prior to the expiration of the Due Diligence Period (as Buyer's knowledge is defined in Article 13 below) and elects to proceed, Buyer hereby agrees to accept estoppels reflecting such variances or breaches. The Tenant Estoppels and any Seller Estoppel Certificates (if applicable) shall be delivered by Seller to Buyer at least seven (7) business days prior to expiration of the Closing;
- An original of the Development Agreement;
- A Estoppel Certificate and Release from the Master Lessor substantially in the form attached as Exhibit J-3 hereto;
- An Estoppel Certificate from the Steam Company (hereinafter defined) in form and substance reasonably satisfactory to Buyer;
- A 6(d) certificate in form and substance reasonably acceptable to Buyer and the Title Company;
- Cash security deposits and original letters of credit together with documentation necessary to assign to Buyer the beneficiary's interest under letters of credit delivered pursuant to the Space Leases;
- Consent from the Lender (hereinafter defined) to the transactions contemplated hereby and any and all Lender Documents, as defined in Section 7.6; and
- The Development Contract Estoppel Letters, as defined in Section 2.3, or, as applicable, Seller Development Contractor Estoppel Letters in lieu thereof.
6.3 Buyer Deliveries. At the Closing, Buyer shall deliver, or cause to be delivered, the following payment and documents, reasonably satisfactory in form and substance to Seller and Seller's counsel properly executed and acknowledged as required:
- The Purchase Price adjusted in accordance with the terms hereof;
- The LLC Agreement;
- An original of the Lease Assignment and the Space Leases Assignment;
- An original of the Contract Assignment;
- A Designation of Personal Responsible for Tax Reporting under Internal Revenue Code Section 6045 in the form of Exhibit I hereto;
- An original of the Closing Statement;
- A certificate restating as of the Closing Date all of Buyer's representations and warranties contained herein or to the extent that such representations and warranties are no longer true and correct, a certificate setting forth all exclusions and exceptions to such representations and warranties then known to Buyer (subject to the provisions of Section 8.2(a) and Section 9.2 below);.
- An original of the Development Agreement;
- Any and all Lender Documents required pursuant to Section 7.6; and
- Evidence reasonably satisfactory to Seller that all necessary approvals an/or consents by Buyer and any constituent person of Buyer otherwise required under Buyer's organizational documents have been delivered and such other evidence reasonably satisfactory to Seller of Buyer's authority and the authority of the signatory on behalf of Buyer.
The Closing shall not be deemed to be completed until all documents and payments as aforesaid have been properly delivered (and recorded where appropriate) to the satisfaction of all parties; provided, however, that upon acceptance and recording of the Lease Assignment, Seller shall be deemed to have satisfied all of its obligations hereunder, except such obligations as by the terms hereof, or by the terms of an agreement executed by Buyer and Seller at the Closing, are to be performed by Seller after the Closing Date or which by the terms hereof are expressly stated to survive Closing.
Article 7. Due Diligence:
7.1 Due Diligence Items. Seller acknowledges the Buyer intends to conduct an investigation of the Property. In order to facilitate Buyer's investigations, Seller has previously delivered to Buyer the Master Lease and Seller shall provide to Buyer, within three (3) business days from the date hereof or, as soon thereafter as is reasonably practicable, access to copies of the following (collectively, the "Due Diligence Items"):
- The Space Leases;
- Income, expense and other operating statements for the Property for the period of Seller's ownership;
- To the extent in Seller's possession or control, all unexpired warranties with respect to the Premises and final as-built plans and specifications for the Premises;
- To the extent in Seller's possession or control, owner's title insurance policies and any underlying title exception documents;
- To the extent in Seller's possession or control, all licenses and permits of a material nature required for the use and operation of the Property (the "Licenses and Permits"), including occupancy permits/certificates;
- All surveys of the Premises or any part thereof in Seller's possession or control;
- A copy of any and all final traffic studies and final reports relating to toxic and/or hazardous materials or substances including without limitation asbestos, asbestos containing materials, lead paint, radon gas, petroleum products, urea- formaldehyde and other similar or dissimilar chemical or materials relating to the Premises and prepared by or on behalf of Seller or its affiliates, within Seller's possession;
- Copies of all invoices to tenants for operating expenses, taxes, insurance and other "pass-throughs" for the period of Seller's ownership of the Property;
- Copies of bills for all real estate taxes and assessments of the Property for the period of Seller's ownership of the Property;
- Copies of the Plans and the Development Agreements; and
- Copies of the Master Deed, Declaration of Trust and Bylaws of the Technology Square Condominium Trust, as amended.
7.2 Examinations and Inspections.
- Commencing on the date hereof, subject to the terms of this Contract, Buyer shall have the right, in addition to the rights set forth in Article 2, to perform and conduct such examinations and investigations of the Property as Buyer may desire including, without limitation, to confirm the information contained in the Due Diligence Items, which investigations may include, without limitation, examination of all structural and mechanical aspects thereof, review of documentation, income and expenses, all Space Leases and tenant files, records of repairs and capital improvements (excluding any materials of a proprietary nature, such as internal valuation analysis, projections, software and other materials constituting the work product of Seller or its agents), examination of the title to the Property, conducting tests to determine the presence or absence of hazardous waste, asbestos, lead paint, radon and other similar materials and substances, including a Phase I environmental site assessment of the Property, reviewing a current as-built survey thereof, determining the compliance of the Property with all applicable laws, rules, codes and regulations and, subject to Seller's right to be present thereat, conducting interviews with tenants and parties to the Development Contracts. In connection with such examination, Seller shall make available (at reasonable times and places) for Buyer's review Seller's books and final records in Seller's possession relating to the Property. Notwithstanding anything herein to the contrary, nothing herein shall authorize Buyer, nor shall Buyer be permitted, to (i) conduct, any subsurface or groundwater environmental testing, invasive or destructive testing, or other environmental samplings on or relating to the Property, including, without limitation, any building material sampling, without Seller's prior written consent, which consent may be withheld or denied for any or no reason; and (ii) meet with or talk to tenants, parties to the Development Contracts or public officials unless accompanied by representatives of Seller.
- During the Due Diligence Period (as defined below), Seller shall, upon reasonable notice and at reasonable times, make the Property available to Buyer and its agents, consultants and engineers for such inspections and tests as Buyer deems appropriate, including for Buyer's engineering inspection(s), environmental compliance inspections, site evaluations, and such other inspections, investigations and tests as Buyer deems appropriate, but excluding any invasive or destructive tests, Phase II hazardous materials inspections and other environmental samplings, at Buyer's sole cost and expense. Seller shall have the right to have a representative present during all or any of Buyer's inspections and tests. Buyer hereby agrees to indemnify and hold Seller harmless from and against any and all loss, cost or damage to the Property (but not any loss or diminution in value arising from any condition discovered by Buyer) arising out of damage to persons or property resulting from actions taken by Buyer or its agents, engineers or consultants. Buyer shall provide to Seller prior to its entry on the Property certificates of liability insurance insuring Buyer and Seller in an amount not less than Five Million Dollars ($5,000,000.00) and covering any person or entity acting on Buyer's behalf. Buyer shall promptly repair all damage to the Property arising from any such inspections or tests and shall restore the Property to the same condition existing immediately prior to such inspections and tests. In the event that Buyer determines that it is required by applicable law to notify a federal, state or local governmental agency or any other party with respect to the conditions at the Property as a result of any of Buyer's Property due diligence, Buyer shall immediately notify Seller and Seller shall make such disclosure as Seller determines appropriate. If Seller determines not to notify such public agency or other party after such notice and Buyer feels that it is still required by law to make such disclosure and so notifies Seller, Seller will hire an independent consultant reasonably approved by Buyer to make the determination for Buyer and Seller of whether such public disclosure is required and such determination will be binding upon both Buyer and Seller. Except as specifically provided for in this paragraph, Buyer agrees to keep confidential and not to disclose the results of any of its due diligence investigations or the contents of any reports in connection therewith. In performing any such inspections or tests, Buyer shall not unreasonably interfere with the activities on the Property of any tenant under the Space Leases. The indemnification, repair and restoration obligations of Buyer under this 7.2(b) shall survive the termination of this Contract.
7.4 Title and Survey. Buyer shall obtain at its own cost and expense on or before the expiration of the Due Diligence Period (the "Title Notice Date") a leasehold title insurance commitment (or specimen policy) for the Premises prepared by a title agent acceptable to Buyer and issued by the Title Company (the "Title Commitment"), containing such endorsements, affirmative coverages and reinsurance agreements as Buyer shall require, and specifying the Title Company's requirements relating to the issuance of such title policy (the "Title Requirements"). Seller has delivered to Buyer a current ALTA Survey of the Premises (the "Survey") certified to Seller, Buyer and the Title Company, prepared at Seller's expense. Subject to the following paragraph, on or before the Title Notice Date, Buyer shall give Seller notice ("Buyer's Title Notice") of Buyer's disapproval of any of the title exceptions contained in the Title Commitment (or of any matter disclosed on the Survey) and specifying those Title Requirements, if any, contained in the Title Commitment which are to be performed by or on behalf of Seller.
In the event this Contract is terminated under this 7.5, all obligations, liabilities and rights of the parties under this Contract shall terminate (other than the obligations of Buyer under Section 7.2(b), Section7.7, Article 16, and Article 21, which shall remain in effect), and the Deposit shall be returned to Buyer. If Seller has elected to cure any matter or to satisfy any Title Requirement, such matter shall be cured or satisfied by Seller prior to the Closing Date, and Buyer shall be given a reasonable opportunity to verify that such matter has been cured or satisfied to Buyer's reasonable satisfaction. Notwithstanding the foregoing, Seller shall cause to be released any mortgages or other voluntary monetary encumbrances which Seller has caused to be recorded against the Property except for the Mortgage (Seller hereby acknowledging that Buyer shall have no obligation give Seller written notice of the existence of any mortgage or voluntary encumbrance as a condition to Seller's obligation to obtain the release of the same).
7.6 Loan Assumption. Buyer hereby acknowledges and agrees that, as of the Closing Date, Seller shall assign to Buyer, and Buyer shall assume, all of Seller's rights and obligations under and to the following documents: (1) that certain Leasehold Mortgage, Security Agreement and Fixture Filing by Seller to Connecticut General Life Insurance Company and ING USA Annuity and Life Insurance Company (collectively, "Lender") dated March 26, 2004 and recorded with the Middlesex South Registry of Deeds in Book 42362, Page 134 and filed with the Middlesex South Registry District of the Land Court as Document No. 1315538 (the "Mortgage"), (2) that certain Promissory Note dated March 26, 2004 in the original principal amount of $45,000,000.00 naming Connecticut General Life Insurance Company as Payee, (3) that certain Promissory Note dated March 26, 2004 in the original principal amount of $180,000,000.00 naming ING USA Annuity and Life Insurance Company as Payee, (4) that certain Assignment of Leases and Rents dated March 26, 2004 by Seller in favor of Lender, (5) that certain Non-Recourse Exceptions Guaranty dated March 26, 2004 by Seller for the benefit of Lender, (6) that certain Environmental Indemnification Agreement dated March 26, 2004 by Seller for the benefit of Lender, (7) that certain Novartis Lease Termination, Ground Rent and Letter of Credit Escrow and Security Agreement dated March 26, 2004 by and among Seller, Lender and GMAC Commercial Mortgage Corporation, (8) that certain Real Estate Tax Escrow and Security Agreement dated March 26, 2004 by and among Seller, Lender and GMAC Commercial Mortgage Corporation, and (9) all other Loan Documents (as such term is defined in the Mortgage) (all of the foregoing are herein referred to as the "Loan Documents"). It shall be a condition to the obligations of both parties hereunder, that Lender has approved the transaction contemplated hereby, including, without limitation, the Amended Ground Lease (subject to Section 7.6.1 hereof), and that the consent forms and other documents which are required by the Lender to effectuate the assignment and assumption of the loan evidenced by the foregoing Loan Documents (collectively "Lender Documents") have been approved by both parties. The parties shall, during the Due Diligence Period, negotiate with the Lender to obtain such approval and to reach mutual agreement on the form of Lender Documents. If the parties are unable, on or before the expiration of the Due Diligence Period, to reach agreement with the Lender as to the terms of such approval and the form of the Lender Documents, and if Buyer does not exercise its right to terminate this Agreement during the Due Diligence Period pursuant to Section 7.3, then the parties shall continue to negotiate with the Lender as to the terms of the approval and the form of the Lender Documents, and (a) it shall be a condition to the obligations of Seller that the Lender Documents are in acceptable to Seller in its reasonable discretion (provided that Seller shall not be obligated to bear any costs in addition to the costs to be borne by Seller under the terms of this Agreement), and (b) it shall be a condition to the obligations of Buyer that the Lender Documents are in form acceptable to Buyer in its sole and absolute discretion.
7.6.1 Amended Ground Lease. Notwithstanding the foregoing, if Lender does not approve the Amended Ground Lease solely based upon the treatment of the 275 Reserved Parking Spaces contemplated to be addressed in the Amended Ground Lease, such disapproval shall not be considered to be a condition to the obligations of either party under this Agreement. In such event, assuming that the Lender approves the Amended Ground Lease mutually agreed to by the parties hereto and Landlord under the Ground Lease ("Ground Lessor") in all other respects, then the Amended Ground Lease shall be executed on or before Closing, and the parties hereto and the Ground Lessor shall execute a side letter agreement ("Parking Side Letter") at Closing whereby they agree that they will further amend the Ground Lease to implement such treatment of the 275 Reserved Parking Spaces upon the earlier of: (x) the date that the Lender approves such treatment, and (y) the date that the Mortgage is discharged.
7.7 As-Is. Buyer has entered into this Agreement with the intention of making and relying upon its own investigation of the physical, environmental, economic and legal condition of the Property and except for the representations and warranties expressly made by Seller herein, Buyer acknowledges and agrees that Buyer is acquiring the Property strictly on an "AS IS", WHERE IS" and "WITH ALL DEFECTS" basis and without representation or warranty, express, implied, statutory or otherwise, of any kind, including, without limitation, representation or warranty as to title, condition (structural, mechanical or otherwise), construction, development, income, compliance with law, habitability, tenancies, merchantability or fitness for any purpose, zoning, tax consequences, latent or patent physical or environmental conditions, health or safety matters, utilities, operating history or projections, valuation, projections, the applicability of any laws, rules or regulations or compliance therewith, all of which are hereby disclaimed and which Buyer hereby waives and Buyer fully assumes the risk that adverse latent or patent physical, structural, environmental, economic or legal conditions may not have been revealed by Buyer's investigations. Buyer acknowledges that all materials furnished by Seller to Buyer are informational only without warranty or representation as to their truth or accuracy, and that Buyer is relying on its own due diligence, Buyer's familiarity with the Property, Buyer's due diligence relating the Property and Buyer's experience and knowledge as to the market in which the Property is situated and as to investment in and operation of real estate in the nature of the Property and commercial real estate in general. Buyer hereby releases and forever discharges Seller, and its partners, beneficial owners, officers, directors, employees and agents from any and all claims, acts, debts, demands, actions, causes of action, suits, sums of money, guaranties, bonds, covenants, contracts, accounts, agreements, promises, representations, restitutions, omissions, variances, damages, obligations, costs, response actions, fees (including, without limitation, attorneys, consultants and experts fees) and liabilities of every name and nature whatsoever, both at law and in equity (collectively, "Claims"), which Buyer and its successors and assigns may now or hereafter have against Seller or its partners, members, beneficial owners, officers, directors, employees or agents, arising in connection with any and all liabilities or obligations relating to environmental matters, (including, without limitation, all liabilities and obligations relating to Hazardous Materials located at, on, in or under the Property or migrating to or from the Property), regardless of whether such Hazardous Materials are located on, under or in the Property prior to, or after the Closing. In addition, Buyer and its successors and assigns covenant and agree and hereby release, defend, indemnify and hold harmless Seller or its partners, members, beneficial owners, officers, directors, employees and agents from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, known or unknown, existing and future, contingent or otherwise, including any action or proceeding, brought or threatened, or ordered by governmental authorities, relating to any Hazardous Materials which may be placed, located or released on the Property after the Closing by someone other than Seller or any affiliate of Seller. For the purposes hereof, the following terms shall have the meanings set forth below:
- the term "Environmental Laws" means all federal, state, or local laws, rules or regulations (whether now existing or hereafter enacted or promulgated) and any judicial or administrative interpretation thereof, including any judicial or administrative orders or judgments, relating to the protection of human health, safety and/or the environment;
- the term "Hazardous Materials" includes any substance, chemical, compound, product, solid, gas, liquid, waste, byproduct, pollutant, contaminant or material which is hazardous, toxic, ignitable, corrosive, carcinogenic or otherwise dangerous to human, plant or animal life or the environment or which are defined, determined or identified as such in any Environmental Laws or which are regulated or subject to clean-up authority under any Environmental Laws, including, but not limited to materials defined as (A) "hazardous waste" under the Federal Resource Conservation and Recovery Act (B) "hazardous substances" under the Federal Comprehensive Environmental Response, Compensation and Liability Act, (C) "pollutants" under the Federal Clean Water Act; (D) "toxic substances" under the Toxic Substances Control Act; and (E) "oil or hazardous materials" under state law, including, without limitation, M.G.L. ch. 21E and the Massachusetts Contingency Plan (310 C.M.R. 40.0000).
The provisions of this Section 7.7 shall survive Closing.
Article 8. Conditions to Closing:
8.1 Conditions to Buyer's Obligations. Without limiting any other conditions to Buyer's obligations to close set forth in this Contract, the obligations of Buyer under this Contract are subject to the satisfaction at the time of Closing of each of the following conditions (any of which may be waived in whole or in part by Buyer at or prior to Closing):
- All of the representations by Seller set forth in this Contract or any Exhibit attached hereto shall be true and correct in all material respects;
- Seller shall have performed, observed, and complied in all material respects with all covenants and agreements required by this Contract to be performed by Seller at or prior to Closing;
- Lender and Seller have executed the Lender Documents (subject, to Section 7.6.1);
- The parties have, on or before the expiration of the Due Diligence Period, approved any Development Contracts which were not executed as of the Execution Date of this Agreement as well as any exhibits and other items which are required to be inserted into the Development Agreement in order to complete the Development Agreement;
- The parties have, on or before the expiration of the Due Diligence Period, agreed upon the form of the LLC Agreement;
- Seller shall have delivered to Buyer Tenant Estoppels from the required tenants in satisfaction of the Estoppel Threshold, together with Seller Estoppel Certificates for any remaining leases for which Seller has not delivered a Tenant Estoppel, which Tenant Estoppel Certificates and Seller Estoppel Certificates shall conform with the requirements of Section 6.2(s) above and otherwise shall be acceptable to Buyer in its sole and absolute discretion;
- Seller shall have complied with the provisions of Section 14.1 hereof; and
- Buyer shall have received the approval of this transaction by the Board of Directors of Alexandria Real Estate Equities, Inc. ("ARE Board Approval"), which condition shall be satisfied prior to expiration of the Due Diligence Period.
If any condition set forth herein is not fully satisfied on or before the Closing Date, Seller may elect to attempt to satisfy or cure any such condition by written notice given to Buyer (i) at least two (2) business days prior to the Closing Date in the event that Seller has knowledge of Seller's failure to satisfy such condition at least two (2) business days prior to the Closing Date; or (ii) at such time that Seller has knowledge of Seller's failure to satisfy such condition if Seller does not have knowledge of the same at least two (2) business days prior to the Closing Date, and if Seller so elects, Seller shall have a period not exceeding thirty (30) days after the Closing Date to satisfy such condition, and the Closing Date shall be extended accordingly. In the event of a failure of any of the foregoing conditions following any applicable cure period as aforesaid, Buyer shall have the right to terminate this Agreement upon written notice to Seller. If the conditions which are not satisfied are those set forth in Section 8.1 (a), 8.1(b), 8.1(f) [only if such condition could have been satisfied by Seller's delivery of a Seller Estoppel Certificate in accordance with the requirements of Section 6.2(s)], or Section 8.1(g), such failure shall be considered to be based upon the default of Seller hereunder, and the provisions of Section 9.1 shall apply. If the conditions which are not satisfied are any of the remaining conditions set forth above, the Deposit shall be returned to Buyer and thereupon this Agreement shall be terminated and neither party shall have recourse hereunder (other than the obligations of Buyer under Section 7.2(b), Section7.7, Article 16, and Article 21, which shall remain in effect).
8.2 Conditions to Seller's Obligations. Without limiting any other conditions to Seller's obligations to close set forth in this Contract, the obligations of Seller under this Contract are subject to the satisfaction at the time of Closing of each of the following conditions (any of which may be waived in whole or in part by Seller at or prior to Closing):
- All of the representations by Buyer set forth in this Contract or any Exhibit attached hereto shall be true and correct in all material respects;
- Buyer shall have performed, observed, and complied in all material respects with all covenants and agreements required by this Contract to be performed by Buyer at or prior to Closing;
- Lender and Buyer have executed the Lender Documents (subject, to Section 7.6.1);
- The parties have, on or before the expiration of the Due Diligence Period, approved any Development Contracts which were not executed as of the Execution Date of this Agreement as well as any exhibits and other items which are required to be inserted into the Development Agreement in order to complete the Development Agreement;
- The parties have, on or before the expiration of the Due Diligence Period, agreed upon the form of the LLC Agreement.
If any conditions set forth herein are not fully satisfied on or before the Closing Date, Buyer may elect to attempt to satisfy or cure any such condition by written notice given to Seller (i) at least two (2) business days prior to the Closing Date in the event that Buyer has knowledge of Buyer's failure to satisfy such condition at least two (2) business days prior to the Closing Date; or (ii) at such time that Buyer has knowledge of Buyer's failure to satisfy such condition if Buyer does not have knowledge of the same at least two (2) business days prior to the Closing Date, and if Buyer so elects, Buyer shall have a period not exceeding five (5) business days after the Closing Date to satisfy such condition, and the Closing Date shall be extended accordingly. In the event of a failure of any of the foregoing conditions following any applicable cure period as aforesaid, Seller shall have the right to terminate this Agreement upon written notice to Seller. If the conditions which are not satisfied are those set forth in Sections 8.2(a) or 8.2(b), such failure shall be considered to be based upon the default of Buyer hereunder, and the provisions of Section 9.2 shall apply. If the conditions which are not satisfied are those set forth in Sections 8.2(c)-(e), the Deposit shall be returned to Buyer and thereupon this Agreement shall be terminated and neither party shall have recourse hereunder (other than the obligations of Buyer under Section 7.2(b), Section7.7, Article 16, and Article 21, which shall remain in effect).
Article 9. Default:
9.1 Seller Default. If on or before the Closing Date Seller has failed to perform all of its obligations hereunder (not otherwise waived by Buyer) or in the event that Seller is in default of its representations, warranties or covenants contained herein, or if a condition to Buyer's obligation to close has not been satisfied, which condition was an obligation of Seller hereunder, Seller shall use its reasonable efforts to cure any such default or failure and in such event the Closing Date shall be extended by a written notice given to Buyer (i) at least two (2) business days prior to the Closing Date in the event that Seller has knowledge of such default or failure at least two (2) business days prior to the Closing Date; or (ii) at such time that Seller has knowledge of such default or failure if Seller does not have knowledge of the same at least two (2) business days prior to the Closing Date, for a period of up to thirty (30) days as specified in said notice. Thereafter, Seller shall use its reasonable efforts to cure any such breach or default; provided, however, nothing herein shall require Seller to expend in excess of One Hundred Thousand Dollars ($100,000.00) in such efforts which shall include, without limitation, any obligation of Seller pursuant to 7.5 hereof. The $100,000.00 limitation on Seller's reasonable efforts shall not apply to Seller's obligation to remove all voluntary monetary liens encumbering the Property or Seller's obligation to cure or satisfy (i) any involuntary monetary liens to the extent that the same can be cured or otherwise satisfied by the payment by Seller of maximum aggregate amount of Seven Million Five Hundred Thousand Dollars ($7,500,000.00); or (ii) mechanics liens without regarding the amount of the same. If in spite of Seller's reasonable efforts, Seller fails to perform all of its obligations hereunder and satisfy all conditions of closing to be satisfied by Seller on or before the extended Closing Date, then Buyer shall have, as its sole and exclusive remedies therefor, the right either to (a) accept the Property in its then "as-is" condition (i.e. "as-is" as to title, zoning, and all other matters) without reduction in Purchase Price, (b) to bring an action for specific performance for conveyance of the Property on the terms set forth in this Contract, or (c) terminate this Contract by written notice to Seller and receive a return of the Deposit. In the event that Buyer's elects the remedy set forth in subsection (c), this Contract shall terminate and the parties shall be relieved of all further obligations and liabilities hereunder, except as expressly set forth herein.
9.2 Buyer Default. In the event of a default by Buyer hereunder, it would be extremely impracticable and difficult to estimate the damage and harm which Seller would suffer, and because a reasonable estimate of the total net detriment that Seller would suffer in the event of Buyer's failure to duly complete the acquisition hereunder is the amount of the Deposit, Seller shall be entitled to receive and retain the Deposit as and for Seller's sole and exclusive remedy for damages arising from Buyer's failure to complete the acquisition in accordance with the terms hereof, and Seller shall have no further recourse or remedy at law or in equity for any breach by Buyer hereunder.
Article 10. Certain Property Matters:
10.1 IPOP and PTDM. Seller has the benefit of an Interim Planning Overlay Permit from the Planning Board of the City of Cambridge dated July 6, 1999 (the "IPOP"). In addition to the IPOP, Seller obtained a final decision on July 9, 1999 from the Parking and Transportation Demand Management Planning Officer of the City of Cambridge approving a Parking and Transportation Demand Management Plan (the "PTDM"). The IPOP and the PTDM impose requirements upon the Seller with respect to ongoing operations at the Premises. Seller hereby advises Buyer that provisions of the IPOP and the PTDM are general in nature, subject to interpretation and with respect to which literal compliance may not be possible or appropriate. Buyer hereby agrees that, effective as of Closing, it shall assume full responsibility for all operating obligations under both the IPOP and the PTDM.
10.3 Sewer Encroachment. Seller hereby advises Buyer that a sewer easement in favor of the City of Cambridge runs beneath three buildings at the Premises, including Building 300. Seller's predecessor-in-interest received a letter from the City of Cambridge Public Works Department authorizing the construction of Building 300 above said sewer easement. The existence of said easement encroaching upon said buildings shall not be a basis of objection by Buyer during or after the end of the Due Diligence Period.
10.4 Real Estate Taxes. Technology Square consists of seven (7) condominium units, each consisting of a separate building (Units 100, 200, 300, 400, 500, 600 and 700), and certain common areas, including the parking garage. The final unit of the Technology Square Condominium was added pursuant to that certain Second Amendment to Master Deed dated as of November 15, 2002, and recorded with the Middlesex South Registry of Deeds as Instrument No. 1617 on September 23, 2003, and registered with the Middlesex South District of the Land Court as Document No. 1293465. However, the tax collector for the City of Cambridge has not yet begun to assess each unit of the Technology Square Condominium separately, but rather assessments have continued to follow old lot lines. Such method of taxation shall not be a basis of objection during or after the end of the Due Diligence Period.
10.5 Steam Contract. Buyer hereby acknowledges and agrees that, as of the Closing Date, Seller shall assign to Buyer, and Buyer shall assume, all of Seller's rights and obligations under and to that certain Energy Services Agreement, between Dalkia Energy Services, LLC ("Steam Vendor"), and Technology Square Finance, LLC, dated as of November 3, 2005 (the "Steam Contract"), in accordance with the provisions of Section 24.3 of the Steam Contract. Buyer acknowledges that, pursuant to the provisions of the Steam Contract, the Steam Vendor has agreed to release Seller from liability under the Steam Contract if Steam Vendor is satisfied with the entity which succeeds to Seller's obligations under the Steam Contract. Buyer hereby agrees to cooperate with Seller, in such manner as Seller may reasonably request (e.g. by providing information about the entity which will be succeeding to Seller's interest under the Steam Contract) so as to enable Seller to obtain from Steam Vendor a release of Seller from its obligations under the Steam Contract.
With respect to all of the foregoing matters, Buyer agrees that at Closing it shall assume all liability with respect to such matters, and that the disclosure of such matters by tenants in their respective estoppel certificates shall not be a cause for objection by Buyer.
Article 11. Damage or Destruction: Condemnation:
11.1 Minor Damage. In the event of partial damage or destruction of less than five percent (5%) of the rentable square feet located at the Property, then Buyer shall (unless such damage has been repaired by Seller in a good and workmanlike manner prior to Closing) accept title to the Property in its destroyed or damaged condition. Buyer shall pay the full Purchase Price without reduction, and Seller shall pay over or assign to Buyer all rights to any proceeds of insurance payable with respect to such destruction or damage (less amounts reasonably expended by Seller in repairing the damage prior to the Closing Date) and Buyer shall have a credit against the Purchase Price in the amount of any deductible.
11.2 Major Damage. In the event of partial damage or destruction of five percent (5%) or more of the rentable square feet located at the Property, then at Buyer's election, Seller shall, unless Seller has previously repaired or restored the Property to its former condition, either (a) pay over or assign to Buyer, on delivery of the Lease Assignment all amounts recovered on account of any insurance, together with amounts equal to any deductibles thereunder, less any amounts reasonably expended by Seller and reasonably approved by Buyer for partial restoration or collection of insurance proceeds, or (b) direct Escrow Agent to return the Deposit to Buyer in which case all other obligations of the parties hereto shall cease except those set forth in Section 7.2(b), Section 7.7, Article 16, and Article 21 and this Contract shall be void and without recourse to the parties hereto.
11.3 Condemnation. If prior to the Closing Date, five percent (5%) or more of the Property is taken by condemnation, eminent domain or by agreement in lieu thereof, or any proceeding to acquire, take or condemn all or a material part of the Property is threatened or commenced, Buyer may either terminate this Contract (in which event Buyer shall be entitled to a return of the Deposit) or purchase the Property in accordance with the terms hereof, without reduction in the Purchase Price, together with an assignment of Seller's rights to any award paid or payable by or on behalf of the condemning authority. If Seller has received payments from the condemning authority and if Buyer elects to purchase the Property, Seller shall credit the amount of said payments (less Seller's costs of collection) against the Purchase Price at the Closing.
Seller shall promptly notify Buyer of any damage or destruction to the Property or any notice received by it or information or awareness acquired by it regarding the threatening of or commencement of condemnation or similar proceedings. If following such damage or destruction the Closing should occur, the proceeds of any so-called rent insurance shall be apportioned between the parties as if the same were rent, as and when received by a party.
11.4 Insurance. Seller hereby agrees that it will continue to maintain such casualty insurance as Seller presently maintains (to wit, replacement cost insurance under a portfolio policy covering other properties owned by Seller and its affiliates) on the Premises through the Closing.
Article 12. Representations and Warranties:
12.1 Seller Representations and Warranties. Seller hereby makes the representations and warranties to Buyer which are set forth below as of the date of this Contract and as of the Closing Date, provided that Buyer acknowledges and agrees that each of such representations and warranties is expressly qualified by any information set forth in the Due Diligence Items:
- Seller is a limited liability company duly and validly organized and existing under the laws of the Commonwealth of Massachusetts. This Contract and all documents that are to be executed by Seller and delivered to Buyer at the Closing are duly authorized, executed and delivered by Seller, are, or at the Closing will be, legal, valid and binding obligations of such party, enforceable in accordance with their terms, and do not, and, at the time of Closing will not, violate any provisions of any agreement or judicial order to which Seller is a party or to which Seller or the Property is subject.
- Seller has delivered to Buyer true and correct copies of all Space Leases currently in effect with respect to the Premises, a true and correct complete list of which is attached hereto as Exhibit D. Other than the Master Lease and month-to-month parkers in the Garage, and except as disclosed in Article 10, there are no leases or occupancy agreements affecting the Premises except for the Space Leases. Except with respect to the matters disclosed in Article 10 and on Exhibit D, (i) no such tenant has asserted in writing or, to Seller's knowledge, has any defense to, offsets or claims against, rent payable by it or the performance of its other obligations under its Lease; (ii) no such tenant is in arrears in the payment of any sums or, to Seller's knowledge, in the performance of any material obligation required of it under its Lease beyond any applicable grace period, and no such tenant has prepaid any rent or other charges more than thirty (30) days in advance; (iii) no such tenant has requested in writing a modification of its Space Lease, or a release of its obligations under its Space Lease in any material respect or has given written notice terminating its Space Lease, or has been released of its obligations thereunder in any material respect prior to the normal expiration of the term thereof; (iv) all security deposits paid by tenants, are as set forth in Exhibit D; and there are no unpaid tenant improvement allowances, brokerage commissions, free rent, or similar concessions outstanding thereunder (including any such amounts attributable to any extension terms), except as set forth in Exhibit T. To Seller's knowledge, no default or breach exists under any Space Lease on the part of Seller. Notwithstanding anything herein to the contrary, Buyer recognizes that the representations and warranties contained in this Section 12.1(b) may be modified as set forth in Article 13 hereof.
- Exhibit H attached hereto is a complete list of all management, services, operating, listing, brokerage, supply and maintenance agreements, equipment leases, and all other contracts or agreements affecting the Property as of the date of this Contract other than the Space Leases and the Master Lease (collectively, the "Operating Contracts"). Each of the Operating Contracts is in full force and effect, and, except as specified in Exhibit H, has not been amended, modified, or supplemented. To Seller's knowledge, there is no existing default, beyond applicable grace periods, under any of the Operating Contracts, where such default would have a material adverse impact on the value of the Property. Seller shall not modify or terminate the Operating Contracts without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed, and Seller shall not enter into any new service contract for the Property or any portion thereof without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed. By not later than the expiration of the Due Diligence Period, the Buyer may at its option notify the Seller that Buyer wishes to assume any or all of the Operating Contracts (to the extent the same are assumable); provided, however, that Buyer shall assume the Steam Contract and the Steam Guaranty (as both such terms are defined in Exhibit H). At the Closing, Seller shall send notices of termination of all Operating Contracts which Buyer has not elected to assume by such date, provided said Operating Contracts are terminable without penalty or liability in which event Buyer hereby agrees to assume said Operating Contracts at the Closing for the balance of the termination period. The contract with Seller's property manager shall be terminated effective as of the Closing Date.
- To Seller's knowledge and except as set forth on Exhibit M, Seller has not received notice in writing from a governmental agency having jurisdiction that the Premises or any part thereof is (as of the date hereof) in violation of any law, ordinance, rule or regulation applicable to the Premises, which violation materially and adversely affect the Premises or the operation thereof.
- To Seller's knowledge, there is not now pending nor has there been threatened, any action, suit or proceeding against or affecting Seller or the Premises before or by any federal or state court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, which would, if determined adversely to Seller, adversely affect the use or the value of the Premises.
- To Seller's knowledge, attached hereto as Exhibit K is a list of all final environmental reports relating to the Property which are in Seller's possession (the "Environmental Reports"). Complete copies of the Environmental Reports have been furnished to Buyer.
- To Seller's knowledge, Seller has provided to Buyer access to all material documents affecting the Property which are in Seller's possession as of the Execution Date of this Agreement.
- The rent roll attached hereto as Exhibit T (which lists, among other things, all outstanding amounts due to tenants on account of tenant improvement allowances, brokerage commissions, free rent, or similar concessions outstanding thereunder (including any such amounts attributable to any extension terms relating to the Premises) is accurate in all material respects as of the Execution Date hereof.
12.2 Buyer Representations and Warranties. Buyer hereby represents and warrants to Seller as of the date hereof and as of the Closing Date as follows:
- Buyer is a limited liability company, duly and validly organized and existing under the laws of Delaware and is qualified to do business in the Commonwealth of Massachusetts. This Contract and all documents executed by Buyer that are to be delivered to Seller at the Closing are, or at the time of Closing will be, subject to ARE Board Approval, duly authorized, executed and delivered by Buyer. This Contract and such documents are, or at the Closing will be, subject to ARE Board Approval, legal, valid, and binding obligations of Buyer, and do not, and, at the time of Closing will not, violate any provisions of any agreement or judicial order to which Buyer is a party or to which it is subject.
- There are no proceedings pending or, to Buyer's knowledge, threatened against it in any court or before any governmental authority or any tribunal which, if adversely determined, would have a material adverse effect on its ability to purchase the Property or to carry out its obligations under this Contract.
- Buyer has adequate financial resources to fully perform all of its obligations under this Contract, including payment to Seller of the Purchase Price.
- Buyer covenants, represents and warrants that it is not now in violation of and will at all times comply with all applicable U.S. laws relating to anti-money laundering, anti-terrorism, trade embargoes and economic sanctions now or hereafter in effect, including, without limitation, Executive Order 13224 (Executive Order Blocking Property Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism), 66 Fed. Reg. 49079 (Sept. 23, 2001) as may be amended or supplemented from time to time ("Executive Order 13224"), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 or any enabling legislation or executive order relating thereto or regulations promulgated thereunder (collectively, the "Anti-Terrorism/Anti-Money Laundering Laws"). Without limiting the foregoing, Buyer hereby represents that he, she or it is not, and will not be owned or controlled, in whole or in part, by a Prohibited Person (defined below). For purposes hereof, "Prohibited Person" means any Person now or hereafter listed by the United States Treasury Department's Office of Foreign Assets Control ("OFAC") on the so-called "Specially Designated Nationals and Blocked Persons" list (which list mat be published from time to time in various mediums including, but not limited to, in PDF format on the OFAC website at http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf) or any other applicable list required by Anti-Terrorism/Anti-Money Launderings Laws (each, a "List") and not subsequently removed from any such List. Buyer agrees that upon demand, he, she or it will (A) disclose to the Seller in writing such information with respect to its ownership as the Seller reasonably deems necessary to comply with Anti-Terrorism/Anti-Money Laundering Laws and (B) promptly furnish such further information, and execute and deliver such documents, as reasonably may be required by the Seller to comply with, or to confirm compliance with, any applicable laws or regulations or other obligations of Seller.
- If Buyer is suspected of being a Prohibited Person (e.g., by inclusion of a name similar to Buyer on any List) or if Buyer becomes listed on any List or if Buyer otherwise breaches the provisions of Section 12.2(d) above (each, a "Triggering Event"), Buyer shall immediately notify the Seller if Buyer has knowledge of such Triggering Event, but in no event later than two (2) business days after the occurrence of the Triggering Event, and Buyer shall have ten (10) business days from the occurrence of the Triggering Event to remove or cause to be removed such party from any interest in Buyer. In the event of a Triggering Event, Seller may terminate this Agreement upon written notice to Buyer and neither party shall have any further obligation under this Agreement (except for the indemnity obligations and any other obligations that expressly survive the termination of this Agreement).
12.3 Knowledge. Neither party shall have any liability in connection with this Contract (including under Article 9) by reason of any inaccuracy of a representation or warranty, if, and to the extent that such inaccuracy is in fact known by the other party at the time of the Closing (in the case of either party, this means "Seller's Knowledge" or "Buyer's Knowledge"), and such other party elects, nevertheless, to consummate the transaction contemplated hereby.
12.4 Seller's Knowledge. For the purposes of this Contract, the term "Seller's knowledge" or words of similar import, shall refer only to the actual knowledge of Steven C. Marsh and/or John P. McQuaid, and shall not be construed to refer to the knowledge of any other partner, beneficial owner, officer, employee or agent of Seller, nor shall such term impose any duty to investigate the matters to which such knowledge, or absence thereof, pertain. There shall be no personal liability on the part of Steven C. Marsh and/or John P. McQuaid arising out of any representations or warranties made herein or otherwise.
If, after the date hereof and prior to the Closing, either party obtains knowledge (as defined above) that any of the representations or warranties made herein by the other are untrue, inaccurate or incorrect in any material respect, such party shall give the other party written notice thereof within five (5) business days of obtaining such knowledge and the party so notified shall have the opportunity to cure such matter, if capable of cure, prior to the Closing. To the extent a Tenant Estoppel Certificate is provided by Buyer which confirms information with respect to any item as to which Seller has made a representation or warranty, then Seller's representation and warranty with respect to such information will thereafter be null and void and of no further force and effect and Buyer shall rely on the information in the Tenant Estoppel Certificate.
Article 13. Survival of Representations and Warranties
13.1 Survival Period. All representations, warranties, indemnifications and covenants by Seller in Section 12.1 hereof as well as the representations set forth in any Seller Development Contractor Estoppel Letter and any Seller Estoppel Certificates (as such representations, warranties, indemnifications and covenants may be modified pursuant to the next succeeding paragraph of this Article 13) are intended to be and shall remain true and correct as of the time of Closing, shall survive the execution and delivery of this Contract and the Closing and the transfer of title for a period of twelve (12) months, and with respect to any written claim made and delivered by Buyer to Seller within such period, time being of the essence, until final unappealable adjudication or settlement thereof. Any claim must be in writing and be delivered to Seller on or before that date which is twelve (12) months after the Closing Date, time being of the essence, in accordance with the provisions of and at the address set forth in Article 18 hereof. No such notice of claim shall be effective unless such notice identifies such claim with specificity and refers to this Article 13. Notwithstanding anything to the contrary herein contained, if Seller provides any Seller Development Contractor Estoppel Letter or any Seller Estoppel Certificate, and if, after Closing, Seller delivers to Buyer the corresponding Development Contractor Estoppel Letter or Tenant Estoppel (the substance of which shall be consistent with the respective Seller Estoppel), as the case may be, then Seller shall have no further liability or obligation under such Estoppel Letter or Estoppel Certificate, as the case may be.
13.2 Modification. To the extent that Buyer knows, or is deemed to know, prior to the expiration of the Due Diligence Period, that any of Seller's representations or warranties in Article 13 or elsewhere are inaccurate, untrue or incorrect in any way, such representations and warranties shall be deemed modified to reflect Buyer's knowledge or deemed knowledge, as the case may be. For purposes of this Contract, Buyer shall be "deemed to know" that a representation or warranty was untrue, inaccurate or incorrect to the extent that a representation or warranty of Seller was qualified by information contained in the Due Diligence Items pursuant to Section 12.1, this Contract, any exhibits attached hereto, any estoppel certificate delivered in connection herewith or any studies, tests, reports, or analyses prepared by or for Buyer or any of its employees, agents, representatives or attorneys (all of the foregoing being herein collectively called the "Buyer's Representatives"), or otherwise obtained by Buyer or Buyer's Representatives and actually known by Thomas Andrews to contain information which is inconsistent with such representation or warranty.
13.3 Liability. Notwithstanding anything in this Contract to the contrary, Seller shall only be liable to Buyer or, subject to the provisions of 23.2 hereof, its assigns, for a breach of a representation or warranty made in Section 12.1 hereof (as modified or qualified pursuant hereto), and then only to the extent of the actual damages incurred by Buyer or, subject to the provisions of Section 23.2 hereof, its assigns, in excess of Seventy-Five Thousand Dollars ($75,000.00) per occurrence. In addition, the maximum aggregate liability of Seller and the maximum aggregate amount which may be awarded to and collected by Buyer or Buyer's assigns for all breaches of the representations and warranties of Seller contained in Section 12.1 shall in no event exceed the lesser of (a) the actual direct damages proximately caused by any such breaches by Seller, or (b) Seven Million Five Hundred Thousand Dollars ($7,500,000.00). Other than Seller's representations and warranties contained in Section 12.1 hereof and in any Seller Estoppel Certificates and Seller Development Contract Estoppel Letters, and other than Seller's obligations to make post-Closing adjustments under Article 15 hereof, Buyer's acceptance and recording of the Lease Assignment shall be deemed full compliance by Seller of all of its obligations hereunder.
13.4 Release as of Closing Date. Buyer, for itself and its successors and assigns hereby releases and forever discharges Seller, and their partners, beneficial owners, officers, directors, employees, and agents from any and all claims, acts, debts, demands, actions, causes of action, suits, sums of money, guaranties, bonds, covenants, contracts, accounts, agreements, promises, representations, restitutions, omissions, variances, damages, obligations, costs, response actions, fees and liabilities of every name and nature whatsoever, both at law and in equity, which Buyer and its successors and assigns may now or hereafter have with respect to matters existing as of the Closing Date against Seller, or their partners, beneficial owners, officers, directors, employees, or agents arising in connection with this Contract, the Property, or the transaction contemplated hereby, excepting solely the obligations of Seller which are stated to survive the Closing, including without limitation: (i) Seller's liability for any injuries to persons or death which occur prior to Closing, (ii) Seller's liability under any Seller Estoppel Certificates or Seller Development Contract Estoppel Letters delivered by Seller to Buyer, and (iii) as set forth in this Article 13.
Article 14. Maintenance; New Leases:
14.1 Operation of Premises. Between the date hereof and the Closing, Seller shall operate the Premises or cause the Premises to be operated in the ordinary course of business and consistent with past procedures heretofore followed by it in connection with such operation, provided, however, that Seller shall not be obligated to make any capital improvements, capital repair or capital replacements prior to Closing except for the construction and development described in Article 2. Between the date hereof and the Closing, Seller shall not permit the removal of any material item of the Personal Property from the Premises unless the same is obsolete and is replaced by tangible personal property of equal or greater utility and value.
14.2 Leases. Prior to the Closing or earlier termination of this Agreement, Seller shall not (i) enter into any lease, (ii) amend, modify, or cancel any Lease (or guaranty thereof) or (iii) grant any consents under, or waive any provisions of, any Lease, in each case without the prior written consent of Buyer, which consent Buyer may withhold, condition or delay in its sole discretion. Any consent requested by Seller pursuant to the preceding sentence shall be deemed to have been given if Buyer shall fail to respond to such request within three (3) business days after its receipt of such request. Notwithstanding the foregoing, Buyer understands that Seller is currently in the process of negotiating leases with the prospective tenants identified on Exhibit S attached hereto and incorporated herein by reference, and Buyer agrees that Seller may enter into said leases on the terms set forth therein at any time prior to Closing. Prior to the expiration of the Due Diligence Period, Seller shall keep Buyer apprised of any lease negotiations, or requests for waivers or consents under any leases, provided Seller may take any of the foregoing actions without Buyer's consent.
14.3 Contracts. Seller shall not, without the prior written consent of Buyer, which consent may be withheld, conditioned or delayed in Buyer's sole discretion, enter into any contract which could bind Buyer or the Property after the Closing other than contracts related to construction as provided in Article 2.
Article 15. Apportionment of Taxes and Other Charges:
15.1 Real Estate Taxes. Applicable real estate and personal property taxes for the then current tax period shall be apportioned as of the Closing and the net amounts shall be added to or deducted from, as the case may be, the Purchase Price. The term "real estate taxes" shall include any installments of betterment or similar assessments. If the amount of such taxes is not known at the Closing, such taxes shall be apportioned on the basis of the taxes assessed for the preceding tax period, with a reapportionment as soon as the new tax rate and valuation can be ascertained and if the taxes which are to be apportioned shall thereafter be reduced by abatement, the amount of such abatement, less the reasonable cost of obtaining the same, shall be apportioned between the parties. Neither party shall be obligated to commence or prosecute abatement proceedings.
15.3 Utilities. All electricity, water, gas, sewage and other utility expenses applicable to the Property shall be prorated between Seller and Buyer as of the Closing based on final readings therefor as of the Closing. All maintenance, management, and other operating expenses applicable to the Property and payments under any Contracts to be assumed by Buyer shall be prorated between Seller and Buyer as of the Closing based on estimates of the amounts that will be due and payable on the next payment date, unless final invoices therefor as of the Closing shall have been obtained, in which case such final invoices shall be utilized as the basis for adjustment. As soon as the amount of such expenses for the period shall be known, Seller and Buyer shall recalculate the foregoing adjustments with the result that Seller shall pay for those expenses attributable to the period of time prior to the Closing Date and Buyer shall pay for those expenses attributable to the period of time commencing with the Closing Date. Any and all deposits held by utility companies or with other providers of services to the Property shall remain the property of Seller and be returned to Seller by such companies and providers except to the extent that Buyer elects to credit to Seller the amount of any such deposits, in which event such deposits shall be assigned to Buyer.
15.4 Loan to Dyax. Reference is hereby made to that certain Lease dated June 13, 2001 by and between Seller and Dyax Corp. ("Dyax"), as amended by a First Amendment to Lease dated March 1, 2002, and as further amended by a Second Amendment dated December 1, 2002 (as so amended, the "Dyax Lease") Pursuant to Section 6.4 of the Lease and the Second Amendment, Seller granted a loan to Dyax in the amount of $2,351,895, which is to be repaid in accordance with the terms of the Second Amendment. Any amounts due from Dyax to Seller in connection with such loan shall be apportioned in the same manner which rent is apportioned, as set forth in Section 15.2.
15.5 Closing Statement. Seller shall prepare a detailed statement setting forth all closing adjustments and shall deliver the same to Buyer (together with all supporting data) not less than three (3) business days prior to Closing. During the one (1) year period following the Closing, Buyer and Seller agree to re-prorate the closing adjustments in order to correct any error in performing the prorations or to reflect information that becomes available during such one (1) year period indicating that the prorations performed at Closing were not accurate. The provisions of this Article 15 shall survive the Closing.
Article 16. Broker.
Each party represents hereby to the other that it dealt with no broker in the consummation of this Contract except for Cushman & Wakefield ("Broker") and each party shall indemnify and save the other harmless from and against any claim arising from the breach of such representation by the indemnifying party. Any commission due Broker shall be paid by Seller, and Seller shall obtain and provide a receipt therefor at Closing. The provisions of this Article 16 shall survive the Closing or, if applicable, the termination of this Contract.
Article 17. Recording
It is agreed that this Contract shall not be filed for recording with the Middlesex South Registry of Deeds or with any other governmental body. If for any reason Buyer files or records a copy of this Contract, Seller may elect to terminate this Contract by written notice to Buyer, and in such event, Seller shall be entitled to the Deposit and upon receipt of such Deposit neither party shall thereafter have any further recourse one to the other hereunder, provided, however, that Buyer shall be required to fulfill its obligations under Section 7.2(a),Section 7.2(b), Section 7.3, Section7.7, Article 16, and Article 21 hereof.
Article 18. Notices
Any notice or communication which may be or is required to be given pursuant to the terms of this Contract shall be in writing and shall be sent to the respective party at the address set forth in the first paragraph of this Contract, postage prepaid, by personal delivery, by Certified Mail, Return Receipt Requested or by a nationally recognized overnight courier service that provides tracing and proof or receipt of items mailed, or by facsimile transmission, or to such other address as either party may designate by notice similarly sent. Notices shall be effective upon deposit with the U.S. Mail or with the overnight courier service, or upon transmission if by facsimile, as applicable. A copy of any notice to Seller shall also be simultaneously sent to Goulston & Storrs, 400 Atlantic Avenue, Boston, MA 02110-3333, Attention: Daniel D. Sullivan, Esq. [Facsimile #617-574-7515; Telephone #617- 574-3515]. Any notice sent to Buyer shall also be sent simultaneously sent to Wilmer Hale, 60 State Street, Boston, Ma 02109, Attention: Katharine E. Bachman, Esq. [Facsimile #617-526-5000; Telephone #617-526-6216]. Notices to Escrow Agent should be sent to Chicago Title Insurance Company, 700 Flower Street, Suite 800, Los Angeles, CA 90017, Attention: Ms. Amy Hiraheta, Assistant Vice President [Facsimile #213-488-4380; Telephone #213-488-4373].
Article 19. Closing Costs
Except as herein specifically provided, Seller and Buyer shall allocate all closing costs between them in accordance with standard practice in Boston, Massachusetts. Seller shall pay for (i) one-half of any amounts due to Escrow Agent, (ii) all documentary transfer taxes related to the sale of the Premises to Buyer, (iii) the updated survey; and (iv) all recording fees relating to the discharge of any lien liens which are required to be discharged by Buyer pursuant to the provisions of this Agreement. Buyer shall pay for: (i) one-half of any amounts due to Escrow Agent, and (ii) its due diligence costs, title insurance, and (iii) the cost of any transfer or assumption fee for the Existing Mortgage. Except for the Exhibits attached hereto, each of Seller and Buyer shall be responsible for preparing such documents as it is obligated to deliver pursuant to Article 6 hereof and for its own legal expenses.
Article 20. Duties and Responsibilities of Escrow Agent
Except as otherwise specifically directed in this Contract, Escrow Agent shall deliver the Deposit (for purposes of this Article 20, the "Escrow") to Seller or Buyer promptly after receiving a joint notice from Seller and Buyer directing the disbursement of the same, such disbursement to be made in accordance with such direction. If Escrow Agent receives notice from Buyer or Seller that the party giving such notice is entitled to the Escrow, which notice shall describe with reasonable specificity the reasons for such entitlement, then Escrow Agent shall (i) promptly give notice to the other party of Escrow Agent's receipt of such notice and enclosing a copy of such notice and (ii) subject to the provisions of the following paragraph which shall apply if a conflict arises, on the fifth (5th) day after the giving of the notice referred to in clause (i) above, deliver the Escrow to the party claiming the right to receive it.
In the event that Escrow Agent shall be uncertain as to its duties or actions hereunder or shall receive instructions or a notice from Buyer or Seller which are in conflict with instructions or a notice from the other party or which, in the reasonable opinion of Escrow Agent, are in conflict with any of the provisions of this Contract, it shall be entitled to take any one or more of the following courses of action:
- Hold the Escrow as provided in this Contract and decline to take any further action until Escrow Agent receives a joint written direction from Buyer and Seller or any order of a court of competent jurisdiction directing the disbursement of the Escrow, in which case Escrow Agent shall then disburse the Escrow in accordance with such direction;
- In the event of litigation between Buyer and Seller, deliver the Escrow to the clerk of any court in which such litigation is pending; or
- Deliver the Escrow to a court of competent jurisdiction and therein commence an action for interpleader, the cost thereof to Escrow Agent to be borne by whichever of Buyer or Seller does not prevail in the litigation.
Escrow Agent shall not be liable for any action taken or omitted in good faith and believed by it to be authorized or within the rights or powers conferred upon it by this Contract and it may rely, and shall be protected in acting or refraining from acting in reliance upon an opinion of counsel and upon any directions, instructions, notice, certificate, instrument, request, paper or other documents believed by it to be genuine and to have been made, sent, signed or presented by the proper party or parties. In no event shall Escrow Agent's liability hereunder exceed the aggregate amount of the Escrow. Escrow Agent shall be under no obligation to take any legal action in connection with the Escrow or this Contract or to appear in, prosecute or defend any action or legal proceedings which would or might, in its sole opinion, involve it in cost, expense, loss or liability unless, in advance, and as often as reasonably required by it, Escrow Agent shall be furnished with such security and indemnity as it finds reasonably satisfactory against all such cost, expense, loss or liability. Notwithstanding any other provision of this Contract, Buyer and Seller jointly indemnify and agree to hold harmless Escrow Agent against any loss, liability or expense incurred without bad faith on its part and arising out of or in connection with its services under the terms of this Contract, including the cost and expense of defending itself against any claim of liability.
Escrow Agent shall not be bound by any modification of this Contract unless the same is in writing and signed by Buyer, Seller and Escrow Agent. From time to time on or after the date hereof, Buyer and Seller shall deliver or cause to be delivered to Escrow Agent such further documents and instruments that fall due, or cause to be done such further acts as Escrow Agent may reasonably request (it being understood that the Escrow Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Contract, to evidence compliance with this Contract or to assure itself that it is protected in acting hereunder.
Escrow Agent shall serve hereunder without fee for its services as escrow agent, but shall be entitled to reimbursement for expenses incurred hereunder, which expenses shall be paid and borne equally by Buyer and Seller, unless such expenses are associated with litigation between Buyer and Seller, in which event they shall be borne by the party that does not prevail in the litigation. Escrow Agent agrees that it will not seek reimbursement for the services of its employees or partners, but only for its actual and reasonably incurred out-of-pocket expenses. Escrow Agent executes this Contract solely for the purpose of consent to, and agreeing to be bound by the provisions of this Article 20, and to the extent applicable to Escrow Agent, Article 4 and Article 21.
Article 21. Disclosure
. Prior to the Closing, Buyer and its respective officers, directors, employees, consultants, attorneys, advisors, underwriter, potential financial sources and agents will hold in confidence, unless compelled to disclose by judicial or administrative process or as otherwise required by law (provided that prior notice of the same is given to Seller) or in connection with any litigation between the Parties, all documents and information relating to the transaction contemplated by this Contract, including, without limitation, any information relating to the Property provided to Buyer by Seller in connection herewith; provided, however, that Buyer may, prior to the Closing, disclose such information to its officers, directors, employees, consultants, attorneys, advisors and agents so long as such persons are informed by Buyer of the confidential nature of such information and are directed by Buyer to treat such information confidentially. If this Contract is terminated prior to the Closing Date, all such confidences not already disclosed shall continue to be maintained. In the event this Contract is terminated before the Closing, Buyer and its respective officers, directors, employees, consultants, advisors, attorneys, and agents shall deliver to the Seller, upon written request, all documents and other materials, and all copies thereof, obtained from Seller or its agents in connection with this Contract. By execution of this Contract, Seller, Buyer and Escrow Agent hereby agrees to maintain the existence of this Contract and the nature and details of the transaction contemplated hereby in confidence, unless such party is required by law to disclose some or all of such information.
Article 22. Confidentiality.
The parties agree that no party shall, with respect to this Contract and the transactions contemplated hereby, contact or conduct negotiations with public officials, make any public pronouncements, issue press releases or otherwise furnish information regarding this Contract or the transactions contemplated to any third party without the consent of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, prior to the expiration of the Due Diligence Period, Seller and Buyer shall jointly meet with public officials of the City of Cambridge, including without limitation the City Manager and those City Counselors either party may designate. In addition, the parties shall prepare a joint press release to be released at such time after the meetings with public officials as the parties may reasonably agree, it being recognized that if either party believes that the fact of the transaction is likely to become generally known to the public it is in the parties' best interest that the joint press release be made preemptively. In no event, however, either in meetings or in press releases, shall the Purchase Price or other economic terms of this Contract be disclosed.
Article 23. Miscellaneous.
23.1 Captions The captions in this Contract are inserted only for the purpose of convenient reference and in no way define, limit or prescribe the scope or intent of this Contract or any part hereof.
23.2 Successors and Assigns. Except as set forth in this Section 23.2, neither Party may assign or transfer all or any portion of its rights or obligations under this Contract to any individual, entity or other person without the consent thereto of the other Party which may be withheld in such other party's sole discretion and any such unauthorized attempted assignment shall be null and void. So long as such assignee makes the Buyer representations set forth in this Agreement to Seller as of the date of such Assignment and as of the date of Closing, Buyer may assign this Contract and the rights or benefits hereof including, without limitation, the benefit of the representations and warranties contained in Section 12.1 hereof, to any party (or parties) of which Buyer owns or controls not less than fifty-one percent (51%) of the legal and beneficial interests. In the event of any assignment by Buyer permitted under this Section 23.2, the assignee must agree in writing to be bound by all of the terms and conditions of this contract and the obligations and liabilities of Buyer hereunder. No such assignment shall release Buyer of its obligations hereunder. Subject to the foregoing, this Contract shall be binding upon the parties hereto and their respective successors and assigns.
23.3 Entire Agreement.
The parties understand and agree that their entire agreement is contained herein and that no warranties, guarantees, statements, or representations shall be valid or binding on a party unless set forth in this Contract or unless set forth in the documents to be delivered pursuant to the provisions of this Contract. It is further understood and agreed that all prior understandings and agreements heretofore had between the parties are merged in this Contract which alone fully and completely expresses their agreement and that the same is entered into after full investigation, neither party relying on any statement or representation not embodied in this Contract. This Contract may be changed, modified, altered or terminated only by a written agreement signed by the parties hereto.
23.4 Governing Law. The laws of The Commonwealth of Massachusetts shall govern the validity, construction, enforcement and interpretation of this Contract.
23.5 Multiple Counterparts. This Contract may be executed in any number of identical counterparts. If so executed, each of such counterparts shall constitute this Contract. In proving this Contract, it shall not be necessary to produce or account for more than one such counterpart.
23.6 Further Assurances. After the Closing, Seller and Buyer shall cooperate with one another at reasonable times and on reasonable conditions and shall execute and deliver such instruments and documents as may be necessary in order fully to carry out the intent and purposes of the transactions contemplated hereby. Except for such instruments and documents as the parties were originally obligated to deliver by the terms of this Contract, such cooperation shall be without additional cost or liability.
23.7 Business Day; Time of Day. In the event any date hereunder (including the Closing Date) falls on a Saturday, Sunday or Legal Holiday, the date applicable shall be the next business day. Whenever in this Agreement a time of day is referred to (e.g. 5:00 p.m.), such time of day shall be deemed to refer to the then current time in the Pacific time zone.
23.8 Time of the Essence. Time is of the essence of this Agreement.
23.9 Prevailing Party. If any party to this Contract shall institute an action to enforce the terms hereof, the prevailing party shall be entitled to reasonable attorneys' fees and costs from the party determined to have breached the terms of this Contract. An award of reasonable attorneys' fees and costs shall be determined by the court. The "prevailing party" shall be the party that obtains final judgment in its favor. If the institution of an action to enforce the terms of this Contract is resolved by settlement, the parties will determine what portion, if any, of the injured party's legal fees and costs will be paid by the breaching party.
23.10 Submission not an Offer or Option. The submission of this Agreement or a summary of some or all of its provisions for examination or negotiation by Buyer or Seller does not constitute an offer by Seller or Buyer to enter into an agreement to sell or purchase the Property, and neither party shall be bound to the other with respect to any such purchase and sale until a definitive agreement satisfactory to the Buyer and Seller in their sole discretion is executed and delivered by both Seller and Buyer.
23.11 Post Closing Access to Records. Upon receipt by Seller of Buyer's reasonable written request at anytime and from time to time within a period of 1 year after the Closing, Seller shall make available (or cause its Manager or asset manager, as applicable, to make available) to Buyer and its accountants and designees, for inspection and copying during normal business hours and at Buyer's sole cost and expense, (i) all accounting records relating to the Property for the calendar year period ended December 31, 2005, and for the period from January 1, 2006 through the Closing Date, including, without limitation, all general ledgers, cash receipts, canceled checks and other accounting documents or information reasonably requested by Buyer and related to the Property, and (ii) all other records related to the Property, in either case whether in the possession or control of Seller or Seller's Manager, asset manager or other agent.
[Remainder of Page Intentionally Blank]
IN WITNESS WHEREOF, the parties hereto have executed this Contract as an instrument under seal as of the day and date first written above.
In the presence of |
SELLER: |
|
TECHNOLOGY SQUARE FINANCE LLC, a |
/s/ Michael K. Owu |
By: /s/ Steven C. Marsh |
/s/ Elizabeth M. Aguilera |
By: /s/ Dean A. Shigenaga |
/s/ Veronica Sanchez |
By: /s/ Gus Aguilar |
EXHIBIT 10.2
FIRST AMENDMENT TO PURCHASE AND SALE CONTRACT
THIS FIRST AMENDMENT TO PURCHASE AND SALE CONTRACT ("Amendment") is entered into as of July 10, 2006, by and between TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company ("Seller") and ARE-MA REGION NO. 31, LLC, a Delaware limited liability company ("Buyer").
R E C I T A L S
WHEREAS, Seller and Buyer entered into that certain Purchase and Sale Contract dated as of July 3, 2006 (the "Agreement") with respect to certain real and personal property (the "Property") located at Technology Square, Cambridge, Massachusetts, which Property is more particularly described in the Agreement; and
WHEREAS, Seller and Buyer have agreed to amend the Agreement as more particularly set forth below.
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, Seller and Buyer hereby amend the Agreement as follows:
1.Capitalized Terms. Capitalized terms not defined herein shall have the meaning ascribed to them in the Agreement.
2.Extension of Due Diligence Expiration Date. Effective as of the date hereof, Seller and Buyer hereby amend Section 7.3 of the Agreement to provide that the Due Diligence Expiration Date shall be and hereby is extended from 5:00 p.m. on July 11, 2006 to 5:00 p.m. on July 14, 2006.
3. Counterparts. This Amendment may be executed in one or more counterpart copies, all of which counterparts shall have the same force and effect as if all parties hereto had executed a single copy of this Amendment.
4.Ratification. Except as amended hereby, the Agreement shall remain in full force and effect.
[End of text on page]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
SELLER:
TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company
By: Massachusetts Institute of Technology,
a Massachusetts charitable corporation,
its Manager
By: /s/ Steven C. Marsh
Name: Steven C. Marsh
Its: Managing Director, Real Estate
BUYER:
ARE-MA REGION NO. 31, LLC, a Delaware limited
liability company
By: Alexandria Real Estate Equities, L.P.,
a Delaware limited partnership,
its Managing Member
By: ARE-QRS Corp.,
a Maryland corporation,
its General Partner
By: /s/ Jennifer Pappas
Name: Jennifer Pappas
Its:V.P. & Assistant Secreatary
Acknowledgement by Escrow Agent
Escrow Agent acknowledges the terms of the foregoing Amendment, and agrees to continue to be bound by those terms of the Agreement applicable to the Escrow Agent.
ESCROW AGENT:
Chicago Title Insurance Company
By: /s/ Gus Aguilar
Name: Gus Aguilar
Its: Senior Escrow Officer
EXHIBIT 10.3
SECOND AMENDMENT TO PURCHASE AND SALE CONTRACT
THIS SECOND AMENDMENT TO PURCHASE AND SALE CONTRACT ("Amendment") is entered into as of July 14, 2006, by and between TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company ("Seller") and ARE-MA REGION NO. 31, LLC, a Delaware limited liability company ("Buyer").
R E C I T A L S
WHEREAS, Seller and Buyer entered into that certain Purchase and Sale Contract dated as of July 3, 2006, as amended by a First Amendment to Purchase and Sale Contract (the "First Amendment") dated as of July 10, 2005 (as so amended, the "Agreement") with respect to certain real and personal property (the "Property") located at Technology Square, Cambridge, Massachusetts, which Property is more particularly described in the Agreement; and
WHEREAS, Seller and Buyer have agreed to amend the Agreement as more particularly set forth below.
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, Seller and Buyer hereby amend the Agreement as follows:
1. Capitalized Terms. Capitalized terms not defined herein shall have the meanings ascribed to them in the Agreement.
2. Expiration of Due Diligence Period. Buyer hereby acknowledges that the Due Diligence Period has expired, and hereby waives its right to terminate the Agreement under the provisions of Section 7.3 thereof.
3. Additional Seller Deliveries at Closing. Seller and Buyer hereby agree that Seller shall deliver the following additional documents at the Closing in accordance with the terms of Section 6.2 of the Agreement:
- An original Estoppel Certificate and Agreement executed by Charles Stark Draper Laboratory, Inc. ("Draper") and Seller, substantially in the form attached hereto as Exhibit A and in substance reasonably acceptable to Buyer, confirming (i) the status of that certain Reciprocal Easement Agreement between Seller and Draper (the "Draper REA") and certain factual matters relative thereto, and (ii) Seller's delegation to Buyer of Seller's rights under both the Draper REA and that certain Foundation, Grade Beam and Encroachment Agreement between Seller and Draper (the "Draper Estoppel and Delegation Agreement");
- Such original affidavits as are reasonably required by the Title Company to extinguish of record any rights in the following expired leases: (i) Lease dated as of January 24, 2003 between Seller, as landlord, and Polcari's of Cambridge, Inc., as tenant, for approximately 11,100 square feet in Building 300, and (ii) Lease dated as of May 16, 2000, between Seller, as landlord, and Progress Software Corporation, as tenant, for approximately 2,829 square feet in Building 400;
- Two (2) original counterparts of a Resignation of Trustee of the Technology Square Condominium, in a form appropriate for recording and/or filing and reasonably acceptable to Buyer and Buyer's counsel;
- Two (2) original counterparts of an Appointment of Trustee of the Technology Square Condominium, appointing ARE-Tech Square Trustee, LLC as Trustee, in a form appropriate for recording and/or filing and reasonably acceptable to Buyer and Buyer's counsel;
- Two (2) original counterparts of a Confirmation of Expiration of Declarant Rights under the Technology Square Condominium Master Deed and Declaration of Trust, in the form of Exhibit B attached hereto;
- An original Assignment and Assumption of Steam Contracts, with respect to certain steam contracts between Seller and Dalkia Energy Services, LLC ("Dalkia"), executed by Seller, in the form of Exhibit C attached hereto (the "Dalkia Steam Assignment");
- An original Assignment and Assumption of Electricity Contract, with respect to that certain electricity contract between Seller and Select Energy, Inc. ("Select"), executed by Seller, in the form of Exhibit D attached hereto (the "Select Electricity Assignment");
- A original written consent to the Dalkia Steam Assignment, executed by Dalkia, in form and substance reasonably acceptable to Buyer and Buyer's counsel (the "Dalkia Consent"); and
- A original written consent to the Select Electricity Assignment, executed by Select, in form and substance reasonably acceptable to Buyer and Buyer's counsel (the "Select Consent").
- An original certificate, executed by Seller, in the form of Exhibit E attached hereto (the "Updated Seller Zoning Certificate"), confirming the legal compliance of the Property, including the new construction at Building 200 and Building 500;
- An original certificate, executed by Sasaki Associates, Inc., in the form of Exhibit F attached hereto (the "Updated Sasaki Zoning Certificate"), which is consistent with the Sasaki Certificate attached to the BRBI Opinion, confirming the legal compliance of the Property, including the new construction at Building 200 and Building 500 (which Certificate may rely upon a certification provided by Arrowstreet, Inc. as to the dimensions of the new construction at Building 200 and Building 500); and
- Two (2) original counterparts of a First Amendment to Development Agreement, executed by Seller, in the form of Exhibit G attached hereto (the "First Amendment to Development Agreement").
4. Additional Buyer Deliveries at Closing. Seller and Buyer hereby agree that Buyer shall deliver the following additional documents at the Closing in accordance with the terms of Section 6.3 of the Agreement:
- Two (2) original counterparts of an Acceptance of Appointment of Trustee of the Technology Square Condominium, executed by ARE-Tech Square Trustee, LLC as Trustee, in a form appropriate for recording and/or filing and reasonably acceptable to Seller and Seller's counsel;
- An original Dalkia Steam Assignment, executed by Buyer;
- An original Select Electricity Assignment, executed by Buyer; and
- Two (2) original counterparts of the First Amendment to Development Agreement, executed by Buyer.
5. Additional Condition to Buyer's Obligations. Section 8.1 of the Agreement is hereby amended by adding the following new conditions to Buyer's obligations under the Agreement as Subsection (i) after the end of Subsection (h) and before the beginning of the last paragraph of said Section 8.1:
"(i) Seller shall (i) have provided satisfactory evidence to Buyer of the payment in full of the existing equipment loan to Deere Credit, Inc., with respect to three (3) pieces of maintenance equipment used in connection with the Property (the "Equipment Financing"), (ii) have filed UCC-3 Termination Statements in the appropriate filing office terminating the UCC-1 Financing Statements of record with respect to the Equipment Financing, and (iii) convey clear title to said maintenance equipment to the Buyer Entity at Closing."
6. Additional Seller Representations and Warranties. Section 12.1 of the Agreement is hereby amended by adding the following new representations and warranties of Seller to Buyer under the Agreement as Subsections (i) through (k) after the end of Subsection (h) and before the beginning of Section 12.2 of the Agreement:
"(i) Technology Square Condominium Trustee, LLC, the Trustee of the Technology Square Condominium (the "Condominium"), has not entered into any contracts or agreements that would materially and adversely affect the operation of the Condominium, or that would bind the Condominium after the Closing.
(j) The working capital fund for the Condominium (which is to equal 1/6 of the estimated annual Condominium charges), which fund was to have been established pursuant to the terms of the Declaration of Trust and By-Laws of the Technology Square Condominium Trust, as amended, has not yet been established.
(k) The Parking Matrix (as defined below) represents in all material respects a complete and accurate summary of the total number of parking spaces at the Property. As used herein, the term "Parking Matrix" shall mean and refer to the summary of parking facilities at the Property attached to the First Amendment as Exhibit H."
7. Limited Liability Company Agreement. Section 5.3, Section 8.1(e) and Section 8.2(e) of the Agreement are hereby deleted and the following Section 5.3 is substituted therefor:
"Section 5.3. Buyer Entity Formation. The parties intend to enter into a limited liability company agreement ("LLC Agreement") for the purpose of forming the entity ("Buyer Entity") to which title will be transferred at the Closing. Title to the Property shall be transferred directly from Seller to the Buyer Entity at the time of Closing. It shall be a condition to the obligations of Seller that the LLC Agreement is in form acceptable to Seller in its reasonable discretion prior to Closing, and it shall be a condition to the obligations of Buyer that the LLC Agreement is in form acceptable to Buyer in its sole and absolute discretion prior to Closing."
8. Post Closing Title and Condominium Matters.
(b) Relocation of Sewer Easement. Seller and Buyer hereby agree that from and after the date of the Closing, Seller, at its sole cost and expense, shall use diligent efforts to obtain and cause to be recorded and/or filed (as appropriate) an instrument and plan reasonably acceptable to Buyer, which relocates the existing easement for sewer purposes contained in that certain Instrument dated June 6, 1960 and recorded with the Middlesex South District Registry of Deeds in Book 9614, Page 354, as amended (the "Sewer Easement"), to a location which does not result in an encroachment over the Sewer Easement by any of the Buildings or Improvements located on the Property. Buyer hereby agrees to cooperate with Seller in Seller's efforts to obtain the relocation of the Sewer Easement (the "Relocation"), and Seller and Buyer hereby agree that Buyer shall have the right to review and approve the Relocation and any related plans prior to Seller's submission of same for recording and/or filing. In the event Seller is unable, after diligent efforts, to obtain and cause to be recorded and/or filed (as appropriate) the Relocation prior to the date that is one hundred twenty (120) days following the date of the Closing, Buyer shall thereafter have the right to seek to obtain the Relocation on Seller's behalf and at Seller's expense, and Seller shall promptly reimburse Buyer for Buyer's costs incurred in connection with obtaining and recording and/or filing the Relocation.
(c) Termination of Steam Pipe Easement. From and after the date hereof, Seller shall use diligent efforts to determine whether the steam pipe easement located along the easterly boundary of the Property and referenced in that certain Agreement between New York Central Railroad Company and Cambridge Steam Corporation dated as of December 15, 1985 (the "Steam Pipe Easement"), is unused, and, if so, whether it has expired in accordance with its terms. In the event Seller determines that the Steam Pipe Easement has expired, Seller shall use diligent efforts to obtain and cause to be recorded and/or filed (as appropriate) an instrument reasonably acceptable to Buyer which terminates the Steam Pipe Easement (the "Termination"). Buyer hereby agrees to cooperate with Seller in Seller's efforts to obtain the Termination, and Seller and Buyer hereby agree that Buyer shall have the right to review and approve the Termination and any related plans prior to Seller's submission of same for recording and/or filing. In the event Seller is unable, after diligent efforts, to obtain and cause to be recorded and/or filed (as appropriate) the Termination prior to the date that is one hundred twenty (120) days following the date of the Closing, Buyer shall thereafter have the right to seek to obtain the Termination on Seller's behalf and at Seller's expense, and Seller shall promptly reimburse Buyer for Buyer's costs incurred in connection with obtaining and recording and/or filing the Termination.
(d) Third Amendment to Master Deed. Prior to Closing, Seller, Buyer, and MIT Real Estate LLC shall agree upon the terms of a proposed Third Amendment to Master Deed for the Technology Square Condominium. Seller agrees to cooperate with Buyer in seeking the consent of the Lender to the Third Amendment after the Closing. Upon such approval, Seller, MIT Real Estate LLC and Buyer shall execute the Third Amendment and Buyer shall cause the same to be recorded and registered with the Middlesex South Registry.
9. Counterparts. This Amendment may be executed in one or more counterpart copies, all of which counterparts shall have the same force and effect as if all parties hereto had executed a single copy of this Amendment.
10. Ratification. Except as amended hereby, the Agreement shall remain in full force and effect.
[End of text on page]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
SELLER:
TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability companyBy: Massachusetts Institute of Technology,
a Massachusetts charitable corporation,
its Manager
By: /s/ Steven C. Marsh
Name: Steven C. Marsh
Its: Managing Director, Real Estate
BUYER:
ARE-MA REGION NO. 31, LLC, a Delaware limited
liability company
By: Alexandria Real Estate Equities, L.P.,
a Delaware limited partnership,
its Managing Member
By: ARE-QRS Corp.,
a Maryland corporation,
its General Partner
By: /s/ Jennifer Pappas
Name: Jennifer Pappas
Its: V.P. & Assistant Secretary
The undersigned hereby joins in this Second Amendment to confirm its agreement to be bound by the provisions of Section 8(d) above.
MIT REAL ESTATE, LLC, a Massachusetts limited liability company
By: Massachusetts Institute of Technology,
a Massachusetts charitable corporation,
its Manager
By: /s/ Steven C. Marsh
Name: Steven C. Marsh
Its: Managing Director, Real Estate
Acknowledgement by Escrow Agent
Escrow Agent acknowledges the terms of the foregoing Amendment, and agrees to continue to be bound by those terms of the Agreement applicable to the Escrow Agent.
ESCROW AGENT:
Chicago Title Insurance Company By: /s/ Gus Aguilar
Name: Gus Aguilar
Its: AVP/Senior Escrow Officer
EXHIBIT 10.4
THIRD AMENDMENT TO PURCHASE AND SALE CONTRACT
THIS THIRD AMENDMENT TO PURCHASE AND SALE CONTRACT ("Amendment") is entered into as of July 26, 2006, by and between TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company ("Seller") and ARE-MA REGION NO. 31, LLC, a Delaware limited liability company ("Buyer").
R E C I T A L S
WHEREAS, Seller and Buyer entered into that certain Purchase and Sale Contract dated as of July 3, 2006, as amended by a First Amendment to Purchase and Sale Contract (the "First Amendment") dated as of July 10, 2006 and a Second Amendment to Purchase and Sale Contract (the "Second Amendment") dated as of July 14, 2006 (as so amended, the "Agreement") with respect to certain real and personal property (the "Property") located at Technology Square, Cambridge, Massachusetts, which Property is more particularly described in the Agreement; and
WHEREAS, Seller and Buyer have agreed to amend the Agreement as more particularly set forth below.
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, Seller and Buyer hereby amend the Agreement as follows:
1. Capitalized Terms. Capitalized terms not defined herein shall have the meanings ascribed to them in the Agreement.
2. Additional Seller Deliveries at Closing. Seller and Buyer hereby agree that Seller shall deliver the following additional documents at the Closing in accordance with the terms of Section 6.2 of the Agreement:
- A true, correct and complete list of all Space Leases in effect with respect to the Premises, updated through the date of the Closing, in the form attached to the Agreement as Exhibit T (the "Updated Rent Roll");
3. Additional Seller Representations and Warranties. Section 12.1 of the Agreement is hereby amended by adding the following new representations and warranties of Seller to Buyer under the Agreement as Subsections (l) and (m) after the end of Subsection (k) and before the beginning of Section 12.2 of the Agreement:
"(l) Seller has performed all obligations required to be performed by Seller pursuant to the terms of that certain Agreement to Perform Closing Obligations dated as of March 26, 2004, executed by Seller for the benefit of Connecticut General Life Insurance Company and ING USA Annuity and Life Insurance Company; and
(m) There currently exists no event of default on the part of Seller under any of the Loan Documents, nor any condition which, with the passage of time or the giving of notice, or both, would constitute an event of default on the part of Seller under any of the Loan Documents. To the best of Seller's knowledge, there currently exists no event of default on the part of Lender under any of the Loan Documents, nor, to the best of Seller's knowledge, any condition which, with the passage of time or the giving of notice, or both, would constitute an event of default on the part of Lender under any of the Loan Documents."
4. Revised First Amendment to Development Agreement. Exhibit G to the Second Amendment, the "Form of First Amendment to Development Agreement," is hereby deleted in its entirety and replaced with Exhibit G attached hereto.
5. Extension of Closing Date. The first paragraph of Article 6 of the Agreement is hereby amended by deleting therefrom the date "July 26, 2006" and replacing it with the date "July 27, 2006."
6. Counterparts. This Amendment may be executed in one or more counterpart copies, all of which counterparts shall have the same force and effect as if all parties hereto had executed a single copy of this Amendment.
7. Ratification. Except as amended hereby, the Agreement shall remain in full force and effect.
[End of text on page]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
SELLER:
TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company
By: Massachusetts Institute of Technology,
a Massachusetts charitable corporation,
its Manager
By: /s/ Steven C. Marsh
Name: Steven C. Marsh
Its: Managing Director, Real Estate
BUYER:
ARE-MA REGION NO. 31, LLC, a Delaware limited
liability company
By: Alexandria Real Estate Equities, L.P.,
a Delaware limited partnership,
its Managing Member
By: ARE-QRS Corp.,
a Maryland corporation,
its General Partner
By: /s/ Jennifer Pappas
Name: Jennifer Pappas
Its: V.P. & Assistant Secretary
Acknowledgement by Escrow Agent
Escrow Agent acknowledges the terms of the foregoing Amendment, and agrees to continue to be bound by those terms of the Agreement applicable to the Escrow Agent.
ESCROW AGENT:
Chicago Title Insurance Company
By: /s/ Gus Aguilar
Name: Gus Aguilar
Its: AVP/Senior Escrow Officer
EXHIBIT 10.5
FOURTH AMENDMENT TO PURCHASE AND SALE CONTRACT
THIS FOURTH AMENDMENT TO PURCHASE AND SALE CONTRACT ("Amendment") is entered into as of July 27, 2006, by and between TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company ("Seller") and ARE-MA REGION NO. 31, LLC, a Delaware limited liability company ("Buyer").
R E C I T A L S
WHEREAS, Seller and Buyer entered into that certain Purchase and Sale Contract dated as of July 3, 2006, as amended by a First Amendment to Purchase and Sale Contract (the "First Amendment") dated as of July 10, 2006, a Second Amendment to Purchase and Sale Contract (the "Second Amendment") dated as of July 14, 2006, and a Third Amendment to Purchase and Sale Contract dated as of July 26, 2006 (the "Third Amendment")(as so amended, the "Agreement") with respect to certain real and personal property (the "Property") located at Technology Square, Cambridge, Massachusetts, which Property is more particularly described in the Agreement; and
WHEREAS, Seller and Buyer have agreed to amend the Agreement as more particularly set forth below.
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, Seller and Buyer hereby amend the Agreement as follows:
1. Capitalized Terms. Capitalized terms not defined herein shall have the meanings ascribed to them in the Agreement.
2. Extension of Closing Date. The first paragraph of Article 6 of the Agreement is hereby amended by deleting therefrom the date "July 27, 2006" and replacing it with the date "July 28, 2006."
3. Post-Closing Reconciliation. The parties hereby acknowledge and agree that all prorations with respect to the Closing shall be made as of July 28, 2006. The parties hereby further acknowledge and agree that for the purpose of Closing, they shall continue to use the 7th Revised Bilateral Settlement Statement, which contemplates a closing date of July 27, 2006, and any additional proations shall be treated as a post closing reconciliation between the parties.
4. Counterparts. This Amendment may be executed in one or more counterpart copies, all of which counterparts shall have the same force and effect as if all parties hereto had executed a single copy of this Amendment.
5. Ratification. Except as amended hereby, the Agreement shall remain in full force and effect.
[End of text on page]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.
SELLER:
TECHNOLOGY SQUARE FINANCE, LLC, a Massachusetts limited liability company
By: Massachusetts Institute of Technology,
a Massachusetts charitable corporation,
its Manager
By: /s/ Steven C. Marsh
Name: Steven C. Marsh
Its: Managing Director, Real Estate
BUYER:
ARE-MA REGION NO. 31, LLC, a Delaware limited
liability company
By: Alexandria Real Estate Equities, L.P.,
a Delaware limited partnership,
its Managing Member
By: ARE-QRS Corp.,
a Maryland corporation,
its General Partner
By: /s/ Jennifer Pappas
Name: Jennifer Pappas
Its: V.P & Assistant Secretary
Acknowledgement by Escrow Agent
Escrow Agent acknowledges the terms of the foregoing Amendment, and agrees to continue to be bound by those terms of the Agreement applicable to the Escrow Agent.
ESCROW AGENT:
Chicago Title Insurance Company
By: /s/ Gus Aguilar
Name: Gus Aguilar
Its: AVP/Senior Escrow Officer
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)
Nine Months Year Ended December 31, (a)
Ended -----------------------------------------
9/30/06 2005 2004 2003 2002 (b)
----------- --------- --------- --------- ---------
Income from continuing operations
before minority interest.............. $53,629 $61,558 $56,320 $46,134 $35,977
Add: Interest expense................... 50,223 49,116 28,670 26,416 24,984
Subtract: Minority interest in income of
subsidiaries which have not incurred
fixed charges......................... (1,053) (571) - - -
----------- --------- --------- --------- ---------
Earnings available for fixed charges $102,799 $110,103 $84,990 $72,550 $60,961
=========== ========= ========= ========= =========
Combined fixed charges and preferred
stock dividends:
Interest incurred..................... $77,262 $77,695 $46,733 $40,647 $39,865
Preferred stock dividends............. 12,067 16,090 12,595 8,898 8,579
Preferred stock redemption charge..... - - 1,876 - -
----------- -------- --------- --------- ---------
Total combined fixed charges and
preferred stock dividends........... $89,329 $93,785 $61,204 $49,545 $48,444
=========== ======== ========= ========= =========
Ratio of earnings to combined fixed charges
and preferred stock dividends(c)...... 1.15 1.17 1.39 (d) 1.46 1.26
____________
- Amounts disclosed for prior periods 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, fixed charges less minority interest in income of subsidiaries which have not incurred fixed charges. Fixed charges consist of interest incurred (including amortization of deferred financing costs and capitalized interest) and preferred stock dividends.
- 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 1.43.
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: November 9, 2006
/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: November 9, 2006
/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 September 30, 2006 fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Alexandria Real Estate Equities, Inc.
Date: November 9, 2006
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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 September 30, 2006 fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Alexandria Real Estate Equities, Inc.
Date: November 9, 2006
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/s/ Dean A. Shigenaga |
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Dean A. Shigenaga |
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Chief Financial Officer |