<PAGE>
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, 1999
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)
Maryland 95-4502084
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
135 North Los Robles Avenue, Suite 250, Pasadena, California 91101
(Address of principal executive offices)
(626) 578-0777
(Registrant's telephone number, including area code)
N/A
- - - - - - - - - - - - - - - - - - - -
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------ ------------
As of November 12, 1999, 13,740,622 shares of common stock, par value $.01 per
share, were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets of Alexandria Real Estate
Equities, Inc. and Subsidiaries as of September 30, 1999 and
December 31, 1998
Condensed Consolidated Income Statements of Alexandria Real Estate
Equities, Inc. and Subsidiaries for the three months ended
September 30, 1999 and 1998 and the nine months ended September
30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows of Alexandria Real
Estate Equities, Inc. and Subsidiaries for the nine months ended
September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II--OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
3
<PAGE>
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------------------------------------------
<S> <C> <C>
ASSETS
Rental properties, net $550,020 $471,907
Property under development 29,091 21,839
Cash and cash equivalents 2,503 1,554
Tenant security deposits and other restricted cash 4,453 7,491
Secured note receivable 6,000 6,000
Tenant receivables 3,296 2,884
Deferred rent 8,015 5,595
Other assets 16,698 13,026
----------------------------------------------------
Total assets $620,076 $530,296
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $127,557 $115,829
Unsecured line of credit 205,000 194,000
Accounts payable, accrued expenses and tenant
security deposits 17,330 15,663
Dividends payable 6,671 5,035
----------------------------------------------------
Total liabilities 356,558 330,527
Stockholders' equity:
Series A preferred stock 38,588 -
Common stock 137 126
Additional paid-in capital 224,793 199,643
Retained earnings - -
----------------------------------------------------
Total stockholders' equity 263,518 199,769
----------------------------------------------------
Total liabilities and stockholders' equity $620,076 $530,296
====================================================
</TABLE>
SEE ACCOMPANYING NOTES
4
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Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 17,654 $ 12,540 $ 50,152 $ 33,583
Tenant recoveries 4,354 2,903 11,736 8,215
Interest and other income 387 368 1,140 869
-------------------------------------------------------------------
22,395 15,811 63,028 42,667
Expenses:
Rental operations 4,772 3,337 13,891 9,461
General and administrative 1,922 957 4,915 2,590
Interest 4,835 3,627 14,648 9,190
Depreciation and amortization 5,017 2,773 12,610 6,949
-------------------------------------------------------------------
16,546 10,694 46,064 28,190
-------------------------------------------------------------------
Net income $ 5,849 $ 5,117 $ 16,964 $ 14,477
===================================================================
Dividends on preferred stock $ 916 $ -- $ 1,120 $ --
===================================================================
Net income available to common
stockholders $ 4,933 $ 5,117 $ 15,844 $ 14,477
===================================================================
Net income per common share
-Basic $ 0.36 $ 0.41 $ 1.18 $ 1.21
===================================================================
-Diluted $ 0.36 $ 0.40 $ 1.16 $ 1.19
===================================================================
Weighted average shares of
common stock outstanding:
-Basic 13,723,327 12,568,407 13,453,444 11,935,830
===================================================================
-Diluted 13,877,678 12,763,525 13,601,998 12,161,468
===================================================================
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
--------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 27,606 $ 16,020
INVESTING ACTIVITIES
Purchase of rental properties (60,821) (190,714)
Additions to rental properties (9,867) (16,171)
Property development costs (14,100) (11,502)
Issuance of note receivable -- (6,000)
--------------------------------
Net cash used in investing activities (84,788) (224,387)
FINANCING ACTIVITIES
Proceeds from secured notes payable 2,625 49,132
Net proceeds from issuance of preferred stock 36,888 --
Net proceeds from issuance of common stock 29,830 33,661
Redemption and retirement of common stock (3,459) --
Proceeds from exercise of stock options 774 --
Net borrowings on unsecured line of credit 11,000 139,800
Principal reductions of secured notes payable (2,800) (893)
Dividends paid on common stock (16,371) (14,146)
Dividends paid on preferred stock (356) --
--------------------------------
Net cash provided by financing activities 58,131 207,554
Net increase (decrease) in cash and cash equivalents 949 (813)
Cash and cash equivalents at beginning of period 1,554 2,060
--------------------------------
Cash and cash equivalents at end of period $ 2,503 $ 1,247
================================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Alexandria Real Estate Equities, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
Alexandria Real Estate Equities, Inc. is a real estate investment trust ("REIT")
formed in 1994. We are engaged primarily in the ownership, operation,
management, acquisition, conversion, retrofit, expansion and selective
development and redevelopment of properties containing a combination of office
and laboratory space. We refer to these properties as "Life Science Facilities."
Our Life Science Facilities are designed and improved for lease primarily to
pharmaceutical, biotechnology, diagnostic, contract research and personal care
products companies, major scientific research institutions, related government
agencies and technology enterprises. As of September 30, 1999, our portfolio
consisted of 58 properties with approximately 4.0 million rentable square feet.
We have prepared the accompanying interim financial statements in accordance
with generally accepted accounting principles 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 of a
normal and recurring nature that 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 ended
December 31, 1999. These financial statements should be read in conjunction with
the financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1998.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Alexandria and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
period presentation.
7
<PAGE>
2. RENTAL PROPERTIES
Rental properties consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------------------
<S> <C> <C>
Land $ 81,524 $ 76,254
Buildings and improvements 470,142 393,728
Tenant and other improvements 28,522 20,536
------------------------------------------
580,188 490,518
Less accumulated depreciation (30,168) (18,611)
------------------------------------------
$550,020 $471,907
==========================================
</TABLE>
During the three months ended September 30, 1999, we acquired four properties
containing approximately 239,000 rentable square feet from unrelated third
parties for an aggregate purchase price (including closing and transaction
costs) of approximately $49 million.
3. UNSECURED LINE OF CREDIT
We have an unsecured line of credit that provides for borrowings of up to $250
million. Borrowings under the line of credit 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 to fix the rate for a period of one, two, three or six
months.
The line of credit contains financial covenants, including, among other things,
maintenance of minimum market net worth, a total liabilities to gross asset
value ratio, and a fixed charge coverage ratio. In addition, the terms of the
line of credit restrict, among other things, certain investments, indebtedness,
distributions and mergers. Borrowings under the line of credit are limited to an
amount based on a pool of unencumbered assets. Accordingly, as we acquire
additional unencumbered properties, borrowings available under the line of
credit will increase, but may not exceed $250 million. As of September 30, 1999,
borrowings under the line of credit were limited to approximately $240,000,000,
and carried a weighted average interest rate of 6.91%.
The line of credit expires May 31, 2000 and provides for annual extensions
(provided there is no default) for two additional one-year periods upon notice
by the company and consent of the participating banks.
4. SECURED NOTES PAYABLE
As of September 30, 1999, we had eight notes payable to certain banks and other
entities, secured by first deeds of trust on 11 of our properties. The notes
bear interest at fixed rates ranging from 7.17% to 9.125% and are due at various
dates through 2016.
8
<PAGE>
5. STOCKHOLDERS' EQUITY
On September 24, 1999, we declared a cash dividend on our common stock
aggregating $5,907,000 ($ 0.43 per share) for the calendar quarter ended
September 30, 1999. We paid the dividend on October 15, 1999. On September 24,
1999, we also declared a cash dividend on our Series A preferred stock
aggregating $916,000 ($ 0.59375 per share) for the period from July 16, 1999
through October 15, 1999. The portion relating to the period prior to September
30, 1999 ($764,000) has been included in accrued liabilities in the accompanying
balance sheet. We paid the dividend on October 15, 1999.
In June 1999, we completed a public offering of 1,543,500 shares (including the
shares issued upon exercise of the underwriters' over-allotment option) of our
9.50% Series A Cumulative Redeemable Preferred Stock. The shares were issued at
a price of $25.00 per share, resulting in aggregate proceeds of approximately
$36.9 million, net of underwriters' discounts and commissions and other offering
costs.
6. NET INCOME (LOSS) PER SHARE
The following table shows the computation of net income per share of our common
stock outstanding (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
---------------------------------------------
<S> <C> <C>
Net income available to common stockholders $ 4,933 $ 5,117
=============================================
Weighted average shares of common stock
outstanding - basic 13,723,327 12,568,407
Add: dilutive effect of stock options 154,351 195,118
---------------------------------------------
Weighted average shares of common stock
outstanding - diluted 13,877,678 12,763,525
=============================================
Net income per common share:
- Basic $ 0.36 $ 0.41
=============================================
- Diluted $ 0.36 $ 0.40
=============================================
</TABLE>
9
<PAGE>
6. NET INCOME (LOSS) PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
---------------------------------------------
<S> <C> <C>
Net income available to common stockholders $ 15,844 $ 14,477
=============================================
Weighted average shares of common stock
outstanding - basic 13,453,444 11,935,830
Add: dilutive effect of stock options 148,554 225,638
---------------------------------------------
Weighted average shares of common stock
outstanding - diluted 13,601,998 12,161,468
=============================================
Net income per common share:
- Basic $ 1.18 $ 1.21
=============================================
- Diluted $ 1.16 $ 1.19
=============================================
</TABLE>
7. SUBSEQUENT EVENT
In October 1999, we obtained an unsecured construction loan that provides for
borrowings of up to $19,000,000. The loan bears interest at LIBOR plus 1.75%
per annum and is due on October 31, 2001. Proceeds from the loan will be used
to complete the construction of the Life Science Facility at 1201 Clopper
Road, Gaithersburg, Maryland.
10
<PAGE>
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," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve known and unknown risks and
uncertainties. Given these uncertainties, prospective and current investors
are cautioned not to place undue reliance on such forward-looking statements.
Our actual results, performance or achievements, or industry results may be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements as a result of many
factors. We disclaim any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained in this or any other document. Readers of this Form 10-Q should
also read our other publicly filed documents for further discussion regarding
such factors. As used in this Form 10-Q, "we," "our," "ours" 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, conversion,
retrofit, expansion and selective development and redevelopment of high
quality, strategically located Life Science Facilities in our target markets.
Our primary source of revenue is rental income and tenant recoveries from
leases at the properties we own. Of the 58 properties we owned as of
September 30, 1999, four were acquired in calendar year 1994, eight in 1996,
10 in 1997, 29 in 1998 (the "1998 Properties") and six in 1999. In addition,
we completed the development of one property in 1999 (together with the six
properties acquired in 1999, the "1999 Properties"). As a result of our
acquisition and development activities, the financial data shows significant
increases in total revenue and expenses for the 1999 periods compared to the
1998 periods.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 ("THIRD QUARTER 1999") TO
THREE MONTHS ENDED SEPTEMBER 30, 1998 ("THIRD QUARTER 1998")
Rental revenue increased by approximately $ 5.2 million, or 41%, to $17.7
million for Third Quarter 1999 compared to $12.5 million for Third Quarter
1998. The increase resulted primarily from rental revenue from the 1998
Properties purchased after July 1, 1998 and from the 1999 Properties. Rental
revenue from the Properties acquired before July 1, 1998 (the "Third Quarter
Same Properties") increased by $762,000, or 6.4%, due to increases in rental
rates and occupancy.
11
<PAGE>
Tenant recoveries increased by approximately $1.5 million, or 50%, to $4.4
million for Third Quarter 1999 compared to $2.9 million for Third Quarter
1998. The increase resulted primarily from tenant recoveries from the 1998
Properties purchased after July 1, 1998 and the 1999 Properties. Tenant
recoveries from the Third Quarter Same Properties increased by $259,000, or
9.0%, primarily due to an increase in recoverable operating expenses.
Interest and other income increased by $19,000, or 5%, to $387,000 for Third
Quarter 1999 compared to $368,000 for Third Quarter 1998, resulting primarily
from an increase in storage and parking income at two of our properties.
Rental operating expenses increased by approximately $1.5 million, or 43%, to
$4.8 million for Third Quarter 1999 compared to $3.3 million for Third
Quarter 1998. The increase resulted primarily from the 1998 Properties
purchased after July 1, 1998 and the 1999 Properties. Rental operating
expenses for the Third Quarter Same Properties increased by $357,000, or
11.0%, primarily due to the increase in property taxes at our properties. The
increase in property taxes, substantially all of which was recoverable from
the tenants at the respective properties, was partially offset by lower
premiums on our blanket property and liability insurance policies for all of
our properties.
The following is a comparison of property operating data computed under
generally accepted accounting principles ("GAAP Basis") and under generally
accepted accounting principles, adjusted to exclude the effect of straight
line rent adjustments required by GAAP ("Cash Basis") for the Third Quarter
Same Properties (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
GAAP BASIS:
Revenue $ 16,124 $ 15,104 6.8%
Rental operating expenses 3,595 3,238 11.0%
-----------------------------------------------
Net operating income $ 12,529 $ 11,866 5.6%
===============================================
CASH BASIS (1):
Revenue $ 15,014 $ 13,772 9.0%
Rental operating expenses 3,472 3,121 11.2%
-----------------------------------------------
Net operating income $ 11,542 $ 10,651 8.4%
===============================================
</TABLE>
- ---------
(1)Revenue and operating expenses are computed in accordance with GAAP,
except that revenue excludes the effect of straight line rent
adjustments. In addition, the Cash Basis same property comparison
excludes the results for 1431 Harbor Bay Parkway, Alameda, California.
The lease for this property (which was in place when we acquired the
property) contains significant step-down provisions that affected the
cash rent paid by the tenant beginning in January 1999. As a result, cash
rent paid was reduced from $737,000 for Third Quarter 1998 to $529,000
for Third Quarter 1999. The lease, which expires in January 2014,
requires another step-down in rent beginning in January 2004 to $188,000
per quarter. If this property were included in the Cash Basis same
property comparison for the three months ended September 30, 1999, the
comparison would show that revenue increased 7.0%, rental operating
expenses increased 11.0% and net operating income increased 5.8%. On a
GAAP Basis, rental income from this property for the three months ended
September 30, 1999 was $353,000 per quarter, the same as each quarter
during 1998.
12
<PAGE>
General and administrative expenses increased by $965,000, or 108%, to $1.9
million for Third Quarter 1999 compared to $957,000 for Third Quarter 1998.
The increase was primarily due to the continued increase in the scope of our
operations, including the expansion of our operations in our suburban
Washington D.C. and eastern Massachusetts regions.
Interest expense increased by approximately $1.2 million, or 33%, to $4.8
million for Third Quarter 1999 compared to $3.6 million for Third Quarter
1998. The increase resulted primarily from the indebtedness incurred to
acquire the 1998 Properties purchased after July 1, 1998 and the 1999
Properties.
Depreciation and amortization increased by approximately $2.2 million, or
81%, to $5.0 million for Third Quarter 1999 compared to $2.8 million for
Third Quarter 1998. The increase resulted primarily from depreciation
associated with the 1998 Properties purchased after July 1, 1998 and the
addition of the 1999 Properties.
As a result of the foregoing, net income was $5.8 million for Third Quarter
1999 compared to $5.1 million for Third Quarter 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 ("NINE MONTHS 1999") TO
NINE MONTHS ENDED SEPTEMBER1998 ("NINE MONTHS 1998")
Rental revenue increased by approximately $16.6 million, or 49%, to $50.2
million for Nine Months 1999 compared to $33.6 million for Nine Months 1998.
The increase resulted primarily from rental revenue from the 1998 Properties
purchased after January 1, 1998 and from the 1999 Properties. Rental revenue
from the Properties acquired before January 1, 1998 (the "Nine Months Same
Properties") increased by $996,000, or 4.4%, primarily due to increases in
rental rates and occupancy.
Tenant recoveries increased by approximately $3.5 million, or 43%, to $11.7
million for Nine Months 1999 compared to $8.2 million for Nine Months 1998.
The increase resulted primarily from tenant recoveries from the 1998
Properties purchased after January 1, 1998 and the 1999 Properties. Tenant
recoveries from the Nine Months Same Properties increased by $225,000, or
3.7%, primarily due to an increase in recoverable operating expenses.
Interest and other income increased by $271,000, or 31%, to $1.1 million for
Nine Months 1999 compared to $869,000 for Nine Months 1998, resulting
primarily from interest income from the secured note receivable, which was
funded in March 1998.
Rental operating expenses increased by approximately $4.4 million, or 47%, to
$13.9 million for Nine Months 1999 compared to $9.5 million for Nine Months
1998. The increase resulted primarily from the 1998 Properties purchased
after January 1, 1998 and the 1999 Properties. Rental operating expenses for
the Nine Months Same Properties increased by $387,000, or 6.1%, primarily due
to the increase in property taxes at our properties. The increase in property
taxes, substantially all of which was recoverable from the tenants of the
respective properties, was partially offset by lower premiums on our blanket
property and liability insurance policies for all of our properties.
13
<PAGE>
The following is a comparison of property operating data computed on a GAAP
Basis and on a Cash Basis for the Nine Months Same Properties (dollars in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
GAAP BASIS:
Revenue $ 29,962 $ 28,791 4.1%
Rental operating expenses 6,710 6,323 6.1%
-----------------------------------------------
Net operating income $ 23,252 $ 22,468 3.5%
===============================================
CASH BASIS (1):
Revenue $ 27,932 $ 26,252 6.4%
Rental operating expenses 6,302 5,933 6.2%
-----------------------------------------------
Net operating income $ 21,630 $ 20,319 6.5%
===============================================
</TABLE>
- ---------
(1)Revenue and operating expenses are computed in accordance with GAAP,
except that revenue excludes the effect of straight line rent
adjustments. In addition, the Cash Basis same property comparison
excludes the results for 1431 Harbor Bay Parkway, Alameda, California.
The lease for this property (which was in place when we acquired the
property) contains significant step-down provisions that affected the
cash rent paid by the tenant beginning in January 1999. As a result, cash
rent paid was reduced from $2,211,000 for Nine Months 1998 to $1,599,000
for Nine Months 1999. The lease, which expires in January 2014, requires
another step-down in rent beginning in January 2004 to $188,000 per
quarter. If this property were included in the Cash Basis same property
comparison for the nine months ended September 30, 1999, the comparison
would show that revenue increased 3.7%, rental operating expenses
increased 6.1% and net operating income increased 3.0%. On a GAAP Basis,
rental income from this property throughout 1998 and during the nine
months ended September 30, 1999 was $353,000 per quarter.
General and administrative expenses increased by approximately $2.3 million,
or 90%, to $4.9 million for Nine Months 1999 compared to $2.6 million for
Nine Months 1998. The increase was primarily due to the continued increase in
the scope of our operations, including the expansion of our operations in our
suburban Washington D.C. and eastern Massachusetts regions.
Interest expense increased by approximately $5.4 million, or 59%, to $14.6
million for Nine Months 1999 compared to $9.2 million for Nine Months 1998.
The increase resulted primarily from the indebtedness incurred to acquire the
1998 Properties purchased after January 1, 1998 and the 1999 Properties.
Depreciation and amortization increased by approximately $ 5.7 million, or
81%, to $12.6 million for Nine Months 1999 compared to $6.9 million for Nine
Months 1998. The increase resulted primarily from depreciation associated
with the 1998 Properties purchased after January 1, 1998 and the addition of
the 1999 Properties.
As a result of the foregoing, net income was $17.0 million for Nine Months
1999 compared to $14.5 million for Nine Months 1998.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities for Nine Months 1999 increased by
$11.6 million to $27.6 million compared to $16.0 million for Nine Months
1998. The increase resulted primarily from operating cash flows resulting
from the addition of the 1998 Properties purchased after January 1, 1998 and
the 1999 Properties.
Net cash used in investing activities decreased by $139.6 million to $84.8
million for Nine Months 1999 compared to $224.4 million for Nine Months 1998.
The decrease was primarily due to a lower level of property acquisitions
during Nine Months 1999 compared to Nine Months 1998.
Net cash provided by financing activities decreased by $149.5 million to
$58.1 million for Nine Months 1999 compared to $207.6 million for Nine Months
1998. Cash provided by financing activities for Nine Months 1999 consisted of
net proceeds from the issuance/redemption of our common stock, issuance of
preferred stock, exercise of stock options, borrowings under our line of
credit and secured debt, partially offset by principal reductions on our
secured debt and dividends on our common stock. Cash provided by financing
activities for Nine Months 1998 consisted of net proceeds from the issuance
of our common stock, borrowings under our line of credit and secured debt,
partially offset by distributions to stockholders.
COMMITMENTS
We are committed to complete the construction of buildings and certain
related improvements in San Diego, California, Gaithersburg, Maryland and
Research Triangle Park, North Carolina at a remaining aggregate cost of $30.9
million under the terms of certain leases.
In March 1999, we acquired an 85% tenancy-in-common interest in a 4.9 acre
parcel of land in Worcester, Massachusetts for $425,000. The seller retained
the remaining 15% tenancy-in-common interest. The site will be developed as a
Life Science Facility (the "Facility"). We are committed to complete the
construction of a 94,000 square foot building and certain related
improvements at a remaining cost of approximately $11.4 million under the
terms of a lease with a third party that will cover 45,000 square feet of the
completed Facility. The seller of the property provided us with a $2.6
million loan for use in the construction of the Facility, which is included
in secured notes payable in our condensed consolidated balance sheet as of
September 30, 1999 and related notes. The loan bears interest at a rate of 9%
and is due on the earlier of (i) twenty days after a certificate of occupancy
is issued for the Facility, or (ii) June 30, 2000. Upon completion of the
Facility, the ownership of the Facility will be converted into a condominium
structure and, concurrently, the seller may convert its 15% tenancy-in-common
interest into a condominium interest in 13,000 square feet of the completed
Facility. We have the right to purchase the seller's 15% tenancy-in-common
interest at any time prior to such conversion for $300,000.
We are also committed to fund approximately $23.0 million for investments in
limited partnerships and rental properties, including the construction of
tenant improvements under the terms of various leases.
15
<PAGE>
RESTRICTED CASH
As of September 30, 1999, we had $7.0 million in cash and cash equivalents,
including $4.5 million in restricted cash accounts. Of the $4.5 million in
restricted cash accounts, approximately $316,000 has been set aside to
complete the conversion of existing space into higher rent generic laboratory
space (as well as certain related improvements) at 1102/1124 Columbia Street,
approximately $3.2 million is held in trust as additional security required
under the terms of our secured notes payable and approximately $915,000 is
held in security deposit reserve accounts based on the terms of certain lease
agreements.
SECURED DEBT
Secured debt as of September 30, 1999 consists of the following (in
thousands):
<TABLE>
<CAPTION>
BALANCE AT STATED
SEPTEMBER 30, INTEREST
COLLATERAL 1999 RATE MATURITY DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3535/3565 General Atomics Court,
San Diego, CA $ 17,196 9.00% December 2014
1431 Harbor Bay Parkway,
Alameda, CA 7,146 7.165% January 2014
1102/1124 Columbia Street,
Seattle, WA 20,298 7.75% May 2016
100/800/801 Capitola Drive,
Durham, NC 12,464 8.68% December 2006
14225 Newbrook Drive, Chantilly,
VA and 3000/3018 Western Avenue,
Seattle, WA 36,081 7.22% May 2008
620 Memorial Drive,
Cambridge, MA (1) 19,921 9.125% Oct 2007
One Innovation Drive,
Worcester, MA (2) 11,826 8.75% January 2006
381 Plantation Street,
(development project)
Worcester, MA (3) 2,625 9.00% June 2000
---------------
$ 127,557
===============
</TABLE>
- --------------------
(1) The balance shown includes an unamortized premium of $2,114,000 so that
the effective rate of the loan is 7.25%.
(2) The balance shown includes an unamortized premium of $753,000 so that
the effective rate of the loan is 7.25%.
(3) The balance shown represents the amount drawn on the construction loan
provided by the seller in connection with the acquisition of the 85%
tenancy-in-common interest in the parcel of land. The loan provides for
borrowings of up to $2,625,000.
16
<PAGE>
The following is a summary of the scheduled principal payments for our secured
debt as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------
<S> <C>
1999 $ 504
2000 5,862
2001 3,505
2002 3,788
2003 4,095
Thereafter 106,936
---------------------
Subtotal 124,690
Unamortized premium 2,867
---------------------
$ 127,557
=====================
</TABLE>
UNSECURED LINE OF CREDIT
We have an unsecured line of credit that provides for borrowings of up to
$250 million. Borrowings under the line of credit 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 to fix the rate for a period of one, two, three
or six months.
The line of credit contains financial covenants, including, among other
things, maintenance of minimum market net worth, a total liabilities to gross
asset value ratio, and a fixed charge coverage ratio. In addition, the terms
of the line of credit restrict, among other things, certain investments,
indebtedness, distributions and mergers. Borrowings under the line of credit
are limited to an amount based on a pool of unencumbered assets. Accordingly,
as we acquire additional unencumbered properties, borrowings available under
the line of credit will increase, but may not exceed $250 million. As of
September 30, 1999, borrowings under the line of credit were limited to
approximately $240,000,000, and carried a weighted average interest rate of
6.91%.
The line of credit expires May 31, 2000 and provides for annual extensions
(provided there is no default) for two additional one-year periods upon
notice by the company and consent of the participating banks.
In September 1998, we entered into an interest rate swap agreement with
BankBoston, N.A. (the "Bank") to hedge our exposure to variable interest
rates associated with our line of credit. Interest paid is calculated at a
fixed interest rate of 5.43% through May 31, 2000 on a notional amount of $50
million, and interest received is calculated at one month LIBOR. The net
difference between the interest paid and the interest received is reflected
as an adjustment to interest expense. The fair value of the swap agreement
and changes in the fair value as a result of changes in market interest rates
are not recognized in the financial statements. We are exposed to loss in the
event the Bank is unable to perform under the swap agreement or in the event
one month LIBOR is less than 5.43%.
17
<PAGE>
In October 1999, we entered into an additional interest rate swap agreement
with the Bank to further hedge our exposure to variable interest rates
associated with our line of credit. Effective December 8, 1999, interest paid
will be calculated at a fixed interest rate of 6.5% through May 31, 2001 on a
notional amount of $50 million, and interest received will be calculated at
one month LIBOR. This agreement has no effect on our existing interest rate
swap agreement.
OTHER RESOURCES AND LIQUIDITY REQUIREMENTS
We expect to continue meeting our short-term liquidity and capital
requirements generally by using 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 make distributions necessary to
enable us to continue qualifying as a real estate investment trust. We also
believe that net cash provided by operations will be sufficient to fund our
recurring non-revenue enhancing capital expenditures, tenant improvements and
leasing commissions.
We expect to meet certain long-term liquidity requirements, such as property
acquisitions, property development activities, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness, including borrowings under our
line of credit, and the issuance of additional debt and/or equity securities.
EXPOSURE TO ENVIRONMENTAL LIABILITIES
In connection with the acquisition of all of our properties, we have obtained
Phase I environmental assessments to ascertain the existence of any
environmental liabilities or other issues. The Phase I environmental
assessments of our properties have not revealed any environmental liabilities
that we believe would have a material adverse effect on our financial
condition or results of operations taken as a whole, nor are we aware of any
such material environmental liabilities.
INFLATION
Approximately 80% of our leases (on a square footage basis) are 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, approximately 85% of our leases (on a square footage
basis) contain effective annual rent escalations that are either fixed
(ranging from 2.5% to 4.0%) or indexed based on a CPI or other index.
Accordingly, we do not believe that our earnings or cash flow are subject to
any significant risk of inflation. An increase in inflation, however, could
result in an increase in our variable rate borrowing cost, including
borrowings under our unsecured line of credit.
IMPACT OF THE YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of our
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send tenant invoices, provide building services or engage in similar normal
business activities.
18
<PAGE>
We rely on computer technologies to operate our business. In October 1998, we
formed an internal task force to identify, assess and evaluate our critical
systems to determine which year 2000 related problems may cause system errors
or failures. We have identified three major areas as critical systems: (i)
internal accounting systems, (ii) systems of significant tenants, vendors and
financial institutions; and (iii) internal building systems at our
properties. We have engaged consulting professionals from a nationally
recognized accounting firm to review our plans and assist us with our
solutions.
The following discussion of our year 2000 project contains numerous
forward-looking statements based on inherently uncertain information. The
cost of our evaluation and the date on which we plan to complete our projects
are based on our best estimates. We derived these estimates using a number of
assumptions of future events, including the continued availability of
internal and external resources, third-party modifications and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results may be materially different from those anticipated. Moreover,
although we believe that we will be operating in a year 2000 compliant manner
prior to December 31, 1999, there can be no assurance that any failure to
modify a critical system would not have a material adverse effect on our
operations.
READINESS
Our year 2000 project has been designed to ensure that all critical systems
have been evaluated and will be suitable for continued use into and beyond
the year 2000. We completed our identification and initial evaluation of
critical systems in the first quarter of 1999, and we have implemented
substantially all of the necessary remedial actions.
We have completed our review of our internal accounting systems. All of these
systems are currently year 2000 compliant and testing has been completed.
We place a high degree of reliance on computer systems of third parties, such
as tenants, vendors and financial institutions. Although we have been
assessing the readiness of these third parties, we cannot guarantee that they
will be year 2000 compliant in a timely manner. The failure of these third
parties to modify their systems in advance of December 31, 1999 could have a
material adverse effect on our operations. We have surveyed significant
third-party vendors and financial institutions, and all surveyed indicated
that they have implemented year 2000 programs. In addition, we have surveyed
our significant tenants for their year 2000 readiness. Approximately 80% of
these tenants returned their surveys, and we have discussed year 2000
readiness with the others. Most have indicated that they have a year 2000
program in place and expect to be year 2000 compliant by the end of 1999. A
few tenants have indicated that they have some concerns regarding their
systems and that they are addressing their concerns.
19
<PAGE>
We are continually participating in surveys with new tenants, vendors and
other third-party suppliers. If future risk assessments of third-party
suppliers or tenants indicate significant exposure from a supplier's year
2000 problem, the supplier or tenant will be asked to demonstrate how the
problems will be addressed. We believe that we have viable alternatives for
each of our major vendors.
The task force has completed its evaluation of internal systems in our
properties that may have embedded microprocessors with potential year 2000
problems, mainly building systems, including heating, ventilation and air
conditioning systems, elevators and security systems. Based on the results of
our review, certain of our properties had critical systems that required
upgrades for year 2000 readiness. Upgrades were completed at all of these
properties in the second and third quarters of 1999. In some instances, we
have used the services of outside experts to test and review our findings and
to confirm that our building systems are year 2000 compliant.
COST
We do not expect that our year 2000 project costs, including the costs of any
remedial activities and outside experts, will be material. The aggregate cost
of purchasing conversion packages for the accounting systems and the cost to
survey tenants, vendors and financial institutions are not material. In
addition, any costs incurred to review the building systems and to replace or
upgrade them as appropriate constitute property maintenance cost, and are
therefore generally recoverable from the tenants pursuant to the terms of
their existing leases.
RISKS
We believe that the principal risks associated with the year 2000 issue
include the risk of disruption of our operations due to operational failures
of third parties, including tenants, vendors (particularly utility vendors),
and financial institutions, and the risk of business interruption due to
building system failures. The risk of disruptions due to operational failures
of vendors or financial institutions should not be significant, because our
major vendors and financial institutions have indicated that they are
currently year 2000 compliant, and we believe we have viable alternatives for
such suppliers. If any of our major tenants do not become year 2000 compliant
on schedule, such tenant's operations and financial condition could be
adversely affected, which may impact the tenant's ability to meet its rent
obligations. Similarly, if our building systems failed due to year 2000
problems, services to our properties and tenants, such as mechanical and
security services, could be interrupted, resulting in potential rent disputes
with the tenants. We believe, however, that our early involvement in
identifying, assessing and evaluating our critical systems and formulating
our contingency plans should minimize the risk of year 2000 problems to our
operations.
CONTINGENCY PLANS
The development of contingency plans for significant exposures to potential
year 2000 problems is integral to our planning process. We continually
develop and update our contingency plans based on our on-going risk
assessment. Any failure of our contingency plans could have a material
adverse effect on our operations. With respect to internal accounting
systems, our contingency plans address hardware alternatives, power supply
issues and electronic and paper back-ups of
20
<PAGE>
critical databases. Complete printouts and full backups of all significant
accounting records are scheduled for the last week in December in order to
minimize any problems from unforeseen complications in the system. In
addition, we have created a contingency plan for each of the properties in
our portfolio. Our property contingency plans set forth various procedures
with respect to facilities support in the event of a building system
disruption or failure for the period December 31, 1999 through January 4,
2000. Twenty-four hour contact numbers for that critical period are being
supplied to every tenant in our final year 2000 communication. We also have
encouraged our tenants to develop detailed contingency plans of their own for
their critical systems.
FUNDS FROM OPERATIONS
We believe that funds from operations (FFO) is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, FFO
provides investors with an understanding of our ability to incur and service
debt, to make capital expenditures and to make distributions. We compute FFO
in accordance with standards established by the Board of Governors of NAREIT
in its March 1995 White Paper (the "White Paper"), which may differ from the
methodology for calculating FFO used by other equity REITs, and, accordingly,
may not be comparable to such other REITs. Further, FFO does not represent
amounts available for our discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties. The White Paper defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. FFO should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of our 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.
The following tables present our FFO for the three and nine months ended
September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------------------------------------------
<S> <C> <C>
Net income $ 5,849 $ 5,117
Add:
Depreciation and amortization 5,017 2,773
Subtract:
Dividends on preferred stock (916) -
------------------- -------------------
$ 9,950 $ 7,890
=================== ===================
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------------------------
<S> <C> <C>
Net income $ 16,964 $ 14,477
Add:
Depreciation and amortization 12,610 6,949
Subtract:
Dividends on preferred stock (1,120) -
------------------- -------------------
FFO $ 28,454 $ 21,426
=================== ===================
</TABLE>
PROPERTY AND LEASE INFORMATION
The following table is a summary of our property portfolio as of September 30,
1999 (dollars in thousands):
<TABLE>
<CAPTION>
NUMBER OF RENTABLE SQUARE ANNUALIZED OCCUPANCY
PROPERTIES FEET BASE RENT PERCENTAGE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
REGION:
Suburban Washington D.C. 17 1,537,338 $ 21,160 95.1% (1)
California - San Diego 10 569,467 13,272 89.3%
California - San Francisco Bay 8 489,912 10,402 94.3% (1)
Southeast 4 254,230 3,708 99.1%
New Jersey/Suburban Philadelphia 5 268,418 3,871 98.6%
Eastern Massachusetts 6 380,709 9,796 99.4%
Washington - Seattle 3 328,221 8,938 96.0%
-------------------------------------------------------------------
Subtotal 53 3,828,295 71,147 95.2%
Renovation/Repositioning Properties 5 186,473 1,776 19.4%
-------------------------------------------------------------------
Total 58 4,014,768 $ 72,923 91.6%
===================================================================
</TABLE>
- ---------
(1) All, or substantially all, of the vacant space is office or warehouse space.
22
<PAGE>
The following table shows certain information with respect to the lease
expirations of our properties as of September 30, 1999:
<TABLE>
<CAPTION>
SQUARE PERCENTAGE OF ANNUALIZED BASE
YEAR OF NUMBER OF FOOTAGE OF AGGREGATE RENT OF EXPIRING
LEASE EXPIRING EXPIRING PORTFOLIO LEASE LEASE (PER
EXPIRATION LEASES LEASES SQUARE FOOT SQUARE FOOT)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 (1) 30 186,244 5.1% $ 24.82
2000 29 445,769 12.1% $ 21.36
2001 23 371,459 10.1% $ 19.60
2002 21 389,450 10.6% $ 17.05
2003 17 356,898 9.7% $ 15.53
Thereafter 46 1,929,286 52.4% $ 20.38
</TABLE>
- ---------
(1) Represents leases expiring between October 1, 1999 to December 31,
1999.
23
<PAGE>
The following table is a summary of our lease activity for the quarter ended
September 30, 1999 computed on a GAAP Basis and on a Cash Basis:
<TABLE>
<CAPTION>
RENTAL TI'S/LEASE AVERAGE
NUMBER SQUARE EXPIRING NEW RATE COMMISSIONS LEASE
OF LEASES FOOTAGE RATE RATE INCREASE PER FOOT TERM
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LEASE ACTIVITY - EXPIRED LEASES
Lease Expirations
Cash Rent 27 168,248 $ 18.86 - - - -
GAAP Rent 27 168,248 $ 18.80 - - - -
Renewed/Released Space
Cash Rent 6 54,938 $ 19.63 $ 20.51 4.5% $ 5.74 4.2 Years
GAAP Rent 6 54,938 $ 19.62 $ 21.14 7.7% $ 5.74 4.2 Years
Month-to-Month Leases
Cash Rent 15 49,588 $ 12.43 $ 12.43 0.0% - -
GAAP Rent 15 49,588 $ 12.41 $ 12.43 0.2% - -
Total Leasing
Cash Rent 21 104,526 $ 16.21 $ 16.68 2.9% - -
GAAP Rent 21 104,526 $ 16.20 $ 17.01 5.0% - -
VACANT SPACE LEASED
Cash Rent 4 24,113 - $ 23.35 - $ 11.96 4.2 Years
GAAP Rent 4 24,113 - $ 24.79 - $ 11.96 4.2 Years
ALL LEASE ACTIVITY
Cash Rent 25 128,639 - $ 17.93 - - -
GAAP Rent 25 128,639 - $ 18.47 - - -
</TABLE>
24
<PAGE>
The following table is a summary of our lease activity for the nine months ended
September 30, 1999 computed on a GAAP Basis and on a Cash Basis:
<TABLE>
<CAPTION>
RENTAL TI'S/LEASE AVERAGE
NUMBER SQUARE EXPIRING NEW RATE COMMISSIONS LEASE
OF LEASES FOOTAGE RATE RATE INCREASE PER FOOT TERM
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LEASE ACTIVITY - EXPIRED LEASES
Lease Expirations
Cash Rent 45 389,367 $ 16.12 - - - -
GAAP Rent 45 389,367 $ 16.62 - - - -
Renewed/Released Space
Cash Rent 18 256,307 $ 14.29 $ 16.95 18.6% $ 5.30 6.4 Years
GAAP Rent 18 256,307 $ 15.08 $ 18.37 21.8% $ 5.30 6.4 Years
Month-to-Month Leases
Cash Rent 14 39,379 $ 13.01 $ 13.01 0.0% - -
GAAP Rent 14 39,379 $ 12.99 $ 13.01 0.2% - -
Total Leasing
Cash Rent 32 295,686 $ 14.12 $ 16.43 16.3% - -
GAAP Rent 32 295,686 $ 14.80 $ 17.65 19.2% - -
VACANT SPACE LEASED
Cash Rent 11 94,682 - $ 17.32 - $ 6.15 3.9 Years
GAAP Rent 11 94,682 - $ 17.76 - $ 6.15 3.9 Years
ALL LEASE ACTIVITY
Cash Rent 43 390,368 - $ 16.64 - - -
GAAP Rent 43 390,368 - $ 17.68 - - -
</TABLE>
25
<PAGE>
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 are exposed is interest rate risk, which is
sensitive to 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 characteristics of our outstanding
debt and limit the effects of interest rates 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 our exposure to changes in interest rates
carries additional risks such as counter-party credit risk and legal
enforceability of hedging contracts.
Our future earnings, cash flows and fair values relating to financial
instruments are primarily dependent upon prevalent market rates of interest,
such as LIBOR. However, due to the purchase of our interest rate swap
agreements, the effects of interest rate changes are reduced. Based on
interest rates at, and our swap agreement in effect on, September 30, 1999, a
1% increase in interest rates on our line of credit would decrease annual
future earnings and cash flows, after considering the effect of our interest
rate swap agreement, by approximately $1.6 million. A 1% decrease in interest
rates on our line of credit would increase annual future earnings and cash
flows, after considering the effect of our interest rate swap agreement, by
approximately $1.6 million. A 1% increase in interest rates on our secured
debt and interest rate swap agreement would decrease their fair value by
approximately $8.4 million. A 1% decrease in interest rates on our secured
debt and interest rate swap agreement would increase their fair value by
approximately $9.5 million. A 1% increase or decrease in interest rates on
our secured note receivable would not have a material impact on its fair
value.
These amounts are determined by considering the impact of the hypothetical
interest rates on our borrowing cost and our interest rate swap agreement in
effect on September 30, 1999. 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.
If we were to include the impact of our new interest rate swap agreement
effective December 1999 under the same conditions set forth above, a 1%
increase in interest rates on our line of credit would decrease annual future
earnings and cash flows, after considering the effect of both of our interest
rate swap agreements, by approximately $1.1 million. A 1% decrease in
interest rates on our line of credit would increase annual future earnings
and cash flows, after considering the effect of both of our interest rate
swap agreements, by approximately $1.1 million. A 1% increase in interest
rates on our secured debt and both of our interest rate swap agreements would
decrease their fair value by approximately $8.2 million. A 1% decrease in
interest rates on our secured debt and both of our interest rate swap
agreements would increase their fair value by approximately $9.3 million. A
1% increase or decrease in interest rates on our secured note receivable
would not have a material impact on its fair value.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To our knowledge, no litigation is pending against us, other than routine
actions and administrative proceedings, substantially all of which are
expected to be covered by liability insurance or which, in the aggregate, are
not expected to have a material adverse effect on our financial condition,
results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.20 Form of Employee Restricted Stock Agreement for use in connection with
shares of restricted stock issued to employees pursuant to Alexandria's
Amended and Restated 1997 Stock Award and Incentive Plan.
10.21 Form of Independent Contractor Restricted Stock Agreement for use in
connection with shares of restricted stock issued to independent
contractors pursuant to Alexandria's Amended and Restated 1997 Stock
Award and Incentive Plan.
10.22 Amendment to Amended and Restated Executive Employment Agreement
between Alexandria and Peter J. Nelson, dated August 31, 1999.
10.23 Amendment to Executive Employment Agreement between Alexandria and
Vincent R. Ciruzzi, dated August 31, 1999.
10.24 Employment Letter Agreement between Alexandria and Tom Andrews, dated
June 1, 1999.
27
<PAGE>
12.1 Computation of Consolidated Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On September 27, 1999, we filed a Current Report on Form 8-K to report the
acquisition of certain properties.
28
<PAGE>
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 15, 1999.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
/s/ Joel S. Marcus
------------------------------------------------
Joel S. Marcus
Chief Executive Officer
(Principal Executive Officer)
/s/ Peter J. Nelson
------------------------------------------------
Peter J. Nelson
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
29
<PAGE>
Exhibit 10.20
FORM OF EMPLOYEE
RESTRICTED STOCK AGREEMENT
This RESTRICTED STOCK AGREEMENT (this "Agreement"), dated
as of the day of , , (the "Date of Grant") is entered into by
and between Alexandria Real Estate Equities, Inc. (the "Company"),
and , an employee of the Company (the "Grantee").
RECITALS
WHEREAS, the Company's Board of Directors has determined to
make a grant of restricted stock ("Restricted Stock") to the Grantee.
THEREFORE, the Parties agree as follows:
In consideration of the Recitals and the following mutual
covenants, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties agree that the Grantee is hereby
granted shares of Restricted Stock (the "Stock Grant") on the date hereof
subject to the terms and conditions set forth herein.
A. THE STOCK.
The Grantee is entitled to shares of the
Company's common stock, par value $.01 per share (the "Stock"), pursuant to
the terms and conditions of this Agreement (the "Restricted Stock").
B. TERMS AND CONDITIONS OF THE STOCK GRANT.
1. RESTRICTIONS AND RESTRICTED PERIOD.
a. RESTRICTIONS. Shares of Restricted Stock
granted hereunder may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of and shall be subject to a risk of
forfeiture as described in Paragraph 4 below until the lapse of the
Restricted Period (as defined below).
b. RESTRICTED PERIOD. Unless the Restricted
Period is previous ly terminated pursuant to Paragraph 4 of this Agreement,
the restrictions set forth
<PAGE>
above shall lapse and the Restricted Stock shall become fully and freely
transferable (PROVIDED, THAT such transfer is otherwise in accordance with
federal and state securities laws) and non-forfeitable as to one hundred
percent (100%) of the shares of Restricted Stock on (the
"Restricted Period").
2. RIGHTS OF A STOCKHOLDER. From and after the Date of Grant
and for so long as the Restricted Stock is held by or for the benefit of the
Grantee, the Grantee shall have all the rights of a stockholder of the Company
with respect to the Restricted Stock, including but not limited to the right to
receive dividends and the right to vote such shares.
3. DIVIDENDS. Dividends paid on Restricted Stock shall be paid
at the dividend payment date, or be deferred for payment to such date as
determined by the Board of Directors, in cash or shares of unrestricted Stock
having a fair market value equal to the amount of such dividends as determined
by the Board of Directors. Stock distributed in connection with a Stock split or
Stock dividend, and other property distributed as a dividend, shall be subject
to restrictions and a risk of forfeiture to the same extent as the Restricted
Stock with respect to which such Stock or other property has been distributed.
4. CESSATION OF EMPLOYMENT. If the Grantee's employment status
with the Company is (i) terminated by the Company for other than "Cause" (as
defined below) or (ii) terminated by reason of death or Disability (as defined
below) then the Restricted Period shall lapse with respect to all of the
Restricted Stock subject to the Stock Grant as of such date of termination. If
the Grantee's employ ment status with the Company is (i) terminated by the
Company for "Cause" or (ii) terminated by the Grantee, then the Restricted Stock
and any accrued but unpaid dividends that are at that time subject to
restrictions set forth herein, shall be forfeited to the Company without payment
of any consideration by the Company, and neither the Grantee nor any of
[his/her] successors, heirs, assigns, or personal representatives shall
thereafter have any further rights or interests in such shares of Restricted
Stock or certificates.
For purposes of this Agreement, unless otherwise defined in an effective employ
ment agreement between the Grantee and the Company:
a. The term "Cause" shall mean the following:
2
<PAGE>
(1) The Grantee's material breach, repudiation or
failure to comply with or perform any of the terms of an effective employment
agreement, any of the Grantee's duties, or any of Company's policies or
procedures (including without limitation any such policies or procedures
relating to conflicts of interests or standards of business conduct) or
deliberate interference with the compliance by any other employee of Company
with any of the foregoing;
(2) The conviction of the Grantee for, or pleading
by the Grantee of no contest (or similar plea) to, fraud, embezzlement,
misappropriation of assets, malicious mischief, or any felony, other than a
crime for which vicarious liability is imposed upon the Grantee solely by
reason of the Grantee's position with Company and not by reason of the
Grantee's conduct; or
(3) Any other act, omission, event or condition
constitut ing cause for the discharge of any employee under applicable law.
b. The term "Disability" shall mean a circumstance when the
Grantee is unable to work by reason of disability for 180 days during any 365
day period.
5. CERTIFICATES. Restricted Stock granted herein may be
evidence in such manner as the Board of Directors shall determine. If
certificates representing Restricted Stock are registered in the name of the
Grantee, then such certificates shall bear an appropriate legend referring to
the terms, conditions, and restrictions applica ble to such Restricted Stock,
and the Company shall retain physical possession of the certificate.
6. NOTICES. Any notice required or permitted under this Agree
ment shall be deemed given when delivered personally, or when deposited in a
United States Post Office, postage prepaid, addressed, as appropriate, to the
Grantee either at [his/her] address herein below set forth or such other address
as [he/she] may designate in writing to the Company, or to the Company: Joel S.
Marcus, Chief Executive Officer (or his designee), at the Company's address or
such other address as the Company may designate in writing to the Grantee.
7. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company
or the Grantee to enforce at any time any provision of this Agreement shall in
no way be construed to be a waiver of such provision or of any other provision
hereof.
3
<PAGE>
8. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Maryland.
9. AMENDMENTS. This Agreement may be amended or modified at
any time by an instrument in writing signed by the Parties.
10. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Stock
Grant, this Agreement nor any other action taken in connection herewith shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Grantee is an employee of the Company or any subsidiary of the Company.
11. SECTION 83(b) ELECTION. The Grantee hereby acknowledges
that he has been informed that, with respect to the Stock Grant of Restricted
Shares, an election may be filed by the Grantee with the Internal Revenue
Service, within 30 days of the Date of Grant, electing pursuant to Section 83(b)
of the Internal Revenue Code of 1986, as amended, to be taxed currently on the
fair market value of the Restricted Stock on the Date of Grant.
THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b) OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO MAKE THIS FILING ON THE GRANTEE'S BEHALF.
12. TERMINATION OF THIS AGREEMENT. Upon termination of this
Agreement, all rights of the Grantee hereunder shall cease.
4
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agree ment
on the day and year first above written.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
By
-----------------------------------
The undersigned hereby accepts and agrees
to all the terms and provisions of the
foregoing Agreement.
-----------------------------------
[Name]
-----------------------------------
Number of Shares
-----------------------------------
-----------------------------------
-----------------------------------
Address
5
<PAGE>
Exhibit 10.21
FORM OF INDEPENDENT CONTRACTOR
RESTRICTED STOCK AGREEMENT
This RESTRICTED STOCK AGREEMENT (this "Agreement"),
dated as of the day of , (the "Date of Grant") is entered into
by and between Alexandria Real Estate Equities, Inc. (the "Company"),
and , an independent contractor of the Company (the "Grantee").
RECITALS
WHEREAS, the Company's Board of Directors has determined to
make a grant of restricted stock ("Restricted Stock") to the Grantee.
THEREFORE, the Parties agree as follows:
In consideration of the Recitals and the following mutual
covenants, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties agree that the Grantee is hereby
granted shares of Restricted Stock (the "Stock Grant") on the date hereof
subject to the terms and conditions set forth herein.
A. THE STOCK.
The Grantee is entitled to shares of the
Company's common stock, par value $.01 per share (the "Stock"), pursuant to
the terms and conditions of this Agreement (the "Restricted Stock").
B. TERMS AND CONDITIONS OF THE STOCK GRANT.
1. RESTRICTIONS AND RESTRICTED PERIOD.
a. RESTRICTIONS. Shares of Restricted Stock granted
hereunder may not be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of and shall be subject to a risk of forfeiture until the
lapse of the Restricted Period (as defined below).
<PAGE>
b. RESTRICTED PERIOD. The restrictions set forth
above shall lapse and the Restricted Stock shall become fully and freely
transferable (PROVIDED, THAT such transfer is otherwise in accordance with
federal and state securities laws) and non-forfeitable as to one hundred percent
(100%) of the shares of Restricted Stock on , (the "Restricted
Period").
2. RIGHTS OF A STOCKHOLDER. From and after the Date of Grant
and for so long as the Restricted Stock is held by or for the benefit of the
Grantee, the Grantee shall have all the rights of a stockholder of the Company
with respect to the Restricted Stock, including but not limited to the right to
receive dividends and the right to vote such shares.
3. DIVIDENDS. Dividends paid on Restricted Stock shall be paid
at the dividend payment date, or be deferred for payment to such date as
determined by the Board of Directors, in cash or shares of unrestricted Stock
having a fair market value equal to the amount of such dividends as determined
by the Board of Directors. Stock distributed in connection with a Stock split or
Stock dividend, and other property distributed as a dividend, shall be subject
to restrictions and a risk of forfeiture to the same extent as the Restricted
Stock with respect to which such Stock or other property has been distributed.
4. CERTIFICATES. Restricted Stock granted herein may be
evidence in such manner as the Board of Directors shall determine. If
certificates representing Restricted Stock are registered in the name of the
Grantee, then such certificates shall bear an appropriate legend referring to
the terms, conditions, and restrictions applica ble to such Restricted Stock,
and the Company shall retain physical possession of the certificate.
5. NOTICES. Any notice required or permitted under this Agree
ment shall be deemed given when delivered personally, or when deposited in a
United States Post Office, postage prepaid, addressed, as appropriate, to the
Grantee either at [his/her] address herein below set forth or such other address
as [he/she] may designate in writing to the Company, or to the Company: Joel S.
Marcus, Chief Executive Officer (or his designee), at the Company's address or
such other address as the Company may designate in writing to the Grantee.
6. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company
or the Grantee to enforce at any time any provision of this Agreement shall in
no way be construed to be a waiver of such provision or of any other provision
hereof.
2
<PAGE>
7. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Maryland.
8. AMENDMENTS. This Agreement may be amended or modified at
any time by an instrument in writing signed by the Parties.
9. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Stock
Grant, this Agreement nor any other action taken in connection herewith shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Grantee is an employee of the Company or any subsidiary of the Company.
10. SECTION 83(b) ELECTION. The Grantee hereby acknowledges
that he has been informed that, with respect to the Stock Grant of Restricted
Shares, an election may be filed by the Grantee with the Internal Revenue
Service, WITHIN 30 DAYS of the Date of Grant, electing pursuant to Section 83(b)
of the Internal Revenue Code of 1986, as amended, to be taxed currently on the
fair market value of the Restricted Stock on the Date of Grant.
THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b) OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO MAKE THIS FILING ON THE GRANTEE'S BEHALF.
11. TERMINATION OF THIS AGREEMENT. Upon termination of this
Agreement, all rights of the Grantee hereunder shall cease.
3
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agree
ment on the day and year first above written.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
By
-----------------------------------
The undersigned hereby accepts and agrees
to all the terms and provisions of the
foregoing Agreement.
-----------------------------------
[Name]
-----------------------------------
Number of Shares
-----------------------------------
-----------------------------------
Address
4
<PAGE>
Exhibit 10.22
AMENDMENT TO AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
Whereas, the parties hereto desire to amend that certain
Amended and Restated Executive Employment Agreement ("Agreement"), effective
January 1, 1998, by and between Alexandria Real Estate Equities, Inc.
("Alexandria") and Peter J. Nelson; and
Whereas, pursuant to section 6.4 of the Agreement, the
Agreement may be modified and amended with the written agreement of Alexandria
and Peter J.
Nelson.
Now therefore, effective as of August 1, 1999, the
Agreement is hereby amended as follows:
1. Section 3.4(b) of the Agreement is hereby deleted in its entirety
and replaced with the following:
(b) VACATION. During the Term, Officer shall
be entitled to up to four (4) weeks of paid vacation
annualized during each calendar year during the Term and any
extensions thereof, prorated for partial years. Accrued
vacation not taken during any calendar year may be carried
forward to subsequent years; PROVIDED, THAT, Officer may not
accrue more than eight (8) weeks of unused vacation at any
time.
Except as otherwise provided hereinabove, the Agreement is
ratified and affirmed.
IN WITNESS WHEREOF, this Amendment is executed this 31st day
of August, 1999.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
By: /s/ Joel S. Marcus
---------------------------------------
Joel S. Marcus, Chief Executive Officer
PETER J. NELSON
/s/ Peter J. Nelson
---------------------------------------
1
<PAGE>
Exhibit 10.23
AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
Whereas, the parties hereto desire to amend that certain
Executive Employment Agreement ("Agreement"), effective January 1, 1998, by
and between Alexandria Real Estate Equities, Inc. ("Alexandria") and Vincent
R. Ciruzzi; and
Whereas, pursuant to section 6.3 of the Agreement, the
Agreement may be modified and amended with the written agreement of
Alexandria and Vincent R. Ciruzzi.
Now therefore, effective as of August 1, 1999, the
Agreement is hereby amended as follows:
1. Section 3.5 (b) of the Agreement is hereby deleted in its entirety
and replaced with the following:
(b) VACATION. During the Term, Officer shall
be entitled to up to four (4) weeks of paid vacation
annualized during each calendar year during the Term and any
extensions thereof, prorated for partial years. Accrued
vacation not taken during any calendar year may be carried
forward to subsequent years; PROVIDED, THAT, Officer may not
accrue more than eight (8) weeks of unused vacation at any
time.
Except as otherwise provided hereinabove, the Agreement is
ratified and affirmed.
IN WITNESS WHEREOF, this Amendment is executed this 31st day
of August, 1999.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
By: /s/ Joel S. Marcus
---------------------------------------
Joel S. Marcus, Chief Executive Officer
VINCENT R. CIRUZZI
/s/ Vincent R. Ciruzzi
------------------------------------------
1
<PAGE>
Exhibit 10.24
June 1, 1999
PERSONAL & CONFIDENTIAL -------------------
CONFIDENTIAL
Mr. Tom Andrews DO NOT COPY
7 Brickyard Lane -------------------
Westborough, MA 01581
RE: EMPLOYMENT AGREEMENT
Dear Tom:
As usual, I enjoyed our brief time together at the BIO 99
conference. We are very excited about the prospect of finally bringing you on
board with Alexandria Real Estate Equities, Inc. On behalf of Alexandria, I
am pleased to offer you the position of Vice President, Regional Market
Director - Massachusetts, beginning on June 15, 1999, on the following terms:
1. DUTIES. In your position as Vice President, you will
perform the duties customarily associated with this position and such duties
as may be assigned to you by me or other members of Alexandria's senior
management. Initially, you will report to me, however, Alexandria may change
your duties and reporting relationship at its discretion. At the outset of
your employment, I would expect that your time would be utilized as follows:
<TABLE>
<CAPTION>
RESPONSIBILITY TIME COMMITMENT
-------------- ---------------
<S> <C>
- - Asset Management/LeasINg 25%
- - Acquisition/Retrofit/BTS Sourcing and Management 30%
- - Transaction Negotiation/Processing 25%
- - Networking/Franchise Development 15%
- - Miscellaneous Global Company Activity 5%
</TABLE>
If you accept this Agreement, I would like to have a consolidated draft
personal business plan detailing your approach to fulfilling these
responsibilities no later than July 1, 1999.
<PAGE>
-------------------
CONFIDENTIAL
DO NOT COPY
-------------------
2. TIME COMMITMENTS. Between the commencement date of your
employment and December 31, 1999, you agree to commit approximately 20 hours
per week to Alexandria's interests pursuant to the scope outlined in
Paragraph 1. This 20 hours would be IN ADDITION to your current project
management activities at 381 Plantation. Commencing January 1, 1999, your
commitment will increase to approximately 30 hours per week. The expectation
is that the construction of 381 Plantation would be complete at this point
and the 30 hours would be exclusively committed to the activities detailed in
Paragraph 1.
3. COMPENSATION AND BENEFITS.
a. COMPENSATION. As compensation for your services
and your obligations in this Agreement, Alexandria agrees to provide you with
the following:
(1) BASE SALARY. From your start date through
December 31, 1999, you will be paid a salary of $6,250 per month, less
payroll deductions and withholdings, paid bi-weekly. Beginning on January 1,
2000, your salary will be increased to $110,000 annually (or $9,167 per
month), less payroll deductions and withholdings.
(2) CONTINUATION OF PROJECT MANAGEMENT FEES.
As you know, you currently are being paid a fee in the amount of $12,500 per
month in connection with your project management contract for the development
of the 5 Biotech property. Even though you will become an Alexandria employee
if you accept this Agreement, Alexandria will continue to pay you this fee
through December 31, 1999. You will continue to perform all activities
necessary to fulfill your current contractual commitments on this property
and these activities will be in addition to the duties set forth in Paragraph
1 herein.
(3) INCENTIVE COMPENSATION. Subject to the
approval of Alexandria's Compensation Committee, you will be eligible for a
discretionary bonus based upon a combination of your performance and the
performance of Alexandria during specific periods of your employment.
Alexandria retains the sole discretion to determine whether you will be
provided with such a bonus and the amount of any such bonus.
b. EQUITY. Subject to the approval of Alexandria's
Compensation Committee and to the terms set forth in a separate agreement, we
will recommend that you be granted 900 shares of common stock of Alexandria
on or about July 1, 1999 which will vest in equal 450 share increments on
January 1, 2000 and June 30, 2000. Further, we will recommend that you be
granted an additional 450 shares of common stock on or about July 1, 2000
which will vest on January 1, 2001. The Compensation Committee retains the
sole discretion to determine whether to award any such stock grants.
c. BENEFITS. Given that you will be considered a
Regular Part-Time employee under Alexandria's policies, you will receive all
legally mandated benefits (such as Social Security and Workers' Compensation
Insurance). However, you shall not be eligible for any other Alexandria
benefits. Alexandria will reimburse you for the reasonable cost of obtaining
and maintaining health and dental insurance coverage for you and your family
consistent with the coverages offered to Alexandria's Regular Full-Time
employees.
2
<PAGE>
-------------------
CONFIDENTIAL
DO NOT COPY
-------------------
d. VACATION. During 1999, you will be provided with
one (1) week's paid vacation. After 1999, you will accrue vacation benefits
at a rate of 2.31 hours each pay period. This will result in an annual
vacation accrual of 60 hours over the course of a one-year period. You may
accrue vacation time up to a maximum of 160 hours. After you reach this
maximum accrual, you will not continue to accrue vacation time until your
accrued balance drops below 160 hours.
4. COMPANY POLICIES AND PROPRIETARY INFORMATION AGREEMENT. As
an employee of Alexandria, you will be expected to abide by all of
Alexandria's policies and procedures, including its policies on corporate
opportunities, conflicts of interest and securities trading. As a condition
of your employment, you agree to sign and abide by the terms of Alexandria's
Agreement Regarding Proprietary Information and its Employee Handbook.
5. OTHER AGREEMENTS. By accepting this Agreement, you
represent and warrant that the performance of your duties for Alexandria will
not violate any agreements, obligations or understandings that you may have
with any third party or prior employer. You agree not to make any
unauthorized disclosure or use, on behalf of Alexandria, of any confidential
information belonging to any of your former employers. You also represent
that you are not in unauthorized possession of any materials containing a
third party's confidential and proprietary information. Of course, during
your employment with Alexandria, you may make use of information generally
known and used by persons with training and experience comparable to your
own, and information which is common knowledge in the industry or is
otherwise legally available in the public domain.
6. DUTY OF LOYALTY. While employed by Alexandria, you will not
engage in any business activity in competition with Alexandria nor make
preparations to do so, and you will not engage in any outside employment or
consulting without prior written authorization from Alexandria.
7. TERMINATION. As an employee of Alexandria, you may
terminate your employment at any time and for any reason whatsoever simply by
notifying Alexandria. Similarly, Alexandria may terminate your employment at
any time and for any reason whatsoever, with or without cause. This at-will
employment relationship cannot be changed except in writing signed by a duly
authorized officer of Alexandria.
8. DISPUTE RESOLUTION/ATTORNEYS' FEES. Unless otherwise
prohibited by law or specified below, all disputes, claims, and causes of
action (including but not limited to any claims of statutory discrimination
of any type), in law or equity, arising from or relating to this Agreement or
its enforcement, performance, breach, or interpretation, or to your
employment with Alexandria or the termination of that employment, shall be
resolved solely and exclusively by final, binding and confidential
arbitration through Judicial Arbitration & Mediation Services/Endispute, Inc.
("JAMS") under the then existing JAMS arbitration rules. You understand and
agree that this provision waives your right to a jury trial on these claims.
This arbitration shall be held in the San Francisco Bay Area. Nothing in this
section is intended to
3
<PAGE>
-------------------
CONFIDENTIAL
DO NOT COPY
-------------------
prevent either party from obtaining injunctive relief in court to prevent
irreparable harm pending the conclusion of any such arbitration.
9. MISCELLANEOUS. This Agreement constitutes the complete,
final and exclusive embodiment of the entire agreement between you and
Alexandria with respect to the terms and conditions of your employment
specified herein. This Agreement supersedes any other such promises,
warranties, representations or agreements, and only may be modified in a
writing signed by both parties. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement, and the
Agreement, including the invalid or unenforceable provisions, should be
enforced insofar as possible to achieve the intent of the parties. This
Agreement will be binding upon and inure to the benefit of the personal
representatives and successors of the respective parties hereto. This
Agreement will be governed by and construed in accordance with the laws of
the State of California.
10. RIGHT TO WORK. As required by law, this Agreement is
subject to satisfactory proof of your right to work in the United States.
If you choose to accept this Agreement under the terms described
above, please sign below and return this letter to me.
We look forward to your favorable reply, and to a productive and
enjoyable work relationship.
Very truly yours,
ALEXANDRIA REAL ESTATE EQUITIES, INC.
/s/ James H. Richardson
-------------------------------------
James H. Richardson
President
ACCEPTED AND AGREED TO BY:
/s/Thomas J. Andrews
- -------------------------------------
Tom Andrews
DATE: June 8, 1999
cc: Joel S. Marcus, CEO - Confidential
Peter Nelson, Senior Vice President & CFO - Confidential
4
<PAGE>
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)
<TABLE>
<CAPTION>
The Period
October 27,
1994
For the (inception)
Nine Months Ended Year Ended December 31, through
September 30, --------------------------------------- December 31,
1999 1998 1997 1996 1995 1994
------------------ ------- ------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss): .................................. $16,964 $19,403 $(2,797) $2,175 $ 866 $(648)
Add Back:
Interest Expense ............................... 14,648 14,033 7,043 6,327 3,553 328
Write-off of Unamortized Loan Costs ............ -- -- 2,295 -- -- --
Acquisition LLC Financing Costs ................ -- -- 6,973 -- -- --
------- ------- ------- ------ ------ -----
Earnings Available for Fixed Charges ......... 31,612 33,436 $13,514 $8,502 $4,419 $(320)
------- ------- ------- ------ ------ -----
Combined Fixed Charges:
Interest Incurred .............................. 17,116 16,232 $ 7,139 $6,327 $3,553 $ 328
Write-off of Unamortized Loan Costs(a) ......... -- -- 2,295 -- -- --
Acquisition LLC Financing Costs(b) ............. -- -- 6,973 -- -- --
Preferred Dividends ............................ 1,120 -- 3,038 1,590 -- --
------- ------- ------- ------ ------ -----
Fixed Charges ................................ 18,236 16,232 $19,445 $7,917 $3,553 $ 328
------- ------- ------- ------ ------ -----
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends(c) ............................. 1.73 2.06 0.69 1.07 1.24 --
Excess of Fixed Charges Over Earnings ............ -- $ -- $ -- $ -- $ -- $ 648
</TABLE>
- --------------------
(a) This amount represents unamortized loan costs associated with debt
retired in connection with the IPO.
(b) This amount represents the portion of the purchase price of the
membership interests in ARE Acquisitions, LLC (the "Acquisition LLC")
paid by the Company in excess of the cost incurred by the Acquisition
LLC to acquire the three Life Science Facilities owned by it.
(c) For purposes of calculating the consolidated ratio of earnings to
combined fixed charges and preferred stock dividends, earnings consist
of earnings before income taxes and fixed charges. Fixed charges consist
of interest incurred (including amortization of deferred financing costs
and capitalized interest), write-off of unamortized loan costs,
Acquisition LLC Financing Costs (see Note (b)), and preferred stock
dividends.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED INCOME STATEMENTS FOUND
IN THE COMPANY'S FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,956
<SECURITIES> 0
<RECEIVABLES> 9,396
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 609,279
<DEPRECIATION> 30,168
<TOTAL-ASSETS> 620,076
<CURRENT-LIABILITIES> 0
<BONDS> 332,557
0
38,588
<COMMON> 137
<OTHER-SE> 224,793
<TOTAL-LIABILITY-AND-EQUITY> 620,076
<SALES> 0
<TOTAL-REVENUES> 22,395
<CGS> 0
<TOTAL-COSTS> 4,772
<OTHER-EXPENSES> 6,939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,835
<INCOME-PRETAX> 5,849
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,849
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
</TABLE>
