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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 27, 1999
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-12993 95-4502084
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
135 NORTH LOS ROBLES AVENUE, SUITE 250 91101
PASADENA, CALIFORNIA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 578-0777
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ITEM 5. OTHER EVENTS
Alexandria Real Estate Equities, Inc. or one of our wholly owned subsidiaries
acquired the properties listed below on the date indicated. The properties
contain a combination of office and laboratory space for lease principally to
tenants in the life science industry. We acquired each of the properties from
sellers that were unrelated to each other and unaffiliated with us.
On April 7, 1999, we acquired 2625/2627/2631 Hanover Street, located in Palo
Alto, California. We purchased the property for $6,400,000, which was based on
arm's length negotiations. We funded the purchase through a draw on our
unsecured line of credit. Prior to our acquisition, the owner occupied the
property. The property contains approximately 32,000 rentable square feet. It is
presently 100% leased. We purchased the property from Alza Corporation, a
Delaware corporation.
On July 30, 1999, we acquired 2425 Garcia Avenue and 2400/2450 Bayshore Parkway,
located in Mountain View, California. We purchased the property for $21,417,000,
which was based on arm's length negotiations. We funded the purchase through a
draw on our unsecured line of credit. Prior to our acquisition, the owner
occupied the property. The property contains approximately 99,000 rentable
square feet. It is presently 100% leased. We purchased the property from Scios,
Inc., a Delaware corporation.
On August 25, 1999, we acquired 9363/9373/9393 Towne Centre Drive, located in
San Diego, California. We purchased the property for $27,458,000, which was
based on arm's length negotiations. We funded the purchase through a draw on our
unsecured line of credit. The property contains approximately 142,000 rentable
square feet of office space. It is presently 89% leased. We purchased the
property from Nippon Landic (U.S.A.), Inc., a Delaware corporation.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED(1)
9363/9373/9393 TOWNE CENTRE DRIVE
Statement of Revenues and Certain Expenses:
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the year ended
December 31, 1998
Notes to Statement of Revenues and Certain Expenses
(b) PRO FORMA FINANCIAL INFORMATION
(c) EXHIBITS
23.1 Consent of Ernst & Young LLP
- -----------
(1) The financial statements for 2625/2627/2631 Hanover Street and
for 2425 Garcia Avenue and 2400/2450 Bayshore Parkway have not been included
because the properties were owner-occupied prior to acquisition. As a result,
there are no historical operating results as rental properties. Subsequent to
our acquisition, triple-net leases were executed for 100% of the rentable
areas of these properties, requiring the tenants to pay substantially all
expenses associated with the respective property.
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Report of Independent Auditors
To the Board of Directors
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of
9363/9373/9393 Towne Centre Drive (the Property) for the year ended December 31,
1998. This statement of revenue and certain expenses is the responsibility of
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
July 20, 1999
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Statement of Revenue and Certain Expenses
Year ended December 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenue:
Rental $ 2,800
Tenant recoveries 596
-------
Total revenue 3,396
-------
Certain Expenses:
Utilities 63
Repairs and maintenance 213
Insurance 35
Taxes and license 344
-------
Total certain expenses 655
-------
Excess of revenue over certain expenses $ 2,741
=======
</TABLE>
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
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9363/9373/9393 Towne Centre Drive
Notes to Statement of Revenue and Certain Expenses
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 9363/9373/9393 Towne Centre Drive, located in San Diego,
California (the "Property"). ARE-9363/9373/9393 Towne Centre, LLC, a Delaware
limited liability company and indirect wholly owned subsidiary of Alexandria
Real Estate Equities, Inc., a Maryland corporation, acquired the Property
from a nonaffiliated third party. As of December 31, 1998, the Property was
100% occupied and leased to three tenants under triple-net leases, which
require the tenants to pay their pro rata share of substantially all expenses
associated with the Property, including operating and maintenance, utilities,
taxes and insurance.
BASIS OF PRESENTATION
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The Property is not a legal entity and the accompanying statement is not
representative of the actual operations for the period presented, as certain
expenses that may not be comparable to the expenses we expect to incur in the
future operations of the Property have been excluded. Excluded expenses
consist of interest, depreciation and amortization, and property general and
administrative costs not directly comparable to the future operations of the
Property.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
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9363/9373/9393 Towne Centre Drive
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1998
2. FUTURE MINIMUM LEASE PAYMENTS
The future minimum lease payments to be received under noncancelable operating
leases as of December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 1,890
2000 1,708
2001 1,708
2002 1,560
2003 1,117
Thereafter 848
-------
Total $ 8,831
=======
</TABLE>
The above future minimum lease payments do not include specified payments for
tenant reimbursements of operating expenses.
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated balance sheet
of Alexandria Real Estate Equities, Inc. as of June 30, 1999 is presented as
if the properties described in Item 5 of this Form 8-K (the "Form 8-K
Properties") had been acquired on June 30, 1999. The following unaudited pro
forma condensed consolidated income statement of Alexandria Real Estate
Equities, Inc. for the six months ended June 30, 1999 and for the year ended
December 31, 1998 are presented as if the Form 8-K Properties had been
acquired on January 1, 1998.
The pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations would have been had we completed the transactions on the dates as
described above, nor do they purport to represent our future financial
position or our results of operations.
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
-----------------------------------------------
<S> <C> <C> <C>
ASSETS
Rental properties, net $ 503,172 $ 48,875 (A) $ 552,047
Property under development 22,806 - 22,806
Cash and cash equivalents 2,863 - 2,863
Tenant security deposits and other restricted
Cash 4,426 - 4,426
Secured note receivable 6,000 - 6,000
Tenant receivables 2,518 - 2,518
Deferred rent 6,886 - 6,886
Other assets 13,641 - 13,641
--------- -------- ---------
Total assets $ 562,312 $ 48,875 $ 611,187
========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $ 128,011 $ 128,011
Unsecured line of credit 148,000 48,875 (A) 196,875
Accounts payable, accrued expenses and tenant
security deposits 17,284 - 17,284
Dividends payable 6,057 - 6,057
--------- -------- ---------
Total liabilities 299,352 48,875 348,227
Stockholders' equity:
Preferred stock 38,588 - 38,588
Common stock 136 - 136
Additional paid-in capital 224,236 - 224,236
Retained earnings - - -
--------- -------- ---------
Total stockholders' equity 262,960 - 262,960
--------- -------- ---------
Total liabilities and stockholders' equity $ 562,312 $ 48,875 $ 611,187
========= ======== =========
</TABLE>
SEE ACCOMPANYING NOTES.
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Income Statement
Six Months Ended June 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental revenue $ 32,498 $ 1,442 (B) $ 33,940
Tenant recoveries and other income 8,135 363 (B) 8,498
----------- ------- -----------
Total revenues 40,633 1,805 42,438
Expenses:
Rental operations 9,119 302 (B) 9,421
General and administrative 2,993 - 2,993
Interest 9,813 1,709 (C) 11,522
Depreciation and amortization 7,593 617 (D) 8,210
----------- ------- -----------
Total expenses 29,518 2,628 32,146
----------- ------- -----------
Net income (loss) $ 11,115 $ (823) $ 10,292
=========== ======= ===========
Dividends on preferred stock $ 204 $ 204
=========== ===========
Net income available to common stock
Outstanding $ 10,911 $ 10,088
=========== ===========
Pro forma weighted average shares of
common stock outstanding 13,461,689 13,461,689
=========== ===========
Net income per pro forma share
of common stock $ 0.81 $ 0.75
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Income Statement
Year ended December 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental revenue $ 48,469 $ 2,914 (B) $ 51,383
Tenant recoveries and other income 12,547 596 (B) 13,143
----------- -------- -----------
Total revenues 61,016 3,510 64,526
Expenses:
Rental operations 13,390 655 (B) 14,045
General and administrative 3,894 - 3,894
Interest 14,033 3,582 (C) 17,615
Depreciation and amortization 10,296 1,317 (D) 11,613
----------- -------- -----------
Total expenses 41,613 5,554 47,167
----------- -------- -----------
Net income (loss) $ 19,403 $ (2,044) $ 17,359
=========== ======== ===========
Pro forma shares of common stock
outstanding 12,306,470 12,306,470
=========== ===========
Net income per pro forma share of
common stock $ 1.58 $ 1.41
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
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Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements
1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The pro forma adjustments to the Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of June 30, 1999 are as follows:
(A) Acquisition of the Form 8-K Properties with the related draws on our
unsecured line of credit.
Purchase price (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Form 8-K Properties Purchase Price
------------------- --------------
2425 Garcia Avenue and 2400/2450 Bayshore Parkway $ 21,417
9363/9373/9393 Towne Centre Drive 27,458
--------
Total $ 48,875
========
</TABLE>
The above acquisitions closed in July and August 1999, respectively. No
adjustment has been made for the acquisition of 2625/2627/2631 Hanover
Street since it was acquired prior to June 30, 1999.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
The pro forma adjustments to the Unaudited Pro Forma Condensed Consolidated
Income Statements for the six months ended June 30, 1999 and for the year ended
December 31, 1998 are as follows:
(B) Preacquisition results for 9363/9373/9393 Towne Centre Drive, adjusted
to include the effect of straight line rent adjustments (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
6/30/99 12/31/98
------------ ------------
<S> <C> <C>
Revenues:
Rental revenue $ 1,442 $ 2,914
Tenant recoveries and other income 363 596
------- -------
1,805 3,510
------- -------
Expenses:
Rental operations 302 655
------- -------
Operating Income $ 1,503 $ 2,855
======= =======
</TABLE>
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Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements (continued)
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
No pro forma adjustments have been made for 2625/2627/2631 Hanover
Street or 2425 Garcia Avenue and 2400/2450 Bayshore Parkway for
the periods prior to acquisition because the properties were
owner-occupied prior to purchase, and, as a result, there were no
operating results as rental properties.
(C) Increase in interest expense due to draws on our unsecured line
of credit.
(D) Increase in depreciation expense to reflect a full period of
depreciation for the Form 8-K Properties utilizing a 40 year
useful life for buildings and building improvements.
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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 hereunto duly authorized.
ALEXANDRIA REAL ESTATE EQUITIES INC.
Date: September 27, 1999 By: /s/ Peter J. Nelson
------------------------
Peter J. Nelson
Chief Financial Officer
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-34223, Form S-8 No. 333-60075, Amendment No. 1 to Form S-3
No. 333-56451, Amendment No. 1 to Form S-3 No. 333-56449 and Form S-3 No.
333-81985) of Alexandria Real Estate Equities, Inc. of our report dated July
20, 1999 with respect to the statement of revenue and certain expenses of
9363/9373/9393 Towne Centre Drive for the year ended December 31, 1998,
included in the Form 8-K of Alexandria Real Estate Equities, Inc. dated
September 27, 1999.
/s/ Ernst & Young LLP
Los Angeles, California
September 27, 1999
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