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 June 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)
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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)
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.
As of August 12, 1999, 13,713,322 shares of common stock, par value $.01 per share, were outstanding.
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 June 30, 1999 and December 31, 1998
Condensed Consolidated Income Statements of Alexandria Real Estate Equities, Inc. and Subsidiaries for the three months ended June 30, 1999 and 1998 and the six months ended June 30, 1999 and 1998
Condensed Consolidated Statement of Stockholders' Equity of Alexandria Real Estate Equities, Inc. and Subsidiaries for the six months ended June 30, 1999
Condensed Consolidated Statements of Cash Flows of Alexandria Real Estate Equities, Inc. and Subsidiaries for the six months ended June 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
-------------------------
ASSETS
Rental properties, net $503,172 $471,907
Property under development 22,806 21,839
Cash and cash equivalents 2,863 1,554
Tenant security deposits and other restricted cash 4,426 7,491
Secured note receivable 6,000 6,000
Tenant receivables 2,518 2,884
Deferred rent 6,886 5,595
Other assets 13,641 13,026
-------------------------
Total assets $562,312 $530,296
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $128,011 $115,829
Unsecured line of credit 148,000 194,000
Accounts payable, accrued expenses and tenant security
deposits 17,284 15,663
Dividends payable 6,057 5,035
-------------------------
Total liabilities 299,352 330,527
Stockholders' equity:
9.50% Series A cumulative redeemable preferred stock,
$0.01 par value per share, 1,610,000 shares
authorized, 1,543,500 shares issued and
outstanding at June 30, 1999, $25.00 liquidation
preference 38,588 -
Common stock, $0.01 par value per share,
100,000,000 shares authorized; 13,611,822 and
12,586,263 shares issued and outstanding at
June 30, 1999 and December 31, 1998,
respectively
136 126
Additional paid-in capital 224,236 199,643
Retained earnings - -
-------------------------
Total stockholders' equity 262,960 199,769
-------------------------
Total liabilities and stockholders' equity $562,312 $530,296
=========================
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SEE ACCOMPANYING NOTES
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------------------------------------------------------------
Revenues:
Rental $ 16,750 $ 11,903 $ 32,498 $ 21,043
Tenant recoveries 3,958 2,949 7,382 5,312
Interest and other income 386 308 753 501
-------------------------------------------------------------
21,094 15,160 40,633 26,856
Expenses:
Rental operations 4,736 3,620 9,119 6,124
General and administrative 1,692 882 2,993 1,633
Interest 4,850 3,478 9,813 5,563
Depreciation and amortization 3,999 2,456 7,593 4,177
-------------------------------------------------------------
15,277 10,436 29,518 17,497
-------------------------------------------------------------
Net income $ 5,817 $ 4,724 $ 11,115 $ 9,359
=============================================================
Dividends on preferred stock $ 204 $ - $ 204 $ -
=============================================================
Net income available to common stockholders
$ 5,613 $ 4,724 $ 10,911 $ 9,359
=============================================================
Net income per common share
-Basic $ 0.41 $ 0.40 $ 0.82 $ 0.81
=============================================================
-Diluted $ 0.41 $ 0.39 $ 0.81 $ 0.79
=============================================================
Weighted average shares of
common stock outstanding:
-Basic 13,604,031 11,821,664 13,316,266 11,614,300
=============================================================
-Diluted 13,756,007 12,053,983 13,461,689 11,854,843
=============================================================
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SEE ACCOMPANYING NOTES
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity Six Months Ended June 30, 1999
(Unaudited)
(DOLLARS IN THOUSANDS)
NUMBER OF
SERIES A SERIES A NUMBER OF ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN RETAINED
SHARES STOCK SHARES STOCK CAPITAL EARNINGS TOTAL
-------------------------------------------------------------------------------------------
Balance at December 31, 1998 - $ - 12,586,263 $ 126 $199,643 $ - $199,769
Issuance of common stock,
net of offering costs - - 1,150,000 11 29,819 - 29,830
Issuance of Series A
preferred stock, net of
offering costs 1,543,500 38,588 - - (1,700) - 36,888
Redemption and retirement
of common stock - - (145,343) (1) (3,451) - (3,452)
Exercise of stock options, net - - 20,902 - 306 - 306
Dividends on common stock - - - - (381) (10,911) (11,292)
Dividends on preferred stock - - - - - (204) (204)
Net income - - - - - 11,115 11,115
===========================================================================================
Balance at June 30, 1999 1,543,500 $38,588 13,611,822 $ 136 $224,236 $ - $ 262,960
===========================================================================================
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SEE ACCOMPANYING NOTES.
Alexandria Real Estate Equities, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
1999 1998
------------------------
Net cash provided by operating activities $ 21,195 $ 10,580
INVESTING ACTIVITIES
Purchase of rental properties (11,789) (145,345)
Additions to rental properties (7,581) (9,305)
Property development costs (7,815) (9,862)
Issuance of note receivable - (6,000)
------------------------
Net cash used in investing activities (27,185) (170,512)
FINANCING ACTIVITIES
Proceeds from secured notes payable 1,968 49,132
Net proceeds from issuance of preferred stock 36,888 -
Net proceeds from issuance of common stock 29,830 33,214
Redemption and retirement of common stock (3,452) -
Proceeds from exercise of stock options 306 -
Net (principal reductions) borrowings on unsecured
line of credit (46,000) 87,200
Principal reductions of secured notes payable (1,766) (540)
Dividends paid on common stock (10,475) (9,124)
------------------------
Net cash provided by financing activities 7,299 159,882
Net decrease in cash and cash equivalents 1,309 (50)
Cash and cash equivalents at beginning of period 1,554 2,060
------------------------
Cash and cash equivalents at end of period $ 2,863 $ 2,010
========================
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SEE ACCOMPANYING NOTES.
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 June 30, 1999, our portfolio consisted of 54 properties with approximately 3.8 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.
2. RENTAL PROPERTIES
Rental properties consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
------------------------
Land $ 80,671 $ 76,254
Buildings and improvements 422,472 393,728
Tenant and other improvements 25,726 20,536
----------------------
528,869 490,518
Less accumulated depreciation (25,697) (18,611)
----------------------
$ 503,172 $471,907
======================
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During the three months ended June 30, 1999, we acquired one property containing approximately 32,000 rentable square feet from an unrelated third party for a purchase price (including closing and transaction costs) of approximately $6.6 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 June 30, 1999, borrowings under the line of credit were limited to approximately $221,000,000, and carried a weighted average interest rate of 6.54%.
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 June 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.
5. STOCKHOLDERS' EQUITY
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. The dividends on our Series A preferred stock are cumulative and accrue from the date of original issuance. We will pay dividends quarterly in arrears commencing on July 15, 1999 at an annual rate of $2.375 per share. Our Series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to June 11, 2004, except in order to preserve our status as a REIT. On or after June 11, 2004, we may, at our option, redeem our Series A preferred stock, in whole or in part, at any time for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends.
On June 28, 1999, we declared a cash dividend on our common stock aggregating $5,853,000 ($ 0.43 per share) for the calendar quarter ended June 30, 1999. We paid the dividend on July 15, 1999. On June 28, 1999, we also declared a cash dividend on our Series A preferred stock aggregating $356,000 ($ 0.2309 per share) for the period from the date of issuance through July 15, 1999. The portion relating to the period prior to June 30, 1999 ($204,000) has been accrued in the accompanying financial statements. We paid the dividend on July 15, 1999.
6. NET INCOME (LOSS) PER SHARE
The following table shows the computation of net income per share of common stock outstanding (dollars in thousands, except per share amounts):
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-----------------------------
Net income available to
common stockholders $ 5,613 $ 4,724
=============================
Weighted average shares of common stock
outstanding - basic 13,604,031 11,821,664
Add: dilutive effect of stock options 151,976 232,319
-----------------------------
Weighted average shares of common stock
outstanding - diluted 13,756,007 12,053,983
============================
Net income per common share:
- Basic $ 0.41 $ 0.40
============================
- Diluted $ 0.41 $ 0.39
============================
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6. NET INCOME (LOSS) PER SHARE (CONTINUED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-----------------------------
Net income available to
common stockholders $ 10,911 $ 9,359
=============================
Weighted average shares
of common stock
outstanding - basic 13,316,266 11,614,300
Add: dilutive effect of
stock options 145,423 240,543
----------------------------
Weighted average shares of
common stock outstanding -
diluted 13,461,689 11,854,843
============================
Net income per common share:
- Basic $ 0.82 $ 0.81
============================
- Diluted $ 0.81 $ 0.79
============================
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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 as a result of many factors. 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.
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 54 properties we owned as of June 30, 1999, four were acquired in calendar year 1994, eight in 1996, 10 in 1997, 29 in 1998 (the "1998 Properties") and two in 1999. In addition, we completed the development of one property in 1999 (together with the two 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 JUNE 30, 1999 ("SECOND QUARTER 1999") TO THREE MONTHS ENDED JUNE 30, 1998 ("SECOND QUARTER 1998")
Rental revenue increased by approximately $ 4.9 million, or 41%, to $16.8 million for Second Quarter 1999 compared to $11.9 million for Second Quarter 1998. The increase resulted primarily from rental revenue from the 1998 Properties purchased after April 1, 1998 and from the 1999 Properties. Rental revenue from the Properties acquired before April 1, 1998 (the "Second Quarter Same Properties") increased by $513,000, or 4.7%, due to increases in rental rates and occupancy.
Tenant recoveries increased by approximately $1.1 million, or 34%, to $4.0 million for Second Quarter 1999 compared to $2.9 million for Second Quarter 1998. The increase resulted primarily from tenant recoveries from the 1998 Properties purchased after April 1, 1998 and the 1999 Properties. Tenant recoveries from the Second Quarter Same Properties increased by $192,000, or 7.4%, primarily due to an increase in recoverable operating expenses and the improved identification and recovery of costs at certain properties.
Interest and other income increased by $78,000, or 25%, to $386,000 for Second Quarter 1999 compared to $308,000 for Second Quarter 1998, resulting primarily from an increase in storage and parking income at two of our properties: 3005 First Avenue, Seattle, Washington and 620 Memorial Drive, Cambridge, Massachusetts.
Rental operating expenses increased by approximately $1.1 million, or 31%, to $4.7 million for Second Quarter 1999 compared to $3.6 million for Second Quarter 1998. The increase resulted primarily from the 1998 Properties purchased after April 1, 1998 and the 1999 Properties. Operating expenses for the Second Quarter Same Properties increased by $113,000, or 3.4%, primarily due to the increase in property taxes at 1102/1124 Columbia Street, Seattle, Washington. The increase in property taxes 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 Second Quarter Same Properties (dollars in thousands):
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998 CHANGE
--------------------------------------------------
GAAP BASIS:
Revenue $ 14,441 $ 13,710 5.3%
Rental operating expenses 3,439 3,326 3.4%
--------------------------------------------------
Net operating income $ 11,002 $ 10,384 6.0%
==================================================
CASH BASIS (1):
Revenue $ 13,580 $ 12,732 6.7%
Rental operating expenses 3,311 3,189 3.8%
--------------------------------------------------
Net operating income $ 10,269 $ 9,543 7.6%
==================================================
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(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 the property was acquired by the company) contains significant step-down provisions which affected the cash rent paid by the tenant beginning in January 1999. As a result, cash rent paid was reduced from $737,000 for Second Quarter 1998 to $529,000 for Second 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 June 30, 1999, the comparison would show that revenue increased 5.0%, rental operating expenses increased 3.4% and net operating income increased 5.5%. On a GAAP Basis, rental income from this property for the three months ended June 30, 1999 was $353,000 per quarter, the same as each quarter during 1998.
General and administrative expenses increased by $810,000, or 92%, to $1.7 million for Second Quarter 1999 compared to $882,000 for Second 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 $1.3 million, or 39%, to $4.8 million for Second Quarter 1999 compared to $3.5 million for Second Quarter 1998. The increase resulted primarily from the indebtedness incurred to acquire the 1998 Properties purchased after April 1, 1998 and the 1999 Properties.
Depreciation and amortization increased by approximately $1.5 million, or 63%, to $4.0 million for Second Quarter 1999 compared to $2.5 million for Second Quarter 1998. The increase resulted primarily from depreciation associated with the 1998 Properties purchased after April 1, 1998, and the addition of the 1999 Properties.
As a result of the foregoing, net income was $5.8 million for Second Quarter 1999 compared to $4.7 million for Second Quarter 1998.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 ("SIX MONTHS 1999") TO SIX MONTHS ENDED JUNE 30, 1998 ("SIX MONTHS 1998")
Rental revenue increased by approximately $11.5 million, or 54%, to $32.5 million for Six Months 1999 compared to $21.0 million for Six 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 "Six Months Same Properties") increased by $356,000, or 2.8%, primarily due to increases in rental rates and occupancy.
Tenant recoveries increased by approximately $2.1 million, or 39%, to $7.4 million for Six Months 1999 compared to $5.3 million for Six 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 Six Months Same Properties increased by $111,000, or 3.6%, primarily due to an increase in recoverable operating expenses and the improved identification and recovery of costs at certain properties.
Interest and other income increased by $252,000, or 50%, to $753,000 for Six Months 1999 compared to $501,000 for Six Months 1998, resulting primarily from interest income from the secured note receivable, which was funded in March 1998.
Rental operating expenses increased by approximately $3.0 million, or 49%, to $9.1 million for Six Months 1999 compared to $6.1 million for Six Months 1998. The increase resulted primarily from the 1998 Properties purchased after January 1, 1998 and the 1999 Properties. Operating expenses for the Six Months Same Properties increased by $34,000, or 1.0%.
The following is a comparison of property operating data computed on a GAAP Basis and on a Cash Basis for the Six Months Same Properties (dollars in thousands):
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------------
1999 1998 CHANGE
--------------------------------------------------
GAAP BASIS:
Revenue $ 16,297 $ 15,798 3.2%
Rental operating expenses 3,331 3,297 1.0%
--------------------------------------------------
Net operating income $ 12,966 $ 12,501 3.7%
==================================================
CASH BASIS (1):
Revenue $ 15,159 $ 14,556 4.1%
Rental operating expenses 3,047 3,023 0.8%
--------------------------------------------------
Net operating income $ 12,112 $ 11,533 5.0%
==================================================
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(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 the property was acquired by the company) contains significant step-down provisions which affected the cash rent paid by the tenant beginning in January 1999. As a result, cash rent paid was reduced from $1,474,000 for Six Months 1998 to $1,067,000 for Six 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 six months ended June 30, 1999, the comparison would show that revenue increased 1.3%, rental operating expenses increased 1.0% and net operating income increased 1.3%. On a GAAP Basis, rental income from this property throughout 1998 and during the six months ended June 30, 1999 was $353,000 per quarter.
General and administrative expenses increased by approximately $1.4 million, or 83%, to $3.0 million for Six Months 1999 compared to $1.6 million for Six Months 1998. The increase was primarily due to the continued increase in the scope of our operations, including the addition of personnel in our suburban Washington D.C. and eastern Massachusetts regions.
Interest expense increased by approximately $4.2 million, or 76%, to $9.8 million for Six Months 1999 compared to $5.6 million for Six 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 $3.4 million, or 82%, to $7.6 million for Six Months 1999 compared to $4.2 million for Six 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 $11.1 million for Six Months 1999 compared to $9.4 million for Six Months 1998.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities for Six Months 1999 increased by $10.6 million to $21.2 million compared to $10.6 million for Six Months 1998. The increase resulted primarily from operating cash flows from the addition of the 1998 Properties purchased after January 1, 1998 and the 1999 Properties.
Net cash used in investing activities decreased by $143.3 million to $27.2 million for Six Months 1999 compared to $170.5 million for Six Months 1998. The decrease was primarily due to a lower level of property acquisitions during Six Months 1999 compared to Six Months 1998.
Net cash provided by financing activities decreased by $152.6 million to $7.3 million for Six Months 1999 compared to $159.9 million for Six Months 1998. Cash provided by financing activities for Six Months 1999 consisted of net proceeds from the issuance/redemption of our common stock, issuance of preferred stock, exercise of stock options and secured debt, partially offset by principal reductions on our unsecured line of credit, principal reductions on our secured debt and dividends on our common stock. Cash provided by financing activities for Six Months 1998 consisted of net proceeds from the issuance of our common stock, unsecured 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 and Gaithersburg, Maryland at a remaining cost of between $20.9 million and $29.9 million under the terms of certain leases (depending on the level of improvements to one of the facilities elected by the tenant at that facility). Under the terms of this lease, the tenant's rental rate will be adjusted depending on the ultimate cost of the improvements.
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 $10.2 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 has provided us with a $2.6 million loan for use in the construction of the Facility, of which we had borrowed approximately $2.0 million as of June 30, 1999. 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 $16.0 million for investments in limited partnerships and rental properties, including the construction of tenant improvements under the terms of various leases.
RESTRICTED CASH
As of June 30, 1999, we had $7.3 million in cash and cash equivalents, including $4.4 million in restricted cash accounts. Of the $4.4 million in restricted cash accounts, approximately $399,000 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 $3.1 million is held in trust as additional security required under the terms of our secured notes payable and approximately $923,000 is held in security deposit reserve accounts based on the terms of certain lease agreements.
SECURED DEBT
Secured debt as of June 30, 1999 consists of the following (in thousands):
STATED
BALANCE AT JUNE 30, INTEREST
COLLATERAL 1999 RATE MATURITY DATE
------------------------------------------------------------------------------------------------------
3535/3565 General Atomics Court,
San Diego, CA $ 17,326 9.00% December 2014
1431 Harbor Bay Parkway,
Alameda, CA 7,682 7.165% January 2014
1102/1124 Columbia Street,
Seattle, WA 20,444 7.75% May 2016
100/800/801 Capitola Drive,
Durham, NC 12,502 8.68% December 2006
14225 Newbrook Drive, Chantilly,
VA and 3000/3018 Western Avenue,
Seattle, WA 36,160 7.22% May 2008
620 Memorial Drive,
Cambridge, MA (1) 19,999 9.125% Oct 2007
One Innovation Drive,
Worcester, MA (2) 11,930 8.75% January 2006
381 Plantation Street,
(development project)
Worcester, MA (3) 1,968 9.00% June 2000
----------------
$ 128,011
================
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(1) The balance shown includes an unamortized premium of $2,164,000 so that
the effective rate of the loan is 7.25%.
(2) The balance shown includes an unamortized premium of $781,000 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.
The following is a summary of the scheduled principal payments for our secured debt as of June 30, 1999 (in thousands):
YEAR AMOUNT
---------------------------------------------------
1999 $ 1,537
2000 5,205
2001 3,505
2002 3,788
2003 4,095
Thereafter 106,936
---------------------
Subtotal 125,066
Unamortized premium 2,945
---------------------
$ 128,011
=====================
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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 June 30, 1999, borrowings under the line of credit were limited to approximately $221,000,000, and carried a weighted average interest rate of 6.54%.
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%.
OTHER RESOURCES AND LIQUIDITY REQUIREMENTS
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 Series A 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. The dividends on our Series A preferred stock are cumulative and accrue from the date of original issuance. We will pay dividends quarterly in arrears commencing on July 15, 1999 at an annual rate of $2.375 per share. Our Series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to June 11, 2004, except in order to preserve our status as a REIT. On or after June 11, 2004, we may, at our option, redeem our Series A preferred stock, in whole or in part, at any time for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends.
We expect to continue meeting our short-term liquidity and capital requirements generally through our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to 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 79% 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, a majority 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.
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 internal evaluation and related remediation 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 implemented substantially all of the necessary remedial actions in the second quarter.
We have completed our review of our internal accounting systems. Our general ledger system and our accounts payable system are currently year 2000 compliant and testing has been completed. The year 2000 compliant version of the billing system was recently received and is currently in use. We will be testing this software for year 2000 compliance during the third quarter of 1999.
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, 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 are in the process of surveying our significant tenants for their year 2000 readiness. Approximately 70% of our tenants have returned their surveys. 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 have indicated that they have some concerns regarding their systems.
We are monitoring their status in this regard. We are in the process of contacting those tenants who have not returned their surveys. We anticipate that this process will be substantially completed in the third quarter of 1999.
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 but one of these properties in the second quarter of 1999. The energy management system at one property will be upgraded for year 2000 readiness in the third quarter of 1999. In some instances, we anticipate using the services of outside experts to test and review our findings and to reconfirm that our building systems are year 2000 compliant. We expect to complete this part of the project in the third and fourth quarters of 1999.
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 expected to be 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 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 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. Because our assessment to date indicates that we are currently substantially year 2000 compliant, we believe that adequate time exists to ensure that alternatives can be developed, assessed and implemented prior to the end of 1999. Any failure to develop an alternative or an appropriate contingency plan could have a material adverse effect on our operations.
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, sales of property and unusual items, 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 six months ended June 30, 1999 and 1998 (in thousands):
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
-----------------------------------------------------------------
Net income $ 5,817 $ 4,724
Add:
Depreciation and amortization 3,999 2,456
Subtract:
Dividends on preferred stock (204) -
------------------- -------------------
$ 9,612 $ 7,180
=================== ===================
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SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------------------------------------------------------
Net income $ 11,115 $ 9,359
Add:
Depreciation and amortization 7,593 4,177
Subtract:
Dividends on preferred stock (204) -
------------------- -------------------
FFO $ 18,504 $ 13,536
=================== ===================
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PROPERTY AND LEASE INFORMATION
The following table is a summary of our property portfolio as of June 30, 1999
(dollars in thousands):
NUMBER OF RENTABLE ANNUALIZED OCCUPANCY
PROPERTIES SQUARE FEET BASE RENT PERCENTAGE
-------------------------------------------------------------------
REGION:
Suburban Washington D.C. 17 1,537,338 $ 21,213 95.1% (1)
California - San Diego 7 428,955 11,780 100.0%
California - San Francisco Bay 7 387,805 6,650 95.4% (1)
Southeast 4 254,230 3,749 100%
New Jersey/Suburban Philadelphia 5 268,418 3,894 98.6%
Eastern Massachusetts 6 380,709 9,853 99.4%
Washington - Seattle 3 328,221 8,981 96.0%
-------------------------------------------------------------------
Subtotal 49 3,585,676 66,120 96.9%
Renovation/Repositioning Properties 5 186,335 1,600 15.4%
-------------------------------------------------------------------
Total 54 3,772,011 $ 67,720 92.9%
===================================================================
---------
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(1) All, or substantially all, of the vacant space is office or warehouse space.
The following table shows certain information with respect to the lease expirations of our properties as of June 30, 1999:
SQUARE ANNUALIZED BASE
FOOTAGE OF PERCENTAGE OF RENT OF EXPIRING
YEAR OF LEASE NUMBER OF EXPIRING AGGREGATE PORTFOLIO LEASES (PER SQUARE
EXPIRATION EXPIRING LEASES LEASES LEASE SQUARE FOOT FOOT)
----------------------------------------------------------------------------------------
1999 (1) 40 277,329 7.9% $ 25.65
2000 27 338,061 9.7% $ 17.57
2001 24 373,784 10.7% $ 19.49
2002 16 328,931 9.4% $ 16.99
2003 17 349,427 10.0% $ 15.42
Thereafter 40 1,834,482 52.3% $ 19.84
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(1) Represents leases expiring between July 1, 1999 to December 31, 1999.
The following table is a summary of our lease activity for the quarter ended June 30, 1999 computed on a GAAP Basis and on a Cash Basis:
RENTAL TI'S/LEASE AVERAGE
NUMBER SQUARE EXPIRING NEW RATE COMMISSIONS LEASE
OF LEASES FOOTAGE RATE RATE INCREASE PER FOOT TERM
-------------------------------------------------------------------------------------------------
LEASE ACTIVITY - EXPIRED LEASES
Lease Expirations
Cash Rent 23 191,960 $ 16.98 - - - -
GAAP Rent 23 191,960 $ 18.03 - - - -
Renewed / Released Space
Cash Rent 8 135,856 $ 14.71 $ 17.02 15.7% $ 2.95 4.4 Years
GAAP Rent 8 135,856 $ 16.20 $ 18.26 12.7% $ 2.95 4.4 Years
Month-to-Month Leases
Cash Rent 12 43,494 $ 20.85 $ 21.04 0.9% - -
GAAP Rent 12 43,494 $ 20.85 $21.04 0.9% - -
Total Leasing
Cash Rent 20 179,350 $ 16.20 $ 18.00 11.1% - -
GAAP Rent 20 179,350 $ 17.33 $ 18.94 9.3% - -
VACANT SPACE LEASED
Cash Rent 5 41,315 - $ 19.34 - $ 11.45 5.2 Years
GAAP Rent 5 41,315 - $ 20.01 - $ 11.45 5.2 Years
ALL LEASE ACTIVITY
Cash Rent 25 220,665 - $ 18.25 - - -
GAAP Rent 25 220,665 - $19.14 - - -
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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 agreement, the effects of interest rate changes are reduced. Based on interest rates at June 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 $1.0 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 $1.0 million. A 1% increase interest rates on our secured debt and interest rate swap agreement would decrease their fair value by approximately $8.3 million. A 1% decrease in interest rates on our secured debt and interest rate swap agreement would increase their fair value by approximately $9.4 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 interest rate swap agreement. 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.
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
In June 1999, we issued 1,543,500 shares of our Series A preferred stock at a price of $25.00 per share. Our Series A preferred stock is senior to our common stock with respect to dividend rights and rights upon our liquidation, dissolution or winding up. We may not declare or pay dividends on our common stock (other than dividends in shares of our common stock or any other class of stock ranking junior to our Series A preferred stock) unless full cumulative dividends have been or contemporaneously are declared and paid or set aside on our Series A preferred stock. In addition, in the event of a voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of shares of our Series A preferred stock are entitled to be paid a liquidation preference of $25.00 per share, plus an amount equal to any accrued and unpaid dividends, before any distribution of assets is made to holders of our common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1999, we held our Annual Meeting of Stockholders.
At the meeting, nine directors were elected to serve for a one-year term and until their successors are duly elected and qualify. The following directors were elected pursuant to the votes indicated:
Director "For" "Withheld"
Jerry M. Sudarsky 12,514,609 74,989
Joel S. Marcus 12,514,609 74,989
James H. Richardson 12,514,609 74,989
Joseph Elmaleh 12,513,189 76,409
Richard B. Jennings 12,514,609 74,989
Viren Mehta 12,513,189 76,409
David M. Petrone 12,514,609 74,989
Anthony M. Solomon 12,514,609 74,989
Alan G. Walton 12,514,609 74,989
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We have no other directors.
In addition, the stockholders voted to ratify the selection of Ernst & Young LLP as our independent public accountants for the fiscal year ending December 31, 1999. A total of 12,582,646 shares voted "for" the ratification, 4,475 voted "against" and 2,477 shares abstained.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.5 Articles Supplementary of Alexandria Relating to its 9.50% Series A
Cumulative Redeemable Preferred Stock of the Company.
4.2 Specimen Certificate Representing Shares of Alexandria's 9.50% Series A
Cumulative Redeemable Preferred Stock.
12.1 Computation of Consolidated Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
27.1 Financial Data Schedule
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(b) Reports on Form 8-K.
On June 14, 1999, we filed a Current Report on Form 8-K, dated June 8, 1999, to report the offering and sale of up to 1,610,000 shares of our 9.50% Series A Cumulative Redeemable Preferred Stock.
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 August 13, 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) |
EXHIBIT 3.5
ALEXANDRIA REAL ESTATE EQUITIES, INC.
ARTICLES SUPPLEMENTARY
9.50% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
ALEXANDRIA REAL ESTATE EQUITIES, INC. a Maryland corporation (the "Corporation"), hereby certifies to the Maryland State Department of Assessments and Taxation that:
FIRST: Pursuant to Article VI of Section 6.3 of the Articles of Amendment and Restatement of the Corporation (the "Charter"), the Board of Directors of the Corporation (the "Board of Directors"), by resolution duly adopted, classified and designated 1,610,000 shares (the "Shares") of Preferred Stock (as defined in the Charter) as shares of 9.50% Series A Cumulative Redeemable Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"), with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption, subject in all cases to the provisions of Article VII of the Charter, as set forth as follows, which upon any restatement of the Charter shall be made part of Article VI, with any necessary or appropriate changes to the enumeration or lettering of sections or subsections hereof. The classification increases the number of shares classified as Series A Preferred Stock from no shares immediately prior to the classification to 1,610,000 shares immediately after the classification. The classification decreases the number of shares of unclassified Preferred Stock from 100,000,000 shares immediately prior to the classification to 98,390,000 shares immediately after the classification.
9.50% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
1. Designation and Amount.
The Series A Preferred Stock designated herein shall be 9.50% Series A Cumulative Redeemable Preferred Stock, par value $.01 per share. The number of shares of Series A Preferred Stock to be authorized shall be 1,610,000.
2. Dividend Provisions.
(a) Subject to the rights of series of Preferred Stock which may from time to time come into existence, holders of shares of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate of 9.50% per annum of the Liquidation Preference (as hereinafter defined) per share (equivalent to a fixed annual amount of $2.375 per share). Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on or before the 15th day of each of January, April, July and October of each year or, if not a business day, the next succeeding business day (each, a "Dividend Payment Date"). The first dividend, which will be due on or before July 15, 1999, will be for less than a full quarter. Such first dividend and any dividend payable on Series A Preferred Stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the records of the Corporation at the close of business on the last business day of December, March, June and September, respectively, or on such date designated by the Board of Directors of the Corporation that is not more than 30 nor less than ten days prior to the applicable Dividend Payment Date (each, a "Dividend Record Date").
(b) Dividends on Series A Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the Series A Preferred Stock will accumulate as of the Dividend Payment Date on which they become payable. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series A Preferred Stock which may be in arrears. No dividends on shares of Series A Preferred Stock shall be declared by the Board of Directors or paid or set apart for payment by the Corporation at such time as the terms and provisions of any of the Corporation's agreements, including any agreement relating to the Corporation's indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.
(c) If, for any taxable year, the Corporation elects to designate as "capital gain dividends" (as defined in Section 857 of the Internal Revenue Code of 1986, as amended, or any successor revenue code or section (the "Code")) any portion (the "Capital Gains Amount") of the total dividends (as determined for federal income tax purposes) paid or made available for the year to holders of all classes of stock (the "Total Dividends"), then the portion of the Capital Gains Amount that shall be allocable to holders of Series A Preferred Stock shall be the amount that the Total Dividends (as determined for federal income tax purposes) paid or made available to the holders of Series A Preferred Stock for the year bears to the Total Dividends.
(d) If any shares of Series A Preferred Stock are outstanding, no dividends (other than in shares of Common Stock (as defined in the Charter) or other series of Preferred Stock ranking junior to Series A Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set apart for payment on any Common Stock or any other series of Preferred Stock of the Corporation ranking junior to Series A Preferred Stock as to dividends, for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payments on shares of Series A Preferred Stock and all other series of Preferred Stock ranking, as to dividends, on a parity with the Series A Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the shares of Series A Preferred Stock and the shares of any other series of Preferred Stock ranking on parity as to dividends with shares of Series A Preferred Stock, all dividends declared upon shares of Series A Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on Series A Preferred Stock and such other series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to each other.
(e) Except as provided in Section 2(d), unless full cumulative dividends on shares of Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than in shares of Common Stock or other stock ranking junior to Series A Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the shares of Common Stock or any other stock of the Corporation ranking junior to or on a parity with Series A Preferred Stock as to dividends or upon liquidation, nor shall any shares of Common Stock or any other stock of the Corporation ranking junior to or on a parity with Series A Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to
or made available for a sinking fund for the redemption of any such stock) by the Corporation or any affiliate or any person acting on behalf of the Corporation or any of its affiliates (except by conversion into or exchange for other stock of the Corporation ranking junior to Series A Preferred Stock as to dividends and amounts upon liquidation or exchanges for the purpose of preserving the Corporation's status as a REIT).
(f) Any dividend payment made on shares of Series A Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of Series A Preferred Stock which remains payable.
3. Liquidation Preference.
(a) Subject to the rights of series of Preferred Stock which may from time to time come into existence, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, then, before any distribution of assets shall be made to the holders of any shares of Common Stock or any other class or series of stock of the Corporation ranking junior to Series A Preferred Stock as to liquidation rights, the holders of shares of Series A Preferred Stock shall be entitled to receive out of assets of the Corporation legally available for distribution to stockholders, liquidation distributions in the amount of the liquidation preference of $25.00 per share (the "Liquidation Preference"), plus an amount equal to all dividends accrued and unpaid thereon to the date of payment. Holders of Series A Preferred Stock will be entitled to written notice of any event triggering the right to receive such Liquidation Preference. After payment of the full amount of the Liquidation Preference, plus any accrued and unpaid dividends to which they are entitled, the holders of shares of Series A Preferred Stock will have no right or claim to any of the remaining assets of the Corporation. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the available assets of the Corporation are insufficient to pay the amount of the liquidation distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of other classes or series of stock of the Corporation ranking on a parity with Series A Preferred Stock in the distribution of assets upon any liquidation, dissolution or winding up of the affairs of the Corporation ("Parity Stock"), then the holders of shares of Series A Preferred Stock and Parity Stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
(b) A consolidation or merger of the Corporation with or into any other trust, entity or entities, or a sale, lease, consolidation, conveyance or disposition of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 3.
4. Redemption.
(a) Shares of Series A Preferred Stock are not redeemable prior to June 11, 2004, except that each share of Series A Preferred Stock is redeemable as provided in Article VII of the Charter of the Corporation. On and after June 11, 2004, the Corporation at its option upon not less than 30 nor more than 60 days' written notice, may redeem outstanding shares of Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid thereon to the date fixed for redemption (except as provided below), without interest. The redemption price of shares of Series A Preferred Stock (other than the portion thereof consisting of accrued and unpaid dividends) is payable solely out of proceeds from the sale of other stock of the Corporation, which may include any equity securities, Common Stock, Preferred
Stock, depositary shares, interests, participations or other ownership interests in the Corporation however designated and any rights (other than debt securities convertible into or exchangeable for equity securities), warrants or options to purchase any thereof. Holders of shares of Series A Preferred Stock to be redeemed shall surrender such shares of Series A Preferred Stock at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid dividends payable upon such redemption following such surrender. If fewer than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the number of shares to be redeemed will be determined by the Corporation and such shares will be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by any other equitable method determined by the Corporation.
(b) Unless full cumulative dividends on all outstanding shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no shares of Series A Preferred Stock or Parity Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock or Parity Stock are simultaneously redeemed; provided, however, that the foregoing shall not prevent the exchange by the Corporation of shares of Series A Preferred Stock or Parity Stock for an equal number of shares of Excess Stock (as defined in the Charter) in accordance with Article VII of the Charter of the Corporation or the purchase or acquisition of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock. Furthermore, unless full cumulative dividends on all outstanding shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, the Corporation shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchange for shares of stock of the Corporation ranking junior to Series A Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent exchange by the Corporation of shares of Series A Preferred Stock or Parity Stock for an equal number of shares of Excess Stock in accordance with Article VII of the Charter of the Corporation or the purchase or acquisition of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock.
(c) Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record of shares of Series A Preferred Stock at the address shown on the share transfer books of the Corporation. No failure to give such notice or any defect therein in the mailing thereof shall affect the validity of the proceeding for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series A Preferred Stock to be redeemed; (iii) the redemption price per share; (iv) the place or places where certificates for shares of Series A Preferred Stock are to be surrendered for payment of the redemption price; and (v) that dividends on shares of Series A Preferred Stock will cease to accrue on such redemption date. If fewer than all shares of Series A Preferred Stock are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of shares of Series A Preferred Stock to be redeemed from each such holder. If notice of redemption of any shares of Series A Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Corporation in trust for the benefit of the holders of shares of Series A Preferred Stock so called for redemption, then from and after the redemption date, dividends will cease to accrue on such shares of Series A Preferred Stock, such shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price.
(d) Immediately prior to any redemption of Series A Preferred Stock, any accumulated and unpaid dividends through the redemption date shall be paid in cash, unless a redemption date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares between such Dividend Record Date and the corresponding Dividend Payment Date or our default in the payment of the dividend due. Except as provided above, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series A Preferred Stock which have been called for redemption.
(e) Series A Preferred Stock will not be subject to any sinking fund or mandatory redemption, except as provided in Article VII of the Charter of the Corporation.
5. Voting Rights
(a) Except as indicated in this Section 5, the holders of shares of Series A Preferred Stock will have no voting rights.
(b) If six or more quarterly dividends (whether or not consecutive) payable on shares of Series A Preferred Stock or any Parity Preferred (as defined below) are in arrears (a "Preferred Dividend Default"), whether or not earned or declared, the number of directors then constituting the Board of Directors of the Corporation will automatically be increased by two, and the holders of shares of Series A Preferred Stock, voting together as a class with the holders of shares of any other series of Preferred Stock ranking on a parity with the Series A Preferred Stock as to dividends ("Parity Preferred") upon which like voting rights have been conferred and are exercisable, will have the right to elect two directors to serve on the Corporation's Board of Directors at a special meeting called by of the holders of record of at least 20% of the Series A Preferred Stock or the holders of record of at least 20% of any series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of stockholders) and at each subsequent annual meeting until all dividends accumulated on such shares of Series A Preferred Stock and Parity Preferred for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. A quorum for any such meeting shall exist if at least a majority of the outstanding shares of Series A Preferred Stock and shares of Parity Preferred upon which like voting rights have been conferred and are exercisable are represented in person or by proxy at such meeting. Such directors shall be elected upon the affirmative vote of a plurality of the shares of Series A Preferred Stock and such Parity Preferred present and voting in person or by proxy at a duly called and held meeting at which a quorum is present. If and when all accumulated dividends and the dividend for the then current dividend period on the Series A Preferred Stock shall have been paid in full or set aside for payment in full, the holders thereof shall be divested of the foregoing voting rights (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends and the dividend for the then current period have been paid in full or declared and set aside for payment in full on all series of Parity Preferred upon which like voting rights have been conferred and are exercisable, the term of office of each director so elected shall immediately terminate. The directors so elected shall each be entitled to one vote per director on any matter.
(c) So long as any shares of Series A Preferred Stock remain outstanding, the Corporation will not without the affirmative vote or consent of the holders of at least two-thirds of the shares of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), (a) authorize or create, or increase the authorized or issued amount of, any class or series of stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized stock of the Company into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (b) amend, alter or repeal the provisions of the Corporation's Charter or these Articles Supplementary, whether by merger, consolidation or otherwise (an "Event"), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock or the holders thereof; provided, however, with respect to the occurrence of any Event set forth in (b) above, so long as the Series A Preferred Stock remains outstanding with the terms thereof materially unchanged, or if the Corporation is not the surviving entity and the successor entity issues to holders of Series A Preferred Stock preferred shares with substantially identical rights, privileges, preferences and voting powers as the Series A Preferred Stock, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series A Preferred Stock and provided further that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or (ii) any increase in the amount of authorized shares of such series, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not require the vote of the holders of the Series A Preferred Stock.
(d) Except as provided above, the holders of Series A Preferred Stock are not entitled to vote on any merger or consolidation involving the Corporation, on any share exchange or on a sale of all or substantially all of the assets of the Corporation.
6. Conversion.
The shares of Series A Preferred Stock are not convertible into or exchangeable for any other property or securities of the Corporation, except that each share of Series A Preferred Stock is exchangeable into Excess Stock as provided in Article VII of the Charter of the Corporation.
7. Status of Redeemed Stock.
In the event any shares of Series A Preferred Stock shall be redeemed pursuant to Section 4 hereof, the shares so redeemed shall revert to the status of authorized but unissued shares of Series A Preferred Stock available for future issuance or reclassification by the Corporation.
SECOND: The Shares have been classified and designated by the Board of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.
FOURTH: The undersigned Chief Executive Officer of the Corporation acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned Chief Executive Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, ALEXANDRIA REAL ESTATE EQUITIES, INC. has caused these Articles Supplementary to be signed in its name and on its behalf by its Senior Vice President and attested to by its Assistant Secretary on June 9, 1999.
ATTEST: ALEXANDRIA REAL ESTATE EQUITIES, INC.
/s/ Lynn Anne Shapiro /s/ Peter J. Nelson
--------------------------------- --------------------------------------
Lynn Anne Shapiro, Peter J. Nelson, Senior Vice President
Assistant Secretary
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EXHIBIT 4.2
TEMPORARY CERTIFICATE--EXCHANGEABLE FOR DEFINITIVE CERTIFICATE
WHEN READY FOR DELIVERY
9.50% SERIES A 9.50% SERIES A
CUMULATIVE CUMULATIVE
REDEEMABLE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
NUMBER [LOGO] SHARES
AR__________
ALEXANDRIA
REAL ESTATE EQUITIES, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR IMPORTANT
THE STATE OF MARYLAND NOTICE ON TRANSFER RESTRICTIONS
AND OTHER INFORMATION
CUSIP 015271 20 B
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THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE 9.50% SERIES A CUMULATIVE
REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE PER SHARE (THE "SERIES A PREFERRED
STOCK"), OF
-----------------------ALEXANDRIA REAL ESTATE EQUITIES, INC.-------------------
(the "Company") transferable on the books of the Company by the holder hereof
in person or by duly authorized agent upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned by the
"Transfer Agent and registered by the Registrar. This Certificate and the
shares represented hereby are issued an shall be subject to all of the
provisions of the charter (the "Charter") and the Bylaws of the Company and
any amendments thereto.
WITNESS the seal of the Company and the facsimile signature of its duly authorized officers.
Dated:
/s/ PETER J. NELSON /s/ J. M. SUDARSKY
SECRETARY [SEAL] CHAIRMAN
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COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
THE COMPANY IS AUTHORIZED TO ISSUE TWO CLASSES OF STOCK WHICH ARE DESIGNATED AS COMMON STOCK AND PREFERRED STOCK. THE PREFERRED STOCK MAY BE ISSUED IN ONE OR MORE SERIES OR CLASSES. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF EACH SERIES OR CLASS OF PREFERRED STOCK BEFORE THE ISSUANCE OF ANY SUCH SERIES OR CLASS OF PREFERRED STOCK. THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER MAKING A REQUEST THEREFOR, A COPY OF THE COMPANY'S CHARTER AND A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION 2-211(B) OF THE CORPORATIONS AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND WITH RESPECT TO THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE COMPANY HAS THE AUTHORITY TO ISSUE AND, SINCE THE COMPANY IS AUTHORIZED TO ISSUE PREFERRED STOCK IN SERIES OR CLASSES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OR CLASS TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES OR CLASSES. REQUEST FOR SUCH WRITTEN STATEMENT MUST BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE. THE FOREGOING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CHARTER OF THE COMPANY.
The shares of Series A Preferred Stock represented by this Certificate are subject to restrictions on transfer for the purpose of establishing or maintaining the Company's status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"). No person may Beneficially Own shares in excess of the Ownership Limit, which may increase or decrease from time to time, unless such Person is an Excepted Holder. Any Person who attempts to beneficially own shares in violation of the above limitation must immediately notify the Company. If the restrictions on ownership or transfer are violated, the shares represented hereby will be automatically exchanged for shares of Excess Stock, which will be held in trust for a Charitable Beneficiary. The foregoing is qualified in its entirety by reference to the Charter and all capitalized terms in this legend have the meanings defined in the Charter. The Company will furnish a copy of the Charter to any stockholder of the Company on request and without charge. Such request must be made to the Secretary of the Company at the Company's principal office.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE COMPANY WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ...............Custodian...............
(Cust) (Minor)
under Uniform Gifts to Minors
Act.................................
(State)
UNIF TRF MIN ACT -- ...........Custodian (until age.......)
(Cust)
................under Uniform Transfers
(Minor)
to Minors Act..........................
(State)
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Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________ Shares of the preferred stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________ Agent to transfer the said stock on the books of the within named Company with full power of substitution in the premises.
Dated _______________________
X _________________________________________________
X _________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
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)
The Period
October 27,
1994
For the (inception)
Six Months Year Ended December 31, though
Ended June 30, ---------------------------------------------- December 31,
1999 1998 1997 1996 1995 1994
-------------- ------- ------- ------- ------- ------------
Earnings (Loss):................................ $11,115 $19,403 $(2,797) $ 2,175 $ 866 $(648)
Add Back:
Interest Expense.............................. 9,813 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........ 20,928 33,436 $13,514 $ 8,502 $ 4,419 $(320)
------- ------- ------- ------- ------- -----
Combined Fixed Charges:
Interest Incurred............................. 11,366 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........................... 204 -- 3,038 1,590 -- --
------- ------- ------- ------- ------- -----
Fixed Charges............................... $11,570 16,232 $19,445 $ 7,917 $ 3,553 $ 328
------- ------- ------- ------- ------- -----
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends(c)............................ 1.81 2.06 0.69 1.07 1.24 --
Excess of Fixed Charges Over Earnings........... -- $ -- $ 5,931 $ -- $ -- $ 648
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(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.
| ARTICLE 5 |
| 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. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | APR 01 1999 |
| PERIOD END | JUN 30 1999 |
| CASH | 7,289 |
| SECURITIES | 0 |
| RECEIVABLES | 8,518 |
| ALLOWANCES | 0 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 551,675 |
| DEPRECIATION | 25,697 |
| TOTAL ASSETS | 562,312 |
| CURRENT LIABILITIES | 0 |
| BONDS | 276,011 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 38,588 |
| COMMON | 136 |
| OTHER SE | 224,236 |
| TOTAL LIABILITY AND EQUITY | 562,312 |
| SALES | 0 |
| TOTAL REVENUES | 21,094 |
| CGS | 0 |
| TOTAL COSTS | 4,736 |
| OTHER EXPENSES | 5,691 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 4,850 |
| INCOME PRETAX | 5,817 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 5,817 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 5,817 |
| EPS BASIC | 0.41 |
| EPS DILUTED | 0.41 |