SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 25, 1998
(JUNE 11, 1998)
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-12993 95-4502084
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
135 NORTH LOS ROBLES AVENUE, SUITE 250 91101
PASADENA, CALIFORNIA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 578-0777
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The properties listed below and in Item 5 hereof were acquired or are
proposed to be acquired by Alexandria Real Estate Equities, Inc. or one of
its wholly owned subsidiaries (collectively, the "Company"). The properties
("Life Science Facilities") contain a combination of office and laboratory
space (with the exception of 15020 Shady Grove Road, 10505 Roselle Street and
3770 Tansy Street, which contain only office space) for lease principally to
tenants in the life science industry.
The Company is in the process of acquiring two Life Science Facilities
located in Worcester, Massachusetts from related sellers. Each of the sellers
is unaffiliated with the Company. On September 10, 1998, the Company acquired
377 Plantation Street, commonly known as Four Biotech, for a purchase price
of $16,500,000. The acquisition was based on arm's length negotiations and
was funded through a draw on the Company's unsecured line of credit. The
property contains 92,700 rentable square feet. It is presently 100% leased.
The property was purchased from Waldo Corporation, a Massachusetts
corporation, as Trustee of Four Biotech Realty Trust u/d/t dated April 15,
1993.
In addition, the Company expects to acquire One Innovation Drive, commonly
known as Three Biotech and located adjacent to 377 Plantation Street in the
fourth quarter of 1998. The purchase price is expected to be $16,500,000,
which was based on arm's length negotiations. The Company expects that the
purchase price will be funded partially through the assumption of a secured
note payable to Teachers Insurance and Annuity Association of America in the
amount of approximately $11,400,000 and partially through a draw on the
Company's unsecured line of credit. The secured note bears interest at a rate
of 8.75% per annum, with monthly payments of interest and principal based on
a 20 year amortization schedule. The secured note matures in January 2006.
The property contains 115,200 rentable square feet. It is presently 98%
leased. The property will be purchased from Waldo Corporation, a
Massachusetts corporation, as Trustee of Three Biotech Realty Trust u/d/t
dated September 8, 1995. The acquisition is subject to customary closing
conditions, and there can be no assurance that the Company will complete the
acquisition of this property.
ITEM 5. OTHER EVENTS
Between June 11, 1998 and September 11, 1998, seven properties were acquired
by the Company and one property was proposed to be acquired by the Company.
Each of the properties acquired by the Company was purchased from sellers
that were unrelated to each other and unaffiliated with the Company.
15020 Shady Grove Road is a Life Science Facility located in Gaithersburg,
Maryland. The property was purchased for $3,700,000, which was based on arm's
length negotiations, funded through a draw on the Company's unsecured line of
credit. The property contains 42,000 rentable square feet of office space. It
is presently 100% leased. The property was purchased on June 11, 1998 from
15020 Shady Grove Associates, LLC, a Maryland limited liability company.
2
702 Electronic Drive is a Life Science Facility located in Horsham,
Pennsylvania. The property was purchased for $3,400,000, which was based on
arm's length negotiations, funded through a draw on the Company's unsecured
line of credit. Prior to acquisition by the Company, the property was
occupied by the owner. The property contains 40,000 rentable square feet. It
is presently 100% leased. The property was purchased on June 25, 1998 from
Cell Pathways, Inc., a Delaware corporation.
5 Triangle Drive is a Life Science Facility located in Research Triangle
Park, North Carolina. The property was purchased for $3,520,000, which was
based on arm's length negotiations, funded through a draw on the Company's
unsecured line of credit. The property contains an aggregate of 32,100
rentable square feet. It is presently 75% leased. The property was purchased
on August 5, 1998 from Secured Properties Investors II, L.P., a Georgia
limited partnership.
10505 Roselle Street is a Life Science Facility located in San Diego,
California. The property was purchased for $2,100,000, which was based on
arm's length negotiations, funded through a draw on the Company's unsecured
line of credit. The property contains 16,000 rentable square feet of office
space. It is presently 100% leased. The property was purchased on August 10,
1998 from RCS-1, Inc., a California corporation.
60 Westview Street is a Life Science Facility located in Lexington,
Massachusetts. The property was purchased for $3,939,600, which was based on
arm's length negotiations, funded through a draw on the Company's unsecured
line of credit. The property contains 40,000 rentable square feet of office
space. It is presently 100% leased. The property was purchased on August 21,
1998 from The Equitable Life Assurance Society of the United States, a New
York corporation.
3770 Tansy Street is a Life Science Facility located in San Diego,
California. The property was purchased for $2,000,000, which was based on
arm's length negotiations, funded through a draw on the Company's unsecured
line of credit. The property contains 16,000 rentable square feet of office
space. It is presently 50% leased. The property was purchased on September 2,
1998 from RCS-1, Inc., a California corporation.
2001 Aliceanna Street is a Life Science Facility located in Baltimore,
Maryland. The property and two parcels of land adjacent thereto were
purchased simultaneously in a series of transactions from unrelated sellers
for $7,396,663. The acquisitions were based on arm's length negotiations and
funded through a draw on the Company's unsecured line of credit. The property
contains 183,840 rentable square feet. It is presently 82% leased. The Life
Science Facility and land were purchased on September 3, 1998 from Saga
Limited Partnership, a Maryland limited partnership, and ASTA Enterprises,
Inc., a Maryland corporation, respectively.
50 West Watkins Mill Road is a Life Science Facility located in Gaithersburg,
Maryland. The property was purchased for $4,800,000, which was based on arm's
length negotiations, funded through a draw on the Company's unsecured line of
credit. The property contains 57,400 rentable square feet. It is presently 100%
leased. The property was purchased on September 11, 1998 from Clopper Road
Associates, a Maryland general partnership.
100 Phillips Parkway is a Life Science Facility located in Montvale, New
Jersey. The Company expects to acquire the property in September of 1998 for
a purchase price of $4,100,000, which was based on arm's length negotiations.
The Company expects to fund the acquisition with a draw on its unsecured line
of credit. The property contains 80,000 rentable square feet. It is presently
vacant. The property will be purchased from NOREG Properties, L.L.C., a New
Jersey limited liability company. The acquisition is subject to customary
closing conditions, and there can be no assurance that the Company will
complete the acquisition of this property.
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED1
15020 SHADY GROVE ROAD
Statement of Revenues and Certain Expenses:
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
5 TRIANGLE DRIVE
Statement of Revenues and Certain Expenses:
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
60 WESTVIEW STREET
Statement of Revenues and Certain Expenses:
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
377 PLANTATION STREET / ONE INNOVATION DRIVE
Statement of Revenues and Certain Expenses:
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
50 WEST WATKINS MILL ROAD
Statement of Revenues and Certain Expenses:
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenues and Certain Expenses
- --------
1 The financial statement for 702 Electronic Drive has not been included
because the property was owner-occupied prior to acquisition and as a result
there are no historical operating results as a rental property. Subsequent to
acquisition by the Company, a triple-net lease was executed for 100% of the
rentable area requiring the tenant to pay substantially all expenses
associated with the property. The financial statement for 100 Phillips
Parkway has not been included because the property is vacant, and, as a
result, there are no historical operating results as a rental property.
Financial statements for 10505 Roselle Street, 3770 Tansy Street, and 2001
Aliceanna Street have not been included because such properties are not
significant.
4
(b) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(c) EXHIBITS
23.1 Consent of Ernst & Young LLP
5
Report of Independent Auditors
To the Board of Directors
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of
15020 Shady Grove Road (the Property) for the year ended December 31, 1997. This
statement of revenue and certain expenses is the responsibility of management of
the Property. Our responsibility is to express an opinion on the statement of
revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
May 13, 1998
6
15020 Shady Grove Road
Statement of Revenue and Certain Expenses
Year ended December 31, 1997
(IN THOUSANDS)
Revenue:
Rental $ 588
Tenant recoveries 8
-----
Total revenue 596
-----
Certain Expenses:
Utilities 108
Repairs and maintenance 94
Insurance 5
Taxes and license 45
-----
Total certain expenses 252
-----
Excess of revenue over certain expenses $ 344
-----
-----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
7
15020 Shady Grove Road
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 15020 Shady Grove Road located in Maryland (the "Property"),
which was acquired by ARE-15020 Shady Grove, LLC, a Delaware limited
liability company and indirect wholly owned subsidiary of Alexandria Real
Estate Equities, Inc., a Maryland corporation (the "Company"), from a
nonaffiliated third party. As of December 31, 1997, the Property was 100%
occupied and leased under leases that require tenants either to pay their
share of operating expenses, including operating and maintenance, utilities,
taxes and insurance, or to pay their share of such expense in excess of the
specified amounts. At December 31, 1997, three of the Property's tenants
accounted for approximately 59% of the Property's aggregate annualized base
rent.
BASIS OF PRESENTATION
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The Property is not a legal entity and the accompanying statement is not
representative of the actual operations for the period presented, as certain
expenses that may not be comparable to the expenses expected to be incurred
by the Company in the future operations of the Property have been excluded.
Excluded expenses consist of interest, depreciation and amortization and
property general and administrative costs not directly comparable to the
future operations of the Property.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
8
15020 Shady Grove Road
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
2. RENTAL PROPERTY
The future minimum lease payments to be received under noncancelable operating
leases as of December 31, 1997 are as follows:
1998 $ 617,000
1999 490,000
2000 360,000
2001 350,000
2002 302,000
Thereafter 101,000
-----------
Total $ 2,220,000
-----------
-----------
The above future minimum lease payments do not include specified payments for
tenant reimbursements of operating expenses.
9
Report of Independent Auditors
Board of Directors and Stockholders
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of 5
Triangle Drive (the Property) for the year ended December 31, 1997. This
statement of revenue and certain expenses is the responsibility of the
Management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young
Los Angeles, California
June 23, 1998
10
5 Triangle Drive
Statement of Revenue and Certain Expenses
Year ended December 31, 1997
(IN THOUSANDS)
Revenue:
Rental $ 405
Tenant recoveries 8
-----
Total revenue 413
-----
Certain Expenses:
Utilities 2
Repairs and maintenance 2
Insurance 2
Taxes and license 17
-----
Total certain expenses 23
-----
Excess of revenue over certain expenses $ 390
-----
-----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
11
5 Triangle Drive
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 5 Triangle Drive located in North Carolina (the "Property"),
which was acquired by ARE-5 Triangle Drive, LLC, a Delaware limited liability
company and indirect wholly owned subsidiary of Alexandria Real Estate
Equities, Inc., a Maryland corporation (the "Company"), from a nonaffiliated
third party. This statement reflects the operations of the Property during
1997 under its prior ownership, and, as such, reflects the effect of
vacancies that existed during that period. As of December 31, 1997, the
Property was 75% occupied by one tenant under a lease that requires the
tenant to pay operating expenses in excess of specified amounts, including
operating and maintenance, utilities, taxes, and insurance.
BASIS OF PRESENTATION
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The Property is not a legal entity and the accompanying statement is not
representative of the actual operations for the period presented, as certain
expenses that may not be comparable to the expenses expected to be incurred
by the Company in the future operations of the Property have been excluded.
Excluded expenses consist of interest, depreciation and amortization and
property general and administrative costs not directly comparable to the
future operations of the Property. In addition, ground rent expense has been
excluded because the Company purchased the interest in the land in connection
with the acquisition of the Property.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
12
5 Triangle Drive
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
2. RENTAL PROPERTY
The future minimum lease payments to be received under the noncancelable lease
as of December 31, 1997 are as follows:
1998 $ 354,000
1999 365,000
2000 376,000
2001 387,000
2002 399,000
Thereafter 1,832,000
-----------
Total $ 3,713,000
-----------
-----------
The above future minimum lease payments do not include specified payments for
the tenant's reimbursement of operating expenses.
13
Report of Independent Auditors
To the Board of Directors and Stockholders
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of 60
Westview Street (the Property) for the year ended December 31, 1997. This
statement of revenue and certain expenses is the responsibility of the
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
July 28, 1998
14
60 Westview Street
Statement of Revenue and Certain Expenses
Year ended December 31, 1997
(IN THOUSANDS)
Revenue:
Rental $ 230
Tenant recoveries 155
-----
Total revenue 385
-----
Certain Expenses:
Repairs and maintenance 191
Insurance 1
Taxes and license 45
-----
Total certain expenses 237
-----
Excess of revenue over certain expenses $ 148
-----
-----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
15
60 Westview Street
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 60 Westview Street located in Massachusetts (the "Property"),
which was acquired by ARE-60 Westview, LLC, a Delaware limited liability
company and indirect wholly owned subsidiary of Alexandria Real Estate
Equities, Inc., a Maryland Corporation (the "Company"), from a nonaffiliated
third party. As of December 31, 1997, the space was 100% occupied by one
tenant under a triple-net lease requiring the tenant to pay increases in
expenses in excess of specified amounts associated with the Property,
including operating and maintenance, taxes and insurance.
BASIS OF PRESENTATION
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The accompanying statement is not representative of the actual operations for
the period presented, as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operation of the Property.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
16
60 Westview Street
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under the noncancelable
operating lease as of December 31, 1997 are as follows:
1998 $ 480,000
1999 480,000
---------
Total $ 960,000
---------
---------
The above future minimum lease payments do not include specified payments for
the tenant's reimbursement of operating expenses.
17
Report of Independent Auditors
To the Board of Directors and Stockholders
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of
377 Plantation Street/One Innovation Drive (the Property) for the year ended
December 31, 1997. This statement of revenue and certain expenses is the
responsibility of the management of the Property. Our responsibility is to
express an opinion on the statement of revenue and certain expenses based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
July 9, 1998
18
377 Plantation Drive/One Innovation Drive
Statement of Revenue and Certain Expenses
Year ended December 31, 1997
(IN THOUSANDS)
Revenue:
Rental $2,871
Tenant recoveries 1,336
------
Total revenue 4,207
------
Certain Expenses:
Utilities 468
Repairs and maintenance 329
Insurance 38
Taxes and license 799
------
Total certain expenses 1,634
------
Excess of revenue over certain expenses $2,573
------
------
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
19
377 Plantation Street/One Innovation Drive
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 377 Plantation Street/One Innovation Drive located in
Massachusetts (the "Property"), which was acquired or is proposed to be
acquired by ARE-377 Plantation, LLC and ARE-One Innovation Drive, LLC,
respectively, each of which is a Delaware limited liability company and
indirect wholly owned subsidiary of Alexandria Real Estate Equities, Inc., a
Maryland Corporation (the "Company"), from nonaffiliated third parties.
This statement reflects the operations of the Property during 1997 under its
prior ownership, and, as such, reflects the effect of vacancies that existed
during that period. As of December 31, 1997, the space was 65% occupied. Of
the leased space, 95% was leased under triple-net leases requiring the
tenants to pay their pro rata share of substantially all expenses associated
with the Property, including operating and maintenance, utilities, taxes, and
insurance, while the remainder of the leased space was leased under leases
requiring the tenants to pay their share of these expenses over specified
amounts. As of December 31, 1997, four tenants accounted for approximately
81% of the Property's aggregate annualized base rent.
BASIS OF PRESENTATION
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The accompanying statement is not representative of the actual operations for
the period presented, as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operation of the Property.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
20
377 Plantation Street/One Innovation Drive
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
2. RENTAL OFFICE PROPERTY
The future minimum lease payments to be received under the noncancelable
operating lease as of December 31, 1997 are as follows:
1998 $ 3,252,000
1999 3,135,000
2000 3,124,000
2001 1,982,000
2002 1,382,000
Thereafter 2,238,000
-------------
Total $ 15,113,000
-------------
-------------
The above future minimum lease payments do not include specified payments for
tenant reimbursements of operating expenses.
21
Report of Independent Auditors
To the Board of Directors
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of 50
West Watkins Mill Road (the Property) for the year ended December 31, 1997. This
statement of revenue and certain expenses is the responsibility of the
management of the Property. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Certain expenses (described in Note 1) that would not be
comparable to those resulting from the proposed future operations of the
Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses presents fairly,
in all material respects, the revenue and certain expenses, as defined above, of
the Property for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
August 25, 1998
22
50 West Watkins Mill Road
Statement of Revenue and Certain Expenses
Year ended December 31, 1997
(IN THOUSANDS)
Rental revenue $ 612
Certain expenses --
-----
Excess of revenue over certain expenses $ 612
-----
-----
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
23
50 West Watkins Mill Road
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 50 West Watkins Mill Road located in Maryland (the "Property"),
which was acquired by ARE-50 West Watkins Mill, LLC, a Delaware limited
liability company and indirect wholly owned subsidiary of Alexandria Real
Estate Equities, Inc., a Maryland corporation (the "Company"), from a
nonaffiliated third party. As of December 31, 1997, the Property was 100%
occupied by one tenant under a triple-net lease that requires the tenant to
pay for all of the operating expenses directly.
BASIS OF PRESENTATION
The accompanying statement has been prepared to comply with the rules and
regulations of the Securities and Exchange Commission.
The Property is not a legal entity and the accompanying statement is not
representative of the actual operations for the period presented, as certain
expenses that may not be comparable to the expenses expected to be incurred
by the Company in the future operations of the Property have been excluded.
Excluded expenses consist of interest, and property general and
administrative costs not directly comparable to the future operations of the
Property.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
24
50 West Watkins Mill Road
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
2. RENTAL PROPERTY
The future minimum lease payments to be received under the noncancelable
operating lease as of December 31, 1997, are as follows:
1998 $ 677,000
1999 565,000
-------------
Total $ 1,242,000
-------------
-------------
The above future minimum lease payments do not include specified payments for
the tenant's reimbursement of operating expenses.
25
Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated balance sheet
of Alexandria Real Estate Equities, Inc. (the "Company") as of June 30, 1998
is presented as if the acquisition of those properties acquired or proposed
to be acquired subsequent to June 30, 1998 (the "Third Quarter 1998
Acquisitions") described in Item 2 and Item 5 had been acquired on June 30,
1998. The following unaudited pro forma condensed consolidated income
statements of the Company for the six months ended June 30, 1998 and for the
year ended December 31, 1997 are presented as if: (i) the consummation of the
initial public offering of common stock of the Company in May 1997 (the
"Offering") and related formation transactions in connection with the
Offering, including the acquisition of certain properties (the "Acquisition
LLC Properties"), and (ii) the acquisition of all of the properties described
in Item 2 and Item 5 (the "Form 8-K Properties"), had occurred on January 1,
1997.
The pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations would have been had the Company completed the transactions as
described above, nor do they purport to represent the future financial
position or results of operations of the Company.
26
Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 1998
(DOLLARS IN THOUSANDS)
PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
-------------------------------------------------
ASSETS
Rental properties - net $ 376,195 $ 60,857 (A) $ 437,052
Land under development 14,281 - 14,281
Cash and cash equivalents 2,010 - 2,010
Tenant security deposit funds and other restricted
cash 7,831 - 7,831
Secured note receivable 6,000 - 6,000
Tenant receivables and deferred rent 5,751 - 5,751
Other assets 8,829 - 8,829
-------------------------------------------------
Total assets $ 420,897 $ 60,857 $ 481,754
-------------------------------------------------
-------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $ 96,409 $ 11,439 (A) $ 107,848
Unsecured line of credit 110,200 49,418 (A) 159,618
Accounts payable, accrued expenses and tenant security
deposits 9,360 - 9,360
Dividends payable 5,022 - 5,022
-------------------------------------------------
Total liabilities 220,991 60,857 281,848
Stockholders' equity:
Common stock 126 - 126
Additional paid-in capital 199,780 - 199,780
Accumulated deficit - - -
-------------------------------------------------
Total stockholders' equity 199,906 - 199,906
-------------------------------------------------
Total liabilities and stockholders' equity $ 420,897 $ 60,857 $ 481,754
-------------------------------------------------
-------------------------------------------------
SEE ACCOMPANYING NOTES.
27
Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Income Statement
Six Months Ended June 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
-----------------------------------
ADJUSTMENTS
FOR FORM 8-K
HISTORICAL PROPERTIES PRO FORMA
----------------------------------------------------
Revenues:
Rental revenue $ 21,043 $ 3,074 (B) $ 24,117
Tenant recoveries and other income 5,813 1,123 (B) 6,936
----------------------------------------------------
Total revenues 26,856 4,197 31,053
Expenses:
Rental operations 6,124 1,029 (B) 7,153
General and administrative 1,633 - 1,633
Interest 5,563 2,505 (C) 8,068
Depreciation and amortization 4,177 768 (D) 4,945
----------------------------------------------------
Total expenses 17,497 4,302 21,799
----------------------------------------------------
Net income $ 9,359 $ (105) $ 9,254
----------------------------------------------------
----------------------------------------------------
Pro forma weighted average shares of Common Stock
outstanding 11,854,843 11,854,843
--------------- --------------
--------------- --------------
Net income per pro forma share
of Common Stock $ 0.79 $ 0.78
--------------- --------------
--------------- --------------
SEE ACCOMPANYING NOTES.
28
Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Income Statement
Year ended December 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
---------------------------------------------------
OFFERING AND ADJUSTMENTS
RELATED FOR FORM 8-K
HISTORICAL TRANSACTIONS PROPERTIES PRO FORMA
---------------------------------------------------------------
Revenues:
Rental revenue $ 25,622 $ 2,658 (E) $ 5,513 (B) $ 33,793
Tenant recoveries and
other income 9,224 100 (E) 1,509 (B) 11,332
499 (F)
---------------------------------------------------------------
Total revenues 34,846 3,257 7,022 45,125
Expenses:
Rental operations 8,766 91 (E) 2,146 (B) 11,003
General and administrative 2,476 186 (G) - 2,662
Interest 7,043 (2,225)(H) 4,901 (C) 9,719
Post retirement benefit 632 - - 632
Stock compensation 4,239 - - 4,239
Special bonus 353 - - 353
Acquisition LLC financing
costs 6,973 (6,973)(I) - -
Write-off of unamortized loan
costs 2,295 (2,147)(J) - 148
Depreciation and amortization 4,866 403 (K) 1,545 (D) 6,814
---------------------------------------------------------------
Total expenses 37,643 (10,665) 8,592 35,570
---------------------------------------------------------------
Net (loss) income $ (2,797) $ 13,922 $ (1,570) $ 9,555
---------------------------------------------------------------
---------------------------------------------------------------
Pro forma shares of Common Stock
outstanding (L) 8,075,864 11,404,631
---------- ------------
---------- ------------
Net (loss) income per pro forma share
of Common Stock $ (0.35) $ 0.84
---------- ------------
---------- ------------
SEE ACCOMPANYING NOTES.
29
Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements
1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of June 30, 1998 are as follows:
(A) Acquisition of the Third Quarter 1998 Acquisitions with the related draw
on the unsecured line of credit and the proposed assumption of the
secured note payable to Teachers and Annuity Association of America in
the amount of $11,439,000 associated with the proposed purchase of One
Plantation Drive. The note bears interest at a rate of 8.75% per annum
and matures in January 2006.
Purchase price of the Third Quarter 1998 Acquisitions are as follows
(in thousands):
Third Quarter 1998 Acquisitions Purchase Price
------------------------------- --------------
5 Triangle Drive $ 3,520
10505 Roselle Street 2,100
60 Westview Street 3,940
3770 Tansy Street 2,000
2001 Aliceanna Street 7,397
377 Plantation Street 16,500
50 West Watkins Mill Road 4,800
100 Phillips Parkway 4,100
One Innovation Drive 16,500
----------
Total $ 60,857
----------
----------
The above acquisitions closed in August and September 1998 except for 100
Phillips Parkway and One Innovation Drive, which are expected to close in
the fourth quarter of 1998.
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
The pro forma adjustments reflected in the Unaudited Pro Forma Condensed
Consolidated Income Statements for the six months ended June 30, 1998 and for
the year ended December 31, 1997 are as follows:
30
(B) Actual preacquisition results for the Form 8-K Properties (in thousands):
PREACQUISITION PERIOD FOR THE SIX MONTHS ENDED JUNE 30, 1998
15020 SHADY 702 ELECTRONIC 10505 ROSELLE
GROVE ROAD DRIVE 5 TRIANGLE DRIVE STREET
----------------- ------------------- ------------------- -----------------
Acquisition Date June 11, 1998 June 25, 1998 August 5, 1998 August 10, 1998
Revenues:
Rental revenue $ 263 $ - $ 199 $ 65
Tenant recoveries and other income 3 - 4 -
----------------- ------------------- ------------------- -----------------
266 - 203 65
----------------- ------------------- ------------------- -----------------
Expenses:
Rental operations 80 $ - 11 $ -
----------------- ------------------- ------------------- -----------------
Operating Income $ 186 $ - $ 192 $ 65
----------------- ------------------- ------------------- -----------------
----------------- ------------------- ------------------- -----------------
60 WESTVIEW 3770 TANSY 2001 ALICEANNA 377 PLANTATION
STREET STREET STREET STREET
----------------- ------------------ ------------------- ------------------
Acquisition Date August 21, 1998 September 2, 1998 September 3, 1998 September 10, 1998
Revenues:
Rental revenue $ 207 $ 35 $ 113 $ 948
Tenant recoveries and other income 91 - - 496
----------------- ------------------ -------------------- -----------------
298 35 113 1,444
----------------- ------------------ -------------------- -----------------
Expenses:
Rental operations 143 - - 382
----------------- ------------------ -------------------- -----------------
Operating Income $ 155 $ 35 $ 113 1,062
----------------- ------------------ -------------------- -----------------
----------------- ------------------ -------------------- -----------------
50 WEST WATKINS 100 PHILLIPS ONE INNOVATION
MILL ROAD PARKWAY DRIVE TOTAL
------------------- ------------------- ----------------- ----------------
Acquisition Date September 11, 1998 Pending Pending
Revenues:
Rental revenue $ 334 $ - $ 910 $ 3,074
Tenant recoveries and other income - - 529 1,123
------------------- ------------------- ----------------- ----------------
334 - 1,439 4,197
------------------- ------------------- ----------------- ----------------
Expenses:
Rental operations - - 413 1,029
------------------- ------------------- ----------------- ----------------
Operating Income $ 334 $ - $ 1,026 $ 3,168
------------------- ------------------- ----------------- ----------------
------------------- ------------------- ----------------- ----------------
31
(B) Actual preacquisition results for the Form 8-K Properties (in thousands)
(continued):
FOR THE YEAR ENDED DECEMBER 31, 1997
15020 SHADY 702 ELECTRONIC 10505 ROSELLE
GROVE ROAD DRIVE 5 TRIANGLE DRIVE STREET
----------------- ------------------- ------------------- -----------------
Acquisition Date June 11, 1998 June 25, 1998 August 5, 1998 August 10, 1998
Revenues:
Rental revenue $ 607 $ - $ 413 $ 129
Tenant recoveries and other income 10 - 8 -
----------------- ------------------- ------------------- -----------------
617 - 421 129
----------------- ------------------- ------------------- -----------------
Expenses:
Rental operations 251 - 23 -
----------------- ------------------- ------------------- -----------------
Operating Income $ 366 $ - $ 398 $ 129
----------------- ------------------- ------------------- -----------------
----------------- ------------------- ------------------- -----------------
60 WESTVIEW 3770 TANSY 2001 ALICEANNA 377 PLANTATION
STREET STREET STREET STREET
----------------- ------------------ ------------------- ------------------
Acquisition Date August 21, 1998 September 2, 1998 September 3, 1998 September 10, 1998
Revenues:
Rental revenue $ 414 $ 70 $ 227 $ 1,316
Tenant recoveries and other income 155 - - 628
----------------- ------------------ ------------------ -------------------
569 70 227 1,944
----------------- ------------------ ------------------ -------------------
Expenses:
Rental operations 237 - - 756
----------------- ------------------ ------------------ -------------------
Operating Income $ 332 $ 70 $ 227 $ 1,188
----------------- ------------------ ------------------ -------------------
----------------- ------------------ ------------------ -------------------
50 WEST WATKINS 100 PHILLIPS ONE INNOVATION
MILL ROAD PARKWAY DRIVE TOTAL
------------------- ------------------- ----------------- ----------------
Acquisition Date September 11, 1998 Pending Pending
Revenues:
Rental revenue $ 667 $ - $ 1,670 $ 5,513
Tenant recoveries and other income - - 708 1,509
------------------- ------------------- ----------------- ----------------
667 - 2,378 7,022
------------------- ------------------- ----------------- ----------------
Expenses:
Rental operations - - 879 2,146
------------------- ------------------- ----------------- ----------------
Operating Income $ 667 $ - $ 1,499 $ 4,876
------------------- ------------------- ----------------- ----------------
------------------- ------------------- ----------------- ----------------
32
Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements (continued)
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
No pro forma adjustments have been made for the periods prior to
acquisition for 702 Electronic Drive because this property was owner-
occupied prior to purchase, and, as a result, there were no operating
results as a rental property.
No pro forma adjustments have been made for the periods prior to
acquisition for 100 Phillips Parkway because the property was vacant
prior to acquisition. However, the pro forma condensed consolidated
income statement has been adjusted to include additional interest
expense due to assumed borrowings on the Company's unsecured line of
credit and depreciation expense to reflect a full period of depreciation.
(C) Increase in interest expense due to draws on the Company's unsecured
line of credit and the proposed assumption of the secured note payable
to Teachers Insurance and Annuity Association of America in the amount
of $11,439,000 associated with the proposed purchase of One Plantation
Drive. The note bears interest at a rate of 8.75% per annum and matures
in January 2006.
(D) Increase in depreciation expense to reflect a full period of
depreciation for the Form 8-K Properties utilizing a 40 year useful life.
(E) Represents the actual historical results of the Acquisition LLC
Properties from the beginning of the period through the date of
acquisition. The Company acquired ARE-Acquisitions, LLC (the "Acquisition
LLC"), thereby acquiring the Acquisition LLC Properties, in connection
with the Offering.
THE ACQUISITION LLC PROPERTIES
------------------------------------------------
FOR THE PERIOD JANUARY 1, 1997
TO ACQUISITION DATE
------------------------------------------------
HISTORICAL
14225 NEWBROOK 1550 EAST 1330 PICCARD ACQUISITION
DRIVE GUDE DRIVE LLC TOTAL
-----------------------------------------------------------------------
(IN THOUSANDS)
Revenues:
Rental revenue $ - $ 34 $ - $ 2,624 $ 2,658
Tenant recoveries
and other income - 4 - 96 100
-----------------------------------------------------------------------
- 38 - 2,720 2,758
Expenses:
Rental properties - 4 - 87 91
-----------------------------------------------------------------------
Net income $ - $ 34 $ - $ 2,633 $ 2,667
-----------------------------------------------------------------------
-----------------------------------------------------------------------
33
Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements (continued)
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
(F) Represents additional interest income from investing the proceeds of
the exercise of the over-allotment option from the Offering at a rate
of 5.4%.
(G) Increase in general and administrative expenses related to operations
as a public entity consisting of increased salaries and bonuses
(including that of the chief financial officer), directors and officers
insurance, investor relations and public entity and listing fees.
(H) Decrease in interest expense due to repayment of certain mortgage
loans in connection with the Offering, partially offset by new mortgage
debt incurred in connection with the Offering, and the amortization of
finance costs related to the unsecured line of credit.
(I) In connection with the Offering, the Company acquired 100% of the
membership interests in the Acquisition LLC for $58,844,000, which
exceeded the purchase price paid by the Acquisition LLC for the
Acquisition LLC Properties by $6,973,000. This difference was accounted
for as a financing cost and is being eliminated on a pro forma basis due
to its non-continuing nature.
(J) In connection with the Offering, the Company repaid certain secured
notes payable having an aggregate principal balance of $72,698,000. In
connection with the repayment of these loans, the Company wrote off
$2,147,000 of unamortized loan costs. This charge is being eliminated on
a pro forma basis due to its non-continuing nature.
(K) Increase in depreciation expense to reflect a full period of
depreciation for the Acquisition LLC Properties utilizing a 40-year
useful life.
(L) Pro forma shares of common stock of the Company outstanding on a
historical net income basis include all shares outstanding after giving
effect to the conversion of all series of preferred stock, the 1,765.923
to one share common stock split, the issuance of stock grants and
exercise of certain substitute stock options in connection with the
Offering.
Pro forma shares of common stock of the Company outstanding on a
pro forma basis include all historical pro forma shares outstanding
after giving effect to the Offering.
34
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALEXANDRIA REAL ESTATE EQUITIES INC.
Date: September 25, 1998 By: /s/ Peter J. Nelson
-----------------------
Peter J. Nelson
Chief Financial Officer
35