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): NOVEMBER 20, 1998
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-12993 95-4502084
(State or other jurisdiction (Commission (I.R.S. Employer
of 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 by Alexandria
Real Estate Equities, Inc. or one of its wholly owned subsidiaries
(collectively, the "Company"). One of the properties (620 Memorial Drive)
contains a combination of office and laboratory space for lease principally
to tenants in the life science industry (a "Life Science Facility"). The other
property (279 Princeton Road) is an office building suitable for conversion
to a Life Science Facility. Each of the properties acquired by the Company
were purchased from sellers that were unrelated to each other and
unaffiliated with the Company.
On November 5, 1998, the Company acquired 620 Memorial Drive, a Life Science
Facility located in Cambridge, Massachusetts. The property was purchased for
$36,500,000, which was based on arm's length negotiations. The purchase price
was partially funded through the assumption of a secured note payable to La
Salle National Bank in the amount of $17,904,000. The debt bears interest at
a rate of 9.125% per annum, with monthly payments of principal and interest
based on a 30 year amortization schedule. The loan matures in October 2007.
The remainder of the purchase price was funded through a draw on the
Company's unsecured line of credit. The property contains approximately
98,000 rentable square feet. It is presently 100% leased to a single tenant.
The property was purchased from Charles River Building Limited Partnership, a
Delaware limited partnership.
ITEM 5. OTHER EVENTS
On October 20, 1998, the Company acquired 279 Princeton Road, located in
Princeton, New Jersey. The property was purchased for $2,500,000, which was
based on arm's length negotiations. The purchase price was funded through a
draw on the Company's unsecured line of credit. The property contains
approximately 43,000 rentable square feet of office space and is presently
vacant. The property was purchased from PA Consulting Group, Inc., a New
Jersey corporation.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF PROPERTIES ACQUIRED (1)
620 MEMORIAL 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
(b) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(c) EXHIBITS
23.1 Consent of Ernst & Young LLP
- ------------------
(1) The financial statement for 279 Princeton Road has not been included
because the property is vacant, and, as a result, there are no historical
operating results as a rental property.
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Report of Independent Auditors
To the Board of Directors
Alexandria Real Estate Equities, Inc.
We have audited the accompanying statement of revenue and certain expenses of
620 Memorial Drive (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
November 13, 1998
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620 Memorial Drive
Statement of Revenue and Certain Expenses
Year ended December 31, 1997
(IN THOUSANDS)
Revenue:
Rental $3,565
Other 75
------
Total revenue 3,640
Ground rent 8
------
Excess of revenue over certain expenses $3,632
------
------
SEE ACCOMPANYING NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES.
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620 Memorial 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 620 Memorial Drive located in Cambridge, Massachusetts (the
"Property"), which was acquired by ARE-620 Memorial 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. As of December 31, 1997, the Property was 100%
occupied and leased to one tenant under a triple-net lease requiring the
tenant to directly pay for all of the operating expenses associated with the
Property, excluding ground rent. Prior to purchase of the Property by the
Company, the lease with this tenant was terminated, and the Property was
fully leased to another tenant (see Note 2).
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.
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620 Memorial Drive
Notes to Statement of Revenue and Certain Expenses
Year Ended December 31, 1997
2. RENTAL PROPERTY
The lease in effect at December 31, 1997 was terminated on September 15, 1998
and was replaced by a new lease commencing September 16, 1998. The future
minimum lease payments to be received under the new noncancelable operating
lease are as follows:
1998 $ 1,009,000
1999 3,458,000
2000 3,458,000
2001 3,458,000
2002 3,601,000
Thereafter 35,836,000
-------------
Total $ 50,820,000
-------------
-------------
The new lease requires the tenant to pay substantially all expenses
associated with the Property, excluding ground rent. The above future minimum
lease payments do not include specified payments for the tenant's
reimbursement of operating expenses.
3. GROUND RENT EXPENSE
The land underlying the parking lot is leased under a ground lease, which
expires on November 10, 2021. As of December 31, 1997, the future minimum
annual ground rent payments are as follows:
1998 $ 8,000
1999 8,000
2000 8,000
2001 8,000
2002 8,000
Thereafter 152,000
-------------
Total $ 192,000
-------------
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated balance sheet
of Alexandria Real Estate Equities, Inc. (the "Company") as of September 30,
1998 is presented as if the properties described in Item 2 and Item 5 of this
Form 8-K (the "Form 8-K Properties") had been acquired on September 30, 1998.
The following unaudited pro forma condensed consolidated income statements of
the Company for the nine months ended September 30, 1998 and for the year
ended December 31, 1997 are presented as if each of: (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 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.
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(DOLLARS IN THOUSANDS)
PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
------------------------------------------
ASSETS
Rental properties, net $ 425,786 $ 39,000 (A) $ 464,786
Property under development 15,921 - 15,921
Cash and cash equivalents 1,247 - 1,247
Tenant security deposits and other
restricted cash 8,769 - 8,769
Secured note receivable 6,000 - 6,000
Tenant receivables and deferred rent 7,102 - 7,102
Other assets 11,376 - 11,376
----------------------------------------
Total assets $ 476,201 $ 39,000 $ 515,201
----------------------------------------
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $ 96,056 $ 17,904 (A) $ 113,960
Unsecured line of credit 162,800 21,096 (A) 183,896
Accounts payable, accrued expenses
and tenant security deposits 11,874 - 11,874
Dividends payable 5,031 - 5,031
----------------------------------------
Total liabilities 275,761 39,000 314,761
Stockholders' equity:
Common stock 126 - 126
Additional paid-in capital 200,314 - 200,314
Retained earnings - - -
----------------------------------------
Total stockholders' equity 200,440 - 200,440
----------------------------------------
Total liabilities and
stockholders' equity $ 476,201 $ 39,000 $ 515,201
----------------------------------------
----------------------------------------
SEE ACCOMPANYING NOTES.
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Alexandria Real Estate Equities, Inc.
Unaudited Pro Forma Condensed Consolidated Income Statement
Nine Months Ended September 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
-----------------------------
ADJUSTMENTS
FOR FORM 8-K
HISTORICAL PROPERTIES PRO FORMA
--------------------------------------------
Revenues:
Rental revenue $ 33,583 $ 2,917 (B) $ 36,500
Tenant recoveries and other income 9,084 61 (B) 9,145
-------------------------------------------
Total revenues 42,667 2,978 45,645
Expenses:
Rental operations 9,461 6 (B) 9,467
General and administrative 2,590 - 2,590
Interest 9,190 2,201 (C) 11,391
Depreciation and amortization 6,949 618 (D) 7,567
-------------------------------------------
Total expenses 28,190 2,825 31,015
-------------------------------------------
Net income $ 14,477 $ 153 $ 14,630
-------------------------------------------
-------------------------------------------
Pro forma weighted average shares
of Common Stock outstanding 11,935,830 11,935,830
---------- ----------
---------- ----------
Net income per pro forma share
of Common Stock $ 1.21 $ 1.23
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES.
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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) $ 3,565 (B) $ 31,845
Tenant recoveries and
other income 9,224 100 (E) 75 (B) 9,898
499 (F)
------------------------------------------------------------
Total revenues 34,846 3,257 3,640 41,743
Expenses:
Rental operations 8,766 91 (E) 8 (B) 8,865
General and administrative 2,476 186 (G) - 2,662
Interest 7,043 (2,225)(H) 2,917 (C) 7,735
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) 824 (D) 6,093
------------------------------------------------------------
Total expenses 37,643 (10,665) 3,749 30,727
------------------------------------------------------------
Net (loss) income $ (2,797) $ 13,922 $ (109) $ 11,016
------------------------------------------------------------
------------------------------------------------------------
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) $ 0.97
--------- ----------
--------- ----------
SEE ACCOMPANYING NOTES.
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Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements
1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1998 are as follows:
(A) Acquisition of the Form 8-K Properties with the related draws on the
unsecured line of credit and the assumption of the secured note payable
to La Salle National Bank in the amount of $17,904,000 associated with
the purchase of 620 Memorial Drive. The note bears interest at a rate
of 9.125% per annum and matures in October 2007.
The purchase prices of the Form 8-K Properties are as follows (in
thousands):
FORM 8-K PROPERTIES PURCHASE PRICE
------------------- --------------
279 Princeton Road $ 2,500
620 Memorial Drive 36,500
-----------
Total $ 39,000
-----------
-----------
The above acquisitions closed in October and November 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 nine months ended September 30, 1998 and
for the year ended December 31, 1997 are as follows:
(B) Actual preacquisition results for 620 Memorial Drive (in thousands):
FOR THE NINE FOR THE YEAR ENDED
MONTHS ENDED 9/30/98 12/31/97
-----------------------------------------------
Revenues:
Rental revenue $ 2,917 $ 3,565
Tenant recoveries and other income 61 75
------------------------------------------------
2,978 3,640
------------------------------------------------
Expenses:
Rental operations 6 8
------------------------------------------------
Operating Income $ 2,972 $ 3,632
------------------------------------------------
------------------------------------------------
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Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements (continued)
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
No pro forma adjustments have been made for 279 Princeton Road for
the periods prior to acquisition because the property was vacant
prior to acquisition. In addition, the pro forma condensed
consolidated income statement has not been adjusted to include
additional interest and depreciation expense because the
property would have been under redevelopment after acquisition
(assuming the purchase had occured on January 1, 1997).
(C) Increase in interest expense associated with the purchase of 620
Memorial Drive due to draws on the Company's unsecured line of
credit and the assumption of the secured note payable to La Salle
National Bank in the amount of $17,904,000. The note bears
interest at a rate of 9.125% per annum and matures in October
2007.
(D) Increase in depreciation expense to reflect a full period of
depreciation for 620 Memorial Drive 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
--------------------------------------------------------------------------
Operating income $ - $ 34 $ - $ 2,633 $ 2,667
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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Alexandria Real Estate Equities, Inc.
Adjustments to the Unaudited Pro Forma Condensed
Consolidated Financial Statements (continued)
2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME
STATEMENTS
(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, 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.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALEXANDRIA REAL ESTATE EQUITIES INC.
Date: November 20, 1998 By: /s/ Peter J. Nelson
-------------------------------
Peter J. Nelson
Chief Financial Officer
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