BioMed Realty Trust
As filed with the Securities and Exchange Commission on
June 16, 2005
Registration No. 333-125525
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-11
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
BioMed Realty Trust, Inc.
(Exact Name of Registrant as Specified in Its Governing
Instruments)
17140 Bernardo Center Drive, Suite 222
San Diego, California 92128
(858) 485-9840
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants Principal Executive Offices)
Alan D. Gold
Chairman, President and Chief Executive Officer
BioMed Realty Trust, Inc.
17140 Bernardo Center Drive, Suite 222
San Diego, California 92128
(858) 485-9840
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
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Scott N. Wolfe, Esq.
Craig M. Garner, Esq.
Latham & Watkins LLP
12636 High Bluff Drive, Suite 300
San Diego, California 92130
(858) 523-5400 |
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Brad S. Markoff, Esq.
Christine C. Lehr, Esq.
DLA Piper Rudnick Gray Cary US LLP
4700 Six Forks Road, Suite 200
Raleigh, North Carolina 27609
(919) 786-2000 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration
Statement becomes effective.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
registration statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The information
in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission becomes effective.
This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
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SUBJECT
TO COMPLETION, DATED JUNE 16, 2005
PROSPECTUS
11,000,000 Shares
BioMed Realty Trust, Inc.
Common Stock
BioMed Realty Trust, Inc. is a real estate investment trust,
or REIT, focused on acquiring, developing, owning, leasing and
managing laboratory and office space for the life science
industry. Our tenants include biotechnology and pharmaceutical
companies, scientific research institutions, government agencies
and other entities involved in the life science industry. Our
current properties and our primary acquisition targets are
located in markets with well established reputations as centers
for scientific research, including Boston, San Diego,
San Francisco, Seattle, Maryland, Pennsylvania and New
York/ New Jersey. Since the completion of our initial public
offering in August 2004, when we acquired 13 properties
with an aggregate of 2.3 million rentable square feet of
laboratory and office space, we have acquired an additional 20
properties bringing our total real estate portfolio to 33
properties with an aggregate of 4.3 million rentable square
feet of laboratory and office space.
We are
offering 11,000,000 shares of our common stock in this
offering. All of the shares of our common stock offered pursuant
to this prospectus are being sold by us.
Our
common stock is listed on the New York Stock Exchange under the
symbol BMR. The last reported sale price of our
common stock on the New York Stock Exchange on June 14,
2005 was $22.35 per share.
To
assist us in complying with certain federal income tax
requirements applicable to REITs, our charter contains certain
restrictions relating to the ownership and transfer of our
stock, including an ownership limit of 9.8% on our common
stock.
You should consider the risks that we have described in
Risk Factors beginning on page 11 before buying
shares of our common stock.
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Underwriting discount
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Proceeds, before expenses, to us
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The underwriters may purchase up to an additional
1,650,000 shares from us at the public offering price, less
the underwriting discount, within 30 days from the date of
this prospectus, to cover over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The
underwriters expect to deliver the shares to purchasers on or
before ,
2005.
The date of this prospectus
is ,
2005
TABLE OF CONTENTS
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F-1 |
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EXHIBIT 23.3 |
EXHIBIT 23.4 |
ii
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information that is different from that contained in this
prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of the common stock.
This document is for distribution in the United Kingdom only
to persons of a kind described in Articles 19 or 49 of the
Financial Services and Markets Act 2000 (Financial Promotion)
Order 2001 (as amended) or who otherwise may lawfully receive
it.
iii
PROSPECTUS SUMMARY
You should read the following summary together with the more
detailed information regarding our company and the historical
and pro forma financial statements appearing elsewhere in this
prospectus, including under the caption Risk
Factors. References in this prospectus to we,
our, us and our company
refer to BioMed Realty Trust, Inc., a Maryland corporation,
BioMed Realty, L.P., and any of our other subsidiaries. BioMed
Realty, L.P. is a Maryland limited partnership of which we are
the sole general partner and to which we refer in this
prospectus as our operating partnership. Unless otherwise
indicated, the information contained in this prospectus is as of
March 31, 2005 and assumes that the underwriters
over-allotment option is not exercised.
BioMed Realty Trust, Inc.
We are a REIT focused on acquiring, developing, owning, leasing
and managing laboratory and office space for the life science
industry. Our tenants include biotechnology and pharmaceutical
companies, scientific research institutions, government agencies
and other entities involved in the life science industry. Our
current properties and our primary acquisition targets are
located in markets with well established reputations as centers
for scientific research, including Boston, San Diego,
San Francisco, Seattle, Maryland, Pennsylvania and
New York/New Jersey.
We completed an initial public offering, or IPO, of our common
stock in August 2004 and raised net proceeds of
approximately $429.3 million. In connection with the IPO,
we acquired 13 properties with an aggregate of
2.3 million rentable square feet of laboratory and office
space. Since the completion of the IPO, we have acquired an
additional 20 properties with an aggregate of
2.0 million rentable square feet of laboratory and office
space for aggregate cash consideration of $546.9 million
and the assumption of $143.0 million of debt. As of
May 31, 2005, we owned 33 properties with an aggregate
of 4.3 million rentable square feet of laboratory and
office space, which was approximately 92.2% leased to
76 tenants. Of the remaining unleased space,
204,071 square feet, or 4.8% of our total rentable square
footage, was under redevelopment.
Our senior management team has significant experience in the
real estate industry, principally focusing on properties
designed for life science tenants. We operate as a fully
integrated, self-administered and self-managed REIT, providing
management, leasing, development and administrative services to
our properties.
Our executive offices are located at 17140 Bernardo Center
Drive, Suite 222, San Diego, California 92128. Our
telephone number at that location is (858) 485-9840. Our
website is located at www.biomedrealty.com. The information
found on, or otherwise accessible through, our website is not
incorporated into, and does not form a part of, this prospectus
or any other report or document we file with or furnish to the
Securities and Exchange Commission.
Recent Developments
On May 31, 2005, we completed the acquisition of a
portfolio of eight properties including one parking structure in
Cambridge, Massachusetts, and an additional property in Lebanon,
New Hampshire, from The Lyme Timber Company, an affiliate of
Lyme Properties. We refer to these properties as the Lyme
portfolio. The Lyme portfolio consists of ten buildings with an
aggregate of approximately 1.1 million rentable square feet
of laboratory and office space, which upon acquisition was 96.8%
leased with an average remaining term of ten years, and includes
the parking structure with 447 parking spaces. The purchase
price was $523.6 million, excluding closing costs, and was
funded through borrowings under three credit facilities with
KeyBank National Association and other lenders and the
assumption of approximately $131.2 million of indebtedness.
In order to finance the Lyme portfolio acquisition and provide
additional working capital, on May 31, 2005, we entered
into three credit facilities with KeyBank and other lenders
under which we initially borrowed $485.0 million of a total
of $600.0 million available under these facilities. The
credit facilities include a senior unsecured revolving credit
facility of $250.0 million, under which we initially
borrowed
1
$135.0 million, a senior unsecured term loan facility of
$100.0 million and a senior secured term loan facility of
$250.0 million. We borrowed the full amounts under the
senior unsecured term loan and senior secured term loan
facilities. The senior unsecured facilities have a maturity date
of May 30, 2008 and bear interest at a floating rate equal
to, at our option, either (1) reserve adjusted LIBOR plus a
spread which ranges from 120 to 200 basis points, depending
on our leverage, or (2) the higher of (a) the prime
rate then in effect plus a spread which ranges from 0 to
50 basis points and (b) the federal funds rate then in
effect plus a spread which ranges from 50 to 100 basis
points, in each case, depending on our leverage. The secured
credit facility, which has a maturity date of May 30, 2010,
is initially secured by 13 of our properties and bears interest
at a floating rate equal to, at our option, either
(1) reserve adjusted LIBOR plus 225 basis points or
(2) the higher of (a) the prime rate then in effect
plus 50 basis points and (b) the federal funds rate
then in effect plus 100 basis points. The secured facility
is also secured by our interest in any distributions from these
properties and a pledge of the equity interests in a subsidiary
owning one of these properties. We may not prepay the secured
facility prior to May 31, 2006. We entered into an interest
rate swap agreement in connection with the closing of the credit
facilities, which will have the effect of fixing the interest
rate on the secured term loan at 6.4%.
In addition to the acquisition of the Lyme portfolio, since
March 31, 2005, we have acquired Fresh Pond Research Park
in Cambridge, Massachusetts, Coolidge Avenue in Watertown,
Massachusetts, Phoenixville Pike in Malvern, Pennsylvania, Nancy
Ridge Drive in San Diego and Dumbarton Circle in Fremont,
California, for aggregate cash consideration of
$56.9 million and the assumption of $7.0 million of
debt. These properties contain a total of 318,640 rentable
square feet of laboratory and office space.
On April 19, 2005, we entered into a lease amendment with
Centocor, Inc., a subsidiary of Johnson & Johnson.
Under the amendment, Centocor has agreed to lease an additional
79,667 rentable square feet at our King of Prussia property
located in Radnor, Pennsylvania from May 1, 2005 through
March 31, 2010. The new lease replaces the existing portion
of the master lease with an affiliate of The Rubenstein Company,
the original seller of the property, with respect to this space.
Annualized base rent of $1.3 million and certain tenant
reimbursements received under the new lease will correspondingly
reduce the rent received under the master lease.
Our Properties
The following table presents an overview of our property
portfolio as of May 31, 2005:
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Approximate | |
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Annualized | |
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of | |
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Square | |
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Year Built/ | |
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Percentage | |
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Base Rent | |
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Property Location |
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Buildings | |
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Feet | |
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Renovated | |
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Ownership | |
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Lab Space | |
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Leased | |
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($ in 000s) | |
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Primary Tenant |
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Boston
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Kendall Square D(1)
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1 |
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349,325 |
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2002 |
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100 |
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0 |
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98 |
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$ |
15,397 |
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Genzyme Corporation |
Kendall Square A(1)
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1 |
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302,919 |
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2002 |
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100 |
% |
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65 |
% |
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97 |
% |
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14,536 |
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Vertex Pharmaceuticals |
Sidney Street
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1 |
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191,904 |
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2000 |
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100 |
% |
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60 |
% |
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100 |
% |
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4,063 |
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Vertex Pharmaceuticals |
40 Erie Street
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1 |
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100,854 |
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1996 |
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100 |
% |
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70 |
% |
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100 |
% |
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4,098 |
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Vertex Pharmaceuticals |
Fresh Pond Research Park(1)
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6 |
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90,702 |
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1948/2002 |
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100 |
% |
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45 |
% |
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83 |
% |
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1,027 |
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Curis |
Albany Street
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2 |
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75,003 |
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1922/1998 |
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100 |
% |
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65 |
% |
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100 |
% |
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3,460 |
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Millennium Pharmaceuticals |
Vassar Street(2)
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1 |
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52,520 |
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1950/1998 |
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100 |
% |
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65 |
% |
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100 |
% |
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1,372 |
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Monsanto Company |
21 Erie Street
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1 |
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48,238 |
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1925/2004 |
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100 |
% |
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20 |
% |
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58 |
% |
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769 |
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Metabolix |
Coolidge Avenue(1)
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1 |
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37,400 |
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1962/1999 |
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100 |
% |
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65 |
% |
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100 |
% |
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935 |
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V.I. Technologies |
Lucent Drive(1)(3)
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1 |
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21,500 |
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2004 |
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100 |
% |
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70 |
% |
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100 |
% |
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548 |
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Trustees of Dartmouth College |
47 Erie Street Parking Structure(1)
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1 |
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N/A |
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1998 |
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100 |
% |
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N/A |
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100 |
% |
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1,178 |
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Various |
New York/New Jersey
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Landmark at Eastview(4)
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8 |
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751,648 |
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1958/1999 |
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100 |
% |
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65 |
% |
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95 |
% |
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14,105 |
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Regeneron Pharmaceuticals |
Graphics Drive
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1 |
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72,300 |
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1992/2001 |
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100 |
% |
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12 |
% |
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15 |
% |
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148 |
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Medeikon |
San Francisco
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeview
|
|
|
3 |
|
|
|
263,073 |
|
|
|
1977/2002 |
|
|
|
100 |
% |
|
|
30 |
% |
|
|
82 |
% |
|
|
2,752 |
|
|
Cell Genesys |
Bayshore Boulevard
|
|
|
3 |
|
|
|
183,344 |
|
|
|
2000 |
|
|
|
100 |
% |
|
|
75 |
% |
|
|
100 |
% |
|
|
4,203 |
|
|
Intermune |
Industrial Road(5)
|
|
|
1 |
|
|
|
171,965 |
|
|
|
2001 |
|
|
|
100 |
% |
|
|
50 |
% |
|
|
82 |
% |
|
|
5,480 |
|
|
Nektar Therapeutics |
Ardentech Court
|
|
|
1 |
|
|
|
55,588 |
|
|
|
1997/2001 |
|
|
|
100 |
% |
|
|
40 |
% |
|
|
100 |
% |
|
|
1,010 |
|
|
Vicuron Pharmaceuticals |
Dumbarton Circle
|
|
|
1 |
|
|
|
44,000 |
|
|
|
1990 |
|
|
|
100 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
633 |
|
|
ARYx Therapeutics |
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number | |
|
Rentable | |
|
|
|
|
|
Approximate | |
|
|
|
Annualized | |
|
|
|
|
of | |
|
Square | |
|
Year Built/ | |
|
Percent | |
|
Percentage | |
|
Percent | |
|
Base Rent | |
|
|
Property Location |
|
Buildings | |
|
Feet | |
|
Renovated | |
|
Ownership | |
|
Lab Space | |
|
Leased | |
|
($ in 000s) | |
|
Primary Tenant |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pennsylvania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
King of Prussia(6)
|
|
|
5 |
|
|
|
427,109 |
|
|
|
1954/2004 |
|
|
|
89 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
9,060 |
|
|
Centocor |
Phoenixville Pike
|
|
|
1 |
|
|
|
104,400 |
|
|
|
1989 |
|
|
|
100 |
% |
|
|
50 |
% |
|
|
57 |
% |
|
|
783 |
|
|
Cephalon |
Eisenhower Road
|
|
|
1 |
|
|
|
27,750 |
|
|
|
1973/2000 |
|
|
|
100 |
% |
|
|
20 |
% |
|
|
100 |
% |
|
|
378 |
|
|
Crane Environmental |
San Diego
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne Centre Drive(7)
|
|
|
3 |
|
|
|
115,870 |
|
|
|
2001 |
|
|
|
100 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
3,824 |
|
|
Illumina |
Bunker Hill Street
|
|
|
1 |
|
|
|
105,364 |
|
|
|
1973/2002 |
|
|
|
100 |
% |
|
|
60 |
% |
|
|
84 |
% |
|
|
3,137 |
|
|
SCVSI |
McKellar Court
|
|
|
1 |
|
|
|
72,863 |
|
|
|
1988 |
|
|
|
(8 |
) |
|
|
50 |
% |
|
|
100 |
% |
|
|
1,671 |
|
|
Quidel Corporation |
Bernardo Center Drive(9)
|
|
|
1 |
|
|
|
61,286 |
|
|
|
1974/1992 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
2,113 |
|
|
University of California Regents |
Science Center Drive
|
|
|
1 |
|
|
|
53,740 |
|
|
|
1995 |
|
|
|
100 |
% |
|
|
80 |
% |
|
|
100 |
% |
|
|
1,660 |
|
|
Ligand Pharmaceuticals |
Waples Street(1)
|
|
|
1 |
|
|
|
43,036 |
|
|
|
1983 |
|
|
|
(10 |
) |
|
|
N/A |
|
|
|
0 |
% |
|
|
0 |
|
|
None (under redevelopment) |
Nancy Ridge Drive
|
|
|
1 |
|
|
|
42,138 |
|
|
|
1983/2001 |
|
|
|
100 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
1,350 |
|
|
BioMedica |
Balboa Avenue
|
|
|
1 |
|
|
|
35,344 |
|
|
|
1968/2000 |
|
|
|
100 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
642 |
|
|
General Services Administration |
Seattle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elliott Avenue
|
|
|
1 |
|
|
|
134,989 |
|
|
|
1925/1984 |
|
|
|
100 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
5,204 |
|
|
Chiron Corporation |
Monte Villa Parkway
|
|
|
1 |
|
|
|
51,000 |
|
|
|
1996/2002 |
|
|
|
100 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
1,615 |
|
|
Nastech Pharmaceutical |
Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tributary Street
|
|
|
1 |
|
|
|
91,592 |
|
|
|
1983/1998 |
|
|
|
100 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
1,050 |
|
|
Guilford Pharmaceuticals |
Beckley Street
|
|
|
1 |
|
|
|
77,225 |
|
|
|
1999 |
|
|
|
100 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
1,575 |
|
|
Guilford Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted Average
|
|
|
56 |
|
|
|
4,255,989 |
|
|
|
|
|
|
|
|
|
|
|
50 |
% |
|
|
92 |
% |
|
$ |
109,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
This property is managed by a third party not affiliated with us. |
|
|
(2) |
Monsanto Company is the guarantor under the sublease of its
wholly owned subsidiary Cereon Genomics, LLC. |
|
(3) |
Located in Lebanon, New Hampshire. |
|
(4) |
We own a leasehold interest in the property through a 99-year
ground lease, which will convert into a fee simple interest upon
the completion of certain property subdivisions. |
|
(5) |
Includes rent from a lease with Nuvelo, Inc., which is expected
to commence in September 2005. |
|
(6) |
We own an 88.5% limited partnership interest and a 0.5% general
partnership interest in the limited partnership that owns this
property. |
|
(7) |
A portion of one of the buildings on this property, representing
6,600 square feet, is subleased by Illumina to an unaffiliated
third party for a period of 47 years, for which we will
receive no economic benefit. |
|
(8) |
We own the general partnership interest in the limited
partnership that owns the McKellar Court property, which
entitles us to 75% of the gains upon a sale of the property and
21% of the operating cash flows. |
|
(9) |
This property is occupied by the Centre for Health Care as a
medical office facility. Centre for Health Care, which occupies
the property with the consent of the University of California
Regents, pays the monthly rent and other obligations, but the
University of California Regents remain ultimately liable under
the lease. |
|
|
(10) |
We own 70% of the limited liability company that owns the Waples
Street property, which entitles us to 90% of the cash flow from
operations up to a 9.5% cumulative annual return, and then 75%
of such distributions thereafter. The other member of the
limited liability company has the right to put its interest to
us after completion of the initial improvements, and can require
us to issue partnership units as payment for such interest. |
In these tables and other tables throughout this prospectus:
|
|
|
|
|
Year built/renovated includes the year in which construction was
completed and, where applicable, the year of most recent major
renovation. |
|
|
|
Approximate percentage laboratory space is based on
managements estimates and reflects the percentage of
built-out, leased space that is considered laboratory space. |
|
|
|
|
Annualized base rent means the monthly contractual rent under
existing leases at May 31, 2005, or if rent has not yet
commenced, the first monthly rent payment due, multiplied by
twelve months. Includes contractual amounts to be received
pursuant to master lease agreements with the sellers on certain
properties, which are not included in rental income under
U.S. generally accepted accounting principles, or GAAP. In
the case of triple-net leases, annualized base rent does not
include real estate taxes and insurance, common area and other
operating expenses, substantially all of which are borne by the
tenants. |
|
|
|
|
|
Primary tenant represents the tenant in each property that has
the highest annualized base rent at May 31, 2005. |
|
3
Industry Overview
The life science industry represents a large and fast growing
segment of the U.S. economy. In 2004, according to the
Centers for Medicaid and Medicare Services, or CMS, health care
spending grew 7.5% to an estimated $1.8 trillion, and
represented 15.4% of U.S. gross domestic product. CMS
projects that annual health care spending will grow faster than
the broader economy for the next ten years, reaching $3.6
trillion in 2014, representing 18.7% of U.S. gross domestic
product. Within the life science industry, we primarily focus on
the following tenants: biotechnology and pharmaceutical
companies, scientific research institutions and government
agencies.
Life science entities have unique and strategic location and
facility needs with respect to laboratory and office space.
Specifically, many of these entities desire properties that are
strategically located near leading academic and research
institutions and that have unique design and construction
elements necessary to accommodate their mission-critical
research, product development, clinical testing and
manufacturing activities.
We target facilities located in markets containing mature and
established centers of medical research and biotechnology
development, including Boston, San Diego,
San Francisco, Seattle, Maryland, Pennsylvania and
New York/New Jersey. According to a 2004 study by
Rosen Consulting, which we commissioned, or the Rosen Study,
these target markets have in excess of 87.0 million
rentable square feet of life science real estate, not including
owner-occupied properties. Also, according to the Rosen Study,
the average market occupancy rate for life science real estate
in these markets is seven percentage points greater than the
occupancy rate for generic office properties. These target
markets contain highly respected public and private scientific
research and medical institutions, which create demand for life
science laboratory and office space.
Investment Highlights
We believe that life science tenants have been underserved by
commercial property investors and lenders, creating a unique
market for us with significant investment opportunities. We
believe that the following factors distinguish our business
model from other owners/operators of real estate:
|
|
|
|
|
Experienced management team with demonstrated track
record. Our senior executive officers have worked together
for a number of years focused on investing in properties for
lease to tenants in the life science industry. |
|
|
|
Positive life science industry trends. Based on the
long-term trends and projections for the life science industry,
we expect to see growth in revenues and research and development
spending from biotechnology and pharmaceutical companies,
scientific research institutions, government agencies and other
entities involved in the life science industry over the
foreseeable future. |
|
|
|
Quality portfolio in high barrier-to-entry markets. Our
properties are well-located in each of our primary target
markets, including Boston, San Diego, San Francisco,
Seattle, Maryland, Pennsylvania and New York/ New Jersey. We
consider these properties to be high quality based on their
strategic location in our primary target markets and significant
level of improvements. |
|
|
|
Highly scalable business model. We intend to acquire
assets with triple-net leases, which will enable us to manage a
large property portfolio with a cost-effective management
infrastructure. Triple-net refers to leases where
the tenant is responsible for the payment or reimbursement of
its pro rata share of substantially all operating costs of the
property, including property taxes, insurance, maintenance and
utilities. Under some of the triple-net leases, we may remain
responsible for the maintenance and repair of structural
components of the building. |
|
|
|
|
Conservative balance sheet with growth capacity. Upon
completion of this offering, we will have $496.0 million in
total debt, resulting in a debt-to-total market capitalization
ratio of 32.9%, based on our outstanding indebtedness and our
closing stock price as of June 14, 2005. We believe our |
|
4
|
|
|
|
|
conservative balance sheet will provide us with access to
significant growth capital to fund future property acquisitions. |
|
|
|
Strong tenant base. As of May 31, 2005, 91.6% of our
annualized base rent was derived from tenants that are public
companies or government agencies, and 33.3% of our annualized
base rent was derived from investment grade tenants (according
to Standard & Poors) or their subsidiaries. |
Summary Risk Factors
You should carefully consider the matters discussed in the
Risk Factors section beginning on page 11
before you decide whether to invest in our common stock. The
material risks include:
|
|
|
|
|
As of May 31, 2005, we had 76 tenants in
33 properties. Two of our tenants, Vertex Pharmaceuticals
and Genzyme Corporation, represented 20.7% and 14.0%,
respectively, of our annualized base rent and 14.9% and 8.7%,
respectively, of our total leased rentable square footage, and
our ten largest tenants comprised 64.0% of our annualized base
rent. To the extent we are dependent on rental payments from a
limited number of tenants, the inability of any single tenant to
make its lease payments could adversely affect us and our
ability to make distributions to stockholders. |
|
|
|
Life science entities comprise the vast majority of our tenant
base. Because of our dependence on a single industry, adverse
conditions affecting that industry will more adversely affect
our business, and thus the value of your investment in us and
our ability to make distributions to you, than if our business
strategy included a more diverse industry tenant base. |
|
|
|
Because of the unique and specific improvements required for our
life science tenants, we may be required to incur substantial
renovation costs to make our properties suitable for other life
science tenants or other office tenants, which could adversely
affect our operating performance. |
|
|
|
Ten of our properties are located in the Boston area. In
addition, 13 of our properties are located in California, with
eight in San Diego and five in San Francisco. Because
of our concentration in these geographic regions, we are
particularly vulnerable to adverse conditions affecting these
areas. In addition, we cannot assure you that these markets will
continue to grow or will remain favorable to the life science
industry. |
|
|
|
In our formation transactions, our executive officers,
Alan D. Gold, Gary A. Kreitzer, John F.
Wilson, II and Matthew G. McDevitt, and certain other
individuals contributed six properties to our operating
partnership. If we were to dispose of these contributed assets
in a taxable transaction, Messrs. Gold, Kreitzer, Wilson
and McDevitt and the other contributors of those assets would
suffer adverse tax consequences. In connection with these
contribution transactions, we agreed to indemnify those
contributors against such adverse tax consequences for a period
of ten years. We have also agreed to use reasonable best efforts
consistent with our fiduciary duties to maintain at least
$8.0 million of debt, some of which must be property
specific, that the contributors can guarantee in order to defer
any taxable gain they may incur if our operating partnership
repays existing debt. These tax indemnification and debt
maintenance obligations may limit our operating flexibility. |
|
|
|
We were formed in April 2004 and have a limited operating
history as a REIT and as a public company. We cannot assure you
that our management teams past experience will be
sufficient to operate our company successfully as a REIT or as a
public company. Failure to maintain REIT status would have an
adverse effect on our cash available for distribution to
stockholders. |
|
|
|
|
We expect to continue to expand and may not be able to adapt our
management and operational systems to respond to the acquisition
and integration of additional properties without unanticipated
disruption or expense, which may harm our cash flow and ability
to pay distributions. |
|
|
|
|
|
We use debt to finance our property acquisitions. After we
complete this offering, we expect to have outstanding mortgage
indebtedness of approximately $246.0 million (including
unamortized |
|
5
|
|
|
|
|
|
debt premium of $12.0 million) and $250.0 million of
borrowings under our secured term loan facility, secured by 13
of our properties, based on our outstanding indebtedness as of
June 14, 2005. We expect to incur additional debt in
connection with future acquisitions and additional borrowings
under our revolving credit facility. Our organizational
documents do not limit the amount or percentage of debt that we
may incur. Our use of debt may cause a material decrease in cash
available for distributions. |
|
|
|
|
We have and may continue to enter into interest rate hedging
transactions, which may reduce our net income because they may
be unsuccessful or the counterparties to hedging transactions
may not perform their obligations. We may be unable to
effectively hedge against interest rate risks because the REIT
qualification rules require us to limit our income from hedging
transactions. |
|
|
|
We face significant competition, which may decrease or prevent
increases in our properties occupancy and rental rates and
may reduce our investment opportunities. |
|
|
|
If we experience an uninsured loss or a loss in excess of
insurance policy limits, we could lose the capital invested in
the damaged properties as well as the anticipated future cash
flows from those properties. In addition, if the damaged
properties are subject to recourse indebtedness, we would
continue to be liable for the indebtedness, even if those
properties were irreparably damaged. |
|
|
|
Our charter, the Maryland General Corporation Law, or MGCL, and
the partnership agreement of our operating partnership contain
provisions, including a 9.8% limit on ownership of our common
stock, that may delay or prevent a change of control transaction
or limit the opportunity for stockholders to receive a premium
for their common stock in such a transaction. |
|
|
|
If we ever fail to qualify as a REIT for federal income tax
purposes, we will be taxed as a corporation, and our liability
for federal, state and local income taxes would significantly
increase. This would result in a material decrease in cash
available for distribution and would adversely affect the price
of our common stock. |
6
The Offering
|
|
|
Common stock offered by us |
|
11,000,000 shares(1) |
|
Common stock to be outstanding after this offering |
|
42,444,558 shares(2) |
|
|
Use of proceeds |
|
We expect that the net proceeds of this offering will be
approximately $234.3 million after deducting underwriting
discounts and commissions and our expenses (and approximately
$269.5 million if the underwriters exercise their
over-allotment option in full). We will contribute the net
proceeds of this offering to our operating partnership. Our
operating partnership will subsequently use the net proceeds as
follows: |
|
|
|
|
|
$100.0 million
to repay indebtedness under our senior unsecured term loan
facility, |
|
|
|
|
|
$127.5 million
to repay indebtedness under our senior unsecured revolving
credit facility, based on outstanding borrowings as of
June 14, 2005, and |
|
|
|
|
|
$6.8 million
to fund future property acquisitions and for other general
corporate and working capital purposes. |
|
|
New York Stock Exchange symbol |
|
BMR |
|
|
(1) |
12,650,000 shares of common stock if the underwriters
exercise their over-allotment option in full. |
|
(2) |
44,094,558 shares of common stock if the underwriters
exercise their over-allotment option in full. Based on the
number of shares of common stock outstanding as of May 31,
2005 and excludes (a) 2,870,564 shares issuable upon
conversion of outstanding units of our operating partnership,
(b) 2,105,442 shares available for future issuance
under our incentive award plan and (c) 270,000 shares
issuable upon exercise of a warrant issued to Raymond
James & Associates, Inc. in connection with our IPO. |
Distribution Policy
Since our IPO through March 31, 2005, we have declared
aggregate dividends on our common stock and distributions on our
operating partnership units of $0.6897 per common share and
unit, representing a full quarterly dividend for each of the
fourth quarter of 2004 and first quarter of 2005 of $0.27 per
common share and unit and a partial dividend for the third
quarter of 2004 of $0.1497 per common share and unit. In
addition, on June 3, 2005, we declared a dividend for the
second quarter of 2005 of $0.27 per common share and unit
payable to holders of record on June 15, 2005. The
dividends are equivalent to an annual rate of $1.08 per
common share and unit.
To maintain our qualification as a REIT, we are required and
intend to make annual distributions to our stockholders of at
least 90% of our taxable income (which does not necessarily
equal net income as calculated in accordance with GAAP).
Distributions will be authorized by our board of directors and
declared by us out of funds legally available therefor based
upon a variety of factors our directors deem relevant. We cannot
assure you that our distribution policy will not change in the
future. Our ability to pay distributions to our stockholders
will depend, in part, upon our receipt of distributions from our
operating partnership, which we control, and will be based on
revenues we derive from our rental properties. Distributions to
our stockholders generally will be taxable as ordinary income to
our stockholders and will not, in most cases, be eligible for
the recently enacted 15% federal tax rate on certain
corporate dividends.
Our charter allows us to issue preferred stock with a preference
on distributions. We currently have no intention to issue any
preferred stock, but if we do, the dividend preference on the
preferred stock could limit our ability to make a dividend
distribution to our common stockholders.
7
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
data on a pro forma and historical basis for BioMed Realty
Trust, Inc., and on an historical basis for Inhale
201 Industrial Road, L.P., or 201 Industrial. We
have not presented historical information for BioMed Realty
Trust, Inc. prior to August 11, 2004, the date on which we
consummated our IPO, because during the period from our
formation until our IPO we did not have any material corporate
activity and because we believe that a discussion of the results
of BioMed Realty Trust, Inc. during that period would not be
meaningful.
You should read the following pro forma and historical
information in conjunction with our pro forma consolidated
financial statements and historical financial statements and
notes thereto, as well as with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this
prospectus.
The selected historical balance sheet information as of
December 31, 2004 for BioMed Realty Trust, Inc. and as of
December 31, 2003 and 2002 for 201 Industrial, and the
historical statements of income and other data for the period
from August 11, 2004 through December 31, 2004 for
BioMed Realty Trust, Inc. and for the period from
January 1, 2004 through August 17, 2004 and for the
years ended December 31, 2003 and 2002 for 201 Industrial,
have been derived from our historical financial statements
audited by KPMG LLP, independent registered public accountants,
whose report with respect thereto is included elsewhere in this
prospectus, except as it relates to the historical balance sheet
information as of December 31, 2002 of 201 Industrial,
which report is not included in this prospectus.
201 Industrial is the largest property contributed to the
company in connection with our formation transactions and
therefore has been identified as the accounting acquirer
pursuant to paragraph 17 of Statement of Financial
Accounting Standards, or SFAS, No. 141. The contribution of
201 Industrial as part of our formation transactions was
completed on August 17, 2004. The contribution of the
interests in all of the other contribution properties and all
acquisitions have been accounted for as a purchase in accordance
with SFAS No. 141. The historical balance sheet
information at March 31, 2005, and the historical statement
of operations and other data for the three months ended
March 31, 2005 and 2004, have been derived from the
unaudited historical financial statements of BioMed Realty
Trust, Inc. and 201 Industrial.
The unaudited pro forma consolidated balance sheet data are
presented as if this offering had occurred on March 31,
2005. The unaudited pro forma consolidated statements of
operations and other data for the three months ended
March 31, 2005 and the year ended December 31, 2004,
are presented as if this offering, the IPO, and all acquisitions
and contributions had occurred on January 1, 2004. The
pro forma information is not necessarily indicative of what
our actual financial position or results of operations would
have been as of or for the periods indicated, nor does it
purport to represent our future financial position or results of
operations.
8
BioMed Realty Trust, Inc. and Inhale 201 Industrial Road,
L.P. (Predecessor)
(Dollars in thousands, except per share data)
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BioMed Realty Trust, Inc. | |
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Predecessor | |
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Period | |
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Period | |
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August 11, 2004 | |
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January 1, 2004 | |
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Year Ended | |
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through | |
|
through | |
|
Year Ended | |
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Three Months Ended March 31, | |
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December 31, | |
|
December 31, | |
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August 17, | |
|
December 31, | |
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| |
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| |
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| |
|
| |
|
|
Pro Forma | |
|
Historical | |
|
Pro Forma | |
|
Historical | |
|
Historical | |
|
Historical | |
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|
| |
|
| |
|
| |
|
| |
|
| |
|
|
2005 | |
|
2005 | |
|
2004(1) | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
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| |
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| |
|
| |
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| |
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| |
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| |
Statements of Income:
|
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|
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|
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Revenues:
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$ |
27,695 |
|
|
$ |
14,214 |
|
|
$ |
1,562 |
|
|
$ |
111,696 |
|
|
$ |
19,432 |
|
|
$ |
3,339 |
|
|
$ |
6,275 |
|
|
$ |
5,869 |
|
|
Tenant recoveries
|
|
|
11,853 |
|
|
|
7,254 |
|
|
|
150 |
|
|
|
41,142 |
|
|
|
9,222 |
|
|
|
375 |
|
|
|
744 |
|
|
|
718 |
|
|
Other income
|
|
|
3,488 |
|
|
|
3,003 |
|
|
|
|
|
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
Total revenues
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|
|
43,036 |
|
|
|
24,471 |
|
|
|
1,712 |
|
|
|
154,216 |
|
|
|
28,654 |
|
|
|
3,714 |
|
|
|
7,019 |
|
|
|
6,587 |
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|
|
|
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|
|
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|
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|
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Expenses:
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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Rental operations
|
|
|
8,529 |
|
|
|
6,395 |
|
|
|
65 |
|
|
|
33,093 |
|
|
|
10,030 |
|
|
|
265 |
|
|
|
408 |
|
|
|
372 |
|
|
Real estate taxes
|
|
|
4,670 |
|
|
|
1,788 |
|
|
|
88 |
|
|
|
16,453 |
|
|
|
1,589 |
|
|
|
88 |
|
|
|
422 |
|
|
|
449 |
|
|
Depreciation and amortization
|
|
|
11,118 |
|
|
|
6,191 |
|
|
|
242 |
|
|
|
42,807 |
|
|
|
7,853 |
|
|
|
600 |
|
|
|
955 |
|
|
|
955 |
|
|
General and administrative
|
|
|
2,572 |
|
|
|
2,550 |
|
|
|
|
|
|
|
10,357 |
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|
|
3,130 |
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Total expenses
|
|
|
26,889 |
|
|
|
16,924 |
|
|
|
395 |
|
|
|
102,710 |
|
|
|
22,602 |
|
|
|
953 |
|
|
|
1,785 |
|
|
|
1,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,147 |
|
|
|
7,547 |
|
|
|
1,317 |
|
|
|
51,506 |
|
|
|
6,052 |
|
|
|
2,761 |
|
|
|
5,234 |
|
|
|
4,811 |
|
Equity in net income (loss) of unconsolidated partnership
|
|
|
51 |
|
|
|
51 |
|
|
|
|
|
|
|
(44 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
78 |
|
|
|
78 |
|
|
|
|
|
|
|
496 |
|
|
|
190 |
|
|
|
|
|
|
|
1 |
|
|
|
3 |
|
|
Interest expense
|
|
|
(8,122 |
) |
|
|
(1,411 |
) |
|
|
(686 |
) |
|
|
(28,823 |
) |
|
|
(1,180 |
) |
|
|
(1,760 |
) |
|
|
(2,901 |
) |
|
|
(3,154 |
) |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income before minority interests
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|
|
8,154 |
|
|
|
6,265 |
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|
|
631 |
|
|
|
23,135 |
|
|
|
5,051 |
|
|
|
1,001 |
|
|
|
2,334 |
|
|
|
1,660 |
|
|
Minority interests
|
|
|
(418 |
) |
|
|
(429 |
) |
|
|
|
|
|
|
(1,171 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
7,736 |
|
|
$ |
5,836 |
|
|
$ |
631 |
|
|
$ |
21,964 |
|
|
$ |
4,782 |
|
|
$ |
1,001 |
|
|
$ |
2,334 |
|
|
$ |
1,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share(3)
|
|
$ |
0.18 |
|
|
$ |
0.19 |
|
|
|
|
|
|
$ |
0.52 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(4)
|
|
$ |
0.18 |
|
|
$ |
0.19 |
|
|
|
|
|
|
$ |
0.52 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
42,129,613 |
|
|
|
31,129,613 |
|
|
|
|
|
|
|
41,965,178 |
|
|
|
30,965,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
45,148,820 |
|
|
|
34,148,820 |
|
|
|
|
|
|
|
44,767,575 |
|
|
|
33,767,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
|
|
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental properties, net
|
|
$ |
1,035,489 |
|
|
$ |
489,136 |
|
|
$ |
46,792 |
|
|
|
|
|
|
$ |
468,488 |
|
|
|
|
|
|
$ |
47,025 |
|
|
$ |
47,853 |
|
Total assets
|
|
|
1,228,970 |
|
|
|
601,617 |
|
|
|
49,933 |
|
|
|
|
|
|
|
581,723 |
|
|
|
|
|
|
|
50,056 |
|
|
|
50,732 |
|
Mortgages and other secured loans
|
|
|
496,981 |
|
|
|
101,594 |
|
|
|
36,971 |
|
|
|
|
|
|
|
102,236 |
|
|
|
|
|
|
|
37,208 |
|
|
|
37,743 |
|
Unsecured line of credit
|
|
|
|
|
|
|
19,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
554,275 |
|
|
|
159,258 |
|
|
|
37,353 |
|
|
|
|
|
|
|
137,639 |
|
|
|
|
|
|
|
37,597 |
|
|
|
38,563 |
|
Minority interests
|
|
|
22,486 |
|
|
|
22,486 |
|
|
|
|
|
|
|
|
|
|
|
22,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity and partners capital
|
|
|
652,209 |
|
|
|
419,873 |
|
|
|
12,580 |
|
|
|
|
|
|
|
421,817 |
|
|
|
|
|
|
|
12,459 |
|
|
|
12,169 |
|
Total liabilities and equity
|
|
|
1,228,970 |
|
|
|
601,617 |
|
|
|
49,933 |
|
|
|
|
|
|
|
581,723 |
|
|
|
|
|
|
|
50,056 |
|
|
|
50,732 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations(5)
|
|
$ |
19,381 |
|
|
|
|
|
|
|
|
|
|
$ |
66,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
10,062 |
|
|
|
687 |
|
|
|
|
|
|
|
13,959 |
(2) |
|
|
|
|
|
|
2,416 |
|
|
|
1,762 |
|
|
Investing activities
|
|
|
|
|
|
|
(32,197 |
) |
|
|
|
|
|
|
|
|
|
|
(456,680 |
)(2) |
|
|
|
|
|
|
(105 |
) |
|
|
(159 |
) |
|
Financing activities
|
|
|
|
|
|
|
9,836 |
|
|
|
(756 |
) |
|
|
|
|
|
|
470,433 |
(2) |
|
|
|
|
|
|
(2,666 |
) |
|
|
(1,210 |
) |
|
|
(1) |
Represents the results and financial position of the Predecessor
for the three months ended March 31, 2004. |
|
(2) |
Consolidated and combined cash flow information of BioMed Realty
Trust, Inc. and the Predecessor for the year ended
December 31, 2004. |
|
|
(3) |
Basic earnings per share equals net income divided by the number
of shares of our common stock outstanding excluding the weighted
average of the number of unvested shares of restricted stock.
Pro forma basic earnings per share is computed assuming this
offering was consummated as of the first day of the period
presented. |
|
|
|
(4) |
Diluted earnings per share equals pro forma net income divided
by the sum of the number of shares of our common stock
outstanding excluding the weighted average number of unvested
shares of restricted stock, plus an amount computed using the
treasury stock method with respect to the unvested shares of our
restricted stock. Pro forma diluted earnings per share is
computed assuming this offering was consummated as of the first
day of the period presented. |
|
|
(5) |
As defined by the National Association of Real Estate Investment
Trusts, or NAREIT, funds from operations, or FFO, represents net
income (computed in accordance with GAAP), excluding gains (or
losses) from sales of property, plus real estate related
depreciation and amortization (excluding amortization of loan
origination costs) and after adjustments for unconsolidated
partnerships and joint ventures. We present FFO because we
consider it an important supplemental measure of our operating
performance and believe it is frequently used by securities
analysts, investors and other interested parties in the
evaluation of REITs, many of which present FFO when reporting
their results. FFO is intended to exclude GAAP historical cost
depreciation and amortization of real estate and related assets,
which assumes that the value of real estate assets diminishes
ratably over time. Historically, however, real estate values
have risen or fallen with market conditions. Because FFO
excludes depreciation and amortization unique to real estate,
gains and losses from property dispositions and extraordinary
items, it provides a performance measure that, when compared
year over year, reflects the impact to operations from trends in
occupancy rates, rental rates, operating costs, development
activities and interest costs, providing perspective not
immediately apparent from net income. We compute FFO in
accordance with standards established by the Board of Governors
of NAREIT in its March 1995 White Paper (as amended in |
9
|
|
|
November 1999 and April 2002),
which may differ from the methodology for calculating FFO
utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent
amounts available for managements discretionary use
because of needed capital replacement or expansion, debt service
obligations, or other commitments and uncertainties. FFO should
not be considered as an alternative to net income (loss)
(computed in accordance with GAAP) as an indicator of our
financial performance or to cash flow from operating activities
(computed in accordance with GAAP) as an indicator of our
liquidity, nor is it indicative of funds available to fund our
cash needs, including our ability to pay dividends or make
distributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
| |
|
|
Three Months | |
|
|
|
|
Ended | |
|
Year Ended | |
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Reconciliation of Pro Forma Funds from Operations
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
7,736 |
|
|
$ |
21,964 |
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Pro forma minority interests
|
|
|
527 |
|
|
|
1,494 |
|
|
|
Pro forma real estate depreciation and amortization
|
|
|
11,118 |
|
|
|
42,807 |
|
|
|
|
|
|
|
|
|
Pro forma funds from operations
|
|
$ |
19,381 |
|
|
$ |
66,265 |
|
|
|
|
|
|
|
|
10
RISK FACTORS
An investment in our common stock involves risks. In addition
to other information contained in this prospectus, you should
carefully consider the following factors before acquiring shares
of our common stock offered by this prospectus. The occurrence
of any of the following risks might cause you to lose all or a
part of your investment. Some statements in this prospectus,
including statements in the following risk factors, constitute
forward-looking statements. Please refer to the section entitled
Forward-Looking Statements.
Risks Related to Our Properties, Our Business and Our Growth
Strategy
Because we lease our properties to a limited number of
tenants, and to the extent we depend on a limited number of
tenants in the future, the inability of any single tenant to
make its lease payments could adversely affect our business and
our ability to make distributions to you.
As of May 31, 2005, we had 76 tenants in 33 properties. Two
of our tenants, Vertex Pharmaceuticals and Genzyme Corporation,
represented 20.7% and 14.0%, respectively, of our annualized
base rent, and 14.9% and 8.7%, respectively, of our total leased
rentable square footage, and our ten largest tenants comprised
64.0% of our annualized base rent. While we evaluate the
creditworthiness of our tenants by reviewing available financial
and other pertinent information, there can be no assurance that
any tenant will be able to make timely rental payments or avoid
defaulting under its lease. If a tenant defaults, we may
experience delays in enforcing our rights as landlord and may
incur substantial costs in protecting our investment. Because we
depend on rental payments from a limited number of tenants, the
inability of any single tenant to make its lease payments could
adversely affect us and our ability to make distributions to you.
Tenants in the life science industry face high levels of
regulation, expense and uncertainty that may adversely affect
their ability to pay us rent and consequently adversely affect
our business.
Life science entities comprise the vast majority of our tenant
base. Because of our dependence on a single industry, adverse
conditions affecting that industry will more adversely affect
our business, and thus our ability to make distributions to you,
than if our business strategy included a more diverse tenant
base. Life science industry tenants, particularly those involved
in developing and marketing drugs and drug delivery
technologies, fail from time to time as a result of various
factors. Many of these factors are particular to the life
science industry. For example:
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Our tenants require significant outlays of funds for the
research and development and clinical testing of their products
and technologies. If private investors, the government or other
sources of funding are unavailable to support such development,
a tenants business may fail. |
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The research and development, clinical testing, manufacture and
marketing of some of our tenants products require federal,
state and foreign regulatory approvals. The approval process is
typically long, expensive and uncertain. Even if our tenants
have sufficient funds to seek approvals, one or all of their
products may fail to obtain the required regulatory approvals on
a timely basis or at all. Furthermore, our tenants may only have
a small number of products under development. If one product
fails to receive the required approvals at any stage of
development, it could significantly adversely affect our
tenants entire business and its ability to pay rent. |
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Our tenants with marketable products may be adversely affected
by health care reform efforts and the reimbursement policies of
government or private health care payors. |
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Our tenants may be unable to adequately protect their
intellectual property under patent, copyright or trade secret
laws. Failure to do so could jeopardize their ability to profit
from their efforts and to protect their products from
competition. |
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Collaborative relationships with other life science entities may
be crucial to the development, manufacturing, distribution or
marketing of our tenants products. If these other entities
fail to fulfill their obligations under these collaborative
arrangements, our tenants businesses will suffer. |
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We cannot assure you that our tenants in the life science
industry will be successful in their businesses. If our
tenants businesses are adversely affected, they may have
difficulty paying us rent.
Because particular upgrades are required for life science
tenants, improvements to our properties involve greater
expenditures than traditional office space, which costs may not
be covered by the rents our tenants pay.
The improvements generally required for our properties
infrastructure are more costly than for other property types.
Typical infrastructural improvements include the following:
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reinforced concrete floors, |
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upgraded roof structures for greater load capacity, |
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increased floor-to-ceiling clear heights, |
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heavy-duty HVAC systems, |
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enhanced environmental control technology, |
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significantly upgraded electrical, gas and plumbing
infrastructure, and |
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laboratory benchwork. |
Our tenants generally pay higher rent on our properties than
tenants in traditional office space. However, we cannot assure
you that our tenants will continue to do so in the future or
that the rents paid will cover the additional costs of upgrading
the properties.
Because of the unique and specific improvements required for
our life science tenants, we may be required to incur
substantial renovation costs to make our properties suitable for
other life science tenants or other office tenants, which could
adversely affect our operating performance.
We acquire or develop properties that include laboratory space
and other features that we believe are generally desirable for
life science industry tenants. However, different life science
industry tenants may require different features in their
properties, depending on each tenants particular focus
within the life science industry. If a current tenant is unable
to pay rent and vacates a property, we may incur substantial
expenditures to modify the property before we are able to
re-lease the space to another life science industry tenant. This
could hurt our operating performance and the value of your
investment. Also, if the property needs to be renovated to
accommodate multiple tenants, we may incur substantial
expenditures before we are able to re-lease the space.
Additionally, our properties may not be suitable for lease to
traditional office tenants without significant expenditures or
renovations. Accordingly, any downturn in the life science
industry may have a substantial negative impact on our
properties values.
The geographic concentration of our properties in Boston and
California makes our business particularly vulnerable to adverse
conditions affecting these markets.
Ten of our 33 properties are located in the Boston area. As of
May 31, 2005, these properties represented 43.2% of our
annualized base rent and 31.1% of our total leased rentable
square footage. In addition, 13 of our 33 properties are located
in California, with eight in San Diego and five in
San Francisco. As of May 31, 2005, these properties
represented 25.9% of our annualized base rent and 28.3% of our
total leased rentable square footage. Because of this
concentration in two geographic regions, we are particularly
vulnerable to adverse conditions affecting Boston and
California, including general economic conditions, increased
competition, a downturn in the local life science industry, real
estate conditions, terrorist attacks, earthquakes (with respect
to California) and other natural disasters occurring in these
regions. In addition, we cannot assure you that these markets
will continue to grow or remain favorable to the life science
industry. The performance of the life science industry and the
economy in general in these geographic markets may affect
occupancy, market rental rates and expenses, and thus may affect
our performance and the value of our properties. We are also
subject to greater risk of loss from
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earthquakes because of our properties concentration in
California. The close proximity of our five properties in
San Francisco to a fault line makes them more vulnerable to
earthquakes than properties in many other parts of the country.
Our tax indemnification and debt maintenance obligations
require us to make payments if we sell certain properties or
repay certain debt, which could limit our operating
flexibility.
In our formation transactions, our executive officers, Alan D.
Gold, Gary A. Kreitzer, John F. Wilson, II and Matthew G.
McDevitt, and certain other individuals contributed six
properties to our operating partnership. If we were to dispose
of these contributed assets in a taxable transaction,
Messrs. Gold, Kreitzer, Wilson and McDevitt and the other
contributors of those assets would suffer adverse tax
consequences. In connection with these contribution
transactions, we agreed to indemnify those contributors against
such adverse tax consequences for a period of ten years. This
indemnification will help those contributors to preserve their
tax positions after their contributions. The tax indemnification
provisions were not negotiated in an arms length
transaction but were determined by our management team. We have
also agreed to use reasonable best efforts consistent with our
fiduciary duties to maintain at least $8.0 million of debt,
some of which must be property specific, that the contributors
can guarantee in order to defer any taxable gain they may incur
if our operating partnership repays existing debt. These tax
indemnification and debt maintenance obligations may affect the
way in which we conduct our business. During the indemnification
period, these obligations may impact the timing and
circumstances under which we sell the contributed properties or
interests in entities holding the properties. For example, these
tax indemnification payments could effectively reduce or
eliminate any gain we might otherwise realize upon the sale or
other disposition of the related properties. Accordingly, even
if market conditions might otherwise dictate that it would be
desirable to dispose of these properties, the existence of the
tax indemnification obligations could result in a decision to
retain the properties in our portfolio to avoid having to pay
the tax indemnity payments. The existence of the debt
maintenance obligations could require us to maintain debt at a
higher level than we might otherwise choose. Higher debt levels
could adversely affect our ability to make distributions to our
stockholders.
While we may seek to enter into tax-efficient joint ventures
with third-party investors, we currently have no intention of
disposing of these properties or interests in entities holding
the properties in transactions that would trigger our tax
indemnification obligations. The involuntary condemnation of one
or more of these properties during the indemnification period
could, however, trigger the tax indemnification obligations
described above. The tax indemnity would equal the amount of the
federal and state income tax liability the contributor would
incur with respect to the gain allocated to the contributor. The
calculation of the indemnity payment would not be reduced due to
the time value of money or the time remaining within the
indemnification period. The terms of the contribution agreements
also require us to gross up the tax indemnity payment for the
amount of income taxes due as a result of the tax indemnity
payment. Messrs. Gold, Kreitzer, Wilson and McDevitt are
potential recipients of these indemnification payments. Because
of these potential payments their personal interests may diverge
from those of our stockholders.
We have a limited operating history as a REIT and as a public
company and may not be successful in operating as a public REIT,
which may adversely affect our ability to make distributions to
stockholders.
We were formed in April 2004 and have a limited operating
history as a REIT and as a public company. Our board of
directors and executive officers have overall responsibility for
our management, but only our Chief Executive Officer, Executive
Vice President and one of our independent directors have prior
experience in operating a business in accordance with the
requirements of the Internal Revenue Code of 1986, as amended,
or the Code, for maintaining qualification as a REIT. We cannot
assure you that our management teams past experience will
be sufficient to operate our company successfully as a REIT or
as a public company. Failure to maintain REIT status would have
an adverse effect on our cash available for distribution to
stockholders and would adversely affect the price of our common
stock.
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Our expansion strategy may not yield the returns expected,
may result in disruptions to our business, may strain our
management resources and may adversely affect our operations.
We own properties in Boston, San Diego, San Francisco, Seattle,
Maryland, Pennsylvania and New York/ New Jersey, each of which
is currently a leading market in the United States for the life
science industry. We cannot assure you that these markets will
remain favorable to the life science industry, that these
markets will continue to grow or that we will be successful
expanding in these markets.
In addition to the 13 properties we acquired in connection with
our IPO, we have acquired an additional 20 properties, and we
expect to continue to expand. This anticipated growth will
require substantial attention from our existing management team,
which may divert managements attention from our current
properties. Implementing our growth plan will also require that
we expand our management and staff with qualified and
experienced personnel and that we implement administrative,
accounting and operational systems sufficient to integrate new
properties into our portfolio. We also must manage future
property acquisitions without incurring unanticipated costs or
disrupting the operations at our existing properties. Managing
new properties requires a focus on leasing and retaining
tenants. If we fail to successfully integrate future
acquisitions into our portfolio, or if newly acquired properties
fail to perform as we expect, our results of operations,
financial condition and ability to pay distributions could
suffer.
We may be unable to acquire, develop or operate new
properties successfully, which could harm our financial
condition and ability to pay distributions to you.
We continue to evaluate the market for available properties and
may acquire office, laboratory and other properties when
opportunities exist. We also may develop or substantially
renovate office and other properties. Acquisition, development
and renovation activities are subject to significant risks,
including:
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changing market conditions, including competition from others,
may diminish our opportunities for acquiring a desired property
on favorable terms or at all. Even if we enter into agreements
for the acquisition of properties, these agreements are subject
to customary conditions to closing, including completion of due
diligence investigations to our satisfaction, |
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we may be unable to obtain financing on favorable terms (or at
all), |
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we may spend more time or money than we budget to improve or
renovate acquired properties or to develop new properties, |
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we may be unable to quickly and efficiently integrate new
properties, particularly if we acquire portfolios of properties,
into our existing operations, |
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market conditions may result in higher than expected vacancy
rates and lower than expected rental rates, |
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if we develop properties, we may encounter delays or refusals in
obtaining all necessary zoning, land use, building, occupancy
and other required governmental permits and authorizations, |
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we are less familiar with the development of properties in
markets outside of California, |
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acquired and developed properties may have defects we do not
discover through our inspection processes, including latent
defects that may not reveal themselves until many years after we
put a property in service, and |
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we may acquire land, properties or entities owning properties
which are subject to liabilities and for which, in the case of
unknown liabilities, we may have limited or no recourse. |
The realization of any of the above risks could significantly
and adversely affect our financial condition, results of
operations, cash flow, per share trading price of our common
stock, ability to satisfy our debt service obligations and
ability to pay distributions to you.
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Our success depends on key personnel with extensive
experience dealing with the real estate needs of life science
tenants, and the loss of these key personnel could threaten our
ability to operate our business successfully.
Our future success depends, to a significant extent, on the
continued services of our management team. In particular, we
depend on the efforts of Mr. Gold, our Chairman, President
and Chief Executive Officer, Mr. Kreitzer, our Executive
Vice President, General Counsel and Secretary, Mr. Wilson,
our Chief Financial Officer, and Mr. McDevitt, our Vice
President, Acquisitions. Among the reasons that
Messrs. Gold, Kreitzer, Wilson and McDevitt are important
to our success is that each has a national or regional
reputation in the life science industry based on their extensive
real estate experience in dealing with life science tenants and
properties. Each member of our management team has developed
informal relationships through past business dealings with
numerous members of the scientific community, life science
investors, current and prospective life science industry
tenants, and real estate brokers. We expect that their
reputations will continue to attract business and investment
opportunities before the active marketing of properties and will
assist us in negotiations with lenders, existing and potential
tenants, and industry personnel. If we lost their services, our
relationships with such lenders, existing and prospective
tenants, and industry personnel could suffer. We have entered
into employment agreements with each of Messrs. Gold,
Kreitzer, Wilson and McDevitt, but we cannot guarantee that they
will not terminate their employment prior to the end of the term.
The bankruptcy of a tenant may adversely affect the income
produced by and the value of our properties.
The bankruptcy or insolvency of a tenant may adversely affect
the income produced by our properties. If any tenant becomes a
debtor in a case under the Bankruptcy Code, we cannot evict the
tenant solely because of the bankruptcy. The bankruptcy court
also might authorize the tenant to reject and terminate its
lease with us, which would generally result in any unpaid,
pre-bankruptcy rent being treated as an unsecured claim. In
addition, our claim against the tenant for unpaid, future rent
would be subject to a statutory cap equal to the greater of
(1) one year of rent or (2) 15% of the remaining rent
on the lease (not to exceed three years of rent). This cap might
be substantially less than the remaining rent actually owed
under the lease. Additionally, a Bankruptcy Court may require us
to turn over to the estate all or a portion of any deposits,
amounts in escrow, or prepaid rents. Our claim for unpaid,
pre-bankruptcy rent, our lease termination damages and claims
relating to damages for which we hold deposits or other amounts
that we were forced to repay would likely not be paid in full.
Compliance with changing regulation of corporate governance
and public disclosure may result in additional expenses and may
have a negative impact on our business.
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley
Act of 2002 and new rules and regulations of the Securities and
Exchange Commission and the New York Stock Exchange, or NYSE,
are creating uncertainty for companies such as ours. These new
or changed laws, regulations and standards are subject to
varying interpretations in many cases due to their lack of
specificity, and as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and
governing bodies, which could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. Our
efforts to comply with evolving laws, regulations and standards
have resulted in, and are likely to continue to result in,
increased general and administrative expenses and a diversion of
management time and attention from revenue-generating activities
to compliance activities. In particular, our efforts to comply
with Section 404 of the Sarbanes-Oxley Act of 2002 and the
related regulations regarding our required assessment of our
internal control over financial reporting and our external
auditors audit of that assessment has required the
commitment of significant financial and managerial resources. We
expect these efforts to require the continued commitment of
significant resources. Further, our board members, Chief
Executive Officer and Chief Financial Officer could face an
increased risk of personal liability in connection with the
performance of their duties. As a result, we may have difficulty
attracting and retaining qualified board members and executive
officers, which could harm our business. If our efforts
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to comply with new or changed laws, regulations and standards
differ from the activities intended by regulatory or governing
bodies due to ambiguities related to practice, our reputation
may be harmed.
Future acts of terrorism or war or the risk of war may have a
negative impact on our business.
The continued threat of terrorism and the potential for military
action and heightened security measures in response to this
threat may cause significant disruption to commerce. There can
be no assurance that the armed hostilities will not escalate or
that these terrorist attacks, or the United States
responses to them, will not lead to further acts of terrorism
and civil disturbances, which may further contribute to economic
instability. Any armed conflict, civil unrest or additional
terrorist activities, and the attendant political instability
and societal disruption, may adversely affect our results of
operations, financial condition and future growth.
Risks Related to the Real Estate Industry
Significant competition may decrease or prevent increases in
our properties occupancy and rental rates and may reduce
our investment opportunities.
We are one of only two publicly traded entities focusing
primarily on the acquisition, management, expansion and
selective development of properties designed for life science
tenants. However, various entities, including other REITs, such
as health care REITs and suburban office property REITs, pension
funds, insurance companies, investment funds and companies,
partnerships, and developers invest in properties containing
life science tenants and therefore compete for investment
opportunities with us. Many of these entities have substantially
greater financial resources than we do and may be able to accept
more risk than we can prudently manage, including risks with
respect to the creditworthiness of a tenant or the geographic
location of its investments. In the future, competition from
these entities may reduce the number of suitable investment
opportunities offered to us or increase the bargaining power of
property owners seeking to sell. Further, as a result of their
greater resources, those entities may have more flexibility than
we do in their ability to offer rental concessions to attract
tenants. This could put pressure on our ability to maintain or
raise rents and could adversely affect our ability to attract or
retain tenants. As a result, our financial condition, results of
operations, cash flow, per share trading price of our common
stock, ability to satisfy our debt service obligations and
ability to pay distributions to you may be adversely affected.
Uninsured and underinsured losses could adversely affect our
operating results and our ability to make distributions to our
stockholders.
We carry comprehensive liability, fire, workers
compensation, extended coverage, terrorism and rental loss
insurance covering all of our properties under a blanket policy,
except with respect to property and fire insurance on our
McKellar Court and Science Center Drive properties, which is
carried directly by the tenants. We believe the policy
specifications and insured limits are appropriate given the
relative risk of loss, the cost of the coverage and industry
practice. We also carry environmental remediation insurance for
our properties. This insurance, subject to certain exclusions
and deductibles, covers the cost to remediate environmental
damage caused by unintentional future spills or the historic
presence of previously undiscovered hazardous substances. We
intend to carry similar insurance with respect to future
acquisitions as appropriate. We do not carry insurance for
generally uninsurable losses such as loss from riots or acts of
God. A substantial portion of our properties are located in
San Diego and San Francisco, California, areas
especially subject to earthquakes. We presently carry earthquake
insurance on our Industrial Road property in San Francisco
but do not carry earthquake insurance on our other properties in
San Francisco or San Diego. The amount of earthquake
insurance coverage we do carry may not be sufficient to fully
cover losses from earthquakes. In addition, we may discontinue
earthquake, terrorism or other insurance, or may elect not to
procure such insurance, on some or all of our properties in the
future if the cost of premiums for any of these policies
exceeds, in our judgment, the value of the coverage discounted
for the risk of loss.
If we experience a loss that is uninsured or that exceeds policy
limits, we could lose the capital invested in the damaged
properties as well as the anticipated future cash flows from
those properties. In
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addition, if the damaged properties are subject to recourse
indebtedness, we would continue to be liable for the
indebtedness, even if these properties were irreparably damaged.
Our performance and value are subject to risks associated
with the ownership and operation of real estate assets and with
factors affecting the real estate industry.
Our ability to make expected distributions to our stockholders
depends on our ability to generate revenues in excess of
expenses, our scheduled principal payments on debt and our
capital expenditure requirements. Events and conditions that are
beyond our control may decrease our cash available for
distribution and the value of our properties. These events
include:
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local oversupply, increased competition or reduced demand for
life science office and laboratory space, |
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inability to collect rent from tenants, |
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vacancies or our inability to rent space on favorable terms, |
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increased operating costs, including insurance premiums,
utilities and real estate taxes, |
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the ongoing need for capital improvements, particularly in older
structures, |
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costs of complying with changes in governmental regulations,
including tax laws, |
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the relative illiquidity of real estate investments, |
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changing submarket demographics, and |
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civil unrest, acts of war and natural disasters, including
earthquakes, floods and fires, which may result in uninsured and
underinsured losses. |
In addition, we could experience a general decline in rents or
an increased incidence of defaults under existing leases if any
of the following occur:
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periods of economic slowdown or recession, |
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rising interest rates, |
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declining demand for real estate, or |
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the public perception that any of these events may occur. |
Any of these events could adversely affect our financial
condition, results of operations, cash flow, per share trading
price of our common stock, ability to satisfy our debt service
obligations and ability to pay distributions to you.
Illiquidity of real estate investments may make it difficult
for us to sell properties in response to market conditions and
could harm our financial condition and ability to make
distributions.
Equity real estate investments are relatively illiquid and
therefore will tend to limit our ability to vary our portfolio
promptly in response to changing economic or other conditions.
To the extent the properties are not subject to triple-net
leases, some significant expenditures such as real estate taxes
and maintenance costs are generally not reduced when
circumstances cause a reduction in income from the investment.
Should these events occur, our income and funds available for
distribution could be adversely affected. Furthermore, our
Landmark at Eastview property is subject to a ground lease until
certain property subdivisions are completed, at which time the
ground lease will terminate and we will obtain fee simple title
to the property. If those subdivisions are not completed, the
property will remain subject to the ground lease, which could
make it more difficult to sell the property. If any of the
parking leases or licenses associated with the Lyme portfolio
were to expire, or if we were unable to assign these leases to a
buyer, it would be more difficult for us to sell these
properties and would adversely affect our ability to retain
current tenants or attract new tenants at these properties. In
addition, REIT requirements may subject us to confiscatory taxes
on gain recognized from the sale of property if the property is
considered
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to be held primarily for sale to customers in the ordinary
course of our business. To prevent these taxes, we may comply
with safe harbor rules relating to the number of properties sold
in a year, how long we owned the properties, their tax bases and
the cost of improvements made to those properties. However, we
can provide no assurance that we will be able to successfully
comply with these safe harbors. If compliance is possible, the
safe harbor rules may restrict our ability to sell assets in the
future and achieve liquidity that may be necessary to fund
distributions.
We may be unable to renew leases, lease vacant space or
re-lease space as leases expire, which could adversely affect
our business and our ability to pay distributions to you.
If we cannot renew leases, we may be unable to re-lease our
properties at rates equal to or above the current rate. Even if
we can renew leases, tenants may be able to negotiate lower
rates as a result of market conditions. Market conditions may
also hinder our ability to lease vacant space in newly developed
properties. In addition, we may enter into or acquire leases for
properties that are specially suited to the needs of a
particular tenant. Such properties may require renovations,
tenant improvements or other concessions in order to lease them
to other tenants if the initial leases terminate. Any of these
factors could adversely impact our financial condition, results
of operations, cash flow, per share trading price of our common
stock, our ability to satisfy our debt service obligations and
our ability to pay distributions to you.
We could incur significant costs related to government
regulation and private litigation over environmental matters
involving the presence, discharge or threat of discharge of
hazardous or toxic substances, which could adversely affect our
operations, the value of our properties, and our ability to make
distributions to you.
Our properties may be subject to environmental liabilities.
Under various federal, state and local laws, a current or
previous owner, operator or tenant of real estate can face
liability for environmental contamination created by the
presence, discharge or threat of discharge of hazardous or toxic
substances. Liabilities can include the cost to investigate,
clean up and monitor the actual or threatened contamination and
damages caused by the contamination (or threatened
contamination). Environmental laws typically impose such
liability regardless of:
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our knowledge of the contamination, |
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the timing of the contamination, |
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the cause of the contamination, or |
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the party responsible for the contamination. |
The liability under such laws may be strict, joint and several,
meaning that we may be liable regardless of whether we knew of,
or were responsible for, the presence of the contaminants, and
the government entity or private party may seek recovery of the
entire amount from us even if there are other responsible
parties. Liabilities associated with environmental conditions
may be significant and can sometimes exceed the value of the
affected property. The presence of hazardous substances on a
property may adversely affect our ability to sell or rent that
property or to borrow using that property as collateral.
Some of our properties have had contamination in the past that
required cleanup. We believe the contamination has been
effectively remediated, and that any remaining contamination
either does not require remediation or that the costs associated
with such remediation will not be material. However, we cannot
guarantee that such contamination does not continue to pose a
threat to the environment or that we will not have continued
liability in connection with such prior contamination. Our
Kendall Square A and Kendall Square D properties are
located on the site of a former manufactured gas plant. Various
remedial actions were performed on these properties, including
soil stabilization to control the spread of oil and hazardous
materials in the soil. Another of our properties, Elliott
Avenue, has known soil contamination beneath a portion of the
building located on the property. Based on environmental
consultant reports, management does not believe any remediation
would be required unless major structural changes were made to
the building that resulted in the soil becoming exposed. We do
not expect these matters to
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materially adversely affect such properties value or the
cash flows related to such properties, but we can provide no
assurances to that effect.
Environmental laws also:
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may require the removal or upgrade of underground storage tanks, |
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regulate storm water, wastewater and water pollutant discharge, |
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regulate air pollutant emissions, |
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regulate hazardous materials generation, management and
disposal, and |
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regulate workplace health and safety. |
Life science industry tenants, our primary tenant industry
focus, frequently use hazardous materials, chemicals, heavy
metals, and biological and radioactive compounds. Our
tenants controlled use of these materials subjects us and
our tenants to laws that govern using, manufacturing, storing,
handling and disposing of such materials and certain byproducts
of those materials. We are unaware of any of our existing
tenants violating applicable laws and regulations, but we and
our tenants cannot completely eliminate the risk of
contamination or injury from these materials. If our properties
become contaminated, or if a party is injured, we could be held
liable for any damages that result. Such liability could exceed
our resources and any environmental remediation insurance
coverage we have, which could adversely affect our operations,
the value of our properties, and our ability to make
distributions to you.
We could incur significant costs related to governmental
regulation and private litigation over environmental matters
involving asbestos-containing materials, which could adversely
affect our operations, the value of our properties, and our
ability to make distributions to you.
Environmental laws also govern the presence, maintenance and
removal of asbestos-containing materials, or ACMs, and may
impose fines and penalties if we fail to comply with these
requirements. Failure to comply with these laws, or even the
presence of ACMs, may expose us to third-party liability. Some
of our properties contain ACMs, and we could be liable for such
fines or penalties, as described below in Business and
Properties Regulation Environmental
Matters.
Our properties may contain or develop harmful mold, which
could lead to liability for adverse health effects and costs of
remediating the problem, which could adversely affect the value
of the affected property and our ability to make distributions
to you.
When excessive moisture accumulates in buildings or on building
materials, mold growth may occur, particularly if the moisture
problem remains undiscovered or is not addressed over a period
of time. Some molds may produce airborne toxins or irritants.
Concern about indoor exposure to mold has been increasing
because exposure to mold may cause a variety of adverse health
effects and symptoms, including allergic or other reactions. As
a result, the presence of significant mold at any of our
properties could require us to undertake a costly remediation
program to contain or remove the mold from the affected
property. In addition, the presence of significant mold could
expose us to liability to our tenants, their or our employees,
and others if property damage or health concerns arise.
Compliance with the Americans with Disabilities Act and
similar laws may require us to make significant unanticipated
expenditures.
All of our properties are required to comply with the Americans
with Disabilities Act of 1990, as amended, or the ADA. The ADA
requires that all public accommodations must meet federal
requirements related to access and use by disabled persons.
Although we believe that our properties substantially comply
with present requirements of the ADA, we have not conducted an
audit of all of such properties to determine compliance. If one
or more properties is not in compliance with the ADA, then we
would be required to bring the offending properties into
compliance. Compliance with the ADA could require removing
access barriers. Non-compliance could result in imposition of
fines by the U.S. government or an award of damages to
private litigants, or both. Additional federal, state and local
laws also may require us
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to modify properties or could restrict our ability to renovate
properties. Complying with the ADA or other legislation could be
very expensive. If we incur substantial costs to comply with
such laws, our financial condition, results of operations, cash
flow, per share trading price of our common stock, our ability
to satisfy our debt service obligations and our ability to pay
distributions to you could be adversely affected.
We may incur significant unexpected costs to comply with
fire, safety and other regulations, which could adversely impact
our financial condition, results of operations, and ability to
make distributions.
Our properties are subject to various federal, state and local
regulatory requirements, such as state and local fire and safety
requirements, building codes and land use regulations. Failure
to comply with these requirements could subject us to
governmental fines or private litigant damage awards. We believe
that our properties are currently in material compliance with
all applicable regulatory requirements. However, we do not know
whether existing requirements will change or whether future
requirements will require us to make significant unanticipated
expenditures that will adversely impact our financial condition,
results of operations, cash flow, the per share trading price of
our common stock, our ability to satisfy our debt service
obligations and our ability to pay distributions to you.
Risks Related to Our Organizational Structure
Conflicts of interest could result in our management acting
other than in our stockholders best interests.
Our Chairman, President and Chief Executive Officer
beneficially owns 4.4% of our common stock and exercises
substantial influence over our business and, as a result, he may
delay, defer or prevent us from taking actions that would be
beneficial to our other stockholders. As of May 31,
2005, Mr. Gold, our Chairman, President and Chief Executive
Officer, beneficially owned 136,867 shares of our common
stock and units which may be exchanged for 1,320,780 shares
of our common stock, representing a total of approximately 4.4%
of our outstanding common stock, or approximately 3.3% of our
outstanding common stock upon completion of this offering.
Consequently, Mr. Gold has substantial influence over us
and could exercise his influence in a manner that may not be in
the best interests of our stockholders.
We may choose not to enforce, or to enforce less
vigorously, our rights under contribution and other agreements
because of conflicts of interest with certain of our
officers. Messrs. Gold, Kreitzer, Wilson and
McDevitt, some of their spouses and parents, and other
individuals and entities not affiliated with us or our
management, had ownership interests in the properties
contributed to our operating partnership in our formation
transactions. Under the agreements relating to the contribution
of those interests, we are entitled to indemnification and
damages in the event of breaches of representations or
warranties made by Messrs. Gold, Kreitzer, Wilson and
McDevitt and other contributors. In addition, Messrs. Gold,
Kreitzer, Wilson and McDevitt have entered into employment
agreements with us pursuant to which they have agreed to devote
substantially full-time attention to our affairs. None of these
contribution and employment agreements were negotiated on an
arms-length basis. We may choose not to enforce, or to
enforce less vigorously, our rights under these contribution and
employment agreements because of our desire to maintain our
ongoing relationships with the individuals involved.
Our charter and Maryland law contain provisions that may
delay, defer or prevent a change of control transaction and may
prevent stockholders from receiving a premium for their
shares.
Our charter contains a 9.8% ownership limit that may
delay, defer or prevent a change of control transaction.
Our charter, with certain exceptions, authorizes our directors
to take such actions as are necessary and desirable to preserve
our qualification as a REIT. Unless exempted by our board of
directors, no person may own more than 9.8% of the value of our
outstanding shares of capital stock or more than 9.8% in value
or number (whichever is more restrictive) of the outstanding
shares of our common stock. The board may not grant such an
exemption to any proposed transferee whose ownership of in
excess of 9.8% of the value of our outstanding shares would
result in the termination of our status as a REIT. These
restrictions on transferability and ownership will not apply if
our board of directors determines that it is no longer in our
best interests to attempt to qualify as a REIT. The ownership
limit
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may delay or impede a transaction or a change of control that
might involve a premium price for our common stock or otherwise
be in the best interest of our stockholders.
We could authorize and issue stock without stockholder
approval that may delay, defer or prevent a change of control
transaction. Our charter authorizes us to issue
additional authorized but unissued shares of our common stock or
preferred stock. In addition, our board of directors may
classify or reclassify any unissued shares of our common stock
or preferred stock and may set the preferences, rights and other
terms of the classified or reclassified shares. The board may
also, without stockholder approval, amend our charter to
increase the authorized number of shares of our common stock or
our preferred stock that we may issue. The board of directors
could establish a series of common stock or preferred stock that
could, depending on the terms of such series, delay, defer or
prevent a transaction or a change of control that might involve
a premium price for our common stock or otherwise be in the best
interests of our stockholders.
Certain provisions of Maryland law could inhibit changes
in control that may delay, defer or prevent a change of control
transaction. Certain provisions of the MGCL may have the
effect of inhibiting a third party from making a proposal to
acquire us or of impeding a change of control. In some cases,
such an acquisition or change of control could provide you with
the opportunity to realize a premium over the then-prevailing
market price of your shares. These MGCL provisions include:
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business combination provisions that, subject to
limitations, prohibit certain business combinations between us
and an interested stockholder for certain periods.
An interested stockholder is generally any person
who beneficially owns 10% or more of the voting power of our
shares or an affiliate thereof. The business combinations are
prohibited for five years after the most recent date on which
the stockholder becomes an interested stockholder. After that
period, the MGCL imposes special voting requirements on such
combinations, and |
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control share provisions that provide that
control shares of our company acquired in a
control share acquisition have no voting rights
unless holders of two-thirds of our voting stock (excluding
interested shares) consent. Control shares are
shares that, when aggregated with other shares controlled by the
stockholder, entitle the stockholder to exercise one of three
increasing ranges of voting power in electing directors. A
control share acquisition is the direct or indirect
acquisition of ownership or control of control
shares. |
We have opted out of these provisions of the MGCL. In the case
of the business combination provisions of the MGCL, we opted out
by resolution of our board of directors with respect to any
business combination between us and any person provided such
business combination is first approved by our board of directors
(including a majority of directors who are not affiliates or
associates of such person). In the case of the control share
provisions of the MGCL, we opted out pursuant to a provision in
our bylaws. However, our board of directors may by resolution
elect to opt in to the business combination provisions of the
MGCL. Further, we may opt in to the control share provisions of
the MGCL in the future by amending our bylaws, which our board
of directors can do without stockholder approval.
The partnership agreement of our operating partnership, Maryland
law, and our charter and bylaws also contain other provisions
that may delay, defer or prevent a transaction or a change of
control that might involve a premium price for our common stock
or otherwise be in the best interest of our stockholders.
Our board of directors may amend our investing and financing
policies without stockholder approval, and, accordingly, you
would have limited control over changes in our policies that
could increase the risk we default under our debt obligations or
that could harm our business, results of operations and share
price.
Our board of directors has adopted a policy of limiting our
indebtedness to approximately 60% of our total market
capitalization. Total market capitalization is defined as the
sum of the market value of our outstanding common stock (which
may decrease, thereby increasing our debt-to-total
capitalization ratio), plus the aggregate value of operating
partnership units we do not own, plus the book value of our
total consolidated indebtedness. However, our organizational
documents do not limit the amount or percentage of debt that we
may incur, nor do they limit the types of properties we may
acquire or develop. Our board of directors may alter or
eliminate our current policy on borrowing or investing at any
time without
21
stockholder approval. Changes in our strategy or in our
investment or leverage policies could expose us to greater
credit risk and interest rate risk and could also result in a
more leveraged balance sheet. These factors could result in an
increase in our debt service and could adversely affect our cash
flow and our ability to make expected distributions to you.
Higher leverage also increases the risk we would default on our
debt.
We may invest in properties with other entities, and our lack
of sole decision-making authority or reliance on a
co-venturers financial condition could make these joint
venture investments risky.
We have in the past and may continue in the future to co-invest
with third parties through partnerships, joint ventures or other
entities. We may acquire non-controlling interests or share
responsibility for managing the affairs of a property,
partnership, joint venture or other entity. In such events, we
would not be in a position to exercise sole decision-making
authority regarding the property or entity. Investments in
entities may, under certain circumstances, involve risks not
present were a third party not involved. These risks include the
possibility that partners or co-venturers:
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might become bankrupt or fail to fund their share of required
capital contributions, |
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may have economic or other business interests or goals that are
inconsistent with our business interests or goals, and |
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may be in a position to take actions contrary to our policies or
objectives. |
Such investments may also have the potential risk of impasses on
decisions, such as a sale, because neither we nor the partner or
co-venturer would have full control over the partnership or
joint venture. Disputes between us and partners or co-venturers
may result in litigation or arbitration that would increase our
expenses and prevent our officers and/or directors from focusing
their time and effort on our business. In addition, we may in
certain circumstances be liable for the actions of our
third-party partners or co-venturers if:
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we structure a joint venture or conduct business in a manner
that is deemed to be a general partnership with a third party,
in which case we could be liable for the acts of that third
party, |
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third-party managers incur debt or other liabilities on behalf
of a joint venture which the joint venture is unable to pay, and
the joint venture agreement provides for capital calls, in which
case we could be liable to make contributions as set forth in
any such joint venture agreement, or |
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we agree to cross-default provisions or to cross-collateralize
our properties with the properties in a joint venture, in which
case we could face liability if there is a default relating to
those properties in the joint venture or the obligations
relating to those properties. |
Risks Related to Our Capital Structure
Debt obligations expose us to increased risk of property
losses and may have adverse consequences on our business
operations and our ability to make distributions.
We have used and will continue to use debt to finance property
acquisitions. Our use of debt may have adverse consequences,
including the following:
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Required payments of principal and interest may be greater than
our cash flow from operations. |
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We may be forced to dispose of one or more of our properties,
possibly on disadvantageous terms, to make payments on our debt. |
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If we default on our debt obligations, the lenders or mortgagees
may foreclose on our properties that secure those loans.
Further, if we default under a mortgage loan, we will
automatically be in default on any other loan that has
cross-default provisions, and we may lose the properties
securing all of these loans. |
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A foreclosure on one of our properties will be treated as a sale
of the property for a purchase price equal to the outstanding
balance of the secured debt. If the outstanding balance of the
secured debt |
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exceeds our tax basis in the property, we would recognize
taxable income on foreclosure without realizing any accompanying
cash proceeds to pay the tax (or to make distributions based on
REIT taxable income). |
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We may not be able to refinance or extend our existing debt. If
we cannot repay, refinance or extend our debt at maturity, in
addition to our failure to repay our debt, we may be unable to
make distributions to our stockholders at expected levels or at
all. |
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Even if we are able to refinance or extend our existing debt,
the terms of any refinancing or extension may not be as
favorable as the terms of our existing debt. If the refinancing
involves a higher interest rate, it could adversely affect our
cash flow and ability to make distributions to stockholders. |
As of March 31, 2005, we had outstanding mortgage
indebtedness of $101.6 million (including unamortized debt
premium of $5.1 million), secured by eight properties, as
well as $2.3 million associated with our unconsolidated
partnership. We had $19.5 million outstanding under our
$100.0 million unsecured credit facility. Upon completion
of this offering, we expect to have outstanding mortgage
indebtedness of approximately $246.0 million (including
unamortized debt premium of $12.0 million) and
$250.0 million of borrowings under our secured term loan
facility, secured by 13 of our properties, as well as
$2.3 million associated with our unconsolidated
partnership, based on our outstanding indebtedness as of
June 14, 2005. We expect to incur additional debt in
connection with future acquisitions. Our organizational
documents do not limit the amount or percentage of debt that we
may incur.
Our credit facilities include restrictive covenants relating
to our operations, which could limit our ability to respond to
changing market conditions and our ability to make distributions
to our stockholders.
Our credit facilities impose restrictions on us that affect our
distribution and operating policies and our ability to incur
additional debt. For example, we are subject to a maximum
leverage ratio of 60% during the terms of the loans, which could
reduce our ability to incur additional debt and consequently
reduce our ability to make distributions to our stockholders.
Our credit facilities also contain limitations on our ability to
make distributions to our stockholders in excess of those
required to maintain our REIT status. Specifically, our credit
facilities limit distributions to 95% of funds from operations
or 100% of funds available for distribution plus cash payments
received under master leases on our King of Prussia and Bayshore
Boulevard properties, but not less than the minimum necessary to
enable us to meet our REIT income distribution requirements. In
addition, our credit facilities contain covenants that, among
other things, limit our ability to further mortgage our
properties or reduce insurance coverage, and that require us to
maintain specified levels of net worth. These or other
limitations may adversely affect our flexibility and our ability
to achieve our operating plans.
We have and may continue to engage in hedging transactions,
which can limit our gains and increase exposure to losses.
We have and may continue to enter into hedging transactions to
protect us from the effects of interest rate fluctuations on
floating rate debt. Our hedging transactions may include
entering into interest rate swap agreements or interest rate cap
or floor agreements, or other interest rate exchange contracts.
Hedging activities may not have the desired beneficial impact on
our results of operations or financial condition. No hedging
activity can completely insulate us from the risks associated
with changes in interest rates. Moreover, interest rate hedging
could fail to protect us or adversely affect us because, among
other things:
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Available interest rate hedging may not correspond directly with
the interest rate risk for which we seek protection. |
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The duration of the hedge may not match the duration of the
related liability. |
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The party owing money in the hedging transaction may default on
its obligation to pay. |
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The credit quality of the party owing money on the hedge may be
downgraded to such an extent that it impairs our ability to sell
or assign our side of the hedging transaction. |
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The value of derivatives used for hedging may be adjusted from
time to time in accordance with accounting rules to reflect
changes in fair value. Downward adjustments, or
mark-to-market losses, would reduce our
stockholders equity. |
Hedging involves risk and typically involves costs, including
transaction costs, that may reduce our overall returns on our
investments. These costs increase as the period covered by the
hedging increases and during periods of rising and volatile
interest rates. These costs will also limit the amount of cash
available for distribution to stockholders. We generally intend
to hedge as much of the interest rate risk as management
determines is in our best interests given the cost of such
hedging transactions. The REIT qualification rules may limit our
ability to enter into hedging transactions by requiring us to
limit our income from hedges. If we are unable to hedge
effectively because of the REIT rules, we will face greater
interest rate exposure than may be commercially prudent. For the
period from August 11, 2004 to March 31, 2005, we were
not a party to any hedging transactions. In connection with the
KeyBank $250.0 million secured term loan, we have entered
into an interest rate swap agreement, which will have the effect
of fixing the interest rate on the secured term loan at 6.4%.
Increases in interest rates could increase the amount of our
debt payments and adversely affect our ability to pay
distributions to our stockholders.
Interest we pay could reduce cash available for distributions.
Additionally, if we incur variable rate debt, including
borrowings under our senior secured term loan facility and our
senior unsecured credit facilities, to the extent not adequately
hedged, increases in interest rates would increase our interest
costs. These increased interest costs would reduce our cash
flows and our ability to make distributions to you. In addition,
if we need to repay existing debt during a period of rising
interest rates, we could be required to liquidate one or more of
our investments in properties at times that may not permit
realization of the maximum return on such investments.
If we fail to obtain external sources of capital, which is
outside of our control, we may be unable to make distributions
to our stockholders, maintain our REIT qualification, or fund
growth.
In order to maintain our qualification as a REIT, we are
required to distribute annually at least 90% of our net taxable
income, excluding any net capital gain. In addition, we will be
subject to income tax at regular corporate rates to the extent
that we distribute less than 100% of our net taxable income,
including any net capital gains. Because of these distribution
requirements, we may not be able to fund future capital needs,
including any necessary acquisition financing, from operating
cash flow. Consequently, we rely on third-party sources to fund
our capital needs. We may not be able to obtain financings on
favorable terms or at all. Our access to third-party sources of
capital depends, in part, on:
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general market conditions, |
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the markets perception of our growth potential, |
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with respect to acquisition financing, the markets
perception of the value of the properties to be acquired, |
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our current debt levels, |
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our current and expected future earnings, |
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our cash flow and cash distributions, and |
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the market price per share of our common stock. |
Additionally, if the ground lease underlying our Landmark at
Eastview property remains in place, it could be more difficult
to borrow using that property as collateral. Our inability to
obtain capital from third-party sources will adversely affect
our business and limit our growth. Without sufficient capital,
we may not
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be able to acquire or develop properties when strategic
opportunities exist, satisfy our debt service obligations or
make the cash distributions to our stockholders necessary to
maintain our qualification as a REIT.
Risks Related to Our REIT Status
Our failure to qualify as a REIT under the Code would result
in significant adverse tax consequences to us and would
adversely affect our business and the value of our stock.
We believe that we have operated and intend to continue
operating in a manner that will allow us to qualify as a REIT
for federal income tax purposes under the Code. However, the
REIT qualification requirements under the Code are complex and
technical, and the judicial and administrative interpretations
of these Code provisions are limited. The fact that we hold
substantially all of our assets through a partnership further
complicates the application of the REIT requirements. Even a
seemingly minor technical or inadvertent mistake could
jeopardize our REIT status. Our REIT status depends upon various
factual matters and circumstances that may not be entirely
within our control. In addition, new legislation, regulations,
administrative interpretations or court decisions, each of which
could have retroactive effect, may make it more difficult or
impossible for us to qualify as a REIT, or could reduce the
desirability of an investment in a REIT relative to other
investments. We have not requested and do not plan to request a
ruling from the IRS that we qualify as a REIT, and the
statements in this prospectus are not binding on the IRS or any
court. Accordingly, we cannot be certain that we will be
successful in qualifying as a REIT.
If we fail to qualify as a REIT in any tax year, we will face
serious adverse tax consequences that would substantially reduce
the funds available for distribution to you for each of the
years involved because:
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we would not be allowed to deduct distributions to stockholders
in computing our taxable income and would be subject to federal
income tax at regular corporate rates, |
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we could also be subject to the federal alternative minimum tax
and possibly increased state and local taxes, and |
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unless we are entitled to relief under applicable statutory
provisions, we could not elect to be taxed as a REIT for four
taxable years following the year in which we were disqualified. |
In addition, if we fail to qualify as a REIT, we will not be
required to make distributions to stockholders, and all
distributions to stockholders will be subject to tax as ordinary
corporate distributions. As a result of all these factors, our
failure to qualify as a REIT could impair our ability to expand
our business and raise capital and would adversely affect the
value of our common stock.
Even if we qualify as a REIT for federal income tax purposes,
we may be subject to other tax liabilities that reduce our cash
flow.
Even if we remain qualified as a REIT for tax purposes, we may
be subject to some federal, state and local taxes on our income
or property. For example:
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In order to qualify as a REIT, we must distribute annually at
least 90% of our REIT taxable income to our stockholders. To the
extent that we satisfy this distribution requirement, but
distribute less than 100% of our REIT taxable income, we will be
subject to federal corporate income tax on the undistributed
amount. |
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We will be subject to a 4% nondeductible excise tax on the
amount, if any, by which distributions we pay in any calendar
year are less than the sum of 85% of our ordinary income, 95% of
our capital gain net income and 100% of our undistributed income
from prior years. |
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If we have net income from the sale or other disposition of
foreclosure property that we hold primarily for sale
to customers in the ordinary course of business or other
non-qualifying income from foreclosure property, we must pay tax
on that income at the highest corporate rate. |
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If we sell a property in a prohibited transaction,
our gain from the sale would be subject to a 100% penalty tax. A
prohibited transaction is, in general, a sale or
other disposition of property, other than foreclosure property,
held primarily for sale to customers in the ordinary course of
business. |
To maintain our REIT status, we may be forced to borrow funds
during unfavorable market conditions to make distributions to
our stockholders.
To qualify as a REIT, we must distribute to our stockholders
certain amounts each year based on our income as described
above. At times, we may not have sufficient funds to satisfy
these distribution requirements and may need to borrow funds to
maintain our REIT status and avoid the payment of income and
excise taxes. These borrowing needs could result from:
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differences in timing between the actual receipt of cash and
inclusion of income for federal income tax purposes, |
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the effect of non-deductible capital expenditures, |
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the creation of reserves, or |
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required debt or amortization payments. |
We may need to borrow funds at times when the then-prevailing
market conditions are not favorable for these borrowings. These
borrowings could increase our costs or reduce our equity and
adversely affect the value of our common stock.
To maintain our REIT status, we may be forced to forego
otherwise attractive opportunities.
To qualify as a REIT, we must satisfy tests concerning, among
other things, the sources of our income, the nature and
diversification of our assets, the amounts we distribute to our
stockholders and the ownership of our stock. We may be required
to make distributions to stockholders at times when it would be
more advantageous to reinvest cash in our business or when we do
not have funds readily available for distribution. Thus,
compliance with the REIT requirements may hinder our ability to
operate solely on the basis of maximizing profits.
The ownership limitations in our charter may restrict or
prevent you from engaging in certain transfers of our stock.
Our charter contains restrictions on the ownership and transfer
of our capital stock that are intended to assist us in complying
with the requirements imposed on REITs by the Code. The
ownership limits contained in our charter provide that, subject
to certain specified exceptions, no person or entity may own
more than 9.8% of the value of our outstanding shares of capital
stock, and no person or entity may own more than 9.8% (by number
or value, whichever is more restrictive) of the outstanding
shares of our common stock. Our charter also (1) prohibits
any person from actually or constructively owning shares of our
capital stock that would cause us to be closely held
under Section 856(h) of the Code or would otherwise cause
us to fail to qualify as a REIT and (2) voids any transfer
that would result in shares of our capital stock being owned by
fewer than 100 persons. The constructive ownership rules of the
Code are complex, and may cause shares of our capital stock
owned actually or constructively by a group of related
individuals and/or entities to be constructively owned by one
individual or entity. As a result, acquisition of less than 9.8%
of the shares of our capital stock (or the acquisition of an
interest in equity of, or in certain affiliates or subsidiaries
of, an entity that owns, actually or constructively, our capital
stock) by an individual or entity, could cause that individual
or entity, or another individual or entity, to own
constructively shares in a manner that would violate the 9.8%
ownership limits or such other limit as provided in our charter
or permitted by our board of directors. Our board of directors
may, but in no event will be required to, waive the 9.8%
ownership limit with respect to a particular stockholder if it
determines that the ownership will not jeopardize our status as
a REIT. As a condition of granting such a waiver, our board of
directors may require a ruling from the IRS or an opinion of
counsel satisfactory to our board and will obtain undertakings
or representations from the applicant with respect to preserving
our status as
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a REIT. Pursuant to our charter, if any purported transfer of
our capital stock or any other event would result in any person
violating the ownership limits set forth in our charter or
otherwise permitted by our board of directors, then that number
of shares in excess of the applicable limit will be
automatically transferred, pursuant to our charter, to a trust,
the beneficiary of which will be a qualified charitable
organization we select or, under certain circumstances, the
transfer of our capital stock or other event will be void and of
no force or effect.
Risks Related to This Offering
Several of our underwriters may have conflicts of interest
that arise out of a contractual relationship with affiliates of
those underwriters.
We have entered into credit facilities with a number of
financial institutions, including KeyBank National Association,
an affiliate of KeyBanc Capital Markets, Royal Bank of Canada,
an affiliate of RBC Capital Markets Corporation, and Raymond
James Bank, FSB, an affiliate of Raymond James & Associates,
Inc., which facilities allow for total borrowings of
$600.0 million. As members of the credit facility
syndicate, these affiliates will benefit from this offering
because substantially all of the net proceeds of this offering
will be used to repay loans made under such facilities prior to
this offering. This repayment gives the identified affiliates an
interest in the successful completion of this offering beyond
the customary underwriting discounts and commissions received by
the underwriters in this offering. This could result in a
conflict of interest, as our underwriters obligations to
us and the investors in this offering may conflict with those of
their affiliates.
The market price and trading volume of our common stock may
be volatile following this offering, and you could experience a
loss if you sell your shares.
The market price of our common stock may be volatile. In
addition, the trading volume in our common stock may fluctuate
and cause significant price variations to occur. If the market
price of our common stock declines significantly, you may be
unable to resell your shares at or above the public offering
price. We cannot assure you that the market price of our common
stock will not fluctuate or decline significantly in the future.
Some of the factors that could negatively affect our share price
or result in fluctuations in the price or trading volume of our
common stock include:
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actual or anticipated variations in our quarterly operating
results or dividends, |
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changes in our funds from operations or earnings estimates, |
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publication of research reports about us or the real estate
industry, |
|
|
|
increases in market interest rates that lead purchasers of our
shares to demand a higher yield, |
|
|
|
changes in market valuations of similar companies, |
|
|
|
adverse market reaction to any additional debt we incur or
acquisitions we make in the future, |
|
|
|
additions or departures of key management personnel, |
|
|
|
actions by institutional stockholders, |
|
|
|
speculation in the press or investment community, |
|
|
|
the realization of any of the other risk factors presented in
this prospectus, and |
|
|
|
general market and economic conditions. |
An increase in market interest rates may have an adverse
effect on the market price of our securities.
Changes in market interest rates have historically affected the
trading prices of equity securities issued by REITs. One of the
factors that will influence the price of our common stock will
be the dividend yield on our common stock (as a percentage of
the price of our common stock) relative to market interest rates.
27
An increase in market interest rates, which are currently at low
levels relative to historical rates, may lead prospective
purchasers of our common stock to expect a higher dividend
yield. Further, higher interest rates would likely increase our
borrowing costs and potentially decrease funds available for
distribution. Thus, higher market interest rates could harm our
financial condition and results of operations and could cause
the market price of our common stock to fall.
Broad market fluctuations could negatively impact the market
price of our common stock.
The stock market has experienced extreme price and volume
fluctuations that have affected the market price of many
companies in industries similar or related to ours and that have
been unrelated to these companies operating performance.
These broad market fluctuations could reduce the market price of
our common stock. Furthermore, our operating results and
prospects may be below the expectations of public market
analysts and investors or may be lower than those of companies
with comparable market capitalizations. Either of these factors
could lead to a material decline in the market price of our
common stock.
Our distributions to stockholders may decline at any time.
We may not continue our current level of distributions to
stockholders. Our board of directors will determine future
distributions based on a number of factors, including:
|
|
|
|
|
cash available for distribution, |
|
|
|
operating results, |
|
|
|
our financial condition, especially in relation to our
anticipated future capital needs, |
|
|
|
then current expansion plans, |
|
|
|
the distribution requirements for REITs under the Code, and |
|
|
|
other factors our board deems relevant. |
The number of shares of our common stock available for future
sale could adversely affect the market price of our common
stock.
We cannot predict whether future issuances of shares of our
common stock or the availability of shares for resale in the
open market will decrease the market price per share of our
common stock. Upon completion of this offering, we will have
outstanding 42,444,558 shares of our common stock
(44,094,558 shares if the underwriters exercise their
over-allotment option in full), as well as units in our
operating partnership which may be exchanged for
2,870,564 shares of our common stock, based on the number
of shares of common stock and units outstanding as of
May 31, 2005. In addition, as of May 31, 2005, we had
reserved an additional 2,105,442 shares of common stock for
future issuance under our incentive award plan and have issued a
warrant to Raymond James & Associates, Inc. in
connection with our IPO to purchase 270,000 shares of our common
stock at the IPO price. Sales of substantial amounts of shares
of our common stock in the public market, or upon exchange of
operating partnership units, or the perception that such sales
might occur, could adversely affect the market price of our
common stock.
Any of the following could have an adverse effect on the market
price of our common stock:
|
|
|
|
|
the exercise of the underwriters over-allotment option, |
|
|
|
the exchange of units for common stock, |
|
|
|
the exercise of any options granted to certain directors,
executive officers and other employees under our incentive award
plan, |
|
|
|
issuances of preferred stock with liquidation or distribution
preferences, and |
|
|
|
other issuances of our common stock. |
28
Additionally, the existence of units, options and shares of our
common stock reserved for issuance upon exchange of units may
adversely affect the terms upon which we may be able to obtain
additional capital through the sale of equity securities. In
addition, future sales of shares of our common stock may be
dilutive to existing stockholders.
Each of our then-current executive officers entered into a
lock-up agreement restricting the sale of his shares for up to
one year following our IPO, which expires in August 2005.
Further, in connection with this offering, each of our executive
officers entered into a lock-up agreement restricting the sale
of his shares for up to 90 days following the completion of
this offering. Raymond James & Associates, Inc., at any
time, may release all or a portion of the common stock subject
to the foregoing lock-up provisions. When determining whether or
not to release shares subject to a lock-up agreement, Raymond
James & Associates, Inc. will consider, among other
factors, the persons reasons for requesting the release,
the number of shares for which the release is being requested
and the possible impact of the release of the shares on the
market price of our common stock. If the restrictions under such
agreements are waived, the affected common stock may be
available for sale into the market, which could reduce the
market price of our common stock.
From time to time we also may issue shares of our common stock
or operating partnership units in connection with property,
portfolio or business acquisitions. We may grant additional
demand or piggyback registration rights in connection with these
issuances. Sales of substantial amounts of our common stock, or
the perception that these sales could occur, may adversely
affect the prevailing market price of our common stock or may
adversely affect the terms upon which we may be able to obtain
additional capital through the sale of equity securities.
29
FORWARD-LOOKING STATEMENTS
We make statements in this prospectus that are forward-looking
statements. In particular, statements pertaining to our capital
resources, portfolio performance and results of operations
contain forward-looking statements. Likewise, our pro forma
financial statements and our statements regarding anticipated
growth in our funds from operations and anticipated market
conditions, demographics and results of operations are
forward-looking statements. Forward-looking statements involve
numerous risks and uncertainties and you should not rely on them
as predictions of future events. Forward-looking statements
depend on assumptions, data or methods which may be incorrect or
imprecise, and we may not be able to realize them. We do not
guarantee that the transactions and events described will happen
as described (or that they will happen at all). You can identify
forward-looking statements by the use of forward-looking
terminology such as believes, expects,
may, will, should,
seeks, approximately,
intends, plans, pro forma,
estimates or anticipates or the negative
of these words and phrases or similar words or phrases. You can
also identify forward-looking statements by discussions of
strategy, plans or intentions. The following factors, among
others, could cause actual results and future events to differ
materially from those set forth or contemplated in the
forward-looking statements:
|
|
|
|
|
adverse economic or real estate developments in the life science
industry or the Boston or California regions, |
|
|
|
general economic conditions, |
|
|
|
our ability to compete effectively, |
|
|
|
defaults on or non-renewal of leases by tenants, |
|
|
|
increased interest rates and operating costs, |
|
|
|
our failure to obtain necessary outside financing, |
|
|
|
our ability to successfully complete real estate acquisitions,
developments and dispositions, |
|
|
|
our failure to successfully operate acquired properties and
operations, |
|
|
|
our failure to maintain our status as a REIT, |
|
|
|
government approvals, actions and initiatives, including the
need for compliance with environmental requirements, |
|
|
|
financial market fluctuations, and |
|
|
|
changes in real estate and zoning laws and increases in real
property tax rates. |
While forward-looking statements reflect our good faith beliefs,
they are not guarantees of future performance. We disclaim any
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise. For a further discussion of these and other factors
that could impact our future results, performance or
transactions, see the section above entitled Risk
Factors.
30
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be
approximately $234.3 million, after deducting the
underwriting discount and estimated offering expenses we will
pay. If the underwriters exercise their over-allotment option in
full, our net proceeds will be approximately $269.5 million.
We will contribute the net proceeds of this offering to our
operating partnership. Our operating partnership will
subsequently use the proceeds received from us as follows:
|
|
|
|
|
|
$100.0 million to repay indebtedness under our senior
unsecured term loan facility, |
|
|
|
|
|
$127.5 million to repay indebtedness under our senior
unsecured revolving credit facility, based on outstanding
borrowings as of June 14, 2005, and |
|
|
|
|
|
$6.8 million to fund future property acquisitions and for
other general corporate and working capital purposes. |
|
If the underwriters exercise their over-allotment option in
full, we expect to use the additional net proceeds, which will
be $35.2 million, to fund future property acquisitions and
for other general corporate and working capital purposes.
The senior unsecured term loan facility and the senior unsecured
revolving credit facility with KeyBank and other lenders bear
interest at a floating rate equal to, at our option, either
(1) reserve adjusted LIBOR plus a spread which ranges from
120 to 200 basis points, depending on our leverage, or
(2) the higher of (a) the prime rate then in effect
plus a spread which ranges from 0 to 50 basis points and
(b) the federal funds rate then in effect plus a spread
which ranges from 50 to 100 basis points, in each case,
depending on our leverage, and mature in May 2008. The proceeds
of the senior unsecured term loan facility and the senior
unsecured revolving credit facility were used to partially fund
the acquisition of the Lyme portfolio and repay our previous
unsecured revolving credit facility. The initial participating
lenders under our unsecured credit facilities include affiliates
of several underwriters participating in this offering,
including Raymond James & Associates, Inc., RBC Capital
Markets Corporation and KeyBanc Capital Markets, a division of
McDonald Investments Inc. Substantially all of the net proceeds
of this offering will be received by these affiliates.
In the ordinary course of our business, we continually evaluate
properties for possible acquisition by us. At any given time, we
may be a party to one or more non-binding letters of intent or
conditional purchase agreements with respect to these possible
acquisitions and may be in various stages of due diligence and
underwriting as part of our evaluations. As of the date of this
prospectus, we were party to non-binding letters of intent with
respect to certain acquisitions. Consummation of any potential
transaction is necessarily subject to significant outstanding
conditions, including satisfactory completion of our due
diligence or, in the case of letters of intent, the negotiation
of definitive purchase or loan agreements. As a result, we can
make no assurance that any such transaction will be completed,
or, if completed, what the terms or timing of the transaction
will be.
Pending application of cash proceeds, we will invest such
portion of the net proceeds in interest-bearing accounts and
short-term, interest-bearing securities, which are consistent
with our intention to qualify for taxation as a REIT.
31
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION POLICY
Our common stock has been listed on the NYSE under the symbol
BMR since August 6, 2004. The following table
sets forth, for the periods indicated, the high, low and last
sale prices in dollars on the NYSE for our common stock and the
distributions we declared with respect to the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividend | |
|
|
High | |
|
Low | |
|
Last | |
|
Per Share | |
|
|
| |
|
| |
|
| |
|
| |
Period August 6, 2004 to September 30, 2004
|
|
$ |
18.05 |
|
|
$ |
15.75 |
|
|
$ |
17.59 |
|
|
$ |
0.1497 |
|
Quarter Ended December 31, 2004
|
|
$ |
22.95 |
|
|
$ |
17.10 |
|
|
$ |
22.21 |
|
|
$ |
0.2700 |
|
Quarter Ended March 31, 2005
|
|
$ |
22.40 |
|
|
$ |
19.40 |
|
|
$ |
20.60 |
|
|
$ |
0.2700 |
|
Period April 1, 2005 to June 14, 2005
|
|
$ |
22.89 |
|
|
$ |
19.39 |
|
|
$ |
22.35 |
|
|
$ |
0.2700 |
(1) |
|
|
(1) |
On June 3, 2005, we declared a dividend of $0.27 per common
share and unit, for the period from April 1, 2005 to
June 30, 2005, payable to holders of record on
June 15, 2005. |
We intend to continue to declare quarterly distributions on our
common stock. The actual amount and timing of distributions,
however, will be at the discretion of our board of directors and
will depend upon our financial condition in addition to the
requirements of the Code, and no assurance can be given as to
the amounts or timing of future distributions.
Subject to the distribution requirements applicable to REITs
under the Code, we intend, to the extent practicable, to invest
substantially all of the proceeds from sales and refinancings of
our assets in real estate-related assets and other assets. We
may, however, under certain circumstances, make a distribution
of capital or of assets. Such distributions, if any, will be
made at the discretion of our board of directors. Distributions
will be made in cash to extent that cash is available for
distribution.
On June 14, 2005, the closing sale price for our common
stock, as reported on the NYSE, was $22.35. As of May 31,
2005, there were 38 record holders of our common stock. This
figure does not reflect the beneficial ownership of shares held
in nominee name.
32
CAPITALIZATION
The following table sets forth the historical consolidated
capitalization of our company as of March 31, 2005 and our
pro forma consolidated capitalization as of March 31, 2005,
as adjusted to give effect to this offering. You should read
this table in conjunction with Use of Proceeds,
Selected Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources and
our consolidated financial statements and the notes to our
financial statements appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
Historical | |
|
Pro Forma | |
|
|
Consolidated | |
|
Consolidated | |
|
|
($ in 000s) | |
|
($ in 000s) | |
|
|
| |
|
| |
Mortgages and other secured loans
|
|
$ |
101,594 |
|
|
$ |
496,981 |
|
Unsecured loans and lines of credit
|
|
|
19,500 |
|
|
|
|
|
Minority interest in our operating partnership
|
|
|
22,486 |
|
|
|
22,486 |
|
Equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000,000 shares
authorized, 31,432,558 shares issued and outstanding at
March 31, 2005; 42,432,558 shares issued and
outstanding on a pro forma basis(1)
|
|
|
314 |
|
|
|
424 |
|
|
Additional paid-in capital
|
|
|
435,010 |
|
|
|
669,187 |
|
|
Deferred compensation
|
|
|
(4,410 |
) |
|
|
(4,410 |
) |
|
Dividends in excess of earnings
|
|
|
(11,041 |
) |
|
|
(12,992 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
419,873 |
|
|
|
652,209 |
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
563,453 |
|
|
$ |
1,171,676 |
|
|
|
|
|
|
|
|
|
|
(1) |
The common stock outstanding as shown excludes
(a) 2,870,564 shares issuable upon conversion of
outstanding units of our operating partnership,
(b) 2,117,442 shares available for future issuance
under our incentive award plan which includes certain grants of
restricted stock, of which 12,000 shares were granted
between March 31, 2005 and May 31, 2005 and
(c) 270,000 shares issuable upon exercise of a warrant
issued to Raymond James & Associates, Inc. in
connection with our IPO. |
33
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
data on a pro forma and historical basis for BioMed Realty
Trust, Inc., and on an historical basis for 201 Industrial. We
have not presented historical information for BioMed Realty
Trust, Inc. prior to August 11, 2004, the date on which we
consummated our IPO, because during the period from our
formation until our IPO we did not have any material corporate
activity and because we believe that a discussion of the results
of BioMed Realty Trust, Inc. during that period would not be
meaningful.
You should read the following pro forma and historical
information in conjunction with our pro forma consolidated
financial statements and historical financial statements and
notes thereto, as well as with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this
prospectus.
The selected historical balance sheet information as of
December 31, 2004 for BioMed Realty Trust, Inc. and as of
December 31, 2003 and 2002 for 201 Industrial, and the
historical statements of income and other data for the period
from August 11, 2004 through December 31, 2004 for
BioMed Realty Trust, Inc. and for the period from
January 1, 2004 through August 17, 2004 and for the
years ended December 31, 2003 and 2002 for
201 Industrial, have been derived from our historical
financial statements audited by KPMG LLP, independent registered
public accountants, whose report with respect thereto is
included elsewhere in this prospectus, except as it relates to
the historical balance sheet information as of December 31,
2002 of 201 Industrial, which report is not included in this
prospectus. The historical balance sheet and statement of income
and other data as of and for the years ended December 31,
2001 and 2000 of 201 Industrial, is unaudited. 201 Industrial is
the largest property contributed to the company in connection
with our formation transactions and therefore has been
identified as the accounting acquirer pursuant to
paragraph 17 of SFAS No. 141. The contribution of
201 Industrial as part of our formation transactions was
completed on August 17, 2004. The contribution of the
interests in all of the other contribution properties and all
acquisitions have been accounted for as a purchase in accordance
with SFAS No. 141. The historical balance sheet
information at March 31, 2005, and the historical statement
of operations and other data for the three months ended
March 31, 2005 and 2004, have been derived from the
unaudited historical financial statements of BioMed Realty
Trust, Inc. and 201 Industrial.
The unaudited pro forma consolidated balance sheet data are
presented as if this offering had occurred on March 31,
2005. The unaudited pro forma consolidated statements of
operations and other data for the three months ended
March 31, 2005 and the year ended December 31, 2004,
are presented as if this offering, the IPO, and all acquisitions
and contributions had occurred on January 1, 2004. The pro
forma information is not necessarily indicative of what our
actual financial position or results of operations would have
been as of or for the periods indicated, nor does it purport to
represent our future financial position or results of operations.
34
BioMed Realty Trust, Inc. and Inhale 201 Industrial Road,
L.P. (Predecessor)
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioMed Realty Trust, Inc. | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
|
|
Period | |
|
Period | |
|
|
|
|
|
|
|
|
August 11, | |
|
January 1, | |
|
|
|
|
|
|
Year Ended | |
|
2004 through | |
|
2004 through | |
|
|
|
|
Three Months Ended March 31, | |
|
December 31, | |
|
December 31, | |
|
August 17, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pro Forma | |
|
Historical | |
|
Pro Forma | |
|
Historical | |
|
Historical | |
|
Historical | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
2005 | |
|
2005 | |
|
2004(1) | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001(6) | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) | |
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$ |
27,695 |
|
|
$ |
14,214 |
|
|
$ |
1,562 |
|
|
$ |
111,696 |
|
|
$ |
19,432 |
|
|
$ |
3,339 |
|
|
$ |
6,275 |
|
|
$ |
5,869 |
|
|
$ |
4,421 |
|
|
$ |
955 |
|
|
Tenant recoveries
|
|
|
11,853 |
|
|
|
7,254 |
|
|
|
150 |
|
|
|
41,142 |
|
|
|
9,222 |
|
|
|
375 |
|
|
|
744 |
|
|
|
718 |
|
|
|
283 |
|
|
|
101 |
|
|
Other income
|
|
|
3,488 |
|
|
|
3,003 |
|
|
|
|
|
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
43,036 |
|
|
|
24,471 |
|
|
|
1,712 |
|
|
|
154,216 |
|
|
|
28,654 |
|
|
|
3,714 |
|
|
|
7,019 |
|
|
|
6,587 |
|
|
|
4,704 |
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations
|
|
|
8,529 |
|
|
|
6,395 |
|
|
|
65 |
|
|
|
33,093 |
|
|
|
10,030 |
|
|
|
265 |
|
|
|
408 |
|
|
|
372 |
|
|
|
61 |
|
|
|
150 |
|
|
Real estate taxes
|
|
|
4,670 |
|
|
|
1,788 |
|
|
|
88 |
|
|
|
16,453 |
|
|
|
1,589 |
|
|
|
88 |
|
|
|
422 |
|
|
|
449 |
|
|
|
262 |
|
|
|
19 |
|
|
Depreciation and amortization
|
|
|
11,118 |
|
|
|
6,191 |
|
|
|
242 |
|
|
|
42,807 |
|
|
|
7,853 |
|
|
|
600 |
|
|
|
955 |
|
|
|
955 |
|
|
|
617 |
|
|
|
5 |
|
|
General and administrative
|
|
|
2,572 |
|
|
|
2,550 |
|
|
|
|
|
|
|
10,357 |
|
|
|
3,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
26,889 |
|
|
|
16,924 |
|
|
|
395 |
|
|
|
102,710 |
|
|
|
22,602 |
|
|
|
953 |
|
|
|
1,785 |
|
|
|
1,776 |
|
|
|
940 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,147 |
|
|
|
7,547 |
|
|
|
1,317 |
|
|
|
51,506 |
|
|
|
6,052 |
|
|
|
2,761 |
|
|
|
5,234 |
|
|
|
4,811 |
|
|
|
3,764 |
|
|
|
882 |
|
Equity in net income (loss) of unconsolidated partnership
|
|
|
51 |
|
|
|
51 |
|
|
|
|
|
|
|
(44 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
78 |
|
|
|
78 |
|
|
|
|
|
|
|
496 |
|
|
|
190 |
|
|
|
|
|
|
|
1 |
|
|
|
3 |
|
|
|
16 |
|
|
|
4 |
|
|
Interest expense
|
|
|
(8,122 |
) |
|
|
(1,411 |
) |
|
|
(686 |
) |
|
|
(28,823 |
) |
|
|
(1,180 |
) |
|
|
(1,760 |
) |
|
|
(2,901 |
) |
|
|
(3,154 |
) |
|
|
(2,722 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
8,154 |
|
|
|
6,265 |
|
|
|
631 |
|
|
|
23,135 |
|
|
|
5,051 |
|
|
|
1,001 |
|
|
|
2,334 |
|
|
|
1,660 |
|
|
|
1,058 |
|
|
|
886 |
|
|
Minority interests
|
|
|
(418 |
) |
|
|
(429 |
) |
|
|
|
|
|
|
(1,171 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
7,736 |
|
|
$ |
5,836 |
|
|
$ |
631 |
|
|
$ |
21,964 |
|
|
$ |
4,782 |
|
|
$ |
1,001 |
|
|
$ |
2,334 |
|
|
$ |
1,660 |
|
|
$ |
1,058 |
|
|
$ |
886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share(3)
|
|
$ |
0.18 |
|
|
$ |
0.19 |
|
|
|
|
|
|
$ |
0.52 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(4)
|
|
$ |
0.18 |
|
|
$ |
0.19 |
|
|
|
|
|
|
$ |
0.52 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
42,129,613 |
|
|
|
31,129,613 |
|
|
|
|
|
|
|
41,965,178 |
|
|
|
30,965,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
45,148,820 |
|
|
|
34,148,820 |
|
|
|
|
|
|
|
44,767,575 |
|
|
|
33,767,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
|
|
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental properties, net
|
|
$ |
1,035,489 |
|
|
$ |
489,136 |
|
|
$ |
46,792 |
|
|
|
|
|
|
$ |
468,488 |
|
|
|
|
|
|
$ |
47,025 |
|
|
$ |
47,853 |
|
|
$ |
48,627 |
|
|
$ |
36,279 |
|
Total assets
|
|
|
1,228,970 |
|
|
|
601,617 |
|
|
|
49,933 |
|
|
|
|
|
|
|
581,723 |
|
|
|
|
|
|
|
50,056 |
|
|
|
50,732 |
|
|
|
50,500 |
|
|
|
37,755 |
|
Mortgages and other secured loans
|
|
|
496,981 |
|
|
|
101,594 |
|
|
|
36,971 |
|
|
|
|
|
|
|
102,236 |
|
|
|
|
|
|
|
37,208 |
|
|
|
37,743 |
|
|
|
36,879 |
|
|
|
16,039 |
|
Unsecured line of credit
|
|
|
|
|
|
|
19,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
554,275 |
|
|
|
159,258 |
|
|
|
37,353 |
|
|
|
|
|
|
|
137,639 |
|
|
|
|
|
|
|
37,597 |
|
|
|
38,563 |
|
|
|
37,961 |
|
|
|
25,000 |
|
Minority interests
|
|
|
22,486 |
|
|
|
22,486 |
|
|
|
|
|
|
|
|
|
|
|
22,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity and partners capital
|
|
|
652,209 |
|
|
|
419,873 |
|
|
|
12,580 |
|
|
|
|
|
|
|
421,817 |
|
|
|
|
|
|
|
12,459 |
|
|
|
12,169 |
|
|
|
12,539 |
|
|
|
12,752 |
|
Total liabilities and equity
|
|
|
1,228,970 |
|
|
|
601,617 |
|
|
|
49,933 |
|
|
|
|
|
|
|
581,723 |
|
|
|
|
|
|
|
50,056 |
|
|
|
50,732 |
|
|
|
50,500 |
|
|
|
37,755 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations(5)
|
|
$ |
19,381 |
|
|
|
|
|
|
|
|
|
|
$ |
66,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
10,062 |
|
|
|
687 |
|
|
|
|
|
|
|
13,959 |
(2) |
|
|
|
|
|
|
2,416 |
|
|
|
1,762 |
|
|
|
1,239 |
|
|
|
(410 |
) |
|
|
Investing activities
|
|
|
|
|
|
|
(32,197 |
) |
|
|
|
|
|
|
|
|
|
|
(456,680 |
)(2) |
|
|
|
|
|
|
(105 |
) |
|
|
(159 |
) |
|
|
(17,703 |
) |
|
|
(18,482 |
) |
|
|
Financing activities
|
|
|
|
|
|
|
9,836 |
|
|
|
(756 |
) |
|
|
|
|
|
|
470,433 |
(2) |
|
|
|
|
|
|
(2,666 |
) |
|
|
(1,210 |
) |
|
|
16,569 |
|
|
|
18,906 |
|
35
|
|
(1) |
Represents the results and financial position of the Predecessor
for the three months ended March 31, 2004. |
|
(2) |
Consolidated and combined cash flow information of BioMed Realty
Trust, Inc. and the Predecessor for the year ended
December 31, 2004. |
|
(3) |
Basic earnings per share equals net income divided by the number
of shares of our common stock outstanding excluding the weighted
average of the number of unvested shares of restricted stock.
Pro forma basic earnings per share is computed assuming this
offering was consummated as of the first day of the period
presented. |
|
(4) |
Diluted earnings per share equals pro forma net income divided
by the sum of the number of shares of our common stock
outstanding excluding the weighted average number of unvested
shares of restricted stock, plus an amount computed using the
treasury stock method with respect to the unvested shares of our
restricted stock. Pro forma diluted earnings per share is
computed assuming this offering was consummated as of the first
day of the period presented. |
|
|
(5) |
As defined by NAREIT, FFO represents net income (computed in
accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate related depreciation and amortization
(excluding amortization of loan origination costs) and after
adjustments for unconsolidated partnerships and joint ventures.
We present FFO because we consider it an important supplemental
measure of our operating performance and believe it is
frequently used by securities analysts, investors and other
interested parties in the evaluation of REITs, many of which
present FFO when reporting their results. FFO is intended to
exclude GAAP historical cost depreciation and amortization of
real estate and related assets, which assumes that the value of
real estate assets diminishes ratably over time. Historically,
however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization
unique to real estate, gains and losses from property
dispositions and extraordinary items, it provides a performance
measure that, when compared year over year, reflects the impact
to operations from trends in occupancy rates, rental rates,
operating costs, development activities and interest costs,
providing perspective not immediately apparent from net income.
We compute FFO in accordance with standards established by the
Board of Governors of NAREIT in its March 1995 White Paper (as
amended in November 1999 and April 2002), which may differ from
the methodology for calculating FFO utilized by other equity
REITs and, accordingly, may not be comparable to such other
REITs. Further, FFO does not represent amounts available for
managements discretionary use because of needed capital
replacement or expansion, debt service obligations, or other
commitments and uncertainties. FFO should not be considered as
an alternative to net income (loss) (computed in accordance with
GAAP) as an indicator of our financial performance or to cash
flow from operating activities (computed in accordance with
GAAP) as an indicator of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to
pay dividends or make distributions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
| |
|
|
Three Months | |
|
|
|
|
Ended | |
|
Year Ended | |
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Reconciliation of Pro Forma Funds from Operations
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
7,736 |
|
|
$ |
21,964 |
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Pro forma minority interests
|
|
|
527 |
|
|
|
1,494 |
|
|
|
Pro forma real estate depreciation and amortization
|
|
|
11,118 |
|
|
|
42,807 |
|
|
|
|
|
|
|
|
|
Pro forma funds from operations
|
|
$ |
19,381 |
|
|
$ |
66,265 |
|
|
|
|
|
|
|
|
|
|
(6) |
Balance sheet data are unaudited. |
36
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with
Selected Financial Data and the financial statements
and the related notes thereto appearing elsewhere in this
prospectus. Where appropriate, the following discussion includes
analysis of the effects of our IPO and the related formation
transactions. These effects are reflected in the historical and
pro forma consolidated financial statements appearing elsewhere
in this prospectus. References to we, us
and our refer to BioMed Realty Trust, Inc.
Overview
BioMed Realty Trust, Inc. is a Maryland corporation formed in
April 2004. We operate as a REIT focused on acquiring,
developing, owning, leasing and managing laboratory and office
space for the life science industry. Our tenants include
biotechnology and pharmaceutical companies, scientific research
institutions, government agencies and other entities involved in
the life science industry. Our current properties and our
primary acquisition targets are located in markets with well
established reputations as centers for scientific research,
including Boston, San Diego, San Francisco, Seattle,
Maryland, Pennsylvania and New York/ New Jersey.
We completed an IPO of our common stock in August 2004. In
connection with the IPO, we acquired 13 properties with an
aggregate of 2.3 million rentable square feet of laboratory
and office space. We acquired Industrial Road, Science Center
Drive, Bernardo Center Drive, Balboa Avenue, Eisenhower Road and
a general partnership interest in McKellar Court from affiliates
and others for an aggregate of 2.9 million operating
partnership units, aggregate cash consideration of
$77.0 million using net proceeds of the IPO and the
assumption of $14.0 million of debt (excluding
$10.9 million of principal associated with our McKellar
Court property, which is owned through an unconsolidated
partnership, and excluding $1.8 million of premium). In
addition, we acquired seven properties from unaffiliated third
parties: Landmark at Eastview, King of Prussia, Elliott Avenue,
Monte Villa Parkway, Bridgeview, Bayshore Boulevard and Towne
Centre Drive. These properties were acquired for aggregate cash
consideration of $323.2 million using net proceeds of the
IPO and the assumption of $29.0 million of debt (excluding
$3.2 million of premium). The seller of the Bridgeview
property exercised its right to extend the closing date on a
portion of the property, consisting of one building representing
$16.2 million (or approximately 50% of the purchase price),
to March 2005 to facilitate a like-kind exchange under
Section 1031 of the Code.
Since the completion of the IPO, we have acquired
20 properties and the third building on our Bridgeview
property in Hayward, California, with an aggregate of
2.0 million rentable square feet of laboratory and office
space. We acquired San Diego Science Center, Ardentech
Court in Fremont, California, Beckley Street and Tributary
Street in Baltimore, Maryland (in a sale-leaseback transaction
with Guilford Pharmaceuticals Inc.), Waples Street in
San Diego (through a majority-owned joint venture),
Graphics Drive in Ewing, New Jersey, Fresh Pond Research Park in
Cambridge, Massachusetts, Coolidge Avenue in Watertown,
Massachusetts, Phoenixville Pike in Malvern, Pennsylvania, Nancy
Ridge Drive in San Diego, Dumbarton Circle in Fremont,
California and the Lyme portfolio from unaffiliated third
parties for aggregate cash consideration of $546.9 million
and the assumption of $143.0 million of debt (excluding
$7.8 million of premium). As of May 31, 2005, our
properties were approximately 92.2% leased to 76 tenants. Of the
remaining unleased space, 204,071 square feet, or 4.8% of
our total rentable square footage, was under redevelopment.
On May 31, 2005, we completed the acquisition of the Lyme
portfolio. The Lyme portfolio consists of ten buildings with an
aggregate of approximately 1.1 million rentable square feet
of laboratory and office space, which upon acquisition was 96.8%
leased with an average remaining term of ten years, and includes
the parking structure with 447 parking spaces. The purchase
price was $523.6 million, excluding closing costs, and was
funded through borrowings under three credit facilities with
KeyBank and other lenders and the assumption of approximately
$131.2 million of indebtedness.
37
Our business consists of acquiring and managing office and
laboratory properties primarily leased on a triple-net basis to
life science tenants. We acquired our existing portfolio using
our focused acquisition strategy. This strategy emphasizes a
critical review of each propertys location, design
elements and suitability for alternative tenants. In most cases,
we acquire properties with leases in place and we structure our
acquisition based on our careful consideration of the financial
position and prospects of the tenants, as well as the lease
structure and remaining term of the lease. See Business
and Properties Our Business Strategy.
Our tenant focus is on entities in the life science industry.
Compared to more generic office and industrial properties,
properties suitable for use by life science tenants often have
enhanced floor rigidity and load bearing capacities, higher
floor-to-ceiling clear heights, enhanced electrical, plumbing
and HVAC systems and other improved infrastructure.
We believe that properties suitable for tenants in the life
science industry will provide a favorable risk-adjusted rate of
return. This belief is based on a number of factors, including:
|
|
|
|
|
high demand for this property type due to overall growth in the
life science industry and the mission-critical nature of these
properties to tenants in that industry, and |
|
|
|
restricted supply of this property type resulting from: |
|
|
|
|
|
lack of familiarity with the investment merits of the life
science industry by the real estate market in general, |
|
|
|
the unique construction and design elements for this property
type, which keep many landlords focused on lower-cost office
space, warehouse space and other types of real estate
investments, and |
|
|
|
low availability of suitable financing for properties containing
life science tenants. Managements experience is that many
lenders will not underwrite properties designed for life science
tenants because of the high cost per square foot and the fact
that many tenants in the industry are not profitable. |
Leases for life science tenants typically are triple-net leases
but also include gross leases and modified gross leases.
Triple-net leases require the tenant to pay its pro rata share
of substantially all property operating expenses, including
property taxes, insurance, maintenance and utilities. Gross
leases require the landlord to pay all property operating
expenses, and modified gross leases require the landlord and the
tenant each to pay a portion of the property operating expenses.
Our portfolio primarily consists of triple-net leases where the
tenants reimburse us for substantially all of their pro rata
share of the properties operating expenses. Our leases
typically include annual rent escalations, either at fixed rates
or indexed escalations (based on the Consumer Price Index or
other measures).
Consistent with life science industry practices with respect to
triple-net leases, our tenants are generally responsible for
capital expenditures and maintenance necessary to maintain the
condition of the property. The shifting of all or a large
portion of operating and capital expenditures to tenants under
triple-net or modified gross leases results in a business with
relatively low overhead and that, as a consequence, we believe
is highly scalable. Furthermore, our tenants typically make
significant expenditures for tenant improvements. Many of these
improvements become our property at the conclusion of the lease.
This investment serves as a barrier to exit for our current
tenants and as an inducement for prospective tenants if we need
to re-lease the space.
Our objective is to use debt to finance, on average,
approximately 50% of the acquisition cost of the properties that
we buy. We intend to leverage the equity we raise in this
offering by financing our future acquisitions with a combination
of equity, long-term fixed- or floating-rate debt as well as
floating-rate credit facilities. Our objective is to finance
each property with long-term fixed-rate debt with a maturity
matching or exceeding, to the extent possible, the remaining
term of the lease. This strategy minimizes interest rate risk
and should result in more consistent and reliable cash flows. We
believe that our
38
financing plan will enable us to execute on our acquisition
strategy as detailed in Business and
Properties Our Business Strategy.
Factors Which May Influence Future Operations
Approximately 3.6% of our leased square footage expires during
2005 and approximately 3.8% of our leased square footage expires
during 2006. Our leasing strategy focuses on leasing currently
vacant space and negotiating renewals for leases scheduled to
expire, and identifying new tenants or existing tenants seeking
additional space to occupy the spaces for which we are unable to
negotiate such renewals. Additionally, we will seek to lease
space that is currently under master lease arrangements at our
Bayshore and King of Prussia properties, which expire in 2006
and 2008, respectively.
Our corporate strategy is to continue to focus on acquiring,
developing, owning, leasing and managing laboratory and office
space for the life science industry. Our leasing strategy
focuses on executing long-term leases with creditworthy tenants.
We also intend to proceed with new developments, when prudent.
The success of our leasing and development strategy will be
dependent upon the general economic conditions in the United
States and in our primary target markets of Boston,
San Diego, San Francisco, Seattle, Maryland,
Pennsylvania and New York/ New Jersey.
We believe that, on a portfolio basis, rental rates on leases
expiring in 2005 and 2006 are at or below market rental rates
that are currently being achieved in our markets. However, we
cannot give any assurance that leases will be renewed or that
available space will be re-leased at rental rates equal to or
above the current contractual rental rates or at all.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP
requires management to use judgment in the application of
accounting policies, including making estimates and assumptions.
We base our estimates on historical experience and on various
other assumptions believed to be reasonable under the
circumstances. These judgments affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting
periods. If our judgment or interpretation of the facts and
circumstances relating to various transactions had been
different, it is possible that different accounting policies
would have been applied resulting in a different presentation of
our financial statements. On an ongoing basis, we evaluate our
estimates and assumptions. In the event estimates or assumptions
prove to be different from actual results, adjustments are made
in subsequent periods to reflect more current information. Below
is a discussion of accounting policies that we consider critical
in that they may require complex judgment in their application
or require estimates about matters that are inherently uncertain.
We intend to elect to be taxed as a REIT under the Code.
Qualification as a REIT involves the application of highly
technical and complex provisions of the Code to our operations
and financial results and the determination of various factual
matters and circumstances not entirely within our control. We
believe that our current organization and method of operation
comply with the rules and regulations promulgated under the Code
to enable us to qualify, and continue to qualify, as a REIT.
However, it is possible that we have been organized or have
operated in a manner that would not allow us to qualify as a
REIT, or that our future operations could cause us to fail to
qualify.
If we fail to qualify as a REIT in any taxable year, then we
will be required to pay federal income tax (including any
applicable alternative minimum tax) and, in most of the states
in which we operate, state income tax on our taxable income at
regular corporate tax rates. We are subject to certain state and
local taxes. If we lose our REIT status, then our net earnings
available for investment or distribution to stockholders would
be significantly reduced for each of the years involved, and we
would no longer be required to make distributions to our
stockholders.
39
|
|
|
Investments in Rental Property |
Purchase accounting was applied, on a pro-rata basis where
appropriate, to the assets and liabilities of real estate
entities in which we acquired an interest or a partial interest.
The fair value of tangible assets of an acquired property (which
includes land, buildings, and improvements) is determined by
valuing the property as if it were vacant, and the
as-if-vacant value is then allocated to land,
buildings and improvements based on managements
determination of the relative fair value of these assets. We
determine the as-if-vacant fair value using methods similar to
those used by independent appraisers. Factors considered by us
in performing these analyses include an estimate of the carrying
costs during the expected lease-up periods, current market
conditions and costs to execute similar leases. In estimating
carrying costs, we include real estate taxes, insurance and
other operating expenses and estimates of lost rental revenue
during the expected lease-up periods based on current market
demand.
In allocating fair value to the identified intangible assets and
liabilities of an acquired property, above-market and
below-market in-place leases are recorded based on the present
value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between
(1) the contractual amounts to be paid pursuant to the
in-place leases and (2) our estimate of the fair market
lease rates for the corresponding in-place leases, measured over
a period equal to the remaining non-cancelable term of the
leases. The capitalized above-market lease values are amortized
as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. The capitalized
below-market lease values (presented as acquired lease
obligations in the accompanying consolidated balance sheets) are
amortized as an increase to rental income over the initial term
and any fixed rate renewal periods in the respective leases. If
a tenant vacates its space prior to the contractual termination
of the lease and no rental payments are being made on the lease,
any unamortized balance of the related intangible will be
written off.
The aggregate value of other acquired intangible assets consists
of acquired in-place leases and acquired management agreements.
The fair value allocated to acquired in-place leases consists of
a variety of components including, but not necessarily limited
to: (1) the value associated with avoiding the cost of
originating the acquired in-place leases (i.e. the market cost
to execute a lease, including leasing commissions and legal
fees, if any); (2) the value associated with lost revenue
related to tenant reimbursable operating costs estimated to be
incurred during the assumed lease-up period (i.e. real estate
taxes, insurance and other operating expenses); (3) the
value associated with lost rental revenue from existing leases
during the assumed lease-up period; and (4) the value
associated with avoided tenant improvement costs or other
inducements to secure a tenant lease. The fair value assigned to
the acquired management agreements are recorded at the present
value (using an interest rate which reflects the risks
associated with the management agreements acquired) of the
acquired management agreements with certain tenants of the
acquired properties. The values of in-place leases and
management agreements (presented as deferred leasing costs on
the accompanying consolidated balance sheets) are amortized to
expense over the remaining non-cancelable period of the
respective leases or agreements. If a lease were to be
terminated prior to its stated expiration, all unamortized
amounts related to that lease would be written off.
Costs related to acquisition, development, construction and
improvements are capitalized. Capitalized costs associated with
unsuccessful acquisitions are charged to expense when an
acquisition is abandoned.
Repair and maintenance costs are charged to expenses as incurred
and significant replacements and betterments are capitalized.
Repairs and maintenance costs include all costs that do not
extend the useful life of an asset or increase its operating
efficiency. Significant replacement and betterments represent
costs that extend an assets useful life or increase its
operating efficiency.
Rental income is recognized using the straight-line method over
the terms of the tenant leases. Accrued straight-line rents
included in our consolidated balance sheets represent the
aggregate excess of rental revenue recognized on a straight-line
basis over the contractual rent. Our leases generally contain
40
provisions under which the tenants reimburse us for a portion of
property operating expenses and real estate taxes incurred by
us. Such reimbursements are recognized in the period that the
expenses are incurred. Lease termination fees are recognized
when the related leases are canceled and we have no continuing
obligation to provide services to such former tenants. As
discussed above, we recognize amortization of the value of
acquired above or below market tenant leases as a reduction of
rental income in the case of above market leases or an increase
to rental revenue in the case of below market leases.
We must make subjective estimates related to when our revenue is
earned and the collectibility of our accounts receivable related
to minimum rent, deferred rent, expense reimbursements, lease
termination fees and other income. We specifically analyze
accounts receivable and historical bad debts, tenant
concentrations, tenant creditworthiness, and current economic
trends when evaluating the adequacy of the allowance for
doubtful accounts receivable. These estimates have a direct
impact on our net income because a higher bad debt allowance
would result in lower net income, and recognizing rental revenue
as earned in one period versus another would result in higher or
lower net income for a particular period.
|
|
|
Depreciation and Amortization |
We compute depreciation and amortization on our properties using
the straight-line method based on estimated useful asset lives.
In accordance with SFAS No. 141, Business
Combinations, we allocate the acquisition cost of real
estate to land, building, tenant improvements, acquired above-
and below-market leases, origination costs and acquired in-place
leases based on an assessment of their relative fair values and
depreciate or amortize these assets over their useful lives. The
amortization of acquired above- and below-market leases and
acquired in-place leases is recorded as an adjustment to revenue
and depreciation and amortization, respectively, in the
consolidated statements of income.
Results of Operations
The following is a comparison, for the three months ended
March 31, 2005 and 2004, for the years ended
December 31, 2004 and 2003 and for the years ended
December 31, 2003 and 2002, of the consolidated operating
results of BioMed Realty Trust, Inc., the operating results of
201 Industrial Road, L.P., our predecessor, and the combined
operating results of Bernardo Center Drive, Science Center Drive
and Balboa Avenue. We refer to Bernardo Center Drive, Science
Center Drive and Balboa Avenue as the Combined Contribution
Properties. As part of our formation transactions, our
predecessor was contributed to us on August 17, 2004 in
exchange for 1,461,451 units in our operating partnership,
and the Combined Contribution Properties, which were under
common management with our predecessor, were contributed to us
in exchange for 1,153,708 units in our operating
partnership.
Our predecessor is considered for accounting purposes to be our
acquirer. As such, the historical financial statements presented
herein for our predecessor were prepared on a stand-alone basis.
The financial statements of the Combined Contribution Properties
are presented herein on an historical combined basis. Management
does not consider the financial condition and operating results
of our predecessor on a stand-alone basis to be indicative of
the historical operating results of our company taken as a
whole. Therefore, the following discussion relates to the
financial condition and operating results of our predecessor and
the Combined Contribution Properties, the other properties
contributed to us over which our management has provided
continuous common management throughout the applicable reporting
periods, on a combined historical basis. Subsequent to the dates
they were contributed to us, the financial information for each
of our predecessor and the Combined Contribution Properties is
included in the financial information for BioMed Realty Trust,
which commenced operations on August 11, 2004. Management
believes this presentation provides a more meaningful discussion
of the financial condition and operating results of BioMed
Realty Trust, our predecessor and the Combined Contribution
Properties. In order to present these results on a meaningful
combined basis, the historical combined financial information
for all periods presented includes combining entries to reflect
the partners capital of our predecessor which was not
owned by management.
41
The following tables set forth the basis for presenting the
historical combined financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioMed Realty | |
|
|
|
|
|
|
Trust, Inc. | |
|
Predecessor | |
|
Combined Contribution Properties | |
|
|
| |
|
| |
|
| |
|
|
Period | |
|
Period | |
|
Period | |
|
|
|
|
August 11, | |
|
January 1, | |
|
January 1, | |
|
|
|
|
2004 through | |
|
2004 through | |
|
2004 through | |
|
|
|
|
December 31, | |
|
August 17, | |
|
the Date of | |
|
Combining | |
|
|
|
|
2004 | |
|
2004 | |
|
Contribution | |
|
Entries | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$ |
19,432 |
|
|
$ |
3,339 |
|
|
$ |
2,831 |
|
|
|
|
|
|
$ |
25,602 |
|
|
Tenant recoveries
|
|
|
9,222 |
|
|
|
375 |
|
|
|
479 |
|
|
|
|
|
|
|
10,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,654 |
|
|
|
3,714 |
|
|
|
3,310 |
|
|
|
|
|
|
|
35,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations
|
|
|
11,619 |
|
|
|
353 |
|
|
|
353 |
|
|
|
|
|
|
|
12,325 |
|
|
Depreciation and amortization
|
|
|
7,853 |
|
|
|
600 |
|
|
|
543 |
|
|
|
|
|
|
|
8,996 |
|
|
General and administrative
|
|
|
3,130 |
|
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,602 |
|
|
|
953 |
|
|
|
993 |
|
|
|
|
|
|
|
24,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
6,052 |
|
|
|
2,761 |
|
|
|
2,317 |
|
|
|
|
|
|
|
11,130 |
|
|
Equity in net loss of unconsolidated partnership
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
Interest income
|
|
|
190 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
200 |
|
|
Interest expense
|
|
|
(1,180 |
) |
|
|
(1,760 |
) |
|
|
(1,594 |
) |
|
|
|
|
|
|
(4,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
5,051 |
|
|
|
1,001 |
|
|
|
733 |
|
|
|
|
|
|
|
6,785 |
|
|
Minority interests
|
|
|
(269 |
) |
|
|
|
|
|
|
(223 |
) |
|
|
(582 |
) |
|
|
(1,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
4,782 |
|
|
$ |
1,001 |
|
|
$ |
510 |
|
|
$ |
(582 |
) |
|
$ |
5,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined | |
|
|
|
|
|
|
|
|
Contribution | |
|
Combining | |
|
|
|
|
Predecessor | |
|
Properties | |
|
Entries | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$ |
6,275 |
|
|
$ |
4,189 |
|
|
|
|
|
|
$ |
10,464 |
|
|
Tenant recoveries
|
|
|
744 |
|
|
|
743 |
|
|
|
|
|
|
|
1,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,019 |
|
|
|
4,932 |
|
|
|
|
|
|
|
11,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations
|
|
|
830 |
|
|
|
633 |
|
|
|
|
|
|
|
1,463 |
|
|
Depreciation and amortization
|
|
|
955 |
|
|
|
854 |
|
|
|
|
|
|
|
1,809 |
|
|
General and administrative
|
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,785 |
|
|
|
1,642 |
|
|
|
|
|
|
|
3,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5,234 |
|
|
|
3,290 |
|
|
|
|
|
|
|
8,524 |
|
|
Interest income
|
|
|
1 |
|
|
|
33 |
|
|
|
|
|
|
|
34 |
|
|
Interest expense
|
|
|
(2,901 |
) |
|
|
(2,449 |
) |
|
|
|
|
|
|
(5,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
2,334 |
|
|
|
874 |
|
|
|
|
|
|
|
3,208 |
|
|
Minority interests
|
|
|
|
|
|
|
(297 |
) |
|
|
(1,367 |
) |
|
|
(1,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2,334 |
|
|
$ |
577 |
|
|
$ |
(1,367 |
) |
|
$ |
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined | |
|
|
|
|
|
|
|
|
Contribution | |
|
Combining | |
|
|
|
|
Predecessor | |
|
Properties | |
|
Entries | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Year Ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$ |
5,869 |
|
|
$ |
4,189 |
|
|
|
|
|
|
$ |
10,058 |
|
|
Tenant recoveries
|
|
|
718 |
|
|
|
745 |
|
|
|
|
|
|
|
1,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,587 |
|
|
|
4,934 |
|
|
|
|
|
|
|
11,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations
|
|
|
821 |
|
|
|
638 |
|
|
|
|
|
|
|
1,459 |
|
|
Depreciation and amortization
|
|
|
955 |
|
|
|
860 |
|
|
|
|
|
|
|
1,815 |
|
|
General and administrative
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,776 |
|
|
|
1,659 |
|
|
|
|
|
|
|
3,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,811 |
|
|
|
3,275 |
|
|
|
|
|
|
|
8,086 |
|
|
Interest income
|
|
|
3 |
|
|
|
57 |
|
|
|
|
|
|
|
60 |
|
|
Interest expense
|
|
|
(3,154 |
) |
|
|
(2,579 |
) |
|
|
|
|
|
|
(5,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
1,660 |
|
|
|
753 |
|
|
|
|
|
|
|
2,413 |
|
|
Minority interests
|
|
|
|
|
|
|
(237 |
) |
|
|
(965 |
) |
|
|
(1,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,660 |
|
|
$ |
516 |
|
|
$ |
(965 |
) |
|
$ |
1,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
|
|
Ended | |
|
Three Months Ended March 31, 2004 | |
|
|
March 31, 2005 | |
|
| |
|
|
| |
|
|
|
Combined | |
|
|
|
|
BioMed Realty | |
|
|
|
Contribution | |
|
Combining | |
|
|
|
|
Trust, Inc. | |
|
Predecessor | |
|
Properties | |
|
Entries | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Three Months Ended March 31 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$ |
14,214 |
|
|
$ |
1,562 |
|
|
$ |
1,046 |
|
|
|
|
|
|
$ |
2,608 |
|
|
Tenant recoveries
|
|
|
7,254 |
|
|
|
150 |
|
|
|
182 |
|
|
|
|
|
|
|
332 |
|
|
Other income
|
|
|
3,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
24,471 |
|
|
|
1,712 |
|
|
|
1,228 |
|
|
|
|
|
|
|
2,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations
|
|
|
6,395 |
|
|
|
65 |
|
|
|
74 |
|
|
|
|
|
|
|
139 |
|
|
Real estate taxes
|
|
|
1,788 |
|
|
|
88 |
|
|
|
56 |
|
|
|
|
|
|
|
144 |
|
|
Depreciation and amortization
|
|
|
6,191 |
|
|
|
242 |
|
|
|
204 |
|
|
|
|
|
|
|
446 |
|
|
General and administrative
|
|
|
2,550 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
16,924 |
|
|
|
395 |
|
|
|
392 |
|
|
|
|
|
|
|
787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
7,547 |
|
|
|
1,317 |
|
|
|
836 |
|
|
|
|
|
|
|
2,153 |
|
|
Equity in net income of unconsolidated partnership
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
78 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
Interest expense
|
|
|
(1,411 |
) |
|
|
(686 |
) |
|
|
(613 |
) |
|
|
|
|
|
|
(1,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
6,265 |
|
|
|
631 |
|
|
|
228 |
|
|
|
|
|
|
|
859 |
|
|
Minority interests
|
|
|
(429 |
) |
|
|
|
|
|
|
(72 |
) |
|
|
(370 |
) |
|
|
(442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
5,836 |
|
|
$ |
631 |
|
|
$ |
156 |
|
|
$ |
(370 |
) |
|
$ |
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
Comparison of the Three Months Ended March 31, 2005
to the Three Months Ended March 31, 2004 |
Rental Revenues. Rental revenues increased
$11.6 million to $14.2 million for the three months
ended March 31, 2005 compared to $2.6 million for the
three months ended March 31, 2004. The increase was
primarily due to the inclusion of rental revenues for the
properties acquired in connection with our IPO as well as
acquisitions subsequent to our IPO.
Tenant Recoveries. Revenues from tenant reimbursements
increased $7.0 million to $7.3 million for the three
months ended March 31, 2005 compared to $332,000 for the
three months ended March 31, 2004. The increase was
primarily due to the inclusion of tenant reimbursements for the
properties acquired in connection with our IPO as well as
acquisitions subsequent to our IPO.
Other Income. Other income is comprised of a gain on
early termination of lease of a portion of the Nektar lease at
Industrial Road of $3.0 million for the three months ended
March 31, 2005 compared to $0 for the three months ended
March 31, 2004.
Rental Operations Expense. Rental operations expenses
increased $6.3 million to $6.4 million for the three
months ended March 31, 2005 compared to $139,000 for the
three months ended March 31, 2004. The increase was
primarily due to the inclusion of rental property operations
expenses for the properties acquired in connection with our IPO
as well as acquisitions subsequent to our IPO.
Real Estate Tax Expense. Real estate tax expense
increased $1.7 million to $1.8 million for the three
months ended March 31, 2005 compared to $144,000 for the
three months ended March 31, 2004. The increase was
primarily due to the inclusion of property taxes for the
properties acquired in connection with our IPO as well as
additional property acquisitions subsequent to our IPO.
Depreciation and Amortization Expense. Depreciation and
amortization expense increased $5.8 million to
$6.2 million for the three months ended March 31, 2005
compared to $446,000 for the three months ended March 31,
2004. The increase was primarily due to the inclusion of
depreciation and amortization expense for the properties
acquired in connection with our IPO as well as acquisitions
subsequent to our IPO.
General and Administrative Expenses. General and
administrative expenses increased to $2.6 million for the
three months ended March 31, 2005 from $58,000 for the
three months ended March 31, 2004. The increase was
primarily due to the IPO, the hiring of new personnel after the
IPO, the addition of expenses relating to operating as a public
company, compensation expense related to unvested restricted
stock compensation awards accrued during the three months ended
March 31, 2005 and higher consulting and professional fees
associated with corporate governance and Sarbanes-Oxley
Section 404 implementation.
Interest Income. Interest income increased to $78,000 for
the three months ended March 31, 2005 from $5,000 for the
three months ended March 31, 2004. This is primarily due to
interest earned on an increase of funds held by us during the
three months ended March 31, 2005.
Interest Expense. Interest expense increased $100,000 to
$1.4 million for the three months ended March 31, 2005
compared to $1.3 million for the three months ended
March 31, 2004. The increase in interest is a result of
more overall debt outstanding after the consummation of the IPO
partially offset by a reduction of interest expense in 2005 due
to the accretion of debt premium, which decreased interest
expense by $261,000.
Minority Interests. Minority interests decreased to
$429,000 for the three months ended March 31, 2005 from
$442,000 for the three months ended March 31, 2004. The
minority interest allocations for the three months ended
March 31, 2005 and 2004 are not comparable due to the IPO.
The 2004 allocation was a result of the percentage allocation to
non-controlling interests of the Combined Contribution
Properties and for our predecessor. The 2005 allocation was
allocated to the limited partner unit holders of our operating
partnership.
44
|
|
|
Comparison of the Year Ended December 31, 2004 to the
Year Ended December 31, 2003 |
Our results of operations for the years ended December 31,
2004 and 2003 include the accounts of our predecessor through
the date of its contribution to us. Our predecessor is the
largest of the properties contributed in our IPO and therefore
has been identified as the accounting acquirer pursuant to
paragraph 17 of SFAS No. 141, Business
Combinations. As such, the historical financial statements
presented herein for our predecessor were prepared on a
stand-alone basis. The financial information for the Combined
Contribution Properties also is included through the date of
contribution for each property. Subsequent to the dates they
were contributed to us, the financial information for each of
our predecessor and the Combined Contribution Properties is
included in the financial information for BioMed Realty Trust,
which commenced operations on August 11, 2004.
Rental Revenues. Rental revenues increased
$15.1 million to $25.6 million for the year ended
December 31, 2004 compared to $10.5 million for the
year ended December 31, 2003. The increase was primarily
due to the inclusion of rental revenues for the properties
acquired in connection with our IPO as well as additional
property acquisitions subsequent to our IPO. Rental revenues for
the additional properties acquired during 2004 is net of
amortization of the value recorded for acquired above market
leases and includes amortization of acquired lease obligations
related to below market leases, both related to purchase
accounting entries recorded upon acquisition of the interests in
these properties.
Tenant Recoveries. Revenues from tenant reimbursements
increased $8.6 million to $10.1 million for the year
ended December 31, 2004 compared to $1.5 million for
the year ended December 31, 2003. The increase was
primarily due to the inclusion of tenant reimbursements for the
properties acquired in connection with our IPO as well as
additional property acquisitions subsequent to our IPO.
Rental Operations Expenses. Rental operations expenses
increased $10.8 million to $12.3 million for the year
ended December 31, 2004 compared to $1.5 million for
the year ended December 31, 2003. The increase was
primarily due to the inclusion of rental property operations
expenses for the properties acquired in connection with our IPO
as well as additional property acquisitions subsequent to our
IPO. These expenses include insurance, property taxes and other
operating expenses, most of which were recovered from the
tenants.
Depreciation and Amortization Expense. Depreciation and
amortization expense increased $7.2 million to
$9.0 million for the year ended December 31, 2004
compared to $1.8 million for the year ended
December 31, 2003. The increase was primarily due to the
inclusion of depreciation and amortization expense for the
properties acquired in connection with our IPO as well as
additional property acquisitions subsequent to our IPO.
General and Administrative Expenses. General and
administrative expenses increased $3.1 million to
$3.2 million for the year ended December 31, 2004
compared to $155,000 for the year ended December 31, 2003.
The increase was primarily due to the IPO, the hiring of new
personnel after the IPO, the addition of expenses relating to
operating as a public company, and the compensation expense
related to unvested restricted stock compensation awards accrued
during the period from August 11, 2004 to December 31,
2004.
Interest Income. Interest income increased to $200,000
for the year ended December 31, 2004 from $34,000 for the
year ended December 31, 2003. This is primarily due to
interest earned on funds held by us following the consummation
of the IPO.
Interest Expense. Interest expense decreased to
$4.5 million for the year ended December 31, 2004
compared to $5.4 million for the year ended
December 31, 2003. The decrease in interest is a result of
the payoff of notes related to the Bernardo Center Drive and
Balboa Avenue properties in connection with our IPO. In
addition, interest expense was reduced in 2004 due to the
accretion of debt premium, which decreased interest expense by
$307,000.
Minority Interests. Minority interests decreased to
$1.1 million for the year ended December 31, 2004,
compared to $1.7 million for the year ended
December 31, 2003. The minority interest allocation for
45
2004 and 2003 are not comparable due to the IPO. The 2003
allocation was a result of the percentage allocation to
non-controlling interests of the Combined Contribution
Properties and for our predecessor. The 2004 allocation was
allocated to the limited partner unit holders of our operating
partnership.
|
|
|
Comparison of the Year Ended December 31, 2003 to the
Year Ended December 31, 2002 |
Rental Revenues. Rental revenues increased by $406,000,
or 4.0%, to $10.5 million for 2003 compared to
$10.1 million for 2002. The increase resulted from reduced
rental rates charged during the build-out period for a portion
of the Industrial Road property. Specifically, the tenant
received a temporary rent reduction of $531,000 from October
2001 to October 2002, based on a pre-established formula as
defined in the lease agreement.
Tenant Recoveries. Revenues from tenant reimbursements
remained consistent at approximately $1.5 million for 2003
and 2002.
Rental Operations Expenses. Rental operations expenses
remained consistent at approximately $1.5 million for 2003
and 2002. These expenses include insurance, property taxes and
other operating expenses, most of which were recovered from the
tenants.
Depreciation and Amortization Expense. Depreciation and
amortization expense remained consistent at $1.8 million
for 2003 and 2002.
General and Administrative Expenses. General and
administrative expenses remained consistent at $155,000 for 2003
and $161,000 for 2002.
Interest Income. Interest income was $34,000 for 2003
compared to $60,000 for 2002. The decrease was primarily due to
a decrease in an amount due from a tenant for tenant
improvements at the Balboa Avenue property. Additionally, we
earned lower interest rates on cash balances in 2003 compared to
2002.
Interest Expense. Interest expense decreased by $383,000,
or 6.7%, to $5.4 million for 2003 compared to
$5.7 million for 2002. This decrease resulted from
reductions in the principal balances outstanding and a decrease
in the interest rate floor (minimum contractual rate) on one of
our variable-rate loans in August 2002. The weighted-average
effective interest rate on our borrowings remained constant at
7.42% from December 31, 2002 to December 31, 2003.
Minority Interests. Minority interests increased
$462,000, or 38.5%, to $1.7 million for 2003 compared to
$1.2 million in 2002. The increase in minority interest is
a result of the consistent percentage allocation to
non-controlling interests of income before minority interest,
which increased as a result of the changes discussed above.
Funds from Operations
We present funds from operations, or FFO, because we consider it
an important supplemental measure of our operating performance
and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of
REITs, many of which present FFO when reporting their results.
FFO is intended to exclude GAAP historical cost depreciation and
amortization of real estate and related assets, which assumes
that the value of real estate assets diminishes ratably over
time. Historically, however, real estate values have risen or
fallen with market conditions. Because FFO excludes depreciation
and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, it provides a
performance measure that, when compared year over year, reflects
the impact to operations from trends in occupancy rates, rental
rates, operating costs, development activities and interest
costs, providing perspective not immediately apparent from net
income. We compute FFO in accordance with standards established
by the Board of Governors of NAREIT in its March 1995 White
Paper (as amended in November 1999 and April 2002). As defined
by NAREIT, FFO represents net income (computed in accordance
with GAAP), excluding gains (or losses) from sales of property,
plus real estate related depreciation and amortization
(excluding amortization of loan origination costs) and after
adjustments for unconsolidated partnerships and joint ventures.
Our computation may differ from the methodology for
46
calculating FFO utilized by other equity REITs and, accordingly,
may not be comparable to such other REITs. Further, FFO does not
represent amounts available for managements discretionary
use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. FFO
should not be considered as an alternative to net income (loss)
(computed in accordance with GAAP) as an indicator of our
financial performance or to cash flow from operating activities
(computed in accordance with GAAP) as an indicator of our
liquidity, nor is it indicative of funds available to fund our
cash needs, including our ability to pay dividends or make
distributions.
The following tables provide the calculation of our FFO and a
reconciliation to net income for the quarter ended
March 31, 2005 and for the period from August 11, 2004
through December 31, 2004 (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
August 11, 2004 | |
|
|
March 31, | |
|
to December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Net income
|
|
$ |
5,836 |
|
|
$ |
4,782 |
|
Adjustments
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
538 |
|
|
|
414 |
|
|
Depreciation and amortization real estate assets
|
|
|
6,180 |
|
|
|
7,903 |
|
|
|
|
|
|
|
|
Funds from operations
|
|
$ |
12,554 |
|
|
$ |
13,099 |
|
|
|
|
|
|
|
|
Funds from operations per share diluted
|
|
$ |
0.37 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding diluted
|
|
|
34,148,820 |
|
|
|
33,767,575 |
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of funds
to pay for operating expenses and other expenditures directly
associated with our properties, including:
|
|
|
|
|
interest expense and scheduled principal payments on outstanding
indebtedness, |
|
|
|
general and administrative expenses, |
|
|
|
future distributions expected to be paid to our
stockholders, and |
|
|
|
capital expenditures, tenant improvements and leasing
commissions. |
We expect to satisfy our short-term liquidity requirements
through our existing working capital and cash provided by our
operations. Our rental revenue, provided by our triple-net
leases, and minimal unreimbursed operating expenses generally
provide cash inflows to meet our debt service obligations, pay
general and administrative expenses, and fund regular
distributions.
Our long-term liquidity requirements consist primarily of funds
to pay for scheduled debt maturities, renovations, expansions
and other non-recurring capital expenditures that need to be
made periodically and the costs associated with acquisitions of
properties that we pursue. We expect to satisfy our long-term
liquidity requirements through our existing working capital,
cash provided by operations, long-term secured and unsecured
indebtedness, the issuance of additional equity or debt
securities and the use of net proceeds from the disposition of
non-strategic assets. We also expect to use funds available
under our revolving unsecured loan agreement to finance
acquisition and development activities and capital expenditures
on an interim basis.
Our total market capitalization at March 31, 2005 was
approximately $822.7 million based on the market closing
price of our common stock at March 31, 2005 of
$20.60 per share (assuming the conversion of 2,870,564
operating partnership units into common stock) and our debt
outstanding was approximately $116.0 million (exclusive of
unamortized debt premium and accounts payable and accrued
expenses). As a result, our debt-to-total market capitalization
ratio was approximately 14.1% at March 31, 2005. Following
completion of this offering and application of the proceeds, our
ratio of debt-to-total market capitalization will be
approximately 32.9% (32.1% if the underwriters exercise their
over-allotment
47
option in full), based on our outstanding indebtedness and our
closing stock price as of June 14, 2005. Our board of
directors adopted a policy of limiting our indebtedness to
approximately 60% of our total market capitalization. However,
our board of directors may from time to time modify our debt
policy in light of current economic or market conditions
including, but not limited to, the relative costs of debt and
equity capital, market conditions for debt and equity securities
and fluctuations in the market price of our common stock.
Accordingly, we may increase or decrease our debt to market
capitalization ratio beyond the limit described above.
On May 31, 2005, in order to finance the Lyme portfolio
acquisition and provide additional working capital, we entered
into three credit facilities with KeyBank and other lenders
under which we initially borrowed $485.0 million of a total
of $600.0 million available under these facilities. The
credit facilities include a senior unsecured revolving credit
facility of $250.0 million, under which we initially
borrowed $135.0 million, a senior unsecured term loan
facility of $100.0 million and a senior secured term loan
facility of $250.0 million. We borrowed the full amounts
under the senior unsecured term loan and senior secured term
loan facilities. The senior unsecured facilities have a maturity
date of May 30, 2008 and bear interest at a floating rate
equal to, at our option, either (1) reserve adjusted LIBOR
plus a spread which ranges from 120 to 200 basis points,
depending on our leverage, or (2) the higher of
(a) the prime rate then in effect plus a spread which
ranges from 0 to 50 basis points and (b) the federal
funds rate then in effect plus a spread which ranges from 50 to
100 basis points, in each case, depending on our leverage.
The secured credit facility, which has a maturity date of
May 30, 2010, is initially secured by 13 of our properties
and bears interest at a floating rate equal to, at our option,
either (1) reserve adjusted LIBOR plus 225 basis
points or (2) the higher of (a) the prime rate then in
effect plus 50 basis points and (b) the federal funds
rate then in effect plus 100 basis points. The secured
facility is also secured by our interest in any distributions
from these properties and a pledge of the equity interests in a
subsidiary owning one of these properties. We may not prepay the
secured facility prior to May 31, 2006. Subject to the
administrative agents reasonable discretion, we may
increase the amount of the unsecured revolving credit facility
to $400.0 million upon satisfying certain conditions. We
entered into an interest rate swap agreement in connection with
the closing of the credit facilities, which will have the effect
of fixing the interest rate on the secured term loan at 6.4%.
The terms of these credit facilities include certain
restrictions and covenants, which limit, among other things, the
payment of dividends, and the incurrence of additional
indebtedness and liens. The terms also require compliance with
financial ratios relating to the minimum amounts of net worth,
fixed charge coverage, unsecured debt service coverage, leverage
ratio and interest coverage, the maximum amounts of unsecured,
secured and recourse indebtedness, and certain investment
limitations. The dividend restriction referred to above provides
that, except to enable us to continue to qualify as a REIT for
federal income tax purposes, we will not during any four
consecutive quarters make distributions with respect to common
stock or other equity interests in an aggregate amount in excess
of 95% of funds from operations or 100% of funds available for
distribution, each as defined, for such period, subject to other
adjustments. These credit facilities specify a number of events
of default (some of which are subject to applicable cure
periods), including, among others, the failure to make payments
when due, noncompliance with covenants and defaults under other
agreements or instruments of indebtedness. Upon the occurrence
of an event of default, the lenders may terminate the facilities
and declare all amounts outstanding to be immediately due and
payable.
On December 28, 2004, we completed a $49.3 million,
five-year mortgage financing with The Northwestern Mutual Life
Insurance Company at a rate of 4.55% per annum that matures
on January 1, 2010. We may prepay the loan in full upon
payment of a 1% fee. The debt is secured by three properties:
Towne Centre Drive, Monte Villa Parkway and Bayshore Boulevard.
The proceeds were used in part to repay outstanding borrowings
under our then existing revolving credit facility.
48
A summary of our outstanding consolidated secured indebtedness
as of December 31, 2004 and March 31, 2005 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated | |
|
|
|
|
|
|
|
Carrying | |
|
Carrying | |
|
|
|
|
Fixed | |
|
Effective | |
|
|
|
Unamortized | |
|
Value at | |
|
Value at | |
|
|
|
|
Interest | |
|
Interest | |
|
Principal | |
|
Premium | |
|
March 31, | |
|
December 31, | |
|
|
|
|
Rate | |
|
Rate | |
|
Amount | |
|
Amount | |
|
2005 | |
|
2004 | |
|
Maturity Date | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Ardentech Court
|
|
|
7.25 |
% |
|
|
5.06 |
% |
|
$ |
4,807 |
|
|
$ |
591 |
|
|
$ |
5,398 |
|
|
$ |
5,440 |
|
|
|
July 1, 2012 |
|
Bayshore Boulevard
|
|
|
4.55 |
% |
|
|
4.55 |
% |
|
|
16,378 |
|
|
|
|
|
|
|
16,378 |
|
|
|
16,438 |
|
|
|
January 1, 2010 |
|
Bridgeview
|
|
|
8.07 |
% |
|
|
5.04 |
% |
|
|
11,798 |
|
|
|
1,780 |
|
|
|
13,578 |
|
|
|
13,681 |
|
|
|
January 1, 2011 |
|
Eisenhower Road
|
|
|
5.80 |
% |
|
|
4.63 |
% |
|
|
2,244 |
|
|
|
73 |
|
|
|
2,317 |
|
|
|
2,331 |
|
|
|
May 5, 2008 |
|
Elliott Avenue
|
|
|
7.38 |
% |
|
|
4.63 |
% |
|
|
16,881 |
|
|
|
1,017 |
|
|
|
17,898 |
|
|
|
18,107 |
|
|
|
November 24, 2007 |
|
Monte Villa Parkway
|
|
|
4.55 |
% |
|
|
4.55 |
% |
|
|
9,971 |
|
|
|
|
|
|
|
9,971 |
|
|
|
10,007 |
|
|
|
January 1, 2010 |
|
Science Center Drive
|
|
|
7.65 |
% |
|
|
5.04 |
% |
|
|
11,667 |
|
|
|
1,613 |
|
|
|
13,280 |
|
|
|
13,376 |
|
|
|
July 1, 2011 |
|
Towne Centre Drive
|
|
|
4.55 |
% |
|
|
4.55 |
% |
|
|
22,774 |
|
|
|
|
|
|
|
22,774 |
|
|
|
22,856 |
|
|
|
January 1, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
96,520 |
|
|
$ |
5,074 |
|
|
$ |
101,594 |
|
|
$ |
102,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding secured notes payable due to affiliates as of
December 31, 2003 was repaid on August 17, 2004.
Mortgage debt aggregating $77.0 million secured by the King
of Prussia property was repaid in August 2004 concurrent with
the purchase of the property. Premiums were recorded upon
assumption of the notes at the time of the related acquisition
to account for above-market interest rates. Amortization of
these premiums is recorded as a reduction to interest expense
over the remaining term of the respective note.
As of March 31, 2005, principal payments due for our
consolidated indebtedness were as follows (in thousands and
excluding unamortized premiums):
|
|
|
|
|
2005
|
|
$ |
1,456 |
|
2006
|
|
|
2,017 |
|
2007
|
|
|
37,112 |
|
2008
|
|
|
3,732 |
|
2009
|
|
|
1,716 |
|
Thereafter
|
|
|
69,987 |
|
|
|
|
|
|
|
$ |
116,020 |
|
|
|
|
|
We may in the future continue to enter into derivative financial
instruments such as interest rate swaps, caps and treasury locks
in order to mitigate our interest rate risk on a related
financial instrument. In connection with the KeyBank
$250.0 million secured term loan, we have entered into an
interest rate swap agreement, which will have the effect of
fixing the interest rate on the secured term loan at 6.4%.
However, we were not a party to any derivative financial
instruments at March 31, 2005. Further, we do not enter
into derivative or interest rate transactions for speculative or
trading purposes.
49
The following table provides information with respect to our
contractual obligations at March 31, 2005, including the
maturities and scheduled principal repayments and related
interest payments of our secured debt. We were not subject to
any material capital lease obligations or unconditional purchase
obligations as of March 31, 2005.
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through | |
|
|
|
|
|
|
|
|
|
|
|
|
Remainder | |
|
|
|
|
|
|
|
|
|
|
Obligation |
|
of 2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Mortgage notes payable(1)
|
|
$ |
5,787 |
|
|
$ |
7,718 |
|
|
$ |
23,126 |
|
|
$ |
8,000 |
|
|
$ |
5,833 |
|
|
$ |
73,231 |
|
Unsecured line of credit
|
|
|
|
|
|
|
|
|
|
|
19,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of secured debt of unconsolidated partnership(2)
|
|
|
164 |
|
|
|
219 |
|
|
|
219 |
|
|
|
219 |
|
|
|
219 |
|
|
|
2,159 |
|
Tenant obligations(3)
|
|
|
9,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction projects
|
|
|
3,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
18,640 |
|
|
$ |
7,937 |
|
|
$ |
42,845 |
|
|
$ |
8,219 |
|
|
$ |
6,052 |
|
|
$ |
75,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Balance excludes $5.1 million of unamortized debt premium. |
|
(2) |
Balance excludes $385,000 of unamortized debt premium. |
|
(3) |
Committed tenant-related obligations based on executed leases as
of March 31, 2005. |
Off Balance Sheet Arrangements
As of March 31, 2005, we had an investment in McKellar
Court, L.P., which owns a single tenant occupied property
located in San Diego. The acquisition of the investment in
McKellar Court closed on September 30, 2004. McKellar Court
is a variable interest entity as defined in Financial Accounting
Standards Board Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities;
however, we are not the primary beneficiary. The limited partner
is also the only tenant in the property and will bear a
disproportionate amount of any losses. We, as the general
partner, will receive 21% of the operating cash flows and 75% of
the gains upon sale of the property. We account for our general
partner interest using the equity method. Significant accounting
policies used by the unconsolidated partnership that owns this
property are similar to those used by us. At March 31,
2005, our share of the debt related to this investment was equal
to approximately $2.3 million (excluding unamortized debt
premium). The assets and liabilities of McKellar Court were
$18.9 million and $12.9 million, respectively, at
March 31, 2005. The table below summarizes our share of the
outstanding debt (based on our respective ownership interests)
of this investment at March 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated | |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Effective | |
|
|
|
Unamortized | |
|
Total | |
|
|
|
|
Interest | |
|
Interest | |
|
Principal | |
|
Premium | |
|
Book | |
|
|
|
|
Rate | |
|
Rate | |
|
Amount | |
|
Amount | |
|
Value | |
|
Maturity Date | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
McKellar Court
|
|
|
8.56 |
% |
|
|
4.63 |
% |
|
$ |
2,271 |
|
|
$ |
385 |
|
|
$ |
2,656 |
|
|
|
January 1, 2010 |
|
50
Cash Flows
The following summary discussion of our cash flows is based on
the Consolidated and Combined Statements of Cash Flows included
in the Financial Statements in this prospectus and is not meant
to be an all inclusive discussion of the changes in our cash
flows for the periods presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, | |
|
|
| |
|
|
|
|
Predecessor and | |
|
|
|
|
|
|
Combined | |
|
|
|
|
BioMed Realty | |
|
Contribution | |
|
|
|
|
Trust, Inc. | |
|
Properties | |
|
|
|
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
10,062 |
|
|
$ |
1,137 |
|
|
$ |
8,925 |
|
Net cash used in investing activities
|
|
|
(32,197 |
) |
|
|
|
|
|
|
(32,197 |
) |
Net cash provided by (used in) financing activities
|
|
|
9,836 |
|
|
|
(1,254 |
) |
|
|
11,090 |
|
Ending cash balance
|
|
|
15,570 |
|
|
|
238 |
|
|
|
15,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
|
|
Predecessor and | |
|
|
|
|
BioMed Realty | |
|
Combined | |
|
|
|
|
Trust, Inc. and | |
|
Contribution | |
|
|
|
|
Predecessor | |
|
Properties | |
|
|
|
|
2004 | |
|
2003 | |
|
Change | |
|
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
13,959 |
|
|
$ |
4,383 |
|
|
$ |
9,576 |
|
Net cash used in investing activities
|
|
|
(456,680 |
) |
|
|
(105 |
) |
|
|
(456,575 |
) |
Net cash provided by (used in) financing activities
|
|
|
470,433 |
|
|
|
(4,563 |
) |
|
|
474,996 |
|
Ending cash balance
|
|
|
27,869 |
|
|
|
355 |
|
|
|
27,514 |
|
Our statements of cash flows and those of our predecessor have
been combined for the year ended December 31, 2004. The
statements of cash flows of our predecessor have been combined
with those of the Combined Contribution Properties for the three
months ended March 31, 2004 and the year ended
December 31, 2003 because management does not consider the
cash flows of our predecessor on a stand-alone basis to be
indicative of the historical cash flows of our company taken as
a whole.
|
|
|
Comparison of the Three Months Ended March 31, 2005
to the Three Months Ended March 31, 2004 |
Cash and cash equivalents were $15.6 million and $238,000,
respectively, at March 31, 2005 and March 31, 2004.
Net cash provided by operating activities increased
$8.9 million to $10.0 million for the three months
ended March 31, 2005 compared to $1.1 million for the
three months ended March 31, 2004. The increase was
primarily due to the increases in operating income before
depreciation and amortization, and changes in other operating
assets and liabilities.
Net cash used in investing activities was $32.2 million for
the three months ended March 31, 2005 compared to $0 for
the three months ended March 31, 2004. The increase was
primarily due to $33.0 million paid to acquire interests in
real estate entities and funds held in escrow for acquisitions
partially offset by receipts of master lease payments.
Net cash provided by financing activities increased
$11.1 million to $9.8 million for the three months
ended March 31, 2005 compared to cash used of
$1.3 million for the three months ended March 31,
2004. The increase was primarily due to borrowings under our
revolving unsecured loan agreement offset by principal payments
on mortgage loans, and payments of dividends and distributions.
|
|
|
Comparison of the Year Ended December 31, 2004 to the
Year Ended December 31, 2003 |
Net cash provided by operating activities increased
$9.6 million to $14.0 million for the year ended
December 31, 2004 compared to $4.4 million for the
year ended December 31, 2003. The increase was primarily
due to the acquisition of properties acquired in connection with
our IPO.
51
Net cash used in investing activities increased
$456.6 million to $456.7 million for the year ended
December 31, 2004 compared to $105,000 for the year ended
December 31, 2003. The increase was primarily due to
$459.3 million paid to acquire properties, funds held in
escrow for acquisitions, and the repayment of related party
payables, partially offset by funds received from prior owners
for security deposits and tenant improvements and receipts of
master lease payments.
Net cash provided by financing activities increased
$475.0 million to $470.4 million for the year ended
December 31, 2004 compared to net cash used of
$4.6 million for the year ended December 31, 2003. The
increase was primarily due to the net proceeds received from the
IPO of our common stock on August 11, 2004 and the exercise
of the underwriters over-allotment option on
August 16, 2004, offset by the payment of offering costs,
principal payments on secured notes payable, the payment of loan
costs, distributions to owners of the predecessor, and dividends
paid to stockholders.
Cash and cash equivalents were $27.9 million and $355,000
at December 31, 2004 and 2003, respectively.
Cash Distribution Policy
We will elect to be taxed as a REIT under the Code commencing
with our taxable year ended December 31, 2004. To qualify
as a REIT, we must meet a number of organizational and
operational requirements, including the requirement that we
distribute currently at least 90% of our ordinary taxable income
to our stockholders. It is our intention to comply with these
requirements and maintain our REIT status. As a REIT, we
generally will not be subject to corporate federal, state or
local income taxes on taxable income we distribute currently (in
accordance with the Code and applicable regulations) to our
stockholders. If we fail to qualify as a REIT in any taxable
year, we will be subject to federal, state and local income
taxes at regular corporate rates and may not be able to qualify
as a REIT for subsequent tax years. Even if we qualify for
federal taxation as a REIT, we may be subject to certain state
and local taxes on our income and to federal income and excise
taxes on our undistributed taxable income,
i.e., taxable income not distributed in the amounts
and in the time frames prescribed by the Code and applicable
regulations thereunder.
Since our IPO through March 31, 2005, we have declared
aggregate dividends on our common stock and distributions on our
operating partnership units of $0.6897 per common share and
unit, representing a full quarterly dividend for each of the
fourth quarter of 2004 and first quarter of 2005 of $0.27 per
common share and unit and a partial dividend for the third
quarter of 2004 of $0.1497 per common share and unit. On
June 3, 2005, we declared a dividend of $0.27 per
common share and unit, for the period from April 1, 2005 to
June 30, 2005, payable to the holders of record on
June 15, 2005. The dividends are equivalent to an annual
rate of $1.08 per common share and unit.
Inflation
Some of our leases contain provisions designed to mitigate the
adverse impact of inflation. These provisions generally increase
rental rates during the terms of the leases either at fixed
rates or indexed escalations (based on the Consumer Price Index
or other measures). We may be adversely impacted by inflation on
the leases that do not contain indexed escalation provisions. In
addition, most of our leases require the tenant to pay an
allocable share of operating expenses, including common area
maintenance costs, real estate taxes and insurance. This may
reduce our exposure to increases in costs and operating expenses
resulting from inflation, assuming our properties remain leased
and tenants fulfill their obligations to reimburse us for such
expenses.
Our Key Bank credit facilities bear interest at a variable rate,
which, to the extent not adequately hedged, will be influenced
by changes in short-term interest rates, and will be sensitive
to inflation.
52
Newly Issued Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 123R, Share-Based
Payment, or SFAS 123R. SFAS 123R replaces
SFAS 123. SFAS 123R requires the compensation cost
relating to share-based payment transactions be recognized in
financial statements and be measured based on the fair value of
the equity instrument issued. SFAS 123R is effective in
fiscal periods beginning after June 15, 2005. As of
December 31, 2004, our equity issuances for compensation
have consisted entirely of restricted stock grants to directors
and employees. We do not believe that the treatment of our
restricted stock grants under SFAS 123R differ from the
treatment under SFAS 123. As a result, we do not expect the
adoption of SFAS 123R to have a material impact on our
results of operations, financial position or liquidity. On
April 14, 2005, the Securities and Exchange Commission
announced a deferral of the effective date of SFAS 123R for
calendar year companies until the beginning of 2006.
In December 2004, the FASB issued SFAS No. 153,
Exchange of Nonmonetary Assets, an amendment of APB Opinion
No. 29, or SFAS 153. The amendments made by
SFAS 153 are based on the principle that exchanges of
nonmonetary assets should be measured on the fair value of
assets exchanged. SFAS 153 eliminates the exception for
nonmonetary exchanges of similar productive assets and replaces
it with a broader exception for exchanges of nonmonetary assets
that do not have commercial substance. SFAS 153 is
effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. We do not expect the
adoption of SFAS 153 to have a material impact on our
results of operations, financial position or liquidity.
Quantitative and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair values relevant to
financial instruments depend upon prevailing market interest
rates. 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 believe we are exposed is interest rate risk. Many
factors, including governmental monetary and tax policies,
domestic and international economic and political considerations
and other factors that are beyond our control contribute to
interest rate risk.
As of March 31, 2005, our consolidated debt consisted of
eight fixed-rate notes with a carrying value of
$101.6 million (including $5.1 million of unamortized
premium) and a weighted-average effective interest rate of 4.71%
and our credit facility with an outstanding balance of
$19.5 million and a weighted-average variable interest rate
of 4.03%. To determine fair value, the fixed-rate debt is
discounted at a rate based on an estimate of current lending
rates, assuming the debt is outstanding through maturity and
considering the notes collateral. At March 31, 2005,
the fair value of the fixed-rate debt was estimated to be
$99.0 million compared to the net carrying value of
$101.6 million (including $5.1 million of unamortized
premium). We do not believe that the interest rate risk
represented by our fixed rate debt was material as of
March 31, 2005 in relation to total assets of
$601.6 million and equity market capitalization of
$706.7 million of our common stock and operating units. At
March 31, 2005, the fair value of the debt of our
investment in unconsolidated partnership approximated the
carrying value.
If interest rates were to increase by 10%, or 40 basis
points, the increase in interest expense on our
$19.5 million in variable rate debt would decrease future
annual earnings and cash flows by approximately $72,000 as of
March 31, 2005. If interest rates were to decrease by 10%,
or 40 basis points, the decrease in interest expense on our
$19.5 million in variable rate debt would increase our
future annual earnings and cash flows by approximately $72,000
as of March 31, 2005.
These amounts were determined by considering the impact of
hypothetical interest rates on our financial instruments. These
analyses do not consider the effect of any change in overall
economic activity that could occur in that environment. Further,
in the event of a change of the magnitude discussed above, we
may take 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, these analyses assume
no changes in our financial structure.
53
In order to modify and manage the interest rate characteristics
of our outstanding debt and to limit the effects of interest
rate risks on our operations, we may utilize a variety of
financial instruments, including interest rate swaps, caps and
treasury locks in order to mitigate our interest rate risk on a
related financial instrument. The use of these types of
instruments to hedge our exposure to changes in interest rates
carries additional risks, including counterparty credit risk,
the enforceability of hedging contracts and the risk that
unanticipated and significant changes in interest rates will
cause a significant loss of basis in the contract. To limit
counterparty credit risk we will seek to enter into such
agreements with major financial institutions with high credit
ratings. There can be no assurance that we will be able to
adequately protect against the foregoing risks and will
ultimately realize an economic benefit that exceeds the related
amounts incurred in connection with engaging in such hedging
activities. We do not enter into such contracts for speculative
or trading purposes. For the period from August 11, 2004 to
March 31, 2005, we were not a party to any such financial
instruments. In connection with the KeyBank $250.0 million
secured term loan, we have entered into an interest rate swap
agreement, which will have the effect of fixing the interest
rate on the secured term loan at 6.4%.
54
BUSINESS AND PROPERTIES
Business Overview
We are a REIT focused on acquiring, developing, owning, leasing
and managing laboratory and office space for the life science
industry. Our tenants include biotechnology and pharmaceutical
companies, scientific research institutions, government agencies
and other entities involved in the life science industry. Our
current properties and our primary acquisition targets are
located in markets with well established reputations as centers
for scientific research, including Boston, San Diego,
San Francisco, Seattle, Maryland, Pennsylvania and
New York/ New Jersey.
We completed an IPO of our common stock in August 2004 and
raised net proceeds of approximately $429.3 million. In
connection with the IPO, we acquired 13 properties with an
aggregate of 2.3 million rentable square feet of laboratory
and office space. Since the completion of the IPO, we have
acquired an additional 20 properties with an aggregate of
2.0 million rentable square feet of laboratory and office
space for aggregate cash consideration of $546.9 million
and the assumption of $143.0 million of debt. As of
May 31, 2005, we owned 33 properties with an aggregate of
4.3 million rentable square feet of laboratory and office
space, which was approximately 92.2% leased to 76 tenants.
Of the remaining unleased space, 204,071 square feet, or
4.8% of our total rentable square footage, was under
redevelopment.
On May 31, 2005, we completed the acquisition of the Lyme
portfolio, described below under Lyme
Portfolio Properties. The Lyme portfolio consists of ten
buildings with an aggregate of approximately 1.1 million
rentable square feet of laboratory and office space, which upon
acquisition was 96.8% leased with an average remaining term of
ten years, and includes the parking structure with
447 parking spaces. The purchase price was
$523.6 million, excluding closing costs, and was funded
through borrowings under three credit facilities with KeyBank
and other lenders and the assumption of approximately
$131.2 million of indebtedness.
Our senior management team has significant experience in the
real estate industry, principally focusing on properties
designed for life science tenants. We operate as a fully
integrated, self-administered and self-managed REIT, providing
management, leasing, development and administrative services to
our properties.
Our executive offices are located at 17140 Bernardo Center
Drive, Suite 222, San Diego, California 92128. Our
telephone number at that location is (858) 485-9840. Our
website is located at www.biomedrealty.com. The information
found on, or otherwise accessible through, our website is not
incorporated into, and does not form a part of, this prospectus
or any other report or document we file with or furnish to the
Securities and Exchange Commission.
55
Industry Overview
The life science industry represents a large and fast growing
segment of the U.S. economy. In 2004, according to CMS,
health care spending grew 7.5% to an estimated
$1.8 trillion, representing 15.4% of U.S. gross
domestic product, and annual health care spending is projected
to grow faster than the broader economy for the next ten years,
reaching $3.6 trillion in 2014, representing 18.7% of
U.S. gross domestic product, as shown in the chart below.
According to the Bureau of Labor Statistics, employment in the
health services industry is forecasted to grow at approximately
twice the rate of the broader economy. In addition, according to
a 2001 study by Research!America, it was estimated that for
every dollar spent on health care $0.06 was spent on research,
which would represent approximately $100 billion in 2003.
Within the life science industry, we primarily focus on the
following tenants: biotechnology and pharmaceutical companies,
scientific research institutions and government agencies.
National Health Expenditures and Their Share of Gross
Domestic Product, 1994-2014
Source: CMS
56
Biotechnology is a large and growing, well-financed segment of
total health care spending and employment. According to NDC
Health, the market for prescription drugs accounted for
approximately $251 billion in 2004, and has grown 51.2%
since 2000. This revenue growth has been supported by
significant increases in research and development spending. In
the 2004 Ernst & Young Global Biotechnology Report
issued in June 2004, or E&Y Report, Ernst & Young
LLP estimates that public U.S. biotechnology companies
spent $13.6 billion on research and development in 2003,
representing a 101% increase since 1998. Ernst & Young
estimates that this sector received approximately
$75 billion in total financings. Also, since 1998,
biotechnology employment by public U.S. biotechnology
companies has grown 38% to an aggregate of
146,100 employees. The strengthening financial condition of
the biotechnology industry is reflected in the revenue growth
demonstrated in the chart below, with revenues growing from
$12 billion in 1994 to $36 billion in 2003.
Domestic Biotechnology Revenues
Source:
Ernst & Young LLP
57
Pharmaceutical companies are an important segment of the life
science industry. Pharmaceutical companies not only require
increasing amounts of research and development space but
directly and indirectly drive demand for additional life science
facilities. Pharmaceutical Research and Manufacturers of
America, or PhRMA, estimates that the domestic pharmaceutical
industry spent approximately $27.1 billion on research and
development in 2003, an increase of 158% in the last ten years
(as shown below), and has increased this spending every year
since 1970. Over the same period, domestic pharmaceutical sales
increased over 200%. Research and development spending has
benefited from this sales growth, as well as more complex
disease targets and a more extensive regulatory process.
Domestic Pharmaceutical R&D Expenditures
Source:
PhRMA
|
|
|
Scientific Research Institutions |
Demand for our space is also driven by university and non-profit
research institute spending. These institutions directly drive
the demand for laboratory space through their own research
efforts and indirectly through funding private sector research
and supplying access to their research facilities and equipment.
For example, the Scripps Research Institute in San Diego
utilizes over one million square feet of laboratory space and
employs more than 2,800 scientists, technicians and other
professionals. Other examples of non-profit research
institutions in our target markets include the American Heart
Association, the American Lung Association, the American Cancer
Society, the Salk Institute for Biological Studies, the
Whitehead Institute for Biomedical Research, the National Cancer
Institute, the Sloan Kettering Institute for Cancer Research and
the Fred Hutchinson Cancer Research Center. Universities and
research hospitals such as the University of California,
San Diego, the University of California,
San Francisco, Stanford University, Johns Hopkins
University, the University of Pennsylvania, Princeton
University, Columbia University, Harvard University and
Massachusetts General Hospital also have active research and
development efforts and are important drivers of demand for
rental space in the markets in which they operate.
58
Government Agencies
A fourth major demand driver and tenant focus for us is federal
and state government agencies. Government agencies drive the
need for space directly through their research and development
programs and indirectly through research funding provided to
university, non-profit research institutes and for-profit life
science entities. The National Institutes of Health alone has an
approved budget of $26.9 billion for research and
development spending for 2004, and its total annual expenditures
have increased from approximately $10.3 billion in 1994 to
approximately $25.2 billion in 2003, as shown below. Other
federal government agencies that fund health care research
include: the Department of Health and Human Services, the Food
and Drug Administration, or FDA, the Department of Homeland
Security, the Environmental Protection Agency and the Department
of Agriculture. These efforts are also supplemented by research
grants and tax benefits from state and local government programs
and agencies.
R&D Expenditures by the National Institutes of Health
Source:
National Institutes of Health
We believe that there is a high likelihood for continued growth
in the life science industry due to several factors, including
(1) the existing high level of and continuing increase in
research and development expenditures, (2) the aging of the
U.S. population resulting from the transition of baby
boomers to senior citizens, which has increased the demand for
new drugs and services, and (3) escalating health care
costs, which drive the demand for better drugs, less expensive
treatments and more services in an attempt to manage such costs.
Life Science Real Estate Characteristics
Life science entities desire properties that are strategically
located near leading academic and research institutions and that
have unique design and construction requirements to accommodate
their research, development, clinical testing and product
development needs. To accommodate the additional building
infrastructure and tenant owned furniture, fixtures and
equipment, properties are designed with enhanced structural
floor rigidity and load bearing capacities ranging between 100
and 150 pounds per square foot and unobstructed floor-to-ceiling
clear heights of 12.5 to 16 feet. In contrast, many of the
existing multi-story office buildings in the market today have
elevated floors with structural load bearing capacities ranging
between 60 and 80 pounds per square foot and floor-to-ceiling
clear heights of only 10.5 to twelve
59
feet. Also, properties must have enhanced electrical, plumbing
and HVAC systems. In addition, due to the critical nature of the
tenants operations, life science properties typically
require building systems to have significant excess capacity not
found in generic office or industrial space.
As an example, a typical office space environment cycles the
volume of air within the space four to six times per hour using
10% to 20% of fresh outside air with the balance of the air
re-circulated. A typical life science laboratory space
environment cycles the volume of air within the space ten to 15
times per hour using 100% fresh air. This differential in the
amount of fresh air and volume cycles significantly increases
the amount and size of the facilities electrical, plumbing
and HVAC equipment needs.
Historically, the markets for properties designed for life
science tenants with laboratory space have been characterized by
fragmented ownership and scarce market data, with a limited
number of institutional investors investing in and owning life
science properties. Limited familiarity with the unique aspects
of the property type and the high cost per square foot compared
to traditional office and warehouse property have led to a lack
of participation from traditional commercial property lenders in
the sector. The limited access to cost-effective debt financing
has in turn resulted in a limited number of competitors with the
requisite expertise and access to capital necessary to acquire,
develop and own properties designed for life science tenants.
Target Markets
We focus our investment efforts in seven key markets: Boston,
San Diego, San Francisco, Seattle, Maryland,
Pennsylvania and New York/ New Jersey. These target markets have
emerged as primary hubs for research and development and
production in the life science industry. These markets generally
have reputations for scientific excellence and are often
associated with a concentration of academic centers. Each
markets reputation for scientific excellence is enhanced
by having some mature health care companies in the region which
provide scale and stability to the market, in addition to a
regular supply of new startups, which are drawn to the market by
the ability to leverage off of the existing industry
infrastructure. Furthermore, these markets generally provide a
high quality of life for the skilled workforce. Unless otherwise
noted, the following information regarding our target markets
was provided in the Rosen Study.
The Boston life science market has approximately
14.0 million rentable square feet of life science space,
the majority of which is located in the Cambridge sub-market.
Demand for laboratory and office space in this market is driven
by its proximity to several prominent universities and research
institutions, including Massachusetts Institute of Technology,
Harvard University, the Whitehead Institute for Biomedical
Research, Brigham and Womens Hospital and Massachusetts
General Hospital. The New England area, including Connecticut,
Maine, Massachusetts, New Hampshire and Rhode Island, is listed
in the E&Y Report as having 51 publicly traded biotechnology
companies. This list includes Genzyme Corporation, Biogen Idec
Inc. and Millennium Pharmaceuticals, Inc., each of which is
located in the Boston area.
Over the course of the last several decades, San Diego has
emerged as one of the primary centers for life science research
and development, driven in large part by the concentration of
academic centers, including the University of California,
San Diego, the Scripps Research Institute and the Salk
Institute for Biological Studies. The San Diego market has
approximately 14.0 million rentable square feet of life
science space. A significant portion of the biotechnology
research effort is concentrated in a relatively high-density
area of La Jolla, a suburb of San Diego, and its
surrounding area. San Diego is listed in the E&Y Report
as having 27 publicly traded biotechnology companies,
including Elan Corporation, plc, Ligand Pharmaceuticals
Incorporated, Quidel Corporation and Invitrogen Corporation.
60
The San Francisco life science market has approximately
26.0 million rentable square feet of life science space and
has emerged as one of the largest life science centers in the
United States. The San Francisco Bay area is listed in the
E&Y Report as having 59 publicly traded biotechnology
companies, including Genentech, Inc., Alza Corporation, Chiron
Corporation, Gilead Sciences, Inc. and Nektar Therapeutics.
Other regional drivers include Stanford University, the
University of California, Berkeley and the University of
California, San Francisco. A significant portion of the
biotechnology research effort is concentrated near
Genentechs corporate headquarters in South
San Francisco.
The Seattle life science market has approximately
6.5 million rentable square feet of life science space and
is driven primarily by the Fred Hutchinson Cancer Research
Center and the University of Washington. The Pacific Northwest
region, including Oregon and Washington, is listed in the
E&Y Report as having 19 publicly traded biotechnology
companies. These companies include Amgen Inc. (Helix campus),
ICOS Corporation, ZymoGenetics, Inc. and Cell Therapeutics,
Inc., each of which is located in the Seattle area.
The Maryland life science market has approximately
10.0 million rentable square feet of life science space and
is driven by its proximity to government health agencies,
including the FDA, the National Institutes of Health, the
Department of Homeland Security and the National Cancer
Institute, and several universities and institutes, such as
Johns Hopkins University, the University of Maryland and the
Howard Hughes Medical Institute. The Mid-Atlantic market,
including Maryland, Virginia and Washington, D.C., is
listed in the E&Y Report as having 20 publicly traded
biotechnology companies, including Medimmune, Inc., Human Genome
Sciences, Inc. and Celera Genomics group, a business segment of
Applera Corporation. Each of these entities is located in
Maryland.
The Pennsylvania life science market has approximately
3.8 million rentable square feet of life science space and
is driven by several research institutions and biotechnology
companies, including the University of Pennsylvania,
Pennsylvania State University, the University Science Center,
The Wistar Institute and Hershey Medical Center. The
Pennsylvania/ Delaware Valley market is listed in the E&Y
Report as having eleven publicly traded biotechnology companies,
including Cephalon, Inc., Centocor, Inc. and Neose Technologies,
Inc.
The New York/ New Jersey life science market has approximately
13.5 million rentable square feet of life science space and
is driven by several research institutions, large pharmaceutical
companies and biotechnology companies, including Princeton
University, Columbia University, New York University, Rutgers
University, Sloan Kettering Institute for Cancer Research,
Johnson & Johnson, Merck & Co., Inc., Wyeth
and Pfizer Inc. This region is listed in the E&Y Report as
having 42 publicly traded biotechnology companies,
including Celgene Corporation, Immunomedics, Inc., Lifecell
Corporation, Regeneron Pharmaceuticals, Inc.,
OSI Pharmaceuticals, Inc., Emisphere Technologies, Inc. and
Progenics Pharmaceuticals, Inc.
Our Business Strategy
Our business strategy is to own, acquire, lease, manage and
selectively develop laboratory and office space for lease to
life science tenants in our target markets. This highly focused
business strategy, coupled with our management expertise,
provides significant internal and external growth opportunities.
61
Our internal growth strategy is designed to maximize
distributions to our stockholders by capitalizing on our
significant management expertise through the following means:
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|
Maximize occupancy. We believe our access to
cost-effective capital enables us to finance tenant improvements
and lease our available space to high quality tenants. We
believe that this maximizes occupancy and drives revenue growth. |
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|
Contractual rental rate increases. Our leases generally
include annual rent escalations, which provide us with
predictable and consistent earnings growth. |
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|
|
Tenant monitoring. We closely monitor changes in our
existing tenants financial position, prospects and
creditworthiness in order to identify and address opportunities
to renew, extend or modify existing leases and find additional
expansion opportunities. |
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|
|
Opportunistic laboratory space conversions. We
continually evaluate opportunities to convert existing office
and industrial space into laboratory space and significantly
increase our return on invested capital. |
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|
Tenant financed improvements. Our tenants generally
contribute tenant improvements necessary to conform a property
to their specific needs. These upfront costs and the requirement
that many of these improvements remain with the property upon
lease termination afford us the opportunity to substantially
increase rental rates at the end of the lease, provide built-in
growth above contractual rent increases and serve as a
significant incentive for the tenant to renew its lease. |
Based on our management teams extensive acquisition
experience and its established network of informal relationships
through past business dealings with existing and potential life
science tenants, property owners and real estate brokers, we
believe that we are well-positioned to be a significant acquirer
in a fragmented niche of the real estate industry. According to
the Rosen Study, our target markets have in excess of
87.0 million rentable square feet of life science real
estate, not including owner-occupied properties. Also, according
to the Rosen Study, the average market occupancy rate for life
science real estate in these markets is seven percentage points
greater than the occupancy rate for generic office properties.
Our acquisition focus is to buy properties leased to high
quality life science tenants at attractive cash-on-cash yields
with potential upside through lease-up, redevelopment or
additional development. Our acquisition strategy is a real
estate-based formulation, combining extensive tenant analysis
and risk-based underwriting. Our acquisition strategy includes:
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|
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|
|
Real Estate Underwriting. Our primary consideration is
the location of a property in relation to academic and research
institutions and other demand generators in our target markets,
a critical factor in determining long-term value. In addition,
we assess the propertys suitability for life science
tenants and the amount of generic laboratory space in order to
maximize the flexibility to attract new or replacement tenants.
We also focus on the building improvements financed by the
tenant, which provide significant downside protection to our
investment while increasing tenant retention and providing
future rental increases. Next, we consider the propertys
basic design and construction and its ability to accommodate
life science tenants. Features we examine include, among others,
floor-to-ceiling clear heights, floor rigidity and load bearing
capacity, and electrical, plumbing and HVAC systems. We
generally seek to acquire properties with generic laboratory
space (space that we can easily convert to support alternative
uses within the life science industry). We believe we can more
easily re-lease such space to future tenants or convert it to
multi-tenant use. |
|
|
|
Tenant Credit Analysis. Our tenant credit analysis
considers three key elements in evaluating prospective tenants:
(1) financial condition, (2) management team and
(3) scientific focus. We perform a thorough review of the
prospective tenants financial statements, considering the
current |
62
|
|
|
|
|
liquidity and cash resources as well as the tenants
prospects for raising additional capital. We meet with the
prospective tenants senior management team in order to
evaluate the quality of the management team, their scientific
focus and their ability to raise capital. In addition, we review
the prospective tenants investors and/or venture capital
partners in order to obtain further validation of the
tenants prospects. In order to assess the viability of the
prospective tenants scientific focus, we rely on our
contacts in the scientific community to provide insight on the
prospective tenant and its competitors. |
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|
Lease Structuring. After careful consideration of the
subject property and the prospective tenant, we analyze our
leases to provide the appropriate economic return based on our
risk assessment. Depending on the business plan for each
individual property, our leases generally range from five to
15 years, with extension options, and include a fixed
rental rate with scheduled annual escalations. The leases
typically are triple-net. In addition, our tenants typically are
responsible for capital improvements necessary to maintain the
property in its original condition. Accordingly, we believe that
we will have the capability to substantially increase the number
of properties we own and manage without proportionate increases
in overhead costs. Under some of the leases, we may remain
responsible for the repair and maintenance of the foundation,
exterior walls and other structural components of the building. |
In addition to the heavily improved nature of generic laboratory
space, a significant amount of tenant improvements are made by
the tenant in order to conform the property to the tenants
specific needs. While we may pay for a limited portion of these
improvements, tenants generally bear the majority of these
costs. These sunk costs serve as a significant incentive for the
tenant to remain in the property, increasing the likelihood that
they renew their leases upon expiration. Furthermore, when
tenants do leave, they generally are required under their leases
to leave tenant improvements with the property, which in turn
enhances our ability to attract new tenants. These tenant
improvements typically include wall-coverings, carpeting,
flooring, built-in cabinet and laboratory casework, paneling,
electrical, mechanical and plumbing equipment and related ducts,
shafts and conduits, gas and air delivery systems, autoclaves
and glassware sterilization equipment, exterior venting fume
hoods, walk-in freezers and refrigerators, clean-rooms,
climatized rooms, electrical panels, circuits and back-up power
distribution systems.
Property Portfolio
At May 31, 2005, our portfolio consisted of
33 properties, which included 56 buildings with an
aggregate of 4.3 million rentable square feet of laboratory
and office space. We also owned undeveloped land that we
estimate can support up to 600,000 rentable square feet of
laboratory and office space.
The following summarizes our existing portfolio at May 31,
2005 by location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of | |
|
|
|
|
|
|
|
Annualized | |
|
|
Number | |
|
Rentable | |
|
Rentable | |
|
|
|
Annualized | |
|
Percent | |
|
Rent | |
|
|
of | |
|
Square | |
|
Square | |
|
Percent | |
|
Base Rent | |
|
Annualized | |
|
Per Leased | |
Market |
|
Properties | |
|
Feet | |
|
Feet | |
|
Leased | |
|
($ in 000s) | |
|
Rent | |
|
Square Foot | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Boston
|
|
|
11 |
|
|
|
1,270,365 |
|
|
|
29.8 |
% |
|
|
96 |
% |
|
$ |
47,383 |
|
|
|
43.2 |
% |
|
$ |
37.92 |
|
New York/New Jersey
|
|
|
2 |
|
|
|
823,948 |
|
|
|
19.4 |
% |
|
|
88 |
% |
|
|
14,253 |
|
|
|
13.0 |
% |
|
|
19.66 |
|
San Francisco
|
|
|
5 |
|
|
|
717,970 |
|
|
|
16.9 |
% |
|
|
89 |
% |
|
|
14,078 |
|
|
|
12.8 |
% |
|
|
22.00 |
|
Pennsylvania
|
|
|
3 |
|
|
|
559,259 |
|
|
|
13.1 |
% |
|
|
92 |
% |
|
|
10,221 |
|
|
|
9.3 |
% |
|
|
19.86 |
|
San Diego(1)
|
|
|
8 |
|
|
|
529,641 |
|
|
|
12.4 |
% |
|
|
89 |
% |
|
|
14,397 |
|
|
|
13.1 |
% |
|
|
30.66 |
|
Seattle
|
|
|
2 |
|
|
|
185,989 |
|
|
|
4.4 |
% |
|
|
100 |
% |
|
|
6,819 |
|
|
|
6.2 |
% |
|
|
36.67 |
|
Maryland
|
|
|
2 |
|
|
|
168,817 |
|
|
|
4.0 |
% |
|
|
100 |
% |
|
|
2,625 |
|
|
|
2.4 |
% |
|
|
15.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted Average:
|
|
|
33 |
|
|
|
4,255,989 |
|
|
|
100.0 |
% |
|
|
92 |
% |
|
$ |
109,776 |
|
|
|
100.0 |
% |
|
$ |
27.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes 72,863 square feet (or 1.7% of the portfolio) of
an unconsolidated partnership, of which we own 21%. |
63
The following table sets forth information related to the
properties we owned, or had an ownership interest in, as of
May 31, 2005:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
|
|
|
Annualized | |
|
|
|
|
Number | |
|
|
|
Rentable | |
|
Rentable | |
|
Approximate | |
|
|
|
Annualized | |
|
Percent | |
|
Rent Per | |
|
|
|
|
of | |
|
Year Built/ | |
|
Square | |
|
Square | |
|
Percentage | |
|
Percent | |
|
Base Rent | |
|
Annualized | |
|
Leased | |
|
|
Property Location |
|
Buildings | |
|
Renovated | |
|
Feet | |
|
Feet | |
|
Lab Space | |
|
Leased | |
|
($ in 000s) | |
|
Rent | |
|
Square Foot | |
|
Primary Tenant | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Boston
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kendall Square D(1)
|
|
|
1 |
|
|
|
2002 |
|
|
|
349,325 |
|
|
|
8.2 |
% |
|
|
0 |
% |
|
|
98 |
% |
|
$ |
15,397 |
|
|
|
14.0 |
% |
|
$ |
44.89 |
|
|
|
Genzyme Corporation |
|
Kendall Square A(1)
|
|
|
1 |
|
|
|
2002 |
|
|
|
302,919 |
|
|
|
7.1 |
% |
|
|
65 |
% |
|
|
97 |
% |
|
|
14,536 |
|
|
|
13.2 |
% |
|
|
49.61 |
|
|
|
Vertex Pharmaceuticals |
|
Sidney Street
|
|
|
1 |
|
|
|
2000 |
|
|
|
191,904 |
|
|
|
4.5 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
4,063 |
|
|
|
3.7 |
% |
|
|
21.17 |
|
|
|
Vertex Pharmaceuticals |
|
40 Erie Street
|
|
|
1 |
|
|
|
1996 |
|
|
|
100,854 |
|
|
|
2.4 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
4,098 |
|
|
|
3.7 |
% |
|
|
40.63 |
|
|
|
Vertex Pharmaceuticals |
|
Fresh Pond Research Park(1)
|
|
|
6 |
|
|
|
1948/2002 |
|
|
|
90,702 |
|
|
|
2.1 |
% |
|
|
45 |
% |
|
|
83 |
% |
|
|
1,027 |
|
|
|
0.9 |
% |
|
|
13.59 |
|
|
|
Curis |
|
Albany Street
|
|
|
2 |
|
|
|
1922/1998 |
|
|
|
75,003 |
|
|
|
1.8 |
% |
|
|
65 |
% |
|
|
100 |
% |
|
|
3,460 |
|
|
|
3.2 |
% |
|
|
46.21 |
|
|
Millennium Pharmaceuticals |
Vassar Street(2)
|
|
|
1 |
|
|
|
1950/1998 |
|
|
|
52,520 |
|
|
|
1.2 |
% |
|
|
65 |
% |
|
|
100 |
% |
|
|
1,372 |
|
|
|
1.3 |
% |
|
|
26.13 |
|
|
|
Monsanto Company |
|
21 Erie Street
|
|
|
1 |
|
|
|
1925/2004 |
|
|
|
48,238 |
|
|
|
1.1 |
% |
|
|
20 |
% |
|
|
58 |
% |
|
|
769 |
|
|
|
0.7 |
% |
|
|
27.46 |
|
|
|
Metabolix |
|
Coolidge Avenue(1)
|
|
|
1 |
|
|
|
1962/1999 |
|
|
|
37,400 |
|
|
|
0.9 |
% |
|
|
65 |
% |
|
|
100 |
% |
|
|
935 |
|
|
|
0.9 |
% |
|
|
25.00 |
|
|
|
V.I. Technologies |
|
Lucent Drive(1)(3)
|
|
|
1 |
|
|
|
2004 |
|
|
|
21,500 |
|
|
|
0.5 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
548 |
|
|
|
0.5 |
% |
|
|
25.49 |
|
|
Trustees of Dartmouth College |
47 Erie Street Parking Structure(1)
|
|
|
1 |
|
|
|
1998 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
100 |
% |
|
|
1,178 |
|
|
|
1.1 |
% |
|
|
N/A |
|
|
|
Various |
|
New York/New Jersey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landmark at Eastview(4)
|
|
|
8 |
|
|
|
1958/1999 |
|
|
|
751,648 |
|
|
|
17.7 |
% |
|
|
65 |
% |
|
|
95 |
% |
|
|
14,105 |
|
|
|
12.9 |
% |
|
|
19.75 |
|
|
|
Regeneron Pharmaceuticals |
|
Graphics Drive
|
|
|
1 |
|
|
|
1992/2001 |
|
|
|
72,300 |
|
|
|
1.7 |
% |
|
|
12 |
% |
|
|
15 |
% |
|
|
148 |
|
|
|
0.1 |
% |
|
|
13.86 |
|
|
|
Medeikon |
|
San Francisco
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeview
|
|
|
3 |
|
|
|
1977/2002 |
|
|
|
263,073 |
|
|
|
6.2 |
% |
|
|
30 |
% |
|
|
82 |
% |
|
|
2,752 |
|
|
|
2.5 |
% |
|
|
12.78 |
|
|
|
Cell Genesys |
|
Bayshore Boulevard
|
|
|
3 |
|
|
|
2000 |
|
|
|
183,344 |
|
|
|
4.3 |
% |
|
|
75 |
% |
|
|
100 |
% |
|
|
4,203 |
|
|
|
3.8 |
% |
|
|
22.92 |
|
|
|
Intermune |
|
Industrial Road(5)
|
|
|
1 |
|
|
|
2001 |
|
|
|
171,965 |
|
|
|
4.0 |
% |
|
|
50 |
% |
|
|
82 |
% |
|
|
5,480 |
|
|
|
5.0 |
% |
|
|
38.67 |
|
|
|
Nektar Therapeutics |
|
Ardentech Court
|
|
|
1 |
|
|
|
1997/2001 |
|
|
|
55,588 |
|
|
|
1.3 |
% |
|
|
40 |
% |
|
|
100 |
% |
|
|
1,010 |
|
|
|
0.9 |
% |
|
|
18.17 |
|
|
|
Vicuron Pharmaceuticals |
|
Dumbarton Circle
|
|
|
1 |
|
|
|
1990 |
|
|
|
44,000 |
|
|
|
1.0 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
633 |
|
|
|
0.6 |
% |
|
|
14.37 |
|
|
|
ARYx Therapeutics |
|
Pennsylvania
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
King of Prussia(6)
|
|
|
5 |
|
|
|
1954/2004 |
|
|
|
427,109 |
|
|
|
10.0 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
9,060 |
|
|
|
8.3 |
% |
|
|
21.21 |
|
|
|
Centocor |
|
Phoenixville Pike
|
|
|
1 |
|
|
|
1989 |
|
|
|
104,400 |
|
|
|
2.5 |
% |
|
|
50 |
% |
|
|
57 |
% |
|
|
783 |
|
|
|
0.7 |
% |
|
|
13.13 |
|
|
|
Cephalon |
|
Eisenhower Road
|
|
|
1 |
|
|
|
1973/2000 |
|
|
|
27,750 |
|
|
|
0.7 |
% |
|
|
20 |
% |
|
|
100 |
% |
|
|
378 |
|
|
|
0.3 |
% |
|
|
13.60 |
|
|
|
Crane Environmental |
|
San Diego
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne Centre Drive(7)
|
|
|
3 |
|
|
|
2001 |
|
|
|
115,870 |
|
|
|
2.7 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
3,824 |
|
|
|
3.5 |
% |
|
|
33.00 |
|
|
|
Illumina |
|
Bunker Hill Street
|
|
|
1 |
|
|
|
1973/2002 |
|
|
|
105,364 |
|
|
|
2.5 |
% |
|
|
60 |
% |
|
|
84 |
% |
|
|
3,137 |
|
|
|
2.9 |
% |
|
|
35.50 |
|
|
|
SCVSI |
|
McKellar Court(8)
|
|
|
1 |
|
|
|
1988 |
|
|
|
72,863 |
|
|
|
1.7 |
% |
|
|
50 |
% |
|
|
100 |
% |
|
|
1,671 |
|
|
|
1.5 |
% |
|
|
22.94 |
|
|
|
Quidel Corporation |
|
Bernardo Center Drive(9)
|
|
|
1 |
|
|
|
1974/1992 |
|
|
|
61,286 |
|
|
|
1.4 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
2,113 |
|
|
|
1.9 |
% |
|
|
34.48 |
|
|
University of California Regents |
Science Center Drive
|
|
|
1 |
|
|
|
1995 |
|
|
|
53,740 |
|
|
|
1.3 |
% |
|
|
80 |
% |
|
|
100 |
% |
|
|
1,660 |
|
|
|
1.5 |
% |
|
|
30.88 |
|
|
|
Ligand Pharmaceuticals |
|
Waples Street(1)(10)
|
|
|
1 |
|
|
|
1983 |
|
|
|
43,036 |
|
|
|
1.0 |
% |
|
|
N/A |
|
|
|
0 |
% |
|
|
0 |
|
|
|
0.0 |
% |
|
|
0.00 |
|
|
None (under redevelopment) |
Nancy Ridge Drive
|
|
|
1 |
|
|
|
1983/2001 |
|
|
|
42,138 |
|
|
|
1.0 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
1,350 |
|
|
|
1.2 |
% |
|
|
32.03 |
|
|
|
BioMedica |
|
Balboa Avenue
|
|
|
1 |
|
|
|
1968/2000 |
|
|
|
35,344 |
|
|
|
0.8 |
% |
|
|
0 |
% |
|
|
100 |
% |
|
|
642 |
|
|
|
0.6 |
% |
|
|
18.18 |
|
|
General Services Administration |
Seattle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elliott Avenue
|
|
|
1 |
|
|
|
1925/1984 |
|
|
|
134,989 |
|
|
|
3.2 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
5,204 |
|
|
|
4.7 |
% |
|
|
38.55 |
|
|
|
Chiron Corporation |
|
Monte Villa Parkway
|
|
|
1 |
|
|
|
1996/2002 |
|
|
|
51,000 |
|
|
|
1.2 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
1,615 |
|
|
|
1.5 |
% |
|
|
31.67 |
|
|
|
Nastech Pharmaceutical |
|
Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tributary Street
|
|
|
1 |
|
|
|
1983/1998 |
|
|
|
91,592 |
|
|
|
2.2 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
1,050 |
|
|
|
1.0 |
% |
|
|
11.46 |
|
|
|
Guilford Pharmaceuticals |
|
Beckley Street
|
|
|
1 |
|
|
|
1999 |
|
|
|
77,225 |
|
|
|
1.8 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
1,575 |
|
|
|
1.4 |
% |
|
|
20.39 |
|
|
|
Guilford Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted Average
|
|
|
56 |
|
|
|
|
|
|
|
4,255,989 |
|
|
|
100.0 |
% |
|
|
50 |
% |
|
|
92 |
% |
|
$ |
109,776 |
|
|
|
100.0 |
% |
|
$ |
27.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) This property is managed by a third party not
affiliated with us.
(2) Monsanto Company is the guarantor under the sublease of
its wholly owned subsidiary Cereon Genomics, LLC.
(3) Located in Lebanon, New Hampshire.
|
|
(4) |
We own a leasehold interest in the property through a 99-year
ground lease, which will convert into a fee simple interest upon
the completion of certain property subdivisions. |
64
|
|
(5) |
Includes rent from a lease with Nuvelo, Inc., which is expected
to commence in September 2005. |
|
(6) |
We own an 88.5% limited partnership interest and a 0.5% general
partnership interest in the limited partnership that owns this
property. |
|
(7) |
A portion of one of the buildings on this property, representing
6,600 square feet, is subleased by Illumina to an
unaffiliated third party for a period of 47 years, for
which we will receive no economic benefit. |
|
(8) |
We own the general partnership interest in the limited
partnership that owns the McKellar Court property, which
entitles us to 75% of the gains upon a sale of the property and
21% of the operating cash flows. |
|
(9) |
This property is occupied by the Centre for Health Care as a
medical office facility. Centre for Health Care, which occupies
the property with the consent of the University of California
Regents, pays the monthly rent and other obligations, but the
University of California Regents remain ultimately liable under
the lease. |
|
|
(10) |
We own 70% of the limited liability company that owns the Waples
Street property, which entitles us to 90% of the cash flow from
operations up to a 9.5% cumulative annual return, and then 75%
of such distributions thereafter. The other member of the
limited liability company has the right to put its interest to
us after completion of the initial improvements, and can require
us to issue partnership units as payment for such interest. |
Description of Significant Existing Properties
Our Landmark at Eastview and King of Prussia properties are the
only properties that represented more than 10% of our total
assets or more than 10% of our gross revenues as of
December 31, 2004.
Our Landmark at Eastview property, located in Tarrytown, New
York, consists of eight buildings representing
751,648 rentable square feet of laboratory and office
space. We have a leasehold interest in the property through a
99-year ground lease with the existing property owner. The owner
retains a fee simple interest in the property. The transaction
was structured as a ground lease to allow the seller to complete
certain property subdivisions. Under the terms of the ground
lease, we retain in escrow $1.0 million, which will be
transferred to the seller upon completion of the property
subdivisions, after which time the ground lease will terminate
and a fee simple interest in the property will be transferred to
us for no additional consideration. The buildings were
constructed between 1958 and 1971 as the Union Carbide Research
and Development Campus. We acquired the property in August 2004.
We intend to make $4.0 million of capital improvements from
future borrowings or other capital sources. As of May 31,
2005, the property was 95% leased to 18 tenants, of which 73.5%
of the rentable square footage was leased under triple-net
leases. The following table summarizes the information regarding
the tenants of Landmark at Eastview representing more than 10%
of the total rentable square footage, as of May 31, 2005,
all of which lease space pursuant to triple-net leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage | |
|
|
|
|
|
|
|
|
|
|
|
|
of Property | |
|
|
|
|
|
|
|
|
|
|
Leased | |
|
Leased | |
|
Annualized | |
|
|
Principal Nature | |
|
Lease | |
|
Renewal | |
|
Square | |
|
Square | |
|
Base Rent | |
Name |
|
of Business | |
|
Expiration | |
|
Options | |
|
Feet | |
|
Feet | |
|
($ in 000s) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Regeneron Pharmaceuticals, Inc.
|
|
|
Biotech |
|
|
|
Dec. 2007 |
(1) |
|
|
(1) |
|
|
|
211,813 |
|
|
|
29.7% |
|
|
$ |
3,950 |
|
Crompton Corporation
|
|
|
Chemical R&D |
|
|
|
Dec. 2009 |
|
|
|
2 5-yr. |
|
|
|
182,829 |
|
|
|
25.6% |
|
|
|
3,377 |
|
Emisphere Technologies, Inc.
|
|
|
Biotech |
|
|
|
Aug. 2007 |
|
|
|
2 5-yr. |
|
|
|
87,022 |
|
|
|
12.2% |
|
|
|
1,744 |
|
|
|
(1) |
A lease representing 73,727 square feet of this space
expires in December 2009, subject to the tenants option to
renew the lease for one additional five-year period. |
65
The following table schedules the lease expirations for leases
in place at our Landmark at Eastview property as of May 31,
2005, assuming that tenants exercise no renewal options and all
early termination options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of | |
|
Annualized | |
|
Percentage of | |
|
|
Number of | |
|
Square Footage of | |
|
Leased | |
|
Base Rent | |
|
Annualized | |
Year of Lease Expiration |
|
Leases Expiring | |
|
Expiring Leases | |
|
Square Feet | |
|
($ in 000s) | |
|
Base Rent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
2005
|
|
|
5 |
|
|
|
55,296 |
|
|
|
7.7 |
% |
|
$ |
807 |
|
|
|
5.7 |
% |
2006
|
|
|
4 |
|
|
|
16,563 |
|
|
|
2.3 |
% |
|
|
434 |
|
|
|
3.1 |
% |
2007
|
|
|
2 |
|
|
|
225,108 |
|
|
|
31.5 |
% |
|
|
3,968 |
|
|
|
28.1 |
% |
2008
|
|
|
2 |
|
|
|
2,246 |
|
|
|
0.3 |
% |
|
|
47 |
|
|
|
0.3 |
% |
2009
|
|
|
4 |
|
|
|
297,021 |
|
|
|
41.6 |
% |
|
|
5,915 |
|
|
|
41.9 |
% |
2010
|
|
|
2 |
|
|
|
7,538 |
|
|
|
1.1 |
% |
|
|
149 |
|
|
|
1.1 |
% |
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2 |
|
|
|
110,452 |
|
|
|
15.5 |
% |
|
|
2,786 |
|
|
|
19.8 |
% |
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21 |
|
|
|
714,224 |
|
|
|
100.0 |
% |
|
$ |
14,106 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month-to-month leases totaling 21,863 square feet are
included in leases expiring in 2005. Unleased space of
37,424 square feet is not represented in the above table.
The current real estate tax rate for the property is 2.4%, and
the total annual tax for the property at this rate for the 2004
tax year was $1.3 million (at a taxable assessed value of
$60.0 million). As of May 31, 2005, our federal tax
basis for the property was $100.7 million. We compute
depreciation on the property using the straight-line method
based on an estimated useful life of 39 years, at an
annualized average depreciation rate of 2.56%.
Our King of Prussia property, located near Philadelphia,
Pennsylvania, consists of five buildings representing
427,109 rentable square feet of laboratory, office and
warehouse space. The buildings were constructed in phases
between 1952 and 1982 and most recently were renovated in 2004.
We own an 89% interest in BMR-King of Prussia Road LP,
the limited partnership that owns the King of Prussia property.
Our interest includes an 88.5% limited partnership interest
and a 0.5% general partnership interest.
The limited partner in the partnership owns an 11% limited
partnership interest, which entitles it to $1.3 million,
plus a 10% cumulative preferred return, upon sale of the
property and none of the propertys operating cash flow.
After the third anniversary of our acquisition of the property,
the limited partner has a put option to sell its remaining
ownership interest to us for $1.6 million, which is
exercisable for a period of three months. We have a call option
on the limited partners remaining ownership interest for
$1.8 million beginning six months after the expiration
of the limited partners put option, which is exercisable
for a period of three months.
In addition, the primary tenant under a triple-net lease,
Centocor, Inc. (a subsidiary of Johnson & Johnson), has
the right, which expires in April 2008, to purchase the
property at a purchase price using a formula based on the
capitalization rate and in-place rents. Our share of the
purchase price under the option would be higher than the price
we paid to acquire the 89% interest in the partnership that owns
the property.
66
We acquired the property in August 2004. BMR-King of Prussia
Road LP owns fee simple title to the property.
As of May 31, 2005, the property was 100% leased to
two tenants, one of which is an affiliate of The Rubenstein
Company, as master lessee, pursuant to a modified gross lease. A
Rubenstein Company affiliate has the right to lease all or
portions of the space on our behalf to Centocor, Inc., or
to other tenants with our approval, in which event the master
lessee will be relieved of the portion of its obligation to pay
rent that equals the rent payable by the new tenants during the
term of the master lease. To the extent any new lease extends
beyond the term of the master lease, that new lease must be on
market terms. The following table summarizes the information
regarding the two tenants as of May 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage | |
|
|
|
|
|
|
|
|
|
|
Leased | |
|
of Leased | |
|
Annualized | |
|
|
Principal Nature | |
|
Lease | |
|
Renewal | |
|
Square | |
|
Square | |
|
Base Rent | |
Name |
|
of Business | |
|
Expiration | |
|
Options | |
|
Feet | |
|
Feet | |
|
($ in 000s) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Centocor, Inc.
|
|
|
Biotech |
|
|
|
Mar. 2010 |
|
|
|
1 4-yr. |
|
|
|
331,398 |
|
|
|
77.6 |
% |
|
$ |
7,826 |
|
The Rubenstein Company
|
|
|
Real Estate |
|
|
|
Feb. 2008 |
|
|
|
|
|
|
|
95,711 |
|
|
|
22.4 |
|
|
|
1,234 |
|
The current real estate tax rate for the property is 1.9%, and
the total annual tax for the property at this rate for the 2004
tax year was $780,000 (at a taxable assessed value of
$41.6 million). As of May 31, 2005, our federal tax
basis for the property was $88.3 million. We compute
depreciation on the property using the straight-line method
based on an estimated useful life of 39 years, at an
annualized average depreciation rate of 2.56%.
Lyme Portfolio Properties
On May 31, 2005, we completed the acquisition of the Lyme
portfolio, consisting of ten buildings with an aggregate of
approximately 1.1 million rentable square feet of
laboratory and office space, which upon acquisition was 96.8%
leased with an average remaining term of ten years, and includes
the parking structure with 447 parking spaces. The purchase
price was $523.6 million, excluding closing costs, and was
funded through borrowings under three credit facilities with
KeyBank and other lenders and the assumption of approximately
$131.2 million of indebtedness.
The following table presents an overview of the Lyme portfolio
as of May 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
|
|
|
Annualized | |
|
|
|
|
Number | |
|
|
|
Rentable | |
|
Rentable | |
|
Approximate | |
|
|
|
Annualized | |
|
Percent | |
|
Rent Per | |
|
|
|
|
of | |
|
Year Built/ | |
|
Square | |
|
Square | |
|
Percentage | |
|
Percent | |
|
Base Rent | |
|
Annualized | |
|
Leased | |
|
|
Property Location |
|
Buildings | |
|
Renovated | |
|
Feet | |
|
Feet | |
|
Lab Space | |
|
Leased | |
|
($ in 000s) | |
|
Rent | |
|
Square Foot | |
|
Primary Tenant |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Kendall Square D(1)
|
|
|
1 |
|
|
|
2002 |
|
|
|
349,325 |
|
|
|
30.6 |
% |
|
|
|
|
|
|
98 |
% |
|
$ |
15,397 |
|
|
|
33.9% |
|
|
$ |
44.89 |
|
|
Genzyme Corporation |
Kendall Square A(1)
|
|
|
1 |
|
|
|
2002 |
|
|
|
302,919 |
|
|
|
26.5 |
% |
|
|
65 |
% |
|
|
97 |
% |
|
|
14,536 |
|
|
|
32.0% |
|
|
|
49.61 |
|
|
Vertex Pharmaceuticals |
Sidney Street
|
|
|
1 |
|
|
|
2000 |
|
|
|
191,904 |
|
|
|
16.8 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
4,063 |
|
|
|
8.9% |
|
|
|
21.17 |
|
|
Vertex Pharmaceuticals |
40 Erie Street
|
|
|
1 |
|
|
|
1996 |
|
|
|
100,854 |
|
|
|
8.8 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
4,098 |
|
|
|
9.0% |
|
|
|
40.63 |
|
|
Vertex Pharmaceuticals |
Albany Street
|
|
|
2 |
|
|
|
1922/1998 |
|
|
|
75,003 |
|
|
|
6.6 |
% |
|
|
65 |
% |
|
|
100 |
% |
|
|
3,460 |
|
|
|
7.6% |
|
|
|
46.21 |
|
|
Millennium Pharmaceuticals |
Vassar Street
|
|
|
1 |
|
|
|
1950/1998 |
|
|
|
52,520 |
|
|
|
4.6 |
% |
|
|
65 |
% |
|
|
100 |
% |
|
|
1,372 |
|
|
|
3.0% |
|
|
|
26.13 |
|
|
Monsanto Company |
21 Erie Street
|
|
|
1 |
|
|
|
1925/2004 |
|
|
|
48,238 |
|
|
|
4.2 |
% |
|
|
20 |
% |
|
|
58 |
% |
|
|
769 |
|
|
|
1.7% |
|
|
|
27.46 |
|
|
Metabolix |
Lucent Drive
|
|
|
1 |
|
|
|
2004 |
|
|
|
21,500 |
|
|
|
1.9 |
% |
|
|
70 |
% |
|
|
100 |
% |
|
|
548 |
|
|
|
1.2% |
|
|
|
25.49 |
|
|
Trustees of Dartmouth College |
47 Erie Street Parking Structure
|
|
|
1 |
|
|
|
1998 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
100 |
% |
|
|
1,178 |
|
|
|
2.7% |
|
|
|
N/A |
|
|
Various |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/ Weighted Average
|
|
|
10 |
|
|
|
|
|
|
|
1,142,263 |
|
|
|
100.0 |
% |
|
|
43 |
% |
|
|
97 |
% |
|
$ |
45,421 |
|
|
|
100.0% |
|
|
$ |
41.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represented more than 10% of our total assets as of May 31,
2005. |
Our Kendall Square D property is located at 500 Kendall Street
in Cambridge, Massachusetts. This property was built in 2002 and
consists of one building, representing 349,325 rentable
square feet of laboratory and office space. We intend to perform
construction work at the property at a cost of up to
$1.8 million. As of May 31, 2005, the property was
98.2% leased to one tenant, Genzyme Corporation, a
67
public biotechnology company with a broad product and service
portfolio focused on rare genetic disorders, renal disease,
orthopaedics, organ transplant and diagnostic and predictive
testing, pursuant to a triple-net lease. The lease expires in
July 2018, subject to the tenants option to renew the
lease for two additional ten-year periods. Annualized base rent
under the lease is $15.4 million. We own fee simple title
to the property.
The current real estate tax rate for the property is 1.8%, and
the total annual tax for the property at this rate for the 2004
tax year was $2.1 million (at a taxable assessed value of
$113.8 million). As of May 31, 2005, our federal tax
basis for the property was $192.0 million. We compute
depreciation on the property using the straight-line method
based on an estimated useful life of 39 years, at an
annualized average depreciation rate of 2.56%.
The property is subject to a mortgage loan having an outstanding
balance as of May 31, 2005 of $73.2 million. The
mortgage has a fixed interest rate of 6.4% per annum, a
monthly payment of principal and interest of $501,000 and a
maturity date of December 1, 2018. We may prepay the
mortgage in full at any time upon payment of a prepayment
premium.
Our Kendall Square A property is located at 675 West Kendall
Street in Cambridge, Massachusetts. This property was built in
2002 and consists of one building, representing
302,919 rentable square feet of laboratory and office
space. As of May 31, 2005, the property was 96.7% leased to
two tenants. Vertex Pharmaceuticals, a public biotechnology
company committed to the discovery and development of
breakthrough small molecule drugs for serious diseases, leases
96.0% of the space pursuant to a triple-net lease, of which
45,000 square feet is subleased to Momenta Pharmaceuticals.
The lease expires in April 2018, subject to the tenants
option to renew the lease for two additional ten-year periods.
Annualized base rent under the lease is $14.5 million. We
own fee simple title to the property.
The current real estate tax rate for the property is 1.8%, and
the total annual tax for the property at this rate for the 2004
tax year was $1.3 million (at a taxable assessed value of
$70.9 million). As of May 31, 2005, our federal tax
basis for the property was $150.3 million. We compute
depreciation on the property using the straight-line method
based on an estimated useful life of 39 years, at an
annualized average depreciation rate of 2.56%.
Our Sidney Street property is located in Cambridge,
Massachusetts. This property was built in 2000 and consists of
one building, representing 191,904 rentable square feet of
laboratory and office space. As of May 31, 2005, the
property was 99.8% leased to Vertex Pharmaceuticals pursuant to
a triple-net lease. The lease expires in August 2010, subject to
the tenants option to renew the lease for two additional
ten-year periods. We own fee simple title to the property.
This property and the 47 Erie Street parking structure are
subject to a mortgage loan having an outstanding balance as of
May 31, 2005 of $31.8 million. The mortgage has a
fixed interest rate of 7.2% per annum, a monthly payment of
principal and interest of $245,000 and a maturity date of
June 1, 2012. The loan may not be prepaid until May 2006,
and thereafter may be prepaid in full upon payment of a 1%
prepayment fee.
Our 40 Erie Street property is located in Cambridge,
Massachusetts. This property was built in 1996 and consists of
one building, representing 100,854 rentable square feet of
laboratory and office space. As of May 31, 2005, the
property was fully leased to Vertex Pharmaceuticals pursuant to
a triple-net lease. The lease term covering the original
premises of 59,322 rentable square feet expires in December
2010, subject to the tenants option to renew the lease for
one additional five-year period. The term for the additional
68
lease for 41,532 rentable square feet expires in March
2009, subject to the tenants option to renew the lease for
two additional five-year periods. We own fee simple title to the
property.
The property is subject to a mortgage loan having an outstanding
balance as of May 31, 2005 of $20.2 million. The
mortgage has a fixed interest rate of 7.3% per annum, a
monthly payment of principal and interest of $199,000 and a
maturity date of July 1, 2008. The mortgage may be prepaid
in full at any time upon payment of a 1% prepayment fee.
Our Albany Street property is located in Cambridge,
Massachusetts. This property was built in 1922 and was most
recently renovated in 1998. The property consists of two
buildings, representing 75,003 rentable square feet of
laboratory and office space. As of May 31, 2005, the
property was 99.8% leased to two tenants. The propertys
primary tenant is Millennium Pharmaceuticals, Inc., a public
biopharmaceutical company focused on developing and
commercializing breakthrough products in the areas of cancer,
cardiovascular disease and inflammatory disease, which occupies
73,347 rentable square feet subject to a triple-net lease.
The lease expires in September 2013, subject to Millennium
Pharmaceuticals option to renew the lease for two
additional five-year periods. We own fee simple title to the
property.
Our Vassar Street property is located in Cambridge,
Massachusetts. This property was built in 1950 and was most
recently renovated in 1998. The property consists of one
building, representing 52,520 rentable square feet of
laboratory and office space. As of May 31, 2005, the
property was fully leased to one tenant, Monsanto Company, a
public company specializing in providing technology-based
solutions and agricultural products that improve farm
productivity and food quality, pursuant to a triple-net lease. A
portion of the premises is subleased to Modular Genetics, Inc.
The lease expires in June 2010, subject to the tenants
option to renew the lease for two additional five-year periods.
We own fee simple title to the property.
Our 21 Erie Street property is located in Cambridge,
Massachusetts. This property was built in 1925 and was most
recently renovated in 2004. The property consists of one
building, representing 48,238 rentable square feet of
laboratory and office space. As of May 31, 2005, the
property was 58.1% leased to Metabolix, Inc., a private company
focused on using biotechnology to produce performance plastics
from renewable resources, pursuant to a triple-net lease. The
lease expires in May 2014, subject to Metabolixs option to
renew the lease for two additional five-year periods and subject
to Metabolixs one-time right to terminate the lease during
the initial ten-year term of the lease. We own fee simple title
to the property.
|
|
|
47 Erie Street Parking Structure |
Our 47 Erie Street parking structure is a six-level, open-air
parking structure located in Cambridge, Massachusetts. The
parking structure, which contains 447 parking spaces, was built
in 1998 and provides parking for the tenants at the Sidney
Street, 40 Erie Street, Albany Street and 21 Erie Street
properties. Revenue for the parking structure is derived from
separate parking leases between our subsidiary that owns the
parking structure and our subsidiaries that own the Sidney
Street, 40 Erie Street and Albany Street properties. We own fee
simple title to the property.
This property is subject to the mortgage loan described above
under Sidney Street.
69
Our Lucent Drive property is located in Lebanon, New Hampshire.
The property was built in 2004 and consists of one building,
representing 21,500 rentable square feet of laboratory and
office space. As of May 31, 2005, the property was fully
leased to one tenant, Trustees of Dartmouth College, pursuant to
a triple-net lease. The lease expires in August 2014, subject to
the tenants option to renew the lease for one additional
ten-year period. The tenant has an option to purchase the
property on or before March 1, 2014 at the fair market
value at the time the option is exercised. We own fee simple
title to the property.
The property is subject to a mortgage loan having an outstanding
balance as of May 31, 2005 of $6.0 million. The
mortgage has a fixed interest rate of 5.5% per annum,
subject to adjustment on each fifth anniversary of the loan, a
monthly payment of principal and interest of $42,000 and a
maturity date of January 21, 2015. We may prepay the loan
at any time without penalty.
Tenants
As of May 31, 2005, our properties were leased to 76
tenants, 91.6% of our annualized base rent was derived from
tenants that were public companies or government agencies, and
33.3% of our annualized base rent was derived from investment
grade tenants (according to
Standard & Poors) or their subsidiaries. The
table that follows presents information regarding our 20 largest
tenants based on current annualized rent as of May 31,
2005. Current annualized rent is the monthly contractual rent as
of May 31, 2005, or if rent has not yet commenced, the
first monthly rent payment due, multiplied by twelve months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent | |
|
|
|
|
|
|
|
|
|
|
Annualized | |
|
Annualized | |
|
|
|
|
|
|
Leased | |
|
Annualized | |
|
Rent per | |
|
Rent of | |
|
|
|
|
|
|
Square | |
|
Base Rent | |
|
Square | |
|
Total | |
|
Lease |
Tenant |
|
Market |
|
Feet | |
|
($ in 000s) | |
|
Foot | |
|
Portfolio | |
|
Expiration Date |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Vertex Pharmaceuticals
|
|
Boston |
|
|
583,474 |
|
|
$ |
22,696 |
|
|
$ |
38.90 |
|
|
|
20.7 |
% |
|
April 2018(1) |
Genzyme Corporation
|
|
Boston |
|
|
343,000 |
|
|
|
15,397 |
|
|
|
44.89 |
|
|
|
14.0 |
% |
|
June 2018 |
Centocor, Inc. (Johnson & Johnson)
|
|
Pennsylvania |
|
|
331,398 |
|
|
|
7,826 |
|
|
|
23.62 |
|
|
|
7.1 |
% |
|
March 2010 |
Regeneron Pharmaceuticals, Inc.
|
|
New York/New Jersey |
|
|
211,813 |
|
|
|
3,950 |
|
|
|
18.65 |
|
|
|
3.6 |
% |
|
December 2007(2) |
Illumina, Inc.
|
|
San Diego |
|
|
115,870 |
|
|
|
3,824 |
|
|
|
33.00 |
|
|
|
3.5 |
% |
|
August 2014 |
Nektar Therapeutics
|
|
San Francisco |
|
|
79,917 |
|
|
|
3,737 |
|
|
|
46.76 |
|
|
|
3.4 |
% |
|
October 2016 |
Millennium Pharmaceuticals, Inc.
|
|
Boston |
|
|
73,347 |
|
|
|
3,419 |
|
|
|
46.62 |
|
|
|
3.1 |
% |
|
September 2013 |
Crompton Corporation
|
|
New York/New Jersey |
|
|
182,829 |
|
|
|
3,377 |
|
|
|
18.47 |
|
|
|
3.1 |
% |
|
December 2009 |
Intermune, Inc.
|
|
San Francisco |
|
|
55,898 |
|
|
|
3,207 |
|
|
|
57.37 |
|
|
|
2.9 |
% |
|
April 2011 |
Chiron Corporation
|
|
Seattle |
|
|
71,153 |
|
|
|
2,858 |
|
|
|
40.17 |
|
|
|
2.6 |
% |
|
March 2008 |
Guilford Pharmaceuticals
|
|
Maryland |
|
|
168,817 |
|
|
|
2,625 |
|
|
|
15.55 |
|
|
|
2.4 |
% |
|
December 2019 |
Cell Therapeutics, Inc.
|
|
Seattle |
|
|
63,836 |
|
|
|
2,346 |
|
|
|
36.75 |
|
|
|
2.1 |
% |
|
January 2008 |
University of California Regents
|
|
San Diego |
|
|
61,286 |
|
|
|
2,113 |
|
|
|
34.48 |
|
|
|
1.9 |
% |
|
April 2007 |
ACS
|
|
New York/New Jersey |
|
|
71,399 |
|
|
|
1,791 |
|
|
|
25.08 |
|
|
|
1.6 |
% |
|
December 2012 |
Emisphere Technologies, Inc.
|
|
New York/New Jersey |
|
|
87,022 |
|
|
|
1,744 |
|
|
|
20.04 |
|
|
|
1.6 |
% |
|
August 2007 |
Nuvelo, Inc.(3)
|
|
San Francisco |
|
|
61,826 |
|
|
|
1,743 |
|
|
|
28.20 |
|
|
|
1.6 |
% |
|
August 2012 |
Quidel Corporation(4)
|
|
San Diego |
|
|
72,863 |
|
|
|
1,671 |
|
|
|
22.94 |
|
|
|
1.5 |
% |
|
December 2014 |
Ligand Pharmaceuticals
|
|
San Diego |
|
|
53,740 |
|
|
|
1,660 |
|
|
|
30.88 |
|
|
|
1.5 |
% |
|
August 2015 |
Nastech Pharmaceutical
|
|
Seattle |
|
|
51,000 |
|
|
|
1,615 |
|
|
|
31.67 |
|
|
|
1.5 |
% |
|
January 2016 |
The Rubenstein Company
|
|
Pennsylvania |
|
|
95,711 |
|
|
|
1,234 |
|
|
|
12.89 |
|
|
|
1.1 |
% |
|
June 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/ Weighted Average(5)
|
|
|
|
|
2,836,199 |
|
|
$ |
88,833 |
|
|
$ |
31.32 |
|
|
|
80.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
41,532 square feet expires March 2009, 191,904 square
feet expires August 2010, 59,322 square feet expires
December 2010, and 290,714 square feet expires April 2018.
45,000 square feet of this space is subleased to Momenta
Pharmaceuticals. |
|
(2) |
138,086 square feet expires December 2007 and
73,726 square feet expires December 2009. |
|
(3) |
Rent is expected to commence on September 1, 2005. |
|
|
(4) |
This tenant occupies a property that is owned by an
unconsolidated partnership, of which we own 21%. |
|
|
(5) |
Without regard to any early lease terminations and/or renewal
options. |
70