Item 1. Business
General
We are a Maryland corporation formed in October 1994 that has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. We are engaged primarily in the ownership, operation, management, acquisition, expansion and selective redevelopment and development of high quality, strategically located properties containing office and laboratory space designed and improved for lease principally to pharmaceutical, biotechnology, life science product and services companies, not-for-profit scientific research institutions, universities and related government agencies (collectively, the "life science industry"). Properties leased to tenants in the life science industry typically consist of suburban office buildings containing scientific research and development laboratories and other improvements that are generic to tenants operating in the life science industry. We refer to such properties as "life science facilities." As of December 31, 2002, we owned 89 properties (collectively, the "properties"), containing approximately 5.7 million rentable square feet of office and laboratory space.
Business and Growth Strategy
We focus our property operations and investment activities principally in the following life science markets:
California (in the San Diego, Pasadena and San Francisco Bay areas).
Seattle.
suburban Washington, D.C. (including Maryland and Virginia).
eastern Massachusetts.
New Jersey and suburban Philadelphia.
the Southeast (including North Carolina and Georgia).
Our tenant base is broad and diverse within the life science industry and reflects our focus on regional, national and international tenants with substantial financial and operational resources. For a detailed description of our properties and tenants, see "Item 2.
Item 2. Properties
General.
Our properties range in size from approximately 15,000 to 248,000 square feet, are built to accommodate single or multiple tenants and are generally one or two story concrete tilt-up, block and/or steel frame structures. The exteriors typically resemble traditional suburban office properties, but interior infrastructures are designed to accommodate the needs of life science industry tenants. These improvements typically are generic to life science industry tenants rather than being specific to a particular tenant. As a result, we believe that the improvements have long-term value and utility and are usable by a wide range of life science industry tenants. Generic infrastructure improvements include:
reinforced concrete floors;
upgraded roof loading capacity;
increased floor to ceiling heights;
heavy-duty HVAC systems;
enhanced environmental control technology;
significantly upgraded electrical, gas and plumbing infrastructure; and
laboratory benches.
We own fee simple title in each of our properties, except with respect to:
1311, 1401 and 1431 Harbor Bay Parkway, in which we own a commercial condominium interest, together with an undivided interest in the common areas of the project of which the property is a part; and
2425 Garcia Avenue, 2400/2450 Bayshore Parkway, 2625/2627/2631 Hanover Street, 108 Alexander Road, Buildings 79 & 96, Charlestown Navy Yard, and 8000/9000/10000 Virginia Manor Road, in which we own ground leasehold interests.
As of December 31, 2002, we had 200 leases with a total of 173 tenants, and 51 of our properties were single-tenant properties. Leases in our multi-tenant buildings typically have terms of three to seven years, while the single-tenant building leases typically have initial terms of 10 to 20 years. As of December 31, 2002:
approximately 86% of our leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses (including increases thereto) in addition to base rent, and, in addition to our triple net leases, approximately 9% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses;
approximately 93% of our leases (on a square footage basis) contained effective annual rent escalations that are either fixed (generally ranging from 3% to 4%) or indexed based on a consumer price index or other index; and
approximately 88% of our leases (on a square footage basis) provided for the recapture of certain capital expenditures (such as HVAC systems maintenance and/or replacement, roof replacement and parking lot resurfacing), which we believe would typically be borne by the landlord in traditional office leases.
Our leases also typically give us the right to review and approve tenant alterations to the property. Generally, tenant-installed improvements to the facilities remain our property after termination of the lease at our election. However, we are permitted under the terms of most of our leases to require that the tenant remove the improvements and restore the premises to their original condition.
As of December 31, 2002, we managed all of our properties.
The following table sets forth information with respect to our properties as of December 31, 2002:
Annualized PercentageAnnualized Net of Base Effective Aggregate Rent Per Rent Per Rentable Annualized Portfolio Leased Leased Year Built/ Square Percentage Base Annualized Square Square Properties Renovated (1) Feet Leased (2) Rent (2) (3) Base Rent Foot (3) Foot (4) Major Tenants ---------------------------------------------- ---------- ---------- ------------ --------- --------- --------- --------------------------------------- San Diego
North Torrey Pines Road #1 (6) 1971/1994 107,710 78% $2,056,102 1.6% $24.33 $23.92 Smith & Nephew, Inc. San Diego, CA
Science Park Road 2000 74,557 100% 2,309,771 1.8% 30.98 20.95 IDEC Pharmaceuticals Corporation San Diego, CA
North Torrey Pines Road #2 1986/1996 86,962 100% 3,126,705 2.4% 35.95 35.77 Senomyx, Inc. San Diego, CA
General Atomics Court #1 1986/1991 76,084 100% 2,683,633 2.0% 35.27 34.28 Merck & Co., Inc. San Diego, CA
General Atomics Court #2 1991 43,600 100% 1,758,141 1.3% 40.32 40.30 Pfizer Inc. San Diego, CA
Roselle Street #1 1983/1998 18,173 100% 454,499 0.3% 25.01 19.66 Schering AG San Diego, CA
Nexus Centre Drive 1989 67,050 100% 2,160,095 1.6% 32.22 32.16 Cardinal Health, Inc. San Diego, CA
Nancy Ridge Drive #1 1997 29,333 100% 638,606 0.5% 21.77 15.44 Arena Pharmaceuticals, Inc. San Diego, CA
Roselle Street #2 late 17,603 100% 476,944 0.4% 27.09 21.83 Structural GenomiX, Inc. San Diego, CA 1970's/1999
Tansy Street 1978/1999 15,410 100% 409,171 0.3% 26.55 20.80 Structural GenomiX, Inc. San Diego, CA
John Hopkins Court #1 2000 34,723 100% 671,101 0.5% 19.33 16.81 Merck & Co., Inc. San Diego, CA
John Hopkins Court #2 1999 55,200 100% 1,096,769 0.8% 19.87 18.33 Merck & Co., Inc. San Diego, CA
Towne Centre Drive #1 (6) 1987 45,030 63% 745,305 0.6% 26.18 24.38 Amylin Pharmaceuticals, Inc. San Diego, CA
Towne Centre Drive #2 1987/2000 52,228 100% 1,374,714 1.0% 26.32 25.56 Amylin Pharmaceuticals, Inc. San Diego, CA Vical Incorporated
Towne Centre Drive #3 1987/2000 41,780 75% 891,089 0.7% 28.46 23.33 Conforma Therapeutics, Inc. San Diego, CA TargeGen, Inc.
Roselle Street #3 1981 18,193 100% 481,114 0.4% 26.44 25.60 Selective Genetics, Inc. San Diego, CA
Roselle Street #4 1981/1998 30,147 100% 741,901 0.6% 24.61 24.53 Integra Life Science Holdings Corporation San Diego, CA
Roselle Street #5 1981/1995 22,577 100% 639,241 0.5% 28.31 27.62 Cell Geneysys, Inc. San Diego, CA
Roselle Street #6 1981/1999 17,433 100% 234,822 0.2% 13.47 13.47 Biosite Incorporated San Diego, CA
Roselle Street #7 1981/1995 24,208 100% 685,421 0.5% 28.31 27.63 Cell Geneysys, Inc. San Diego, CA
Nancy Ridge Drive #2 early 1980's 21,940 52% 330,177 0.3% 29.20 21.32 GeneOhm Sciences, Inc. San Diego, CA
Campus Point Drive 1986/1998 71,510 100% 2,390,948 1.8% 33.44 33.44 LION Bioscience, Inc. San Diego, CA
Pasadena
North Hill Avenue 1940's/2001 31,343 96% 602,113 0.5% 20.07 12.57 Biocatalytics, Inc. Pasadena, CA Farmal, L.L.C.
San Francisco Bay Area
Harbor Bay Parkway #1 1983/1999 61,015 100% 1,062,410 0.8% 17.41 14.11 Avigen, Inc. Alameda, CA Hitachi Software
Harbor Bay Parkway #2 1984/2000 27,745 100% 654,910 0.5% 23.60 18.15 Berkeley HeartLab, Inc. Alameda, CA Applera Corporation
Harbor Bay Parkway #3 1986/1994 47,777 100% 1,021,091 0.8% 21.37 21.12 Applera Corporation Alameda, CA
Harbor Bay Parkway #4 1985/1994 68,711 100% 1,415,246 1.1% 20.60 19.67 U.S. Food & Drug Administration Alameda, CA
Mitten Road & Malcolm Road (5) 1962/2002 153,837 68% 2,732,353 2.1% 26.17 19.63 Valentis, Inc. Burlingame, CA Berkeley HeartLab, Inc. U.S. Federal Aviation Administration
Hanover Street 1968/1985/ 32,074 100% 1,267,173 1.0% 39.51 37.07 Nanosys, Inc. Palo Alto, CA 2000 ChemoCentryx, Inc.
Garcia Avenue & Bayshore 1980/2000 98,964 100% 3,613,066 2.8% 36.51 32.10 Equinix, Inc. Parkway Google Inc. Mountain View, CA
Oyster Point Boulevard #1 2001 53,980 100% 2,812,914 2.1% 52.11 41.33 Sunesis Pharmaceuticals, Inc. S. San Francisco, CA
Oyster Point Boulevard #2 2001 53,980 100% 1,650,085 1.3% 30.57 27.44 diaDexus, Inc. S. San Francisco, CA
Durant Avenue (7) 1930 21,481 0% - 0.0% - - Vacant Berkeley, CA
Gateway Boulevard #1 2000 110,428 100% 3,765,339 2.9% 34.10 34.10 Theravance, Inc. San Francisco, CA
Gateway Boulevard #2 2002 59,816 100% 2,371,062 1.8% 39.64 35.46 Theravance, Inc. San Francisco, CA
Seattle
Columbia Street #2 (6) 1975/1997 46,303 52% 278,964 0.2% 11.62 11.17 Swedish Health Services Seattle, WA Corixa Corporation
Columbia Street #1 1975/1997 163,555 100% 5,411,382 4.1% 33.09 29.25 Corixa Corporation Seattle, WA Primal, Inc.
Western Avenue 1929/2000 47,746 100% 1,576,856 1.2% 33.03 28.41 University of Washington Seattle, Washington
First Avenue 1980/2000 70,647 100% 2,532,667 1.9% 35.85 31.57 Dendreon Corporation Seattle, Washington
Eastlake Avenue #1 1997 106,003 100% 4,387,383 3.3% 41.39 41.35 ZymoGenetics, Inc. Seattle, Washington
Eastlake Avenue #2 1997 52,333 100% 2,166,023 1.6% 41.39 41.39 ZymoGenetics, Inc. Seattle, Washington
Suburban Washington, D.C.
Professional Drive #1 1989/1999 47,558 74% 877,101 0.7% 24.84 17.74 Antex Biologics Inc. Gaithersburg, MD Wisor Telecom, Inc.
Professional Drive #2 1987 62,739 100% 1,109,289 0.8% 17.68 17.66 The Gilette Company Gaithersburg, MD
West Watkins Mill Road #1 1989/1997 138,938 100% 1,984,161 1.5% 14.28 12.88 MedImmune, Inc. Gaithersburg, MD Genetic Therapy, Inc. (8)
Quince Orchard Road #1 1982/1997 49,225 100% 1,461,699 1.1% 29.69 18.32 Gene Logic Inc. Gaithersburg, MD
Clopper Road #1 1989 44,464 100% 699,057 0.5% 15.72 12.19 Immunomatrix, Inc. Gaithersburg, MD Fiserv
Research Boulevard #1 1966 48,800 100% 837,340 0.6% 17.16 16.39 U.S. Bureau of Alcohol Tobacco and Rockville, MD Firearms
Research Boulevard #2 1967/2000 105,000 100% 2,175,071 1.7% 20.71 18.37 U.S. Army Corps of Engineers Rockville, MD
East Gude Drive #1 1981/1986 45,989 100% 770,402 0.6% 16.75 15.08 bioMerieux SA Rockville, MD MarcoGenics, Inc.
East Gude Drive #2 1981/1995 44,500 100% 775,000 0.6% 17.42 16.94 Shire Pharmaceuticals Group plc Rockville, MD
Piccard Drive (6) 1978/1994 131,415 48% 1,909,477 1.5% 30.55 29.31 Biosciences Laboratories, Inc. (bioMerieux SA) Rockville, MD Midwest Research Institute, Inc.
Newbrook Drive 1992 248,186 100% 4,341,125 3.3% 17.49 17.49 Quest Diagnostics, Inc. Chantilly, VA
Virginia Manor Road 1990 191,884 100% 2,419,179 1.8% 12.61 12.10 Baxter International Inc. Beltsville, MD Bank of America
Old Columbia Road 1983/1997 75,500 100% 1,002,941 0.8% 13.28 10.24 Baxter International Inc. Columbia, MD
Firstfield Road #1 1974/2000 25,175 100% 655,906 0.5% 26.05 25.56 Psychiatric Genomics, Inc. Gaithersburg, MD Avalon Pharmaceuticals, Inc.
Shady Grove Road 1987 41,062 100% 773,683 0.6% 18.84 10.75 Human Genome Sciences, Inc. Rockville, MD
Aliceanna Street early 179,397 91% 918,192 0.7% 5.63 5.56 Maryland Economic Development Baltimore, MD 1950's/1995 Corporation The National Aquarium of Baltimore, Inc.
West Watkins Mill Road #2 1988/2000 57,410 100% 875,452 0.7% 15.25 12.79 Gene Logic Inc. Gaithersburg, MD
Clopper Road #2 2000 92,990 100% 2,634,285 2.0% 28.33 17.19 Digene Corporation Gaithersburg, MD
Firstfield Road #2 1980/2001 53,464 89% 1,307,409 1.0% 27.47 22.77 IOMAI Corporation Gaithersburg, MD Artesian Therapeutics, Inc.
Firstfield Road #3 (6) 1980/2002 53,595 61% 716,920 0.5% 22.05 18.15 Provident Bank of Maryland Gaithersburg, MD SAIC - Frederick, Inc.
Quince Orchard Road #2 1981 54,874 100% 812,584 0.6% 14.81 14.41 Montgomery County, Maryland Gaithersburg, MD
Clopper Road #3 1989/1992 59,838 100% 813,334 0.6% 13.59 10.97 Wellstat Biologics, Inc. Gaithersburg, MD
Research Place (6) 1972 58,632 72% 786,447 0.6% 18.72 18.72 The Institute for Genomic Research Rockville, MD
Eastern Massachusetts
Charlestown Navy Yard 1880/1991 24,940 100% 907,816 0.7% 36.40 36.22 Diacrin, Inc. Boston, MA
Pond Street 1965/1990 24,867 0% - 0.0% - - Vacant Randolph, MA
Westview Street (6) 1975 40,000 0% - 0.0% - - Vacant Lexington, MA
Memorial Drive #1 (7) 1920's/1997/199 96,500 66% 3,950,048 3.0% 40.93 40.93 Pfizer Inc. Cambridge, MA
Plantation Street #1 1993 92,711 72% 1,656,185 1.3% 24.66 24.60 University of Massachusetts Worcester, MA Athena Diagnostics, Inc.
Innovation Drive 1991 113,956 87% 2,413,440 1.8% 24.26 22.73 AstraZeneca plc Worcester, MA ViaCell, Inc.
Plantation Street #2 2000 92,423 87% 2,028,757 1.5% 25.23 18.48 Abbott Laboratories Worcester, MA Hypnion, Inc.
Arsenal Street #1 1978/1984 92,500 100% 4,346,481 3.3% 46.99 36.35 Enanta Pharmaceuticals, Inc. Watertown, MA Acusphere, Inc.
Hartwell Avenue 1972/2002 59,000 100% 2,637,927 2.0% 44.71 35.47 TransForm Pharmaceuticals, Inc. Lexington, MA
Arsenal Street #2 (6) 1980 96,150 0% - 0.0% - - Vacant Watertown, MA
Memorial Drive #2 2002 51,000 100% 3,330,755 2.5% 65.31 65.31 Infinity Pharmaceuticals, Inc. Cambridge, MA
Memorial Drive #3 2002 47,497 72% 1,949,978 1.5% 56.77 50.06 Infinity Pharmaceuticals, Inc. Cambridge, MA Descartes Therapeutics, Inc.
New Jersey/Suburban Philadelphia
College Road 1968/1984 106,036 100% 1,753,500 1.3% 16.54 15.06 Synaptic Pharmaceutical Corporation (9) Paramus, NJ Gryphon Development Corporation
Williams Drive 1982/1994 37,000 100% 536,500 0.4% 14.50 14.34 Alteon Inc. Ramsey, NJ
Phillips Parkway late 1960's/ 78,501 100% 1,756,129 1.3% 22.37 14.41 Memory Pharmaceuticals Corp. Montvale, NJ 1999 Ferolie Corporation
Campus Drive 1989 42,782 100% 646,653 0.5% 15.12 14.16 Genaera Corporation Plymouth Meeting, PA PharMerica, Inc. (10)
Electronic Drive 1983/1998 40,000 100% 937,527 0.7% 23.44 15.86 Cell Pathways, Inc. (11) Horsham, PA
Princeton Parkway 1984/1999 42,600 100% 580,320 0.4% 13.62 9.60 Lexicon Genetics, Inc. Princeton, NJ
Southeast
Capitola Drive #1 1986 65,114 88% 973,389 0.7% 17.18 12.78 American Social Health Association, Inc. Durham, NC Batelle Survey Research, Inc.
Capitola Drive #2 (6) 1985 119,916 46% 1,262,811 1.0% 22.81 19.12 RAO Enterprises (dba Integrated Laboratory Syste Durham, NC Amphora Discovery Corporation
Technology Parkway 1976/1993 37,080 60% 288,697 0.2% 12.96 11.59 CytRx Corporation Norcross, GA Atherogenics, Inc.
Triangle Drive 1981 32,120 75% 408,659 0.3% 16.86 16.55 Mantech Environmental Technology, Inc. Research Triangle Park, NC
Alexander Road 2000 86,239 100% 1,849,188 1.4% 21.44 20.01 Paradigm Genetics, Inc. Research Triangle Park, NC
Kit Creek Road (6) 1995 37,908 74% 728,734 0.6% 26.02 19.62 Norak Biosciences, Inc. Research Triangle Park, NC A.M. Pappas & Associates, L.L.C. ---------- ---------- ------------ --------- --------- --------- Total/Weighted Average (12): 5,746,664 89.1% $131,276,855 100.0% $25.65 $22.81 ========== ========== ============ ========= ========= =========
________________
Includes year in which construction was completed and, where applicable, year of most recent major renovation.
Based on all leases at the respective property in effect as of December 31, 2002.
Annualized base rent means the annualized fixed base rental amount in effect as of December 31, 2002 (using rental revenue computed on a straight-line basis in accordance with GAAP), paid by tenants under the terms of their leases. This amount, divided by the rentable square feet leased at the property as of December 31, 2002, is the annualized base rent per leased square foot.
Annualized net effective rent is the annualized base rent in effect as of December 31, 2002 (using rental revenue computed on a straight-line basis in accordance with GAAP), less (for gross leases) real estate taxes and insurance, common area and other operating expenses and (for all leases) amortization of tenant improvements and leasing commissions. This amount, divided by the rentable square feet leased at the property as of December 31, 2002, is the annualized net effective rent per leased square foot.
Considered as two properties.
All or a portion of this property is currently under redevelopment.
As of December 31, 2002, these properties were designated as properties held for sale.
Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG.
Synaptic Pharmaceutical Corporation is a wholly owned subsidiary of H. Lunbeck A/S as of March 6, 2003.
PharMerica, Inc. is a wholly owned subsidiary of AmerisourceBergen Corporation.
In February 2003, OSI Pharmaceuticals announced an agreement to acquire Cell Pathways, Inc. in a transaction expected to close in 2003.
Weighted average based on a percentage of aggregate leased square feet.
Location of Properties
The following table sets forth, as of December 31, 2002, the total rentable square footage and annualized base rent of our properties in each of our existing markets.
Total Rentable % of Total Rentable Annualized % of Annualized Geographic Area Square Footage Square Footage Base Rent (1) Base Rent --------------- -------------- ------------------- -------------- ----------------
San Diego 971,451 16.9% $26,356,269 20.1%
Pasadena 31,343 0.5% 602,113 0.5%
San Francisco Bay Area 789,808 13.7% 22,365,648 17.0%
Seattle 486,587 8.5% 16,353,276 12.5%
Suburban Washington, D.C 1,910,635 33.2% 30,656,054 23.4%
Eastern Massachusetts 831,544 14.5% 23,221,387 17.7%
New Jersey/Suburban Philadelphi 346,919 6.0% 6,210,629 4.7%
Southeast 378,377 6.7% 5,511,479 4.1% -------------- ------------------- -------------- ---------------- Total 5,746,664 100.0% $131,276,855 100.0% ============== =================== ============== ================
_______________
Annualized base rent means the annualized fixed base rental amount in effect as of December 31, 2002 (using rental revenue computed on a straight-line basis in accordance with GAAP) paid by tenants under the terms of their leases.
Tenants
Our properties are leased principally to tenants in a broad spectrum of sectors within the life science industry. The following table sets forth information regarding leases with our 20 largest tenants based upon annualized base rent as of December 31, 2002.
20 Largest Tenants
Remaining Percentage Initial Percentage of Aggregate Lease Approximate Percentage of Aggregate Annualized Portfolio Number Term Aggregate of Aggregate Annualized Portfolio Net Effective Annualized of in Rentable Leased Base Rent (in Annualized Rent (in Net Effective Tenant Leases Years Square Feet Square Feet thousands) (1) Base Rent thousands) (2) Rent ---------------------------------------- -------- ------------ ------------ -------------- ------------ -------------- -------------
ZymoGenetics, Inc. 2 14.8 158,336 3.1% $6,553 5.0% $6,550 5.6%
Theravance, Inc. 2 9.3 170,244 3.3% 6,136 4.7% 5,886 5.0%
Pfizer Inc. 2 9.3 140,100 2.7% 5,708 4.3% 5,707 4.9% 3.8
Merck & Co., Inc. 3 7.8 166,007 3.2% 4,452 3.4% 4,204 3.6%
Quest Diagnostics, Inc. 1 14.0 248,186 4.8% 4,341 3.3% 4,340 3.7%
Infinity Pharmaceuticals, Inc. 2 9.6 67,167 1.3% 4,340 3.3% 4,335 3.7%
Corixa Corporation 3 2.0 91,594 1.8% 3,233 2.5% 2,942 2.5% 0.1
Senomyx, Inc. 1 4.0 86,962 1.7% 3,127 2.4% 3,110 2.7%
Sunesis Pharmaceuticals, Inc. 1 10.5 53,980 1.1% 2,813 2.1% 2,231 1.9%
TransForm Pharmaceuticals, Inc. 1 9.7 59,000 1.2% 2,638 2.0% 2,093 1.8%
Digene Corporation 1 7.0 92,990 1.8% 2,634 2.0% 1,598 1.4%
Dendreon Corporation 1 6.0 70,647 1.4% 2,533 1.9% 2,230 1.9%
Baxter International, Inc. 2 9.4 185,912 3.6% 2,520 1.9% 2,231 1.9% 1.2
Gene Logic, Inc. 3 8.0 112,271 2.2% 2,435 1.9% 1,724 1.5% 4.9
LION Bioscience, Inc. 1 5.3 71,510 1.4% 2,391 1.8% 2,391 2.0%
Acusphere, Inc. 1 9.0 47,500 0.9% 2,341 1.8% 1,835 1.6%
IDEC Pharmaceuticals, Inc. 1 7.5 74,557 1.5% 2,310 1.8% 1,562 1.3%
U.S. Army Corps of Engineers 1 4.4 105,000 2.1% 2,175 1.7% 1,929 1.7%
Cardinal Health, Inc. 1 9.9 67,050 1.3% 2,160 1.6% 2,156 1.8%
Smith & Nephew, Inc. 2 9.0 84,524 1.7% 2,056 1.6% 2,021 1.7%
------- -------- ------------ ------------ -------------- ------------ -------------- ------------- Total/Weighted Average (3): 32 8.5 2,153,537 42.1% $66,896 51.0% $61,075 52.3% ======= ======== ============ ============ ============== ============ ============== =============
________________
Annualized base rent means the annualized fixed base rental amount in effect as of December 31, 2002 (using rental revenue computed on a straight-line basis in accordance with GAAP) paid by tenants under the terms of their leases.
Annualized net effective rent is the annualized base rent in effect as of December 31, 2002 (using rental revenue computed on a straight-line basis in accordance with GAAP), less (for gross leases) real estate taxes and insurance, common area and other operating expenses and (for all leases) amortization of tenant improvements and leasing commissions.
Weighted average based on percentage of aggregate leased square feet.
Item 3.
Item 3. Legal Proceedings
To our knowledge, no litigation is pending against us, other than routine actions and administrative proceedings, substantially all of which are expected to be covered by liability insurance or which, in the aggregate, are not expected to have a material adverse effect on our financial condition, results of operations or cash flows.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of our security holders in the fourth quarter of the fiscal year ended December 31, 2002.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "ARE". On March 27, 2003, the last reported sales price per share of our common stock was $42.01, and there were approximately 241 holders of record of our common stock (excluding beneficial owners whose shares are held in the name of CEDE & Co.). The following table sets forth the quarterly high and low sales prices per share of our common stock as reported on the NYSE and the distributions paid by us with respect to each such period.
Per Share Period High Low Disribution ------ ------ ------ ------------ First Quarter......................... $37.43 $34.19 $0.46 Second Quarter........................ $38.44 $34.64 $0.46 Third Quarter......................... $41.00 $36.16 $0.46 Fourth Quarter........................ $41.53 $36.93 $0.46
First Quarter......................... $42.73 $37.66 $0.50 Second Quarter........................ $47.85 $42.10 $0.50 Third Quarter......................... $47.69 $36.92 $0.50 Fourth Quarter........................ $42.79 $37.56 $0.50
Future distributions on our common stock will be determined by our Board of Directors and will be dependent upon a number of factors, including actual cash available for distribution, our financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as our Board of Directors deems relevant. To maintain our qualification as a REIT, we must make annual distributions to stockholders of at least 90% of our taxable income for the current taxable year, determined without regard to deductions for dividends paid and excluding any net capital gains. Under certain circumstances, we may be required to make distributions in excess of cash flow available for distributions to meet these distribution requirements. In such a case, we may borrow funds or may raise funds through the issuance of additional debt or equity capital. We cannot assure you that we will make any future distributions.
Item 6.
Item 6. Selected Financial Data
The following table should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.
Year Ended December 31, --------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands, except per share amounts) Operating Data: Total revenue ........................................ $ $144,672 $ $123,036 $ $102,226 $ $81,622 $ $60,320 Total expenses ....................................... 104,262 94,408 77,780 61,095 41,138 ----------- ----------- ----------- ----------- ----------- Income from continuing operations..................... 40,410 28,628 24,446 20,527 19,182 Income from discontinued operations, net.............. 624 1,649 1,563 1,526 221 ----------- ----------- ----------- ----------- ----------- Income before extraordinary item...................... 41,034 30,277 26,009 22,053 19,403 Extraordinary item - loss on early extinguishment of d 1,002 - - - - ----------- ----------- ----------- ----------- ----------- Net income............................................ 40,032 30,277 26,009 22,053 19,403
Dividends on preferred stock.......................... 8,579 3,666 3,666 2,036 - ----------- ----------- ----------- ----------- ----------- Net income available to common stockholders........... $ 31,453 $ 26,611 $ 22,343 $ 20,017 $ 19,403 =========== =========== =========== =========== =========== Basic income per common share: Income from continuing operations.............. 2.30 1.79 1.69 1.52 1.59 Income from discontinued operations, net....... 0.04 0.10 0.11 0.11 0.02 Income before extraordinary item............... 2.33 1.90 1.80 1.63 1.60 Extraordinary item - loss on early extinguishme 0.06 - - - - Net income..................................... 2.28 1.90 1.80 1.63 1.60 Net income available to common stockholders.... 1.79 1.67 1.55 1.48 1.60 =========== =========== =========== =========== ===========
Diluted income per common share: Income from continuing operations.............. 2.26 1.77 1.66 1.50 1.56 Income from discontinued operations, net....... 0.03 0.10 0.11 0.11 0.02 Income before extraordinary item............... 2.30 1.87 1.77 1.61 1.58 Extraordinary item - loss on early extinguishme 0.06 - - - - Net income..................................... 2.24 1.87 1.77 1.61 1.58 Net income available to common stockholders.... 1.76 1.64 1.52 1.46 1.58 =========== =========== =========== =========== =========== Weighted average shares of common stock outstanding Basic ........................................... 17,594,228 15,953,459 14,460,711 13,525,840 12,098,959 =========== =========== =========== =========== =========== Diluted ......................................... 17,859,787 16,208,178 14,699,478 13,670,568 12,306,470 =========== =========== =========== =========== =========== Cash dividends declared per share of common stock..... $ 2.00 $ 1.84 $ 1.72 $ 1.69 $ 1.60 =========== =========== =========== =========== =========== Balance Sheet Data (at year end): Rental properties - net of accumulated depreciation... $ 976,422 796,626 679,653 554,706 471,907 Total assets ......................................... $ 1,159,243 962,146 780,984 643,118 530,296 Secured notes payable, unsecured line of credit and te $ 614,878 573,161 431,256 350,512 309,829 Total liabilities .................................... $ 673,390 629,508 461,832 380,535 330,527 Stockholders' equity ................................. $ 485,853 332,638 319,152 262,583 199,769
Other Data: Income before extraordinary item...................... $ 41,034 30,277 26,009 22,053 19,403 Less: Dividends on preferred stock ......................... (8,579) (3,666) (3,666) (2,036) - Add: Depreciation and amortization (1)..................... 34,071 30,578 24,251 18,532 10,296 Non-cash impairment charges (2)...................... 3,695 - - - - ----------- ------------ ------------ ------------ ------------ Funds from operations (3) ............................ $ 70,221 57,189 46,594 38,549 29,699 =========== ============ ============ ============ ============ Cash flows from operating activities ................. $ 67,050 60,340 32,931 46,011 26,111 Cash flows from investing activities ................. $ (227,840) (192,179) (132,480) (113,549) (246,753) Cash flows from financing activities ................. $ 162,204 131,439 98,879 69,430 220,136 Number of properties owned at year end ............... 89 83 76 59 52 Rentable square feet of properties owned at year end ....................................... 5,746,664 5,319,587 4,866,497 4,037,245 3,591,130 Occupancy of properties owned at year end ............ 89% 89% 91% 92% 93% Occupancy of properties owned at year end, excluding properties under redevelopment........... 96% 99% 98% 96% 96%
Includes depreciation and amortization on assets held for sale reflected as discontinued operations.
Non-cash impairment charges consist of a $1,150,000 impairment charge related to an asset held for sale in the San Francisco Bay market which could not be redeveloped pursuant to its original strategic objectives and a $2,545,000 impairment charge on investments.
We compute funds from operations ("FFO") in accordance with standards established by the Board of Governors of NAREIT in its April 2002 White Paper ("White Paper"). The White Paper defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from assets, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. For a more detailed discussion of FFO, see "Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The terms "we," "our," "ours" and "us" as used in this Form 10-K refer to Alexandria Real Estate Equities, Inc. and its subsidiaries. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.
Overview
We are a publicly traded real estate operating company focused principally on the ownership, operation, management, acquisition, expansion and selective redevelopment and development of high quality, strategically located properties containing a combination of office and laboratory space leased principally to tenants in the life science industry. We refer to these properties as "life science facilities".
In 2002, we:
Acquired four properties with an aggregate of approximately 329,000 rentable square feet. In addition, we completed the development of two properties with an aggregate of approximately 98,000 rentable square feet.
Completed a public offering of 2,300,000 shares of our 9.10% Series B cumulative redeemable preferred stock, resulting in aggregate proceeds of approximately $55.1 million, net of underwriting discounts and commissions and other offering costs.
Sold 419,000 and 2,000,000 shares of common stock in two separate transactions, resulting in aggregate proceeds of approximately $97.5 million, net of underwriting discounts and commissions and other offering costs.
Expanded our unsecured line of credit from $325 million to $425 million and extended the term to July 2005, which may be further extended at our sole option for an additional one-year period.
Our primary source of revenue is rental income and tenant recoveries from leases at the properties we own. Of the 89 properties we owned as of December 31, 2002, four were acquired in 1994, nine in 1996, ten in 1997, 29 in 1998, six in 1999, 12 in 2000, five in 2001 and four in 2002. In addition, we completed the development of one property in 1999, five properties in 2000 (together with the 12 properties acquired in 2000, the "2000 Properties"), two properties in 2001 (together with the five properties acquired in 2001, the "2001 Properties") and two properties in 2002 (together with the four properties acquired in 2002, the "2002 Properties"). As a result of these acquisition and development activities, there have been significant continuing increases in total revenues and expenses, including significant increases in total revenues and expenses for 2002 as compared to 2001, and for 2001 as compared to 2000.
Critical Accounting Policies
	Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Our significant accounting policies are described in the notes to our consolidated financial statements. The preparation of these financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates, judgments and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
REIT Compliance
We have elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code (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) on our taxable income at regular corporate rates. 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.
Rental Properties and Properties Under Development
Rental properties and properties under development are stated at cost. Write-downs to estimated fair value would be recognized when impairment indicators are present and a property's estimated undiscounted future cash flows, before interest charges, are less than its book value. In that situation, we would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property.
Capitalization of Costs
	We capitalize direct construction and development costs, including predevelopment costs, interest, property taxes, insurance and indirect project costs, including payroll and other costs directly associated with the acquisition, development or construction of a project. Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred. Costs previously capitalized related to abandoned acquisition or development opportunities are written-off. Should development activity decrease, a portion of interest, property taxes, insurance and certain costs would no longer be eligible for capitalization, and would be expensed as incurred.
	We also capitalize leasing costs, including broker fees and certain costs related to our leasing personnel. These costs are amortized on a straight-line basis over the terms of the related leases. Costs previously capitalized related to unsuccessful leasing opportunities are written-off.
Valuation of Investments
	We hold equity investments in certain publicly traded companies and privately held entities primarily involved in the life science industry. If a decline in the fair value of an investment below its carrying value is determined to be other than temporary, such investment is written down to its estimated fair value with a non-cash charge to current earnings. The factors that we consider in our valuation assessments include, but are not limited to, market prices, market conditions, prospects for favorable or unfavorable clinical trial results, new product initiatives and new collaborative agreements.
Interest Rate Swap Agreements
	We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates associated with our unsecured line of credit. These agreements involve an exchange of fixed and floating interest payments without the exchange of the underlying principal amount (the "notional amount"). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
	We reflect our interest rate swap agreements on the balance sheet at their estimated fair values. We use a variety of methods and assumptions based on market conditions and risks existing at each balance sheet date to determine the fair values of our interest rate swap agreements. These methods of assessing fair value result in a general approximation of value, and such value may never be realized.
	All of our interest rate swap agreements meet the criteria to be deemed "effective" under Statement of Financial Accountings Standards No. 133 in reducing our exposure to variable interest rates. Accordingly, we have categorized these instruments as cash flow hedges. While we intend to continue to meet the conditions for hedge accounting, if hedges did not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in earnings.
	We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap agreements as our counterparties are established, well-capitalized financial institutions.
Revenue Recognition
Rental income from leases with scheduled rent increases, free rent and other rent adjustments are recognized on a straight-line basis over the respective lease terms. We maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. If a tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and deferred rent.
Discontinued Operations
	The determination of whether a property qualifies as an asset held for sale and should be classified as discontinued operations requires an evaluation of certain criteria, some of which require the use of judgment. A property is classified as held for sale when all of the following criteria for a plan of sale have been met: 1) management, having the authority to approve the action, commits to a plan to sell the property, 2) the property is available for immediate sale in its present condition, subject only to the terms that are usual and customary, 3) an active program to locate a buyer, and other actions required to complete the plan to sell, have been initiated, 4) the sale of the property is probable and is expected to be completed within one year, 5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value and 6) actions necessary to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When all of these criteria have been met, the property is classified as held for sale and its operations are classified as discontinued operations. Amounts from prior periods are reclassified from continuing operations to discontinued operations. A loss is recognized for any initial adjustment of the asset's carrying amount to fair value less costs to sell in the period the asset qualifies as held for sale.
Results of Operations
Comparison of the Year Ended December 31, 2002 to the Year Ended December 31, 2001
Rental revenue increased by $18.2 million, or 19%, to $113.4 million for 2002 compared to $95.2 million for 2001. The increase resulted primarily from the 2001 Properties being owned for a full year and the addition of the 2002 Properties. Rental revenue from properties operating for a full year during 2001 and 2002 (the "2002 Same Properties") increased by $2.7 million, or 3.7%, due to increases in rental rates and offset by a slight decrease in occupancy. The occupancy level of the 2002 Same Properties was 97.6% as of December 31, 2002, compared to 98.2% as of December 31, 2001.
Tenant recoveries increased by $5.0 million, or 20%, to $29.7 million for 2002 compared to $24.6 million for 2001. The increase resulted primarily from the 2001 Properties being owned for a full year and the addition of the 2002 Properties. Tenant recoveries for the 2002 Same Properties increased by $915,000, or 4.6%, primarily due to increases in certain recoverable operating expenses.
Interest and other income decreased by $1.6 million, or 49%, to $1.6 million for 2002 compared to $3.2 million for 2001, primarily due to a decrease in interest income resulting from a decline in interest rates, the repayment of a $6 million secured note receivable in March 2002 and a decrease in realized gains on investments.
Rental operating expenses increased by $4.6 million, or 18%, to $30.0 million for 2002 compared to $25.4 million for 2001. The increase resulted primarily from the 2001 Properties being owned for a full year and the addition of the 2002 Properties. Operating expenses for the 2002 Same Properties increased by $1.2 million, or 6.4%, primarily due to an increase in property insurance and property taxes (substantially all of which are recoverable from our tenants through tenant recoveries).
The following is a comparison of property operating data for the 2002 Same Properties computed under generally accepted accounting principles ("GAAP Basis") and under generally accepted accounting principles, adjusted to exclude the effect of straight-line rent adjustments required by GAAP ("Cash Basis") (dollars in thousands):
Year Ended December 31, ---------------------- 2002 2001 Change ---------- ---------- ---------- GAAP Basis: Revenue $ 99,553 $ 95,877 3.8% Rental operating expenses 20,408 19,174 6.4% ---------- ---------- ---------- Net operating income $ 79,145 $ 76,703 3.2% ========== ========== ========== Cash Basis: Revenue $ 96,667 $ 91,705 5.4% Rental operating expenses 20,408 19,174 6.4% ---------- ---------- ---------- Net operating income $ 76,259 $ 72,531 5.1% ========== ========== ==========
General and administrative expenses increased by $1.7 million, or 15%, to $13.4 million for 2002 compared to $11.7 million for 2001 primarily due to the continued increase in the scope of our operations. From January 1, 2001 to December 31, 2002, we expanded our scope of operations to include an additional 13 properties containing approximately 880,000 rentable square feet for a total of 89 properties located in nine states with approximately 5.7 million rentable square feet. To assist in managing this increase in the size of our operating portfolio, we have added personnel and offices in certain of the markets where we have properties.
Interest expense decreased by $2.7 million, or 10%, to $25.0 million for 2002 compared to $27.7 million for 2001. The decrease resulted primarily from a reduction in the floating interest rate on our unsecured line of credit. The weighted average interest rate on our borrowings (not including the effect of swap agreements) decreased from 3.92% as of December 31, 2001 to 3.07% as of December 31, 2002. We have entered into certain swap agreements to hedge our borrowings at variable interest rates (see "Liquidity and Capital Resources - Unsecured Line of Credit "). The decrease in interest expense caused by this factor was partially offset by an increase in indebtedness incurred to acquire the 2001 and 2002 Properties and indebtedness incurred to finance the development and redevelopment of properties.
Depreciation and amortization increased by $3.7 million, or 12%, to $33.3 million for 2002 compared to $29.6 million for 2001. The increase resulted primarily from depreciation associated with the 2001 Properties being owned for a full year and the addition of the 2002 Properties.
During 2002, we recognized a non-cash impairment charge of $2.5 million associated with a decline in the value of certain investments below their carrying value determined to be other than temporary.
Income from discontinued operations of $624,000 for 2002 reflects the results of operations of two properties that have been designated as held for sale. In connection with these prospective sales, we recorded a non-cash impairment charge of $1,150,000 related to a property in the San Francisco Bay market which cannot be redeveloped pursuant to its original strategic objectives. This charge has been included in discontinued operations for 2002.
Extraordinary loss on early extinguishment of debt of $1 million for 2002 was incurred as a result of an early retirement of a $7.2 million secured loan in connection with a refinancing of an asset. This extraordinary loss is related to prepayment penalties and the write-off of loan costs.
Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000
Rental revenue increased by $16.7 million, or 21%, to $95.2 million for 2001 compared to $78.6 million for 2000. The increase resulted primarily from the 2000 Properties being owned for a full year and the addition of the 2001 Properties. Rental revenue from properties operating for a full year during 2000 and 2001 (the "2001 Same Properties") increased by $3.7 million, or 6.4%, due to increases in rental rates and offset by a slight decrease in occupancy. The occupancy level of the 2001 Same Properties was 96.8% as of December 31, 2001, compared to 97.7% as of December 31, 2000.
Tenant recoveries increased by $4.4 million, or 22%, to $24.6 million for 2001 compared to $20.3 million for 2000. The increase resulted primarily from the 2000 Properties being owned for a full year and the addition of the 2001 Properties. Tenant recoveries for the 2001 Same Properties increased by $516,000, or 3.2%, generally due to an increase in certain recoverable operating expenses.
Interest and other income decreased by $233,000, or 7%, to $3.2 million for 2001 compared to $3.4 million for 2000, resulting primarily from a decline in interest rates and a decline in service fee income. Service fee income is earned when we supervise construction projects for third parties.
Rental operating expenses increased by $4.2 million, or 20%, to $25.4 million for 2001 compared to $21.2 million for 2000. The increase resulted primarily from the 2000 Properties being owned for a full year and the addition of the 2001 Properties. Operating expenses for the 2001 Same Properties increased by $983,000, or 5.9%, primarily due to an increase in utilities and tenant related expenses (substantially all of which are recoverable from our tenants through tenant recoveries).
The following is a comparison of property operating data computed on a GAAP Basis and on a Cash Basis for the 2001 Same Properties (dollars in thousands):
Year Ended December 31, ---------------------- 2001 2000 Change ---------- ---------- ---------- GAAP Basis: Revenue $ 79,400 $ 75,600 5.0% Rental operating expenses 17,693 16,710 5.9% ---------- ---------- ---------- Net operating income $ 61,707 $ 58,890 4.8% ========== ========== ========== Cash Basis: Revenue $ 78,155 $ 73,945 5.7% Rental operating expenses 17,693 16,710 5.9% ---------- ---------- ---------- Net operating income $ 60,462 $ 57,235 5.6% ========== ========== ==========
General and administrative expenses increased by $2.7 million, or 30%, to $11.7 million for 2001 compared to $9.0 million for 2000 due to the continued increase in the scope of our operations. From January 1, 2000 to December 31, 2001, we expanded our scope of operations to include an additional 24 properties containing approximately 1.3 million rentable square feet for a total of 82 properties located in nine states with approximately 5.3 million rentable square feet. To assist in managing this increase in the size of the operating portfolio, we added personnel and offices in certain of the markets where we have properties.
Interest expense increased by $3.4 million, or 14%, to $27.7 million for 2001 compared to $24.3 million for 2000. The increase resulted primarily from indebtedness we incurred to acquire the 2000 and 2001 Properties and indebtedness incurred to finance the development and redevelopment of properties which have been completed. The increase in interest expense caused by these factors was partially offset by a decrease in the floating interest rate on our unsecured line of credit. The weighted average effective interest rate on our borrowings (not including the effect of swap agreements) decreased from 8.32% as of December 31, 2000 to 3.92% as of December 31, 2001. We have entered into certain swap agreements to hedge our borrowings at variable interest rates (see "Liquidity and Capital Resources - Unsecured Line of Credit ").
Depreciation and amortization increased by $6.3 million, or 27%, to $29.6 million for 2001 compared to $23.3 million for 2000. The increase resulted primarily from depreciation associated with the 2000 Properties being owned for a full year and the addition of the 2001 Properties.
Income from discontinued operations increased by $86,000, or 6%, to $1.6 million for 2001 compared to $1.5 million for 2000. The increase resulted primarily from a decrease in interest expense for one of the properties held for sale.
Liquidity and Capital Resources
Cash Flows
Net cash provided by operating activities for 2002 increased by $6.7 million to $67.1 million compared to $60.3 million for 2001. The increase resulted primarily from increases in cash flows from our portfolio of operating properties, partially offset by a decline in accounts payable, accrued expenses and tenant security deposits.
Net cash used in investing activities increased by $35.7 million to $227.8 million for 2002 compared to $192.2 million for 2001. This increase was primarily due to a higher level of property acquisition costs.
Net cash provided by financing activities increased by $30.8 million to $162.2 million for 2002 compared to $131.4 million for 2001. Cash provided by financing activities for 2002 and 2001 primarily consisted of net proceeds from our unsecured line of credit, unsecured term loan, secured debt and issuances of common and preferred stock and exercise of stock options, partially offset by principal reductions on our secured debt and distributions to stockholders.
Off-Balance Sheet Arrangements
	As of December 31, 2002, we have no off-balance sheet arrangements.
Contractual Obligations and Commitments
Contractual obligations as of December 31, 2002, consists of the following (dollars in thousands):
Payments by Period --------------------------------------------- Total 2003 2004-2005 2006-2007 Thereafter 				 --------------------------------------------- Secured notes payable(1)$ 275,125 $ 5,597 $ 32,193 $ 55,393 $ 181,942
Ground lease obligations 26,202 790 1,460 1,461 22,491
Other obligations 789 472 317 - - ------------------------------------------------------------ Total $ 302,116 $ 6,859 $ 33,970 $ 56,854 $ 204,433 ============================================================
(1) Excludes unamortized premium of two secured notes payable. 	Secured notes payable as of December 31, 2002 includes 14 notes secured by 32 properties.
	Ground lease obligations as of December 31, 2002 includes leases at five of our properties and one land development parcel. These lease obligations have remaining lease terms of 14 to 53 years, exclusive of extension options.
	As of December 31, 2002, we were committed under the terms of construction contracts and certain leases to complete the development of buildings and related improvements at a remaining aggregate cost of $6.0 million.
As of December 31, 2002, we were also committed to fund approximately $51.4 million for the construction of building infrastructure improvements and for certain investments.
Tenant Security Deposits and Restricted Cash
	Tenant security deposits and restricted cash consists of the following (in thousands):
December 31, ---------------------- 2002 2001 ---------- ---------- Funds held in trust under the terms of certain secured notes payable $ 5,692 $ 5,583
Security deposit funds based on the terms of certain lease agreements 1,967 1,647
Funds held in escrow to complete the development of an office/laboratory facility 361 4,298 ---------- ---------- $ 8,020 $ 11,528 ========== ==========
Secured Debt
Secured debt as of December 31, 2002, consists of the following (dollars in thousands):
Balance at Stated December 31, Interest Collateral 2002 Rate Maturity Date ------------------------------------ ------------ ------------- ---------------
Worcester, MA (1) $10,286 8.75% January 2006
Durham, NC (two properties) 12,038 8.68% December 2006
Gaithersburg, MD (three properties) 9,808 8.25% August 2007
Cambridge, MA (2) 18,777 9.125% October 2007
Chantilly, VA and Seattle, WA 34,852 7.22% May 2008
San Diego, CA (four properties) 41,259 6.95% July 2009
Worcester, MA and San Diego, CA 18,542 8.71% January 2010
Gaithersburg, MD (two properties) 24,327 8.33% November 2010
San Diego, CA (six properties) 23,839 7.75% July 2011
San Diego, CA 11,637 7.50% August 2011
Gaithersburg, MD (three properties) 28,031 7.40% January 2012
Alameda, CA 3,520 7.165% January 2014
Seattle, WA (two properties) 18,109 7.75% June 2016
San Francisco, CA (two properties) 21,853 LIBOR + 1.70% January 2005 (3) ------------ $276,878 ============
__________
The balance shown includes an unamortized premium of $374,000; the effective rate of the loan is 7.25%.
The balance shown includes an unamortized premium of $1,379,000; the effective rate of the loan is 7.25%.
The loan may be extended, at our option, for an additional year.
The following is a summary of the scheduled principal payments for our secured debt as of December 31, 2002 (in thousands):
Year Amount ----------------------- -----------
2003 $ 5,597 2004 5,304 2005 26,889 2006 24,710 2007 30,683 Thereafter 181,942 ----------- Subtotal 275,125 Unamortized premium 1,753 ----------- $ 276,878 ===========
Unsecured Line of Credit
In July 2002, we expanded and extended our unsecured line of credit. Our new line of credit amends our $325 million unsecured line of credit that was scheduled to mature in February 2003 and has been used to pay off our $50 million unsecured term loan. The maximum permitted amount of borrowings under the amended line of credit is $425 million. The amended line of credit has a maturity date of July 2005, which may be extended at our sole option for an additional one-year period. Borrowings under our unsecured line of credit, as amended, bear interest at a floating rate based on our election of either a LIBOR-based rate or the higher of the bank's reference rate and the Federal Funds rate plus 0.5%. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months.
Our line of credit contains financial covenants, including, among other things, maintenance of minimum net worth, a total liabilities to gross asset value ratio, and a fixed charge coverage ratio. In addition, the terms of the line of credit restrict, among other things, certain investments, indebtedness, distributions and mergers. As of December 31, 2002, borrowings outstanding on the line of credit carried a weighted average interest rate of 3.07%.
Aggregate borrowings under the line of credit may be limited to an amount based on the net operating income derived from a pool of unencumbered properties. As of December 31, 2002, the amount calculated under these provisions exceeded the maximum permitted borrowings of $425 million.
We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates associated with our unsecured line of credit. These agreements involve an exchange of fixed and floating interest payments without the exchange of the underlying principal amount (the "notional amount"). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
The following table summarizes our interest rate swap agreements (dollars in thousands):
Notional Interest Termination Transaction Date Effective Date Amount Pay Rate Date Fair Value ---------------- ---------------- ------------- -------- ---------------- --------- April 2000 May 20, 2000 $ 50,000 7.00% January 2, 2003 $ (23)
January 2001 January 31, 2001 50,000 6.35% December 31, 2002 -
July 2000 May 31, 2001 50,000 7.07% May 31, 2003 (1,204)
March 2002 December 31, 2002 50,000 5.36% December 31, 2004 (3,531)
July 2002 January 1, 2003 25,000 3.855% June 30, 2005 (1,099)
July 2002 January 1, 2003 25,000 3.865% June 30, 2005 (1,106)
December 2002 January 2, 2003 25,000 3.285% June 30, 2006 (633)
December 2002 January 2, 2003 25,000 3.285% June 30, 2006 (633)
November 2002 June 1, 2003 25,000 3.115% December 31, 2005 (392)
November 2002 June 1, 2003 25,000 3.155% December 31, 2005 (417) ---------- $ (9,038) ==========
Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, as amended, establishes accounting and reporting standards for derivative financial instruments such as our interest rate swap agreements. Specifically, SFAS 133 requires us to reflect our interest rate swap agreements on the balance sheet at their estimated fair values. We use a variety of methods and assumptions based on market conditions and risks existing at each balance sheet date to determine the fair values of our interest rate swap agreements. These methods of assessing fair value result in a general approximation of value, and such value may never be realized. As of January 1, 2001, the adoption of SFAS 133, as amended, resulted in qualifying interest rate swap agreements reported on the balance sheet as a liability of approximately $3.5 million, with a corresponding reduction to accumulated other comprehensive income, a separate component of stockholders' equity.
All of our interest rate swap agreements meet the criteria to be deemed "effective" under SFAS 133 in reducing our exposure to variable interest rates. Accordingly, we have categorized these instruments as cash flow hedges. While we intend to continue to meet the conditions for hedge accounting, if hedges did not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in earnings.
We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap agreements as our counterparties are established, well-capitalized financial institutions. In addition, we have entered into master derivative agreements with each counterparty. These master derivative agreements (all of which are on the standard International Swaps & Derivatives Association, Inc. ("ISDA") form) define certain terms between us and each counterparty to address and minimize certain risks associated with our swap agreements, including a default by a counterparty.
On January 22, 2001, we terminated an interest rate swap agreement with a notional amount of $50 million, an interest pay rate of 7.25% and a maturity of December 31, 2001. The terminated interest rate swap agreement was replaced with the 6.35% interest rate swap agreement as shown in the table above. The fair value of the terminated interest rate swap agreement at the date of termination (a liability of $950,000) was transferred to the replacement 6.35% interest rate swap agreement. During 2001, approximately $475,000 was reclassified from other comprehensive income to interest expense. Approximately $475,000 was credited against interest expense during 2002. These adjustments resulted in an effective interest pay rate for the 6.35% interest rate swap agreement of 7.30% for 2001 and 5.40% for 2002.
As of December 31, 2002 and 2001, our interest rate swap agreements have been reported in the accompanying balance sheets at their fair value as other liabilities of approximately $9.0 million and $7.5 million, respectively. The offsetting adjustments were reflected as deferred losses in accumulated other comprehensive income of $9.0 million and $7.0 million, respectively. Balances in accumulated other comprehensive income are recognized in earnings as swap payments are made.
Other Resources and Liquidity Requirements
In January 2002, we completed a public offering of 2,300,000 shares of our 9.10% Series B cumulative redeemable preferred stock. The shares were issued at a price of $25.00 per share, resulting in aggregate proceeds of approximately $55.1 million, net of offering costs. In February 2002, we sold 418,970 shares of our common stock. The shares were issued at a price of $39.46 per share, resulting in aggregate proceeds of approximately $16.1 million, net of offering costs. In July 2002, we sold 2,000,000 shares of our common stock. The shares were issued at a price of $41.07 per share, resulting in aggregate proceeds of approximately $81.4 million, net of offering costs.
We expect to continue meeting our short-term liquidity and capital requirements generally through our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to enable us to make distributions necessary to continue qualifying as a REIT. We also believe that net cash provided by operating activities will be sufficient to fund our recurring non- revenue enhancing capital expenditures, tenant improvements and leasing commissions.
We expect to meet certain long-term liquidity requirements, such as property acquisitions, property development and redevelopment activities, scheduled debt maturities, expansions and other non-recurring capital improvements, through excess net cash provided by operating activities, long-term secured and unsecured borrowings, including borrowings under the line of credit and the issuance of additional debt and/or equity securities.
Exposure to Environmental Liabilities
In connection with the acquisition of all of our properties, we have obtained Phase I environmental assessments to ascertain the existence of any environmental liabilities or other issues. The Phase I environmental assessments of our properties have not revealed any environmental liabilities that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any material environmental liabilities that have occurred since the Phase I environmental assessments were completed. In addition, we carry a policy of pollution legal liability insurance covering exposure to certain environmental losses at all of our properties.
Capital Expenditures, Tenant Improvements and Leasing Costs
The following table shows total and weighted average per square foot property related capital expenditures, tenant improvements and leasing costs (all of which are added to the basis of the properties) related to our life science facilities (excluding capital expenditures and tenant improvements that are recoverable from tenants, revenue-enhancing or related to properties that have undergone redevelopment) for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, attributable to leases that commenced at our properties after our acquisition.
Total/ Weighted Average 2002 2001 2000 1999 1998 ----------- ----------- ---------- ---------- ---------- ---------- Capital expenditures: Major capital expenditures (1) $ 1,584,000 $ 921,000 $ 524,000 $ 139,000 $- $- Recurring capital expenditures 3,674,000 1,510,000 (2) 706,000 639,000 478,000 341,000 Weighted average square feet in portfolio 21,794,905 5,499,660 5,131,176 4,448,916 3,823,290 2,891,863 Per weighted average square foot in portfolio Major capital expenditures (1) $ 0.07 $ 0.17 $ 0.10 $ 0.03 $- $- Recurring capital expenditures $ 0.17 $ 0.27 (2)$ 0.14 $ 0.14 $ 0.13 $ 0.12
Tenant improvements and leasing costs: Retenanted space (3) Tenant improvements and leasing costs $ 3,692,000 $ 498,000 $ 466,000 $ 796,000 $1,454,000 $ 478,000 Retenanted square feet 890,667 318,642 151,161 (3) 112,286 (3) 220,397 88,181 Per square foot leased of retenanted space $ 4.15 $ 1.56 $ 3.08 $ 7.09 $ 6.60 $ 5.42
Renewal space Tenant improvements and leasing costs $ 1,319,000 $ 526,000 $ 451,000 $ 124,000 $ 149,000 $ 69,000 Renewal square feet 1,092,417 255,978 432,717 233,017 93,667 77,038 Per square foot leased of renewal space $ 1.21 $ 2.05 $ 1.04 $ 0.53 $ 1.59 $ 0.90
Major capital expenditures consist of roof replacements and HVAC systems which are typically identified and considered at the time a property is acquired.
Recurring capital expenditures for 2002 includes $552,000 ($0.10 per square foot in portfolio) related to a fully leased property in San Diego, California that underwent substantial renovation in 2002.
Excludes space that has undergone redevelopment before retenanting.
Capital expenditures fluctuate in any given period due to the nature, extent and timing of improvements required and the extent to which they are recoverable from our tenants. Approximately 88% of our leases provide for the recapture of certain capital expenditures (such as HVAC systems maintenance and/or replacement, roof replacement and parking lot resurfacing). In addition, we maintain an active preventative maintenance program at each of our properties to minimize capital expenditures required.
Tenant improvements and leasing costs also fluctuate in any given year depending upon factors such as the timing and extent of vacancies, property age, location and characteristics, the type of lease (renewal tenant or retenanted space), the involvement of external leasing agents and overall competitive market conditions.
Inflation
As of December 31, 2002, approximately 86% of our leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses (including increases thereto). In addition, approximately 9% of our leases (on a square footage basis) required the tenants to pay a majority of operating expenses. Approximately 93% of our leases (on a square footage basis) contain effective annual rent escalations that are either fixed (generally ranging from 3% to 4%) or indexed based on the consumer price index or another index. Accordingly, we do not believe that our earnings or cash flow from real estate operations are subject to any significant risk of inflation. An increase in inflation, however, could result in an increase in the cost of our variable rate borrowings, including our unsecured line of credit.
Funds from Operations
We believe that funds from operations ("FFO") is helpful to investors as an additional measure of the performance of an equity REIT. We compute FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in its April 2002 White Paper (the "White Paper"), which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from assets, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. While FFO is a relevant and widely used measure of operating performance of REITs, it should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. (See "Cash Flows" for information regarding these measures of cash flow.)
The following table presents our FFO for the years ended December 31, 2002, 2001 and 2000 (in thousands):
Year Ended December 31, ---------------------------------- 2002 2001 2000 ---------- ---------- ----------
Income before extraordinary item $41,034 $30,277 $26,009 Less: Dividends on preferred stock (8,579) (3,666) (3,666) Add: Depreciation and amortization 34,071 30,578 24,251 Non-cash impairment charges (1) 3,695 - - ---------- ---------- ---------- Funds from operations $70,221 $57,189 $46,594 ========== ========== ==========
Non-cash impairment charges consist of a $1,150,000 impairment charge related to an asset held for sale in the San Francisco Bay market which could not be redeveloped pursuant to its original strategic objectives and a $2,545,000 impairment charge on investments.
Property and Lease Information
The following table is a summary of our property portfolio as of December 31, 2002 (dollars in thousands):
Rentable Annualized Number of Square Base Occupancy Properties Feet Rent Percentage ---------- ----------- --------- -----------
California - Pasadena 1 31,343 602 95.7% California - San Diego 20 818,711 23,555 97.4% California - San Francisco Bay 11 635,971 19,633 96.6% Eastern Massachusetts 10 695,394 23,221 87.1%(1) New Jersey/Suburban Philadelphia 6 346,919 6,211 100.0% Southeast 4 220,553 3,520 86.1%(2) Suburban Washington D.C. 20 1,666,993 27,244 97.9% Washington - Seattle 5 440,284 16,074 100.0% ---------- ----------- --------- ----------- Subtotal 77 4,856,168 120,060 95.9% Redevelopment Properties 12 890,496 11,217 51.9% ---------- ----------- --------- ----------- Total 89 5,746,664 $ 131,277 89.1% ========== =========== ========= ===========
A significant portion of the vacant space in Eastern Massachusetts (76,789 square feet of the 90,025 vacant square feet) is located in Worcester and Randolph, which submarkets have exhibited significant weakness.
Substantially all of the vacant space is office or warehouse space.
The following table summarizes certain information with respect to the lease expirations of our properties as of December 31, 2002:
Square Square Footage Annualized Base Year of Number of Footage of as a Percentage Rent of Expiring Lease Expiring Expiring of Leased Leases (Per Expiration Leases Leases Portfolio Square Foot) ---------- ----------- ---------- -------------- ---------------
2003 55 591,523 11.6% $23.30 2004 32 480,440 9.4% $20.42 2005 17 270,716 5.3% $27.66 2006 31 765,627 15.0% $23.86 2007 16 354,436 6.9% $24.39 Thereafter 49 2,656,240 51.8% $27.21
The following table is a summary of our lease activity for the year ended December 31, 2002, computed on a GAAP Basis and on a Cash Basis:
Rental TI's/Lease Average Number Square Expiring New Rate Commissions Lease of Leases Footage Rate Rate Increase Per Foot Term ----------- --------- --------- --------- --------- ------------ ----------- Lease Activity - Expired Leases
Lease Expirations Cash Basis 70 895,137 $21.24 - - - - GAAP Basis 70 895,137 $20.31 - - - - Renewed / Released Space Cash Basis 31 574,620 $21.46 $23.01 7.2%(1) $1.78 3.5 Years GAAP Basis 31 574,620 $21.02 $23.74 12.9%(1) $1.78 3.5 Years Month-to-Month Leases Cash Basis 16 64,256 $24.54 $18.86 -23.1%(2) - - GAAP Basis 16 64,256 $24.40 $18.86 -21.7%(2) - - Total Leasing Cash Basis 47 638,876 $21.77 $22.59 3.8%(3) - - GAAP Basis 47 638,876 $21.36 $23.25 8.8%(3) - -
Redeveloped/Developed/ Vacant Space Leased Cash Basis 26 351,509 - $33.70 - $11.43 7.2 Years GAAP Basis 26 351,509 - $36.64 - $11.43 7.2 Years
All Lease Activity Cash Basis 73 990,385 - $26.53 - - - GAAP Basis 73 990,385 - $28.00 - - -
Excluding a lease for 8,424 square feet in the San Francisco Bay market, rental rates for renewed or released space were on average 9.0% higher than expiring rates on a Cash Basis and 14.5% higher than expiring rates on a GAAP Basis.
Excluding a month-to-month lease for 13,700 square feet in the San Francisco Bay market for a property targeted for redevelopment in 2003, rental rates for month-to-month leases were on average 2.7% higher than expiring rates on a Cash Basis and 3.7% higher than expiring rates on a GAAP Basis.
Excluding the leases in the San Francisco Bay market identified in (1) and (2) above, rental rates for all lease activity for expired leases were on average 8.6% higher than expiring rates on a Cash Basis and 13.7% higher than expiring rates on a GAAP Basis.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we are exposed is interest rate risk, which may result from many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.
In order to modify and manage the interest 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, floors and other interest rate exchange contracts. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks, such as counter-party credit risk and the legal enforceability of hedging contracts.
Our future earnings, cash flows and fair values relating to financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR. However, our interest rate swap agreements are intended to reduce the effects of interest rate changes. Based on interest rates at, and our swap agreements in effect on, December 31, 2002, we estimate that a 1% increase in interest rates on our line of credit, after considering the effect of our interest rate swap agreements, would decrease annual future earnings and cash flows by approximately $1.4 million. We further estimate that a 1% decrease in interest rates on our line of credit, after considering the effect of our interest rate swap agreements in effect December 31, 2002, would increase annual future earnings and cash flows by approximately $1.4 million. A 1% increase in interest rates on our secured debt and interest rate swap agreements would decrease their aggregate fair value by approximately $18.4 million. A 1% decrease in interest rates on our secured debt and interest rate swap agreements would increase their aggregate fair value by approximately $19.3 million.
These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost and our interest rate swap agreements in effect on December 31, 2002. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our capital structure.
We have exposure to equity price market risk because of our equity investments in certain publicly traded companies and privately held entities. We classify investments in publicly traded companies as available-for-sale and, consequently, record them on our balance sheet at fair value with unrealized gains or losses reported as a component of comprehensive income or loss. Investments in privately held entities are generally accounted for under the cost method, as we do not influence any of the investees' operating or financial policies. For all investments, we recognize other than temporary declines in value against earnings in the same period the decline in value was deemed to have occurred. In 2002, we recorded non-cash impairment charges of $2,545,000 to write down certain investments for which we deemed the decline in fair value to be other than temporary. There is no assurance that future declines in values will not have a material adverse impact on our future results of operations. By way of example, a 10% decrease in the fair value of our equity investments would decrease their fair value by approximately $4 million.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data required by Regulation S-X are included in this Report on Form 10-K beginning on page.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the caption "Board of Directors, Executive Officers and Senior Management" in our definitive proxy statement for our 2003 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days after the end of our 2002 fiscal year (the "2003 Proxy Statement") is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information set forth under the caption "Board of Directors, Executive Officers and Senior Management - Executive Compensation" in our 2003 Proxy Statement is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Equity Compensation Plan Information
Number of Securities to be issued upon exercise of outstanding options and awards (a)
Weighted-average exercise price of outstanding options and awards (b)
Number of securities remaining available for future issuance under the Stock Plan (excluding securities reflected in column a) (c)
Equity Compensation Plan Approved by Stockholders - 1997 Incentive Plan
1,011,166
$34.39
362,211
The information set forth under the caption "Security Ownership of Management and Principal Stockholders" in our 2003 Proxy Statement is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
	None.
Item 14.
Item 14. Controls and Procedures
	As of December 31, 2002, we performed an evaluation, under the supervision of our chief executive officer ("CEO") and chief financial officer ("CFO"), of the effectiveness of the design and operation of our controls and procedures. Based on that evaluation, the CEO and CFO concluded that our controls and procedures were effective as of December 31, 2002. There have been no significant changes in these controls or in other factors that could significantly affect these controls subsequent to December 31, 2002.
PART IV
Item 15.
Item 15. Exhibits, Consolidated Financial Statements Schedules and Reports on Form 8-K
(a)	Consolidated Financial Statements and Schedules
The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:
Page
Report of Independent Auditors
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income for the Years Ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2002, 2001 and 2000
Schedule III - Consolidated Financial Statement of Rental Properties
(b)	Reports on Form 8-K
We did not file any reports on Form 8-K during the fourth quarter of the fiscal year ended December 31, 2002.
(c)	Exhibits.
Exhibit Number
Exhibit Title
3.1 *
Articles of Amendment and Restatement of Alexandria, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on August 14, 1997
3.2 *
Certificate of Correction of Alexandria, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on August 14, 1997
3.3*
Bylaws of Alexandria (as amended, adopted February 4, 2000; effective February 16, 2000), filed as an exhibit to Alexandria's current report on Form 8-K filed with the Commission on February 10, 2000
3.4 *
Articles Supplementary, dated February 10, 2000, relating to the election to be subject to Subtitle 8 of Title 3 of the Maryland General Corporation Law, filed as an exhibit to Alexandria's current report on Form 8-K filed with the Commission on February 10, 2000
3.5 *
Articles Supplementary, dated February 10, 2000, relating to the Series A Junior Participating Preferred Stock , filed as an exhibit to Alexandria's current report on Form 8-K filed with the Commission on February 10, 2000
3.6 *
Articles Supplementary, dated June 9, 1999, relating to the 9.50% Series A Cumulative Redeemable Preferred Stock, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on August 13, 1999
3.7 *
Articles Supplementary, dated January 28, 2002, relating to the 9.10% Series B Cumulative Redeemable Preferred Stock, filed as an exhibit to Alexandria's current report on Form 8-A filed with the Commission on February 17, 2002
4.1 *
Rights Agreement, dated as of February 10, 2000, between the Company and American Stock Transfer & Trust Company, as Rights Agent, including the forms of Articles Supplementary setting forth the terms of the Series A Junior Participating Preferred Stock, par value $.01 per share, Rights Certificate and the Summary of Rights to Purchase Preferred Stock attached as exhibits to the Rights Agreement. Pursuant to the Rights Agreement, printed Rights Certificates will not be mailed until after the Distribution Date (as defined in the Rights Agreement), filed as an exhibit to Alexandria's current report on Form 8-K filed with the Commission on February 10, 2000
4.2 *
Specimen certificate representing shares of Common Stock, filed as an exhibit to Alexandria's Registration Statement on Form S-11 (No. 333- 23545)
4.3 *
Specimen certificate representing shares of 9.50% Series A Cumulative Redeemable Preferred Stock, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on August 13, 1999
4.4 *
Specimen certificate representing shares of 9.10% Series B Cumulative Redeemable Preferred Stock, filed as an exhibit to Alexandria's current report on Form 8-A filed with the Commission on February 17,
10.1 *
Second Amendment to Executive Employment Agreement and General and Special Release by and between Alexandria and Jerry M. Sudarsky, dated May 30, 1997, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 31, 1998
10.2 *
Amended and Restated Executive Employment Agreement between Alexandria and Joel S. Marcus, dated January 5, 1994, and amended as of March 28, 1997, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 31, 1998
10.3 *
Executive Employment Agreement between Alexandria and James H. Richardson, dated July 31, 1997, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on November 14, 1997
10.4 *
Amended and Restated Executive Employment Agreement between Alexandria and Peter J. Nelson, dated May 20, 1998, filed as an exhibit to Alexandria's quarterly report on Form 10-Q/A filed with the Commission on August 18, 1998
10.5 *
Amendment to Amended and Restated Executive Employment Agreement between Alexandria and Peter J. Nelson, dated August 31, 1999, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on November 15, 1999
10.6 *
Executive Employment Agreement between Alexandria and Vincent R. Ciruzzi, dated April 20, 1998, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 15, 1999
10.7 *
Amendment to Executive Employment Agreement between Alexandria and Vincent R. Ciruzzi, dated August 31, 1999, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on November 15, 1999
10.8 *
Employment Letter Agreement between Alexandria and Tom Andrews, dated June 1, 1999, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on November 15, 1999
10.9 *
Amended and Restated 1997 Stock Award and Incentive Plan of Alexandria, dated December 29, 2000, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 29, 2002
10.10 *
Form of Non-Employee Director Stock Option Agreement for use in connection with options issued pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan, filed as an exhibit to Alexandria's Registration Statement on Form S-11 (No. 333-23545)
10.11 *
Form of Incentive Stock Option Agreement for use in connection with options issued pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan, filed as an exhibit to Alexandria's Registration Statement on Form S-11 (No. 333-23545)
10.12 *
Form of Nonqualified Stock Option Agreement for use in connection with options issued pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan, filed as an exhibit to Alexandria's Registration Statement on Form S-11 (No. 333-23545)
10.13 *
Form of Employee Restricted Stock Agreement for use in connection with shares of restricted stock issued to employees pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on November 15, 1999
10.14 *
Form of Independent Contractor Restricted Stock Agreement for use in connection with shares of restricted stock issued to independent contractors pursuant to the Amended and Restated 1997 Stock Award and Incentive Plan, filed as an exhibit to Alexandria's quarterly report on Form 10-Q filed with the Commission on November 15, 1999
10.15 *
Third Amended and Restated Revolving Loan Agreement, dated as of July 11, 2002, among Alexandria Real Estate Equities, Inc., Alexandria Real Estate Equities, L.P., ARE-QRS Corp., ARE Acquisitions, LLC, the other borrowers then and thereafter a party thereto, the banks therein named, the other banks which may become parties thereto, Fleet National Bank, as Administrative Agent, Fleet Securities, Inc. and JP Morgan Securities, Inc., as Co-Lead Arrangers, JP Morgan Securities, Inc. and Societe Generale, as Co-Syndication Agents, CommerzBank AG, New York and Grand Cayman Branches and KeyBank National Association, as Co-Documentation Agents and Dresdner Bank AG, New York and Grand Cayman Branches, as Senior Managing Agent
10.16 *
Amendment to Amended and Restated Executive Employment Agreement between Alexandria and Joel S. Marcus, dated September 4, 2000, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 30, 2001
10.17 *
Amendment to Executive Employment Agreement between Alexandria and James H. Richardson, dated September 4, 2000, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 30,
10.18 *
Second Amendment to Amended and Restated Executive Employment Agreement between Alexandria and Peter J. Nelson, dated September 4, 2000, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 30, 2001
10.19 *
Amended and Restated Executive Employment Agreement between Alexandria and Vincent R. Ciruzzi, dated June 27, 2000, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 30,
10.20 *
Term Loan Agreement among Alexandria, the Operating Partnership, ARE-QRS Corp., ARE Acquisitions, LLC, the Other Borrowers Then or Thereafter a Party Thereto, the Banks therein named, the Other Banks Which May Become Parties Thereto, Fleet National Bank, as Managing Agent, and Fleet Securities, Inc., as Arranger, dated October 17, 2001, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 29, 2002
10.21 *
Alexandria's 2000 Deferred Compensation Plans, effective December 1, 2000, filed as an exhibit to Alexandria's annual report on Form 10-K filed with the Commission on March 29, 2002
12.1
Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1
List of Subsidiaries of Alexandria
23.1
Consent of Ernst & Young LLP
99.1
Certifications of Alexandria's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
___________________
(*) Incorporated by reference. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KNOW ALL THOSE BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jerry M. Sudarsky, Joel S. Marcus and Peter J. Nelson, and each of them, as his true and lawful attorneys- in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, if any, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents of their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ JERRY M. SUDARSKY
Jerry M. Sudarsky
Chairman of the Board of Directors
March 28, 2003
/s/ JOEL S. MARCUS
Joel S. Marcus
Chief Executive Officer (Principal Executive Officer) and Director
March 27, 2003
/s/ JAMES H. RICHARDSON
James H. Richardson
President and Director
March 28, 2003
/s/ PETER J. NELSON
Peter J. Nelson
Chief Financial Officer, Senior Vice President, Treasurer and Secretary (Principal Financial and Accounting Officer)
March 27, 2003
/s/ RICHARD B. JENNINGS
Richard B. Jennings
Director
March 28, 2003
/s/ DAVID M. PETRONE
David M. Petrone
Director
March 28, 2003
/s/ ANTHONY M. SOLOMON
Anthony M. Solomon
Director
March 28, 2003
/s/ ALAN G. WALTON
Alan G. Walton
Director
March 27, 2003
I, Joel S. Marcus, Chief Executive Officer and Principal Executive Officer of Alexandria Real Estate Equities, Inc., certify that:
I have reviewed this annual report on Form 10-K of Alexandria Real Estate Equities, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	designed such disclosure controls and procedures to ensure that material 	information relating to the registrant, including its consolidated subsidiaries, 	is made known to us by others within those entities, particularly during the 	period in which this annual report is being prepared;
	evaluated the effectiveness of the registrant's disclosure controls and 	procedures as of a date within 90 days prior to the filing date of this annual 	report (the "Evaluation Date"); and
	presented in this annual report our conclusions about the effectiveness of 	the disclosure controls and procedures based on our evaluation as of the 	Evaluation Date;
	The registrant's other certifying officer and I have disclosed, based on our 	most recent evaluation, to the registrant's auditors and the audit committee of 	registrant's board of directors (or persons performing the equivalent 	function):
	all significant deficiencies in the design or operation of internal controls 	which could adversely affect the registrant's ability to record, process, 	summarize and report financial data and have identified for the registrant's 	auditors any material weaknesses in internal controls; and
	any fraud, whether or not material, that involves management or other 	employees who have a significant role in the registrant's internal controls; and
	The registrant's other certifying officer and I have indicated in this 	annual report whether or not there were significant changes in internal controls 	or in other factors that could significantly affect internal controls subsequent 	to the date of our most recent evaluation, including any corrective actions with 	regard to significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ Joel S. Marcus
Joel S. Marcus
Chief Executive Officer
Principal Executive Officer
I, Peter J. Nelson, Chief Financial Officer and Principal Financial and Accounting Officer of Alexandria Real Estate Equities, Inc., certify that:
I have reviewed this annual report on Form 10-K of Alexandria Real Estate Equities, Inc.;
Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ Peter J. Nelson
Peter J. Nelson
Chief Financial Officer
Principal Financial and Accounting Officer
Report of Independent Auditors
To the Board of Directors and Stockholders of
Alexandria Real Estate Equities, Inc.
We have audited the accompanying consolidated balance sheets of Alexandria Real Estate Equities, Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the index at item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alexandria Real Estate Equities, Inc. and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
February 13, 2003
Alexandria Real Estate Equities, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars In Thousands, Except Per Share Amounts)
December 31, -------------------- 2002 2001 --------- --------- Assets Rental properties, net $ 976,422 $ 796,626 Properties under development 68,386 65,250 Cash and cash equivalents 3,790 2,376 Tenant security deposits and other restricted cash 8,020 11,528 Tenant receivables 2,641 3,123 Deferred rent 26,063 20,593 Other assets 73,921 62,650 --------- --------- Total assets $1,159,243 $ 962,146 ========= =========
Liabilities and Stockholders' Equity Secured notes payable $ 276,878 $ 245,161 Unsecured line of credit and unsecured term loan 338,000 328,000 Accounts payable, accrued expenses and tenant security deposits 47,118 48,057 Dividends payable 11,394 8,290 --------- --------- 673,390 629,508
Commitments and contingencies
Stockholders' equity: 9.50% Series A cumulative redeemable preferred stock, $0.01 par value per share, 1,610,000 shares authorized; 1,543,500 shares issued and outstanding at December 31, 2002 and 2001; $25.00 liquidation value 38,588 38,588 9.10% Series B cumulative redeemable preferred stock, $0.01 par value per share, 2,300,000 shares authorized; 2,300,000 shares issued and outstanding at December 31, 2002; $25.00 liquidation value 57,500 - Common stock, $0.01 par value per share, 100,000,000 shares authorized; 18,973,957 and 16,354,541 shares issued and outstanding at December 31, 2002 and 2001, respectively 190 163 Additional paid-in capital 399,831 301,818 Deferred compensation (1,432) (1,782) Retained earnings - - Accumulated other comprehensive income (8,824) (6,149) --------- --------- Total stockholders' equity 485,853 332,638 --------- --------- Total liabilities and stockholders' equity $1,159,243 $ 962,146 ========= =========
See accompanying notes.
Alexandria Real Estate Equities, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars In Thousands, Except Per Share Amounts)
Year Ended December 31, ------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Revenues Rental $ 113,387 $ 95,223 $ 78,551 Tenant recoveries 29,675 24,648 20,277 Interest and other income 1,610 3,165 3,398 ----------- ----------- ----------- 144,672 123,036 102,226 Expenses Rental operations 30,040 25,442 21,210 General and administrative 13,436 11,694 8,986 Interest 24,984 27,666 24,307 Depreciation and amortization 33,257 29,606 23,277 Impairment on investments 2,545 - - ----------- ----------- ----------- 104,262 94,408 77,780 ----------- ----------- ----------- Income from continuing operations 40,410 28,628 24,446
Income from discontinued operations, net 624 1,649 1,563 ----------- ----------- ----------- Income before extraordinary item 41,034 30,277 26,009
Extraordinary item - loss on early extinguishment of debt 1,002 - - ----------- ----------- ----------- Net income $ 40,032 $ 30,277 $ 26,009 =========== =========== ===========
Dividends on preferred stock $ 8,579 $ 3,666 $ 3,666 ----------- ----------- ----------- Net income allocated to common stockholders $ 31,453 $ 26,611 $ 22,343 =========== =========== =========== Basic income per common share: Income from continuing operations $ 2.30 $ 1.79 $ 1.69 Income from discontinued operations 0.04 0.10 0.11 Income before extraordinary item 2.33 1.90 1.80 Extraordinary item - loss on early extinguis 0.06 - - Net income 2.28 1.90 1.80 Net income available to common stockholders $ 1.79 $ 1.67 $ 1.55
Diluted income per common share: Income from continuing operations $ 2.26 $ 1.77 $ 1.66 Income from discontinued operations 0.03 0.10 0.11 Income before extraordinary item 2.30 1.87 1.77 Extraordinary item - loss on early extinguis 0.06 - - Net income 2.24 1.87 1.77 Net income available to common stockholders $ 1.76 $ 1.64 $ 1.52
Weighted average shares of common stock outstanding: Basic 17,594,228 15,953,459 14,460,711 =========== =========== =========== Diluted 17,859,787 16,208,178 14,699,478 =========== =========== ===========
See accompanying notes.
Alexandria Real Estate Equities, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars In Thousands)
Accumulated Series A Series B Number of Additional Other Preferred Preferred Common Common Paid-In Deferred Retained Comprehensive Stock Stock Shares Stock Capital Compensation Earnings Income Total ---------- ---------- ----------- ------- --------- ----------- ----------- ------------ ---------- Balance at December 31, 1999 $ 38,588 $ - 13,745,622 $ 137 $ 225,180 $ (1,494) $ - $ 172 $ 262,583 Net income - - - - - - 26,009 - 26,009 Unrealized gain on marketable securities - - - - - - - 1,665 1,665 ---------- Comprehensive income - - - - - - - - 27,674 Issuances of common stock, net of offering costs - - 1,625,000 16 52,101 - - - 52,117 Stock compensation expense - - 18,400 - 633 (633) - - - Amortization of stock compensation expense - - - - - 1,831 - - 1,831 Exercise of stock options - - 159,334 2 4,113 - - - 4,115 Dividends declared on preferred stock - - - - - - (3,666) - (3,666) Dividends declared on common stock - - - - (3,159) - (22,343) - (25,502) ---------- ---------- ----------- ------- --------- ----------- ----------- ------------ ---------- Balance at December 31, 2000 38,588 - 15,548,356 155 278,868 (296) - 1,837 319,152 FAS 133 transition adjustment - - - - - - - (3,461) (3,461) Net income - - - - - - 30,277 - 30,277 Unrealized loss on marketable securities - - - - - - - (1,008) (1,008) Unrealized loss on swap agreements - - - - - - - (3,517) (3,517) ---------- Comprehensive income - - - - - - - - 25,752 Issuance of common stock, net of offering costs - - 500,000 5 16,746 - - - 16,751 Stock compensation expense - - 122,555 1 4,326 (4,327) - - - Amortization of stock compensation expense - - - - - 2,841 - - 2,841 Exercise of stock options - - 183,630 2 5,198 - - - 5,200 Dividends declared on preferred stock - - - - - - (3,666) - (3,666) Dividends declared on common stock - - - - (3,320) - (26,611) - (29,931) ---------- ---------- ----------- ------- --------- ----------- ----------- ------------ ---------- Balance at December 31, 2001 38,588 - 16,354,541 163 301,818 (1,782) - (6,149) 332,638 Net income - - - - - - 40,032 - 40,032 Reclassification adjustment - - - - - - - 96 96 Unrealized loss on marketable securities - - - - - - - (712) (712) Unrealized loss on swap agreements - - - - - - - (2,059) (2,059) ---------- Comprehensive income - - - - - - - - 37,357 Issuance of common stock, net of offering costs - - 2,418,970 25 97,521 - - - 97,546 Issuance of Series B preferred stock, net of offering - 57,500 - - (2,371) - - - 55,129 Stock compensation expense - - 76,075 1 3,642 (3,643) - - - Amortization of stock compensation expense - - - - - 3,993 - - 3,993 Exercise of stock options - - 124,371 1 3,693 - - - 3,694 Dividends declared on preferred stock - - - - - - (8,625) - (8,625) Dividends declared on common stock - - - - (4,472) - (31,407) - (35,879) ---------- ---------- ----------- ------- --------- ----------- ----------- ------------ ---------- Balance at December 31, 2002 $ 38,588 57,500 18,973,957 $ 190 $ 399,831 $ (1,432) $ - $ (8,824) $ 485,853 ========== ========== =========== ======= ========= =========== =========== ============ ==========
See accompanying notes
Alexandria Real Estate Equities, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31, ----------- ------------- ------------ 2002 2001 2000 ----------- ----------- ----------- Operating Activities Net income $ 40,032 $ 30,277 $ 26,009 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt 1,002 - - Non-cash impairment charges 3,695 - - Depreciation and amortization 34,071 30,578 24,251 Amortization of loan fees and costs 2,379 1,275 1,021 Amortization of premiums on secured notes (360) (343) (331) Stock compensation expense 3,651 2,841 1,831 Changes in operating assets and liabilities: Tenant security deposits and other restricted cash 3,508 (4,533) (2,314) Tenant receivables 482 (288) 597 Deferred rent (5,470) (5,648) (5,931) Other assets (12,942) (11,774) (11,976) Accounts payable, accrued expenses and tenant security deposits (2,998) 17,955 (226) ----------- ----------- ----------- Net cash provided by operating activities 67,050 60,340 32,931
Investing Activities Purchase of rental properties (103,295) (55,746) (48,584) Additions to rental properties (61,695) (69,530) (40,539) Additions to properties under development (48,479) (57,390) (29,813) Additions to investments, net (14,371) (9,513) (13,544) ----------- ----------- ----------- Net cash used in investing activities (227,840) (192,179) (132,480)
Financing Activities Proceeds from secured notes payable 44,663 57,293 38,061 Net proceeds from issuances of common stock 97,546 16,751 52,117 Net proceeds from issuance of preferred stock 55,129 - - Exercise of stock options 3,693 5,200 4,115 Net borrowings from unsecured line of credit and unsecured term loan 10,000 97,000 39,000 Principal reductions on secured notes payable (13,427) (12,042) (6,026) Proceeds from repayment of note receivable 6,000 - - Dividends paid on common stock (33,912) (29,097) (24,722) Dividends paid on preferred stock (7,488) (3,666) (3,666) ----------- ----------- ----------- Net cash provided by financing activities 162,204 131,439 98,879
Net increase (decrease) in cash and cash equivalents 1,414 (400) (670) Cash and cash equivalents at beginning of year 2,376 2,776 3,446 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 3,790 $ 2,376 $ 2,776 =========== =========== =========== Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest, net of interest capitalized $ 28,130 $ 29,447 $ 25,315 =========== =========== ===========
See accompanying notes.
Alexandria Real Estate Equities, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Background
Alexandria Real Estate Equities, Inc. is a real estate investment trust ("REIT") formed in 1994. We are engaged primarily in the ownership, operation, management, acquisition, expansion and selective redevelopment and development of properties containing a combination of office and laboratory space. We refer to these properties as "life science facilities." Our life science facilities are designed and improved for lease primarily to pharmaceutical, biotechnology, life science product and service companies, not- for-profit scientific research institutions, universities and related government agencies. As of December 31, 2002, our portfolio consisted of 89 properties in nine states with approximately 5,747,000 rentable square feet, compared to 83 properties in nine states with approximately 5,320,000 rentable square feet as of December 31, 2001.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Alexandria and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following (in thousands):
December 31, ------------------------ 2002 2001 ------------- ---------- Unrealized gain on marketable securities $ 213 $ 829 Unrealized loss on interest rate swap agreements (9,037) (6,978) ------------- ---------- $ (8,824) $ (6,149) ============= ==========
The following table provides a reconciliation of comprehensive income (in thousands):
Year Ended December 31, ------------------------ 2002 2001 ------------- ----------
Net income $ 40,032 $ 30,277 Reclassification adjustment 96 - Unrealized loss on marketable securities (712) (1,008) Unrealized loss on interest rate swap agreements (2,059) (3,517) ------------- ---------- Comprehensive income $ 37,357 $ 25,752 ============= ==========
Investments
We hold equity investments in certain publicly traded companies and privately held entities primarily involved in the life science industry. All of our investments in publicly traded companies are considered "available for sale" under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), and are recorded at fair value and included in other assets in the accompanying balance sheets. Fair value has been determined by the closing trading price at the balance sheet date, with unrealized gains and losses shown as a separate component of stockholders' equity. The classification of investments under SFAS 115 is determined at the time each investment is made, and such determination is reevaluated at each balance sheet date. The cost of investments sold is determined by the specific identification method, with realized gains and losses included in interest and other income.
Investments in privately held entities are included in other assets and accounted for under the provisions of Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB 18"). As we do not influence any of the investees' operating or financial policies, investments in privately held entities are accounted for under the cost method.
For all of our investments, if a decline in the fair value of an investment below its carrying value is determined to be other than temporary, such investment is written down to its estimated fair value with a non-cash charge to current earnings.
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
The factors that we consider in making these assessments include, but are not limited to, market prices, market conditions, prospects for favorable or unfavorable clinical trial results, new product initiatives and new collaborative agreements. As a result of these assessments, during 2002 we recognized aggregate non-cash impairment charges of $2,545,000 for other than temporary declines in the fair value of investments.
The following table summarizes our available-for-sale securities (in thousands):
December 31, -------------------- 2002 2001 --------- --------- Cost of available-for-sale $ 3,210 $ 3,192 securities
Non-cash impairment charges (1,334) -
Gross unrealized gains 214 1,527
Gross unrealized losses - (698) --------- --------- Fair value of available-for-sale securities $ 2,090 $ 4,021 ========= =========
Investments in privately held entities as of December 31, 2002 and 2001, totaled $37,560,000 and $24,417,000, respectively. These investments are accounted for under the cost method and are included in other assets in the accompanying balance sheets. During 2002, we recognized an impairment charge of $1,211,000 for other than temporary declines in the fair value of our investments in privately held entities.
In 2002 and 2001, we reported none and $1.5 million, respectively, of net realized gains, which is included in interest and other income in the accompanying statements of income.
Rental Properties and Properties Under Development
Rental properties and properties under development are stated at cost. Write-downs to estimated fair value would be recognized when impairment indicators are present and a property's estimated undiscounted future cash flows, before interest charges, are less than its book value. In that situation, we would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property.
As of December 31, 2002, we designated two properties as "held for sale" under the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). See Note 12, Discontinued Operations.
Costs related to the acquisition, predevelopment, development, construction and improvement of properties are capitalized. Interest, real estate taxes, insurance and other development related costs including certain direct and indirect costs incurred during the construction period are capitalized.
Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred. Costs previously capitalized related to abandoned acquisition or development opportunities are written-off. The cost of maintenance and repairs is expensed as incurred.
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Depreciation is provided using the straight-line method using estimated lives of 30 to 40 years for buildings and building improvements, 20 years for land improvements and the terms of the respective leases for tenant improvements.
Tenant Security Deposits and Restricted Cash
Tenant security deposits and restricted cash consists of the following (in thousands):
December 31, ---------------------- 2002 2001 ---------- ---------- Funds held in trust under the terms of certain secured notes payable $ 5,692 $ 5,583
Security deposit funds based on the terms of certain lease agreements 1,967 1,647
Funds held in escrow to complete the development of an office/laboratory facility 361 4,298 ---------- ---------- $ 8,020 $ 11,528 ========== ==========
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Loan Fees and Costs
Fees and costs incurred in obtaining long-term financing are amortized over the terms of the related loans and included in interest expense. Loan fees and costs, net of related amortization, totaled $8,545,000 and $6,815,000 as of December 31, 2002 and 2001, respectively, and are included in other assets on our balance sheets.
Rental Income
Rental income from leases with scheduled rent increases, free rent and other rent adjustments are recognized on a straight-line basis over the respective lease terms. We include amounts currently recognized as income, and expected to be received in later years, in deferred rent on our balance sheets. Amounts received currently, but recognized as income in future years, are included in accrued expenses as unearned rent on our balance sheets.
Interest Income
Interest income was $298,000, $923,000 and $1,025,000 in 2002, 2001 and 2000, respectively, and is included in interest and other income in the accompanying statements of income.
Leasing Costs
Leasing costs are amortized on a straight-line basis over the terms of the related leases. Leasing costs, net of related amortization, totaled $16,189,000 and $14,559,000 as of December 31, 2002 and 2001, respectively, and are included in other assets on our balance sheets.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value.
The fair value of our secured notes payable was estimated using discounted cash flows analyses based on borrowing rates we believe we could obtain with similar terms and maturities. As of December 31, 2002 and 2001, the fair value of our secured notes payable was approximately $292,745,000 and $290,886,000, respectively.
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Net Income Per Share
The following table shows the computation of net income per share of common stock outstanding, as well as the dividends declared per share of common stock:
Year Ended December 31, ------------------------------------ 2002 2001 2000 ----------- ----------- ----------- (Dollars in thousands, except per share amounts)
Net income available to common stockholders $ 31,453 $ 26,611 $ 22,343 =========== =========== =========== Weighted average shares of common stock outstanding - basic 17,594,228 15,953,459 14,460,711 Add: dilutive effect of stock options and 265,559 254,719 238,767 grants ----------- ----------- ----------- Weighted average shares of common stock outstanding - diluted 17,859,787 16,208,178 14,699,478 =========== =========== =========== Net income per common share - basic $ 1.79 $ 1.67 $ 1.55 =========== =========== =========== Net income per common share - diluted $ 1.76 $ 1.64 $ 1.52 =========== =========== ===========
Common dividends declared per share $ 2.00 $ 1.84 $ 1.72 =========== =========== ===========
Operating Segments
We view our operations as principally one segment and the financial information disclosed herein represents all of the financial information related to our principal operating segment.
Income Taxes
As a REIT, we are not subject to federal income taxation as long as we meet a number of organizational and operational requirements and distribute all of our taxable income to our stockholders. Since we believe we have met these requirements and our distributions exceeded taxable income, no federal income tax provision has been reflected in the accompanying consolidated financial statements for the years ended December 31, 2002, 2001 and 2000. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates.
During 2002, 2001 and 2000, we declared dividends on our common stock of $2.00, $1.84 and $1.72 per share, respectively. During 2002, 2001 and 2000, we declared dividends on our Series A preferred stock of $2.375, $2.375 and $2.375 per share, respectively. During 2002, we declared dividends on our Series B preferred stock of $1.662 per share.
2. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Standards
In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"), which addresses alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. Effective January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), prospectively to all employee awards granted, modified or settled after January 1, 2003. The cost related to stock-based employee compensation included in the determination of net income for 2002 and 2001 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective dates of SFAS 123. See Note 10, Stock Option Plans and Stock Grants.
In April 2002, FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"), which requires any gain or loss on early extinguishment of debt that was classified as an extraordinary item that does not meet certain criteria, be reclassified from extraordinary item to continuing operations. In accordance with SFAS 145, the extraordinary loss on early extinguishment of debt recognized in 2002 will be reclassified to continuing operations in 2003.
In August 2001, FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of business. We adopted SFAS 144 on January 1, 2002. See Note 12, Discontinued Operations.
In June 2001, FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. It also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The adoption of SFAS 141 and 142 did not have a material impact on our liquidity, financial position or results of operations.
3. Rental Properties and Properties Under Development
Rental properties consist of the following (in thousands):
December 31, ------------------------ 2002 2001 ----------- -----------
Land $ 151,297 $ 121,005 Building and improvements 829,739 667,435 Tenant and other improvements 108,863 92,276 ----------- ----------- 1,089,899 880,716 Less accumulated depreciation (113,477) (84,090) ----------- ----------- $ 976,422 $ 796,626 =========== ===========
3. Rental Properties
and Properties Under Development (continued)
As of December 31, 2002, 32 of our rental properties are encumbered by deeds of trust and assignments of rents and leases associated with the properties (see Note 5). The net book value of encumbered properties as of December 31, 2002 and 2001 is $354,895,000 and $345,200,000, respectively.
We lease space under noncancelable leases with remaining terms of one to 15 years.
As of December 31, 2002, approximately 86% of our leases (on a square footage basis) require that the lessee pay substantially all taxes, maintenance, insurance and certain other operating expenses applicable to the leased properties.
We capitalize interest to properties under development or redevelopment during the period the asset is undergoing activities to prepare it for its intended use. Costs related to properties under redevelopment are included in rental properties in the accompanying balance sheets. Total interest capitalized for the years ended December 31, 2002, 2001 and 2000 was $13,519,000, $11,371,000 and $7,710,000, respectively. Total interest incurred for the years ended December 31, 2002, 2001 and 2000 was $40,294,000, $40,840,000 and $33,832,000, respectively.
Minimum lease payments to be received under the terms of the operating lease agreements, excluding expense reimbursements, as of December 31, 2002, are as follows (in thousands):
Year Amount
2003 $ 119,723 2004 110,866 2005 103,611 2006 96,343 2007 80,730 Thereafter 350,681 ----------- $ 861,954 ===========
4. Unsecured Line of Credit
In July 2002, we expanded and extended our unsecured line of credit. Our new line of credit amends our $325 million unsecured line of credit that was scheduled to mature in February 2003 and has been used to pay off our $50 million unsecured term loan. The maximum permitted amount of borrowings under the amended line of credit is $425 million. The amended line of credit has a maturity date of July 2005, which may be extended at our sole option for an additional one-year period. Borrowings under our unsecured line of credit, as amended, bear interest at a floating rate based on our election of either a LIBOR-based rate or the higher of the bank's reference rate and the Federal Funds rate plus 0.5%. For each LIBOR-based advance, we must elect a LIBOR period of one, two, three or six months.
Our line of credit contains financial covenants, including, among other things, maintenance of minimum net worth, a total liabilities to gross asset value ratio, and a fixed charge coverage ratio. In addition, the terms of the line of credit restrict, among other things, certain investments, indebtedness, distributions and mergers. As of December 31, 2002, borrowings outstanding on the line of credit carried a weighted average interest rate of 3.07%.
Aggregate borrowings under the line of credit may be limited to an amount based on the net operating income derived from a pool of unencumbered properties. As of December 31, 2002, the amount calculated under these provisions exceeded the maximum permitted borrowings of $425 million.
We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates associated with our unsecured line of credit. These agreements involve an exchange of fixed and floating interest payments without the exchange of the underlying principal amount (the "notional amount"). Interest received under all of our swap agreements is based on the one-month LIBOR rate. The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.
4. Unsecured Line of Credit (continued)
The following table summarizes our interest rate swap agreements (dollars in thousands):
Notional Interest Termination Transaction Date Effective Date Amount Pay Rate Date Fair Value ---------------- ---------------- ------------- -------- ---------------- --------- April 2000 May 20, 2000 $ 50,000 7.00% January 2, 2003 $ (23)
January 2001 January 31, 2001 50,000 6.35% December 31, 2002 -
July 2000 May 31, 2001 50,000 7.07% May 31, 2003 (1,204)
March 2002 December 31, 2002 50,000 5.36% December 31, 2004 (3,531)
July 2002 January 1, 2003 25,000 3.855% June 30, 2005 (1,099)
July 2002 January 1, 2003 25,000 3.865% June 30, 2005 (1,106)
December 2002 January 2, 2003 25,000 3.285% June 30, 2006 (633)
December 2002 January 2, 2003 25,000 3.285% June 30, 2006 (633)
November 2002 June 1, 2003 25,000 3.115% December 31, 2005 (392)
November 2002 June 1, 2003 25,000 3.155% December 31, 2005 (417) ---------- $ (9,038) ==========
Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, as amended, establishes accounting and reporting standards for derivative financial instruments such as our interest rate swap agreements. Specifically, SFAS 133 requires us to reflect our interest rate swap agreements on the balance sheet at their estimated fair values. We use a variety of methods and assumptions based on market conditions and risks existing at each balance sheet date to determine the fair values of our interest rate swap agreements. These methods of assessing fair value result in a general approximation of value, and such value may never be realized. As of January 1, 2001, the adoption of SFAS 133, as amended, resulted in qualifying interest rate swap agreements reported on the balance sheet as a liability of approximately $3.5 million, with a corresponding reduction to accumulated other comprehensive income, a separate component of stockholders' equity.
All of our interest rate swap agreements meet the criteria to be deemed "effective" under SFAS 133 in reducing our exposure to variable interest rates. Accordingly, we have categorized these instruments as cash flow hedges. While we intend to continue to meet the conditions for hedge accounting, if hedges did not qualify as highly effective, the changes in the fair value of the derivatives used as hedges would be reflected in earnings.
We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap agreements as our counterparties are established, well-capitalized financial institutions.
On January 22, 2001, we terminated an interest rate swap agreement with a notional amount of
4. Unsecured Line of Credit (continued)
$50 million, an interest pay rate of 7.25% and a maturity of December 31, 2001. The terminated interest rate swap agreement was replaced with the 6.35% interest rate swap agreement as shown in the table above. The fair value of the terminated interest rate swap agreement at the date of termination (a liability of $950,000) was transferred to the replacement 6.35% interest rate swap agreement. During 2001, approximately $475,000 was reclassified from other comprehensive income to interest expense. Approximately $475,000 was credited against interest expense during 2002. These adjustments resulted in an effective interest pay rate for the 6.35% interest rate swap agreement of 7.30% for 2001 and 5.40% for 2002.
As of December 31, 2002 and 2001, our interest rate swap agreements have been reported in the accompanying balance sheets at their fair value as other liabilities of approximately $9.0 million and $7.5 million, respectively. The offsetting adjustments were reflected as deferred losses in accumulated other comprehensive income of $9.0 million and $7.0 million, respectively. Balances in accumulated other comprehensive income are recognized in earnings as swap payments are made.
5. Secured Notes Payable
Secured notes payable consist of the following (in thousands):
December 31, ------------------- 2002 2001 --------- --------- 8.75% note, due January 2006, with an effective interest rate of 7.25% (includes unamortized premium of $374 and $494 at December 31, 2002 and 2001, respectively), secured by one property in Worcester, MA $ 10,286 $ 10,799 8.68% note, due December 2006, secured by two properties in Durham, NC 12,038 12,182 8.25% note, due August 2007, secured by three properties in Gaithersburg, MD 9,808 9,907 9.125% note, due October 2007, with an effective interest rate of 7.25% (includes unamortized premium of $1,379 and $1,619 at December 31, 2002 and 2001, respectively), secured by one property in Cambridge, MA 18,777 19,158 7.22% note, due May 2008, secured by two properties, one in Chantilly, VA and the other in Seattle, WA 34,852 35,264 6.95% note, due July 2009, secured by four properties in San Diego, CA 41,259 - 8.71% note, due January 2010, secured by two properties, one in Worcester, MA and the other in San Diego, CA 18,542 18,676 8.33% note, due November 2010, secured by two properties in Gaithersburg, MD 24,327 24,508 7.75% note, due July 2011, secured by six properties in San Diego, CA 23,839 24,030 7.50% note, due August 2011, secured by one propety in San Diego, CA 11,637 11,912 7.40% note, due January 2012, secured by three properties in Gaithersburg, MD 28,031 28,250 7.165% note, due January 2014, secured by one property in Alameda, CA 3,520 4,811 9.00% note, due December 2014, secured by two properties in San Diego, CA - 7,882 7.75% note, due June 2016, secured by two properties in Seattle, WA 18,109 18,842 Loan at LIBOR plus 1.7%, due January 2005 secured by two properties in San Francisco, CA 21,853 18,940 -------------------- $ 276,878 $ 245,161 ====================
As of December 31, 2002, all of our secured notes payable, except for the 7.165% note and the LIBOR-based loan, require monthly payments of principal and interest. The 7.165% note requires monthly payments of interest and semi-annual payments of principal. The LIBOR-based loan secured by the two properties in San Francisco, CA, requires monthly payments of interest only.
5. Secured Notes Payable (continued)
Future principal payments due on secured notes payable as of December 31, 2002, are as follows (in thousands):
Year Amount ----------------------- -----------
2003 $ 5,597 2004 5,304 2005 26,889 2006 24,710 2007 30,683 Thereafter 181,942 ----------- Subtotal 275,125 Unamortized premium 1,753 ----------- $ 276,878 ===========
6. Issuances of Common Stock
In February 2002, we sold 418,970 shares of our common stock. The shares were issued at a price of $39.46 per share, resulting in aggregate proceeds of approximately $16.1 million (after deducting underwriting discounts and other offering costs).
In July 2002, we sold 2,000,000 shares of our common stock. The shares were issued at a price of $41.07 per share, resulting in aggregate proceeds of approximately $81.4 million (after deducting underwriting discounts and other offering costs).
7. Non-Cash Transactions
In connection with the acquisition of a property in San Diego, California in 2001, we assumed a secured note payable. The following table summarizes this transaction (in thousands):
----------- -----------
Aggregate purchase price $ 20,350 Secured note payable assumed 12,000 ----------- Cash paid for the property $ 8,350 ===========
In 2002 and 2001, we incurred $3,993,000 and $2,841,000, respectively, in non-cash stock compensation expense.
8. Preferred Stock and Excess Stock
Series A Cumulative Redeemable Preferred Stock There are 1,543,500 shares of our 9.50% Series A cumulative redeemable preferred stock outstanding. The shares were issued in 1999 at a price of $25.00 per share. We pay dividends quarterly in arrears at an annual rate of $2.375 per share. Our Series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to June 11, 2004, except in order to preserve our status as a REIT. Investors in our Series A preferred stock generally have no voting rights. On or after June 11, 2004, we may, at our option, redeem our Series A preferred stock, in whole or in part, at any time for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends.
Series B Cumulative Redeemable Preferred Stock
In January 2002, we completed a public offering of 2,300,000 shares of our 9.10% Series B cumulative redeemable preferred stock (including the shares issued upon exercise of the underwriters' over-allotment option). The shares were issued at a price of $25.00 per share, resulting in aggregate proceeds of approximately $55.1 million, net of underwriters' discounts and other offering costs. The dividends on our Series B preferred stock are cumulative and accrue from the date of original issuance. We pay dividends quarterly in arrears at an annual rate of $2.275 per share. Our Series B preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to January 22, 2007, except in order to preserve our status as a REIT. Investors in our Series B preferred stock generally have no voting rights. On or after January 22, 2007, we may, at our option, redeem our Series B preferred stock, in whole or in part, at any time for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends.
Preferred Stock and Excess Stock Authorizations
Our charter authorizes the issuance of up to 100,000,000 shares of preferred stock, of which 3,843,500 shares were issued and outstanding as of December 31, 2002. In addition, 200,000,000 shares of "excess stock" (as defined) are authorized, none of which were issued and outstanding at December 31, 2002.
9. Commitments and Contingencies
Employee Retirement Savings Plan
We have a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code ("Code") whereby our employees may contribute a portion of their compensation to their respective retirement accounts, in an amount not to exceed the maximum allowed under the Code. We have elected to provide discretionary profit sharing contributions (subject to statutory limitations), which amounted to $428,000, $353,000 and $254,000, respectively, for the years ended December 31, 2002, 2001 and 2000. Employees who participate in the plan are immediately vested in their contributions and in the contributions of the company.
9. Commitments and Contingencies (continued)
Concentration of Credit Risk
We maintain our cash and cash equivalents at insured financial institutions. The combined account balances at each institution periodically exceed FDIC insurance coverage, and, as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. We believe that the risk is not significant.
We are dependent on rental income from relatively few tenants in the life science industry. The inability of any single tenant to make its lease payments could adversely affect our operations. As of December 31, 2002, we held leases with a total of 173 tenants and 51 of our 89 properties were each leased to a single tenant. At December 31, 2002, our three largest tenants accounted for approximately 14.0% of our aggregate annualized base rent.
We generally do not require collateral or other security from our tenants, other than security deposits. In addition to security deposits held in cash, we held $15.7 million in irrevocable letters of credit available from certain tenants as security deposits for 47 leases as of December 31, 2002.
Commitments
As of December 31, 2002, we were committed under the terms of construction contracts and certain leases to complete the development of buildings and related improvements at a remaining aggregate cost of $6.0 million.
As of December 31, 2002, we were also committed to fund approximately $51.4 million for the construction of building infrastructure improvements and for certain investments.
As of December 31, 2002, we were committed under the terms of ground leases at five of our properties and one land development parcel. The ground leases have remaining lease terms of 14 to 53 years (exclusive of extension options), with aggregate remaining ground lease payments of approximately $26.2 million.
10. Stock Option Plans and Stock Grants
1997 Stock Plan
In 1997, we adopted a stock option and incentive plan (the "Stock Plan") for the purpose of attracting and retaining the highest quality personnel, providing for additional incentives and promoting the success of the company by providing employees the opportunity to acquire common stock pursuant to (i) options to purchase common stock; and (ii) share awards. As of December 31, 2002, a total of 362,211 shares were reserved for the granting of future options and share awards under the Stock Plan.
Options under our plan have been granted at prices that are equal to the market value of the stock on the date of grant and expire ten years after the date of grant. Employee options vest ratably in three annual installments from the date of grant. Non-employee director options vest immediately on the date of grant. The options outstanding under the Stock Plan expire at various dates through November 2011.
In addition, the Stock Plan permits us to issue share awards to our employees and non-employee directors. A share award is an award of common stock which (i) may be fully vested upon issuance or (ii) may be subject to the risk of forfeiture under Section 83 of the Internal Revenue Code. Shares issued generally vest over a one-year period and the sale of the shares is restricted prior to the date of vesting. During 2002, we awarded 76,075 shares of common stock. These shares were recorded at fair value with a corresponding charge to stockholders' equity. The unearned portion is amortized as stock compensation expense on a straight-line basis over the vesting period.
10. Stock Option Plans and Stock Grants (continued)
1997 Stock Plan (continued)
For 2002 and all prior years, we have elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for our employee and non- employee director stock options, stock grants and stock appreciation rights. Effective January 1, 2003, the Company has adopted the fair value recognition provisions of Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), prospectively to all employee awards granted, modified or settled after January 1, 2003. Under APB 25, because the exercise price of the options we granted equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized. Although we have elected to follow APB 25, pro forma information regarding net income and net income per share is required by SFAS 123. This information has been determined as if we had accounted for our stock options under the fair value method under SFAS 123. The fair value of the options issued under the Stock Plan was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2001 and 2000:
Year Ended December 31, ------------------------------------ 2002 2001 2000 ----------- ----------- -----------
Risk-free interest rate 2.69% 4.68% 5.15% Dividend yield 4.04% 4.49% 4.78% Volatility factor of the expected market price 22.04% 22.37% 23.20% Weighted average expected life of the options 4.8 years 5.2 years 4.7 years
For purposes of the following pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods (in thousands, except per share information):
Year Ended December 31, ----------- ------------------------ 2002 2001 2000 ----------- ----------- -----------
Pro forma net income available to common stockholders $ 30,279 $ 25,690 $ 21,532 Pro forma net income per common share: - Basic $ 1.72 $ 1.61 $ 1.49 - Diluted $ 1.70 $ 1.59 $ 1.46
10. Stock Option Plans and Stock Grants (continued)
1997 Stock Plan (continued)
A summary of the stock option activity under our Stock Plan and related information for the years ended December 31, 2002, 2001 and 2000 follows:
2002 2001 2000 ---------------------- ------------------- --------------------
Weighted Weighted Weighted Average Average Average Stock Exercise Stock Exercise Stock Exercise Options Price Options Price Options Price ----------- --------- --------- -------- --------- --------- Outstanding-beginning of year 849,870 $ 29.68 901,000 $ 27.73 785,000 $ 25.37 Granted 337,000 44.44 193,500 38.27 316,000 33.78 Exercised (124,371) 29.70 (183,630) 27.58 (145,334) 26.38 Forfeited (51,333) 33.75 (61,000) 34.48 (54,666) 32.45 ----------- --------- --------- -------- --------- --------- Outstanding-end of year 1,011,166 $ 34.39 849,870 $ 29.68 901,000 $ 27.73 =========== ========= ========= ======== ========= =========
Exercisable at end of year 514,169 $ 26.89 497,040 $ 25.29 519,001 $ 23.94 =========== ========= ========= ======== ========= ========= Weighted average fair value of options granted $ 6.05 $ 6.19 $ 5.51 ========= ======== =========
The following table summarizes information about stock options outstanding at December 31, 2002:
Options Outstanding Options Exercisable ------------------------------- ---------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/31/02 Life Price at 12/31/02 Price ------------------------------------ -------- ---------------------- $20.00-$30.00 327,666 4.61 $21.91 322,666 $21.79 $30.31-$39.40 349,500 7.66 $36.46 189,503 $35.44 $39.41-$47.69 334,000 9.38 $44.45 2,000 $39.41
11. Quarterly Financial Data (Unaudited)
Following is a summary of consolidated financial information on a quarterly basis for 2002 and 2001:
Quarter ---------------------------------------------------------- First Second Third Fourth ------------- ------------- ------------- ------------- (In thousands, except per share amounts)
---- Revenues $ 33,672 $ 34,841 $ 36,864 $ 39,295 Net income available to common stockholders $ 7,698 $ 7,995 $ 8,530 $ 7,229
Basic income per share: Income from continuing operations 0.56 0.59 0.62 0.53 Income (loss) from discontinued operations, 0.03 0.02 0.02 (0.03) Income before extraordinary item 0.59 0.61 0.64 0.50 Extraordinary item - loss on early extinguis - - 0.05 - Net income 0.59 0.61 0.59 0.50 Net income available to common stockholders 0.47 0.48 0.47 0.38 Diluted income per share: Income from continuing operations 0.55 0.57 0.61 0.53 Income (loss) from discontinued operations, 0.02 0.02 0.02 (0.03) Income before extraordinary item 0.57 0.60 0.63 0.50 Extraordinary item - loss on early extinguis - - 0.05 - Net income 0.57 0.60 0.58 0.50 Net income available to common stockholders 0.46 0.47 0.46 0.38
---- Revenues $ 29,823 $ 29,224 $ 31,536 $ 32,453 Net income available to common stockholders $ 6,390 $ 6,408 $ 6,535 $ 7,280
Basic income per share: Income from continuing operations $ 0.45 $ 0.43 $ 0.44 $ 0.48 Income from discontinued operations, net 0.03 0.03 0.03 0.03 Income before extraordinary item 0.47 0.46 0.46 0.51 Extraordinary item - loss on early extinguis - - - - Net income 0.47 0.46 0.46 0.51 Net income available to common stockholders$ 0.41 $ 0.40 $ 0.41 $ 0.45
Diluted income per share: Income from continuing operations $ 0.44 $ 0.43 $ 0.43 $ 0.47 Income from discontinued operations, net 0.03 0.02 0.03 0.03 Income before extraordinary item 0.47 0.45 0.45 0.50 Extraordinary item - loss on early extinguis - - - - Net income 0.47 0.45 0.45 0.50 Net income available to common stockholders$ 0.41 $ 0.39 $ 0.40 $ 0.44
12. Discontinued Operations
On January 1, 2002, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") became effective. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Under SFAS 144, a property is classified as held for sale when all of the following criteria for a plan of sale have been met: 1) management, having the authority to approve the action, commits to a plan to sell the property, 2) the property is available for immediate sale in its present condition, subject only to the terms that are usual and customary, 3) an active program to locate a buyer, and other actions required to complete the plan to sell have been initiated, 4) the sale of the property is probable and is expected to be completed within one year, 5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and 6) actions necessary to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When all of these criteria have been met, the property is classified as held for sale and its operations are classified as discontinued operations. Amounts from prior periods are reclassified from continuing operations to discontinued operations. A loss is recognized for any initial adjustment of the asset's carrying amount to fair value less costs to sell in the period the asset qualifies as held for sale. The accompanying statements have been presented in compliance with SFAS 144.
As of December 31, 2002, we had two properties that have been designated as "held for sale" under the provisions of SFAS 144. The net book value of one of the properties, a parcel of land which cannot be redeveloped pursuant to our original strategic objectives, has been reduced by an impairment charge of $1,150,000. This charge has been reflected in discontinued operations for 2002. Interest expense included in discontinued operations represents interest related to a secured note payable which is expected to be either assumed by the buyer or repaid at the close of the anticipated sale.
12. Discontinued Operations (continued)
The following is a summary of the properties designated as "held for sale" (in thousands):
Year Ended December 31, ------------------------------------ 2002 2001 2000 ----------- ----------- ----------- Total revenue $ 4,806 $ 4,754 $ 4,684 Operating expenses 787 673 663 ----------- ----------- ----------- Net operating income 4,019 4,081 4,021 Interest 1,431 1,460 1,484 Depreciation 814 972 974 Income before non-cash ----------- ----------- ----------- impairment charge 1,774 1,649 1,563 Non-cash impairment charge 1,150 - - Income from discontinued ----------- ----------- ----------- operations $ 624 $ 1,649 $ 1,563 =========== =========== ===========
December 31, ------------------------- 2002 2001 ----------- ----------- Properties held for sale, net $ 43,361 $ 44,230 Cash and cash equivalents 3 3 Tenant security deposits and other restricted cash 115 120 Tenant receivables (1) (83) Deferred rent 1,081 929 Other assets 97 76 ----------- ----------- Total assets $ 44,656 $ 45,275
Secured note payable $ 18,777 $ 19,158 Accounts payable, accrued expenses and tenant security deposits 1,112 1,829 ----------- ----------- Total liabilities 19,889 20,987 ----------- ----------- Net assets of discontinued operations $ 24,767 $ 24,288 ============ ============
Alexandria Real Estate Equities, Inc. and Subsidiaries
Schedule III
Consolidated Financial Statement Schedule of Rental Properties
and Accumulated Depreciation
December 31, 2002
(In Thousands, Except Square Foot Data)
Initial Costs Costs Total Costs ----------------------- Capitalized ---------------------- Square Buildings and Subsequent to Buildings and Accumulated Year Built/ Property Name Footage Land Improvements Acquisition Land Improvements Total Depreciation (1) Encumbrances Renovated ------------- ---------- -------- ------------- ------------ -------- ------------ --------- ---------------- ----------- ------------------- North Torrey Pines Road #1 107,710 $ 3,903 $ 5,960 $ 4,295 $ 3,903 $ 10,255 $ 14,158 $ 2,258 $ _ 1971/1994 Science Park Road 74,557 _ _ 16,744 _ 16,744 16,744 1,833 _ 2000 North Torrey Pines Road #2 86,962 2,663 10,649 3,295 2,663 13,944 16,607 4,051 _ 1986/1996 General Atomics Court #1 76,084 2,651 18,046 1,436 2,651 19,482 22,133 5,095 41,259 (2) 1986/1991 General Atomics Court #2 43,600 1,227 9,554 7 1,227 9,561 10,788 2,561 _ (2) 1991 Roselle Street #1 18,173 463 1,840 838 463 2,678 3,141 905 _ (3) 1983/1998 Nexus Centre Drive 67,050 2,548 13,638 13 2,548 13,651 16,199 3,404 _ 1989 Nancy Ridge Drive #1 29,333 733 2,273 1,856 733 4,129 4,862 972 _ (4) 1997 Roselle Street #2 17,603 444 1,699 1,787 444 3,486 3,930 585 _ late 1970's/1999 Tansy Street 15,410 651 1,375 1,875 651 3,250 3,901 620 _ 1978/1999 John Hopkins Court #1 34,723 1,122 _ 3,870 1,122 3,870 4,992 253 _ (2) 2000 John Hopkins Court #2 55,200 1,683 _ 5,636 1,683 5,636 7,319 570 _ (2) 1999 Towne Centre Drive #1 45,030 275 8,621 540 275 9,161 9,436 753 _ 1987 Towne Centre Drive #2 52,228 320 10,070 821 320 10,891 11,211 1,318 _ 1987/2000 Towne Centre Drive #3 41,780 258 8,170 5,742 258 13,912 14,170 1,359 _ 1987/2000 Roselle Street #3 18,193 455 2,581 95 455 2,676 3,131 168 23,839 (3) 1981 Roselle Street #4 30,147 754 4,288 10 754 4,298 5,052 285 _ (3) 1981/1998 Roselle Street #5 22,577 564 3,224 9 564 3,233 3,797 219 _ (3) 1981/1995 Roselle Street #6 17,433 436 2,480 10 436 2,490 2,926 165 _ (3) 1981/1999 Roselle Street #7 24,208 605 3,459 9 605 3,468 4,073 236 _ (3) 1981/1995 Nancy Ridge Drive #2 21,940 515 1,566 2,315 515 3,881 4,396 249 _ early 1980's Campus Point Drive 71,510 4,246 16,165 114 4,246 16,279 20,525 640 11,637 1986/1998 North Hill Avenue 31,343 2,172 812 8,285 2,172 9,097 11,269 568 _ 1940's/2001 Harbor Bay Parkway #1 61,015 1,506 5,357 2,285 1,506 7,642 9,148 1,914 _ 1983/1999 Harbor Bay Parkway #2 27,745 775 1,917 1,408 775 3,325 4,100 619 _ 1984/2000 Harbor Bay Parkway #3 47,777 1,200 3,880 259 1,200 4,139 5,339 653 _ 1986/1994 Harbor Bay Parkway #4 68,711 1,800 9,731 380 1,800 10,111 11,911 1,561 3,520 1985/1994 Mitten Road & Malcolm Road 153,837 4,751 12,612 6,417 4,751 19,029 23,780 2,433 _ 1962/2002 Hanover Street 32,074 _ 6,628 4,700 _ 11,328 11,328 3,167 _ 1968/2000 Garcia Avenue & Bayshore Parkway 98,964 _ 21,323 1,827 _ 23,150 23,150 3,272 _ 1980/2000 Oyster Point Boulevard #1 53,980 3,519 _ 12,908 3,519 12,908 16,427 1,080 21,853 (5) 2001 Oyster Point Boulevard #2 53,980 3,519 _ 7,640 3,519 7,640 11,159 455 _ (5) 2001 Durant Avenue 21,481 3,313 966 2,688 3,313 3,654 6,967 _ _ 1930 Gateway Boulevard #1 110,428 7,730 24,397 _ 7,730 24,397 32,127 416 _ 2000 Gateway Boulevard #2 59,816 4,187 14,020 1 4,187 14,021 18,208 363 _ 2002 Columbia Street #1 163,555 6,566 22,916 10,072 6,566 32,988 39,554 6,522 18,109 (6) 1975/1997 Columbia Street #2 46,303 _ 612 1,964 _ 2,576 2,576 1 _ (6) 1975/1997 Western Avenue 47,746 1,432 7,497 2,137 1,432 9,634 11,066 1,926 34,852 (7) 1929/2000 First Avenue 70,647 2,119 11,275 4,569 2,119 15,844 17,963 2,618 _ 1980/2000 Eastlake Avenue #1 106,003 4,240 31,232 _ 4,240 31,232 35,472 195 _ 1997 Eastlake Avenue #2 52,333 1,570 15,917 _ 1,570 15,917 17,487 99 _ 1997 Professional Drive #1 47,558 871 5,362 3,032 871 8,394 9,265 1,441 _ 1989/1999 Professional Drive #2 62,739 1,129 6,940 30 1,129 6,970 8,099 1,144 _ 1987 West Watkins Mill Road #1 138,938 3,281 14,416 169 3,281 14,585 17,866 2,393 24,327 (8) 1989/1997 Quince Orchard Road #1 49,225 1,267 3,031 5,153 1,267 8,184 9,451 2,875 _ (8) 1982/1997 Clopper Road #1 44,464 900 2,732 1,509 900 4,241 5,141 909 _ (9) 1989 Research Boulevard #1 48,800 602 4,391 2,364 602 6,755 7,357 669 _ 1966 East Guide Drive #1 45,989 748 3,609 1,083 748 4,692 5,440 752 _ 1981/1986 Research Boulevard #2 105,000 1,733 9,611 766 1,733 10,377 12,110 1,664 _ 1967/2000 East Guide Drive #2 44,500 775 4,122 319 775 4,441 5,216 656 _ 1981/1995 Piccard Drive 131,415 2,800 11,533 4,054 2,800 15,587 18,387 1,410 _ 1978/1994 Newbrook Drive 248,186 4,800 27,639 380 4,800 28,019 32,819 4,102 _ (7) 1992 Virginia Manor Road 191,884 _ 13,679 548 _ 14,227 14,227 2,028 _ 1990 Old Columbia Road 75,500 1,510 5,210 1,617 1,510 6,827 8,337 1,381 _ 1983/1997 Firstfield Road #1 25,175 376 3,192 2,091 376 5,283 5,659 514 _ 1974/2000 Shady Grove Road 41,062 840 3,115 49 840 3,164 4,004 475 _ 1987 Aliceanna Street 179,397 1,848 6,120 1,516 1,848 7,636 9,484 836 _ early 1950's/1995 West Watkins Mill Road #2 57,410 859 4,149 1,463 859 5,612 6,471 664 _ 1988/2000 Clopper Road #2 92,990 2,463 493 17,877 2,463 18,370 20,833 3,590 28,031 (9) 2000 Firstfield Road #2 53,464 971 5,141 4,652 971 9,793 10,764 620 _ (10) 1980/2001 Firstfield Road #3 53,595 947 5,092 2,271 947 7,363 8,310 409 _ (10) 1980/2002 Quince Orchard Road #2 54,874 970 5,138 199 970 5,337 6,307 343 9,808 (10) 1981 Clopper Road #3 59,838 983 6,638 75 983 6,713 7,696 430 _ (9) 1989/1992 Research Place 58,632 1,466 5,708 2,104 1,466 7,812 9,278 18 _ 1972 Charlestown Navy Yard 24,940 _ 6,247 346 _ 6,593 6,593 826 _ 1880/1991 Pond Street 24,867 622 3,053 48 622 3,101 3,723 352 _ 1965/1990 Westview Street 40,000 960 3,032 3,720 960 6,752 7,712 307 _ 1975 Plantation Street #1 92,711 2,352 14,173 196 2,352 14,369 16,721 1,639 18,542 (4) 1993 Memorial Drive #1 96,500 2,440 37,754 68 2,440 37,822 40,262 3,867 18,777 (11) 1920's/1997/1999 Innovation Drive 113,956 2,734 14,567 1,496 2,734 16,063 18,797 1,880 10,286 (12) 1991 Plantation Street #2 92,423 651 _ 15,707 651 15,707 16,358 4,044 _ 2000 Arsenal Street #1 92,500 3,360 7,316 14,430 3,360 21,746 25,106 1,369 _ 1978/1984 Hartwell Avenue 59,000 1,475 7,194 10,144 1,475 17,338 18,813 278 _ 1972/2002 Arsenal Street #2 96,150 6,413 5,457 12,096 6,413 17,553 23,966 _ _ 1980 Memorial Drive #2 51,000 6,507 _ 18,820 6,507 18,820 25,327 _ _ 2002 Memorial Drive #3 47,497 6,058 _ 20,908 6,058 20,908 26,966 122 _ 2002 College Road 106,036 1,943 9,764 1,229 1,943 10,993 12,936 1,555 _ 1968/1984 Williams Drive 37,000 740 4,506 52 740 4,558 5,298 569 _ 1982/1994 Phillips Parkway 78,501 1,840 2,298 11,054 1,840 13,352 15,192 1,589 _ late 1960's/1999 Campus Drive 42,782 654 4,234 130 654 4,364 5,018 607 _ 1989 Electronic Drive 40,000 600 3,110 3,279 600 6,389 6,989 1,778 _ 1983/1998 Princeton Road 42,600 1,075 1,438 2,972 1,075 4,410 5,485 1,706 _ 1984/1999 Capitola Drive #1 65,114 337 5,795 456 337 6,251 6,588 954 _ (13) 1986 Capitola Drive #2 119,916 577 11,688 5,280 577 16,968 17,545 2,010 12,038 (13) 1985 Technology Parkway 37,080 370 4,191 655 370 4,846 5,216 534 _ 1976/1993 Triangle Drive 32,120 161 3,410 130 161 3,540 3,701 462 _ 1981 Alexander Road 86,239 _ 376 11,619 _ 11,995 11,995 903 _ 2000 Kit Creek Road 37,908 374 3,383 4,792 374 8,175 8,549 442 _ 1995 ---------- -------- ------------- ------------ -------- ------------ --------- ---------------- ----------- 5,746,664 $151,297 $ 626,797 $ 311,805 $151,297 $ 938,602 $1,089,899 $ 113,477 $ 276,878 ========== ======== ============= ============ ======== ============ ========= ================ ===========
The depreciable life ranges from 30 to 40 years for buildings and improvements, 20 years for land improvements, and the term of the respective lease for tenant improvements.
Loan secured by General Atomics Court #1, General Atomics Court #2, John Hopkins Court #1 and John Hopkins Court #2 is shown under General Atomics Court #1.
Loan secured by Roselle Street #1, Roselle Street #3, Roselle Street #4, Roselle Street #5, Roselle Street #6 and Roselle Street #7 is shown under Roselle Street #3.
Loan secured by Nancy Ridge Drive #1 and Plantation Street #1 is shown under Plantation Street #1.
Loan secured by Oyster Point Boulevard #1 and Oyster Point Boulevard #2 is shown under Oyster Point Boulevard #1.
Loan secured by Columbia Street #1 and Columbia Street #2 is shown under Columbia Street #1.
Loan secured by Western Avenue and Newbrook Drive is shown under Western Avenue.
Loan secured by West Watkins Mill Road #1 and Quince Orchard Road #1 is shown under West Watkins Mill Road #1.
Loan secured by Clopper Road #1, Clopper Road #2 and Clopper Road #3 is shown under Clopper Road #2.
Loan secured by Firstfield Road #2, Firstfield Road #3 and Quince Orchard Road #2 is shown under Quince Orchard Road #2.
The balance shown includes an unamortized premium of $1,379,000.
The balance shown includes an unamortized premium of $374,000.
Loan secured by Capitola Drive #1 and Capitola Drive #2 is shown under Capitola Drive #2.
A summary of activity of consolidated rental properties and accumulated depreciation is as follows (in thousands):
Rental Properties Year Ended December 31, ------------------------------------ 2002 2001 2000 ----------- ----------- ----------- Balance at beginning of period $ 880,716 $ 737,207 $ 590,202 Purchase of rental properties 103,295 55,746 48,584 Additions to rental properties 61,695 69,530 40,539 Transfer of costs for completed development projects 44,193 18,233 57,882 ----------- ----------- ----------- Balance at end of period $ 1,089,899 $ 880,716 $ 737,207 =========== =========== ===========
Accumulated Depreciation December 31, ------------------------------------ 2002 2001 2000 ----------- ----------- -----------
Balance at beginning of period $84,090 $57,554 $35,496 Depreciation expense 29,387 26,536 22,058 ----------- ----------- ----------- Balance at end of period $113,477 $84,090 $57,554 =========== =========== ===========