Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
Commission File Number: 1-32261 (BioMed Realty Trust, Inc.)
000-54089 (BioMed Realty, L.P.)
BIOMED REALTY TRUST, INC.
BIOMED REALTY, L.P.
(Exact name of registrant as specified in its charter)
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Maryland
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20-1142292 (BioMed Realty Trust, Inc.) |
(State or other jurisdiction of
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20-1320636 (BioMed Realty, L.P.) |
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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17190 Bernardo Center Drive |
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San Diego, California
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92128 |
(Address of Principal Executive Offices)
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(Zip Code) |
(858) 485-9840
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
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BioMed Realty Trust, Inc.
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Yes þ
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No o |
BioMed Realty, L.P.
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Yes þ
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No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
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BioMed Realty Trust, Inc.
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Yes þ
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No o |
BioMed Realty, L.P.
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Yes þ
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No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
BioMed Realty Trust, Inc.:
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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BioMed Realty, L.P.:
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
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BioMed Realty Trust, Inc.
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Yes o
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No þ |
BioMed Realty, L.P.
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Yes o
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No þ |
The number of outstanding shares of BioMed Realty Trust, Inc.s common stock, par value $0.01
per share, as of November 2, 2011 was 131,262,102.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30,
2011 of BioMed Realty Trust, Inc., a Maryland corporation, and BioMed Realty, L.P., a Maryland
limited partnership of which BioMed Realty Trust, Inc. is the parent company and general partner.
Unless otherwise indicated or unless the context requires otherwise, all references in this report
to we, us, our or our company refer to BioMed Realty Trust, Inc. together with its
consolidated subsidiaries, including BioMed Realty, L.P. Unless otherwise indicated or unless the
context requires otherwise, all references in this report to our operating partnership or the
operating partnership refer to BioMed Realty, L.P. together with its consolidated subsidiaries.
BioMed Realty Trust, Inc. operates as a real estate investment trust, or REIT, and the general
partner of BioMed Realty, L.P. As of September 30, 2011, BioMed Realty Trust, Inc. owned an
approximate 97.8% partnership interest and other limited partners, including some of our directors,
executive officers and their affiliates, owned the remaining 2.2% partnership interest (including
long term incentive plan units) in BioMed Realty, L.P. As the sole general partner of BioMed
Realty, L.P., BioMed Realty Trust, Inc. has the full, exclusive and complete responsibility for the
operating partnerships day-to-day management and control.
There are a few differences between our company and our operating partnership, which are
reflected in the disclosure in this report. We believe it is important to understand the
differences between our company and our operating partnership in the context of how BioMed Realty
Trust, Inc. and BioMed Realty, L.P. operate as an interrelated consolidated company. BioMed Realty
Trust, Inc. is a REIT, whose only material asset is its ownership of partnership interests of
BioMed Realty, L.P. As a result, BioMed Realty Trust, Inc. does not conduct business itself, other
than acting as the sole general partner of BioMed Realty, L.P., issuing public equity from time to
time and guaranteeing certain debt of BioMed Realty, L.P. BioMed Realty Trust, Inc. itself does not
hold any indebtedness but guarantees some of the secured and unsecured debt of BioMed Realty, L.P.
BioMed Realty, L.P. holds substantially all the assets of the company and holds the ownership
interests in the companys joint ventures. BioMed Realty, L.P. conducts the operations of the
business and is structured as a partnership with no publicly traded equity. Except for net proceeds
from public equity issuances by BioMed Realty Trust, Inc., which are generally contributed to
BioMed Realty, L.P. in exchange for partnership units, BioMed Realty, L.P. generates the capital
required by the companys business through BioMed Realty, L.P.s operations, by BioMed Realty,
L.P.s direct or indirect incurrence of indebtedness or through the issuance of partnership units.
Noncontrolling interests and stockholders equity and partners capital are the main areas of
difference between the consolidated financial statements of BioMed Realty Trust, Inc. and those of
BioMed Realty, L.P. The operating partnership and long term incentive plan units in BioMed Realty,
L.P. that are not owned by BioMed Realty Trust, Inc. are accounted for as partners capital in
BioMed Realty, L.P.s financial statements and as noncontrolling interests in BioMed Realty Trust,
Inc.s financial statements. The noncontrolling interests in BioMed Realty, L.P.s financial
statements include the interests of joint venture partners. The noncontrolling interests in BioMed
Realty Trust, Inc.s financial statements include the same noncontrolling interests at the BioMed
Realty, L.P. level as well as the limited partnership unitholders of BioMed Realty, L.P., not
including BioMed Realty Trust, Inc. The differences between stockholders equity and partners
capital result from the differences in the equity issued at the BioMed Realty Trust, Inc. and the
BioMed Realty, L.P. levels.
We believe combining the quarterly reports on Form 10-Q of BioMed Realty Trust, Inc. and
BioMed Realty, L.P. into this single report:
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better reflects how management and the analyst community view the business as a single
operating unit, |
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enhances investor understanding of our company by enabling them to view the business as a
whole and in the same manner as management, |
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is more efficient for our company and results in savings in time, effort and expense, and |
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is more efficient for investors by reducing duplicative disclosure and providing a single
document for their review. |
2
To help investors understand the significant differences between our company and our operating
partnership, this report presents the following separate sections for each of BioMed Realty Trust,
Inc. and BioMed Realty, L.P.:
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consolidated financial statements, |
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the following notes to the consolidated financial statements: |
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Equity / Partners Capital, and |
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Earnings Per Share / Unit, |
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Liquidity and Capital Resources in Managements Discussion and Analysis of Financial
Condition and Results of
Operations, and |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
This report also includes separate Item 4. Controls and Procedures sections and separate
Exhibit 31 and 32 certifications for each of BioMed Realty Trust, Inc. and BioMed Realty, L.P. in
order to establish that the Chief Executive Officer and the Chief Financial Officer of BioMed
Realty Trust, Inc. have made the requisite certifications and BioMed Realty Trust, Inc. and BioMed
Realty, L.P. are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934
and 18 U.S.C. §1350.
3
BIOMED REALTY TRUST, INC. AND BIOMED REALTY, L.P.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
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ITEM 1. |
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CONSOLIDATED FINANCIAL STATEMENTS |
BIOMED REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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September 30, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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ASSETS |
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Investments in real estate, net |
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$ |
3,576,304 |
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$ |
3,536,114 |
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Investments in unconsolidated partnerships |
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67,383 |
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57,265 |
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Cash and cash equivalents |
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16,351 |
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21,467 |
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Restricted cash |
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6,330 |
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9,971 |
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Accounts receivable, net |
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7,542 |
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5,874 |
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Accrued straight-line rents, net |
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123,564 |
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106,905 |
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Acquired above-market leases, net |
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24,015 |
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30,566 |
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Deferred leasing costs, net |
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116,811 |
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125,060 |
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Deferred loan costs, net |
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17,254 |
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11,499 |
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Other assets |
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73,475 |
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55,033 |
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Total assets |
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$ |
4,029,029 |
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$ |
3,959,754 |
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LIABILITIES AND EQUITY |
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Mortgage notes payable, net |
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$ |
603,406 |
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$ |
657,922 |
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Exchangeable senior notes, net |
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199,800 |
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199,522 |
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Unsecured senior notes, net |
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645,412 |
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247,571 |
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Unsecured line of credit |
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216,100 |
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392,450 |
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Security deposits |
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12,397 |
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11,749 |
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Dividends and distributions payable |
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30,500 |
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27,029 |
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Accounts payable, accrued expenses and other liabilities |
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86,658 |
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98,826 |
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Derivative instruments |
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3,826 |
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Acquired below-market leases, net |
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6,853 |
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7,963 |
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Total liabilities |
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1,801,126 |
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1,646,858 |
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Equity: |
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Stockholders equity: |
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Preferred stock, $.01 par value, 15,000,000 shares
authorized: 7.375% Series A cumulative redeemable
preferred stock, $198,000,000 and $230,000,000
liquidation preference ($25.00 per share), 7,920,000
and 9,200,000 shares issued and outstanding at
September 30, 2011 and December 31, 2010, respectively |
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191,469 |
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222,413 |
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Common stock, $.01 par value, 200,000,000 shares
authorized, 131,265,102 and 131,046,509 shares issued
and outstanding at September 30, 2011 and December 31,
2010, respectively |
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1,313 |
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1,310 |
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Additional paid-in capital |
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2,373,652 |
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2,371,488 |
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Accumulated other comprehensive loss |
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(61,912 |
) |
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(70,857 |
) |
Dividends in excess of earnings |
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(285,996 |
) |
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(221,176 |
) |
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Total stockholders equity |
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2,218,526 |
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2,303,178 |
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Noncontrolling interests |
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9,377 |
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9,718 |
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Total equity |
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2,227,903 |
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2,312,896 |
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Total liabilities and equity |
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$ |
4,029,029 |
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$ |
3,959,754 |
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See accompanying notes to consolidated financial statements.
3
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
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For the Three Months Ended |
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For the Nine Months Ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenues: |
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Rental |
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$ |
83,825 |
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$ |
72,971 |
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$ |
245,477 |
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$ |
215,950 |
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Tenant recoveries |
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26,674 |
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22,723 |
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76,076 |
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63,823 |
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Other income |
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4,487 |
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39 |
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5,775 |
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1,628 |
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Total revenues |
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114,986 |
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95,733 |
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327,328 |
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281,401 |
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Expenses: |
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Rental operations |
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23,172 |
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19,998 |
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64,850 |
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54,926 |
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Real estate taxes |
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10,883 |
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9,408 |
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31,902 |
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26,832 |
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Depreciation and amortization |
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36,295 |
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27,774 |
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105,919 |
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83,159 |
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General and administrative |
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7,682 |
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6,805 |
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21,797 |
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19,523 |
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Acquisition related expenses |
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136 |
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420 |
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789 |
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2,388 |
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Total expenses |
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78,168 |
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64,405 |
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225,257 |
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186,828 |
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Income from operations |
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36,818 |
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31,328 |
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102,071 |
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94,573 |
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Equity in net loss of unconsolidated partnerships |
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(735 |
) |
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(308 |
) |
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(1,849 |
) |
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(686 |
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Interest income |
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71 |
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55 |
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274 |
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126 |
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Interest expense |
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(22,958 |
) |
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(21,589 |
) |
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(67,730 |
) |
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(64,719 |
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Other expense |
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(3,802 |
) |
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(4,627 |
) |
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Gain/(loss) on derivative instruments |
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64 |
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(287 |
) |
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(564 |
) |
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(634 |
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Loss on extinguishment of debt |
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(521 |
) |
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(22 |
) |
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(814 |
) |
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(2,286 |
) |
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Net income |
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8,937 |
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9,177 |
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26,761 |
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26,374 |
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Net income attributable to noncontrolling interests |
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(106 |
) |
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(104 |
) |
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(281 |
) |
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(321 |
) |
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Net income attributable to the Company |
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8,831 |
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9,073 |
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26,480 |
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26,053 |
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Preferred stock dividends |
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(3,901 |
) |
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(4,241 |
) |
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(12,382 |
) |
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(12,722 |
) |
Cost on redemption of preferred stock |
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(165 |
) |
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(165 |
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Net income available to common stockholders |
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$ |
4,765 |
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$ |
4,832 |
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$ |
13,933 |
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$ |
13,331 |
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Net income per share available to common stockholders: |
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Basic and diluted earnings per share |
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$ |
0.03 |
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$ |
0.04 |
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$ |
0.10 |
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$ |
0.12 |
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Weighted-average common shares outstanding: |
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Basic |
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129,872,349 |
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112,910,694 |
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129,834,429 |
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107,003,096 |
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Diluted |
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132,852,328 |
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115,911,944 |
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132,819,688 |
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110,028,740 |
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See accompanying notes to consolidated financial statements.
4
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Net income available to common stockholders and
noncontrolling interests |
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$ |
4,871 |
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$ |
4,936 |
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$ |
14,214 |
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$ |
13,652 |
|
Other comprehensive income: |
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|
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Unrealized gain on derivative instruments, net |
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365 |
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|
|
1,479 |
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|
|
3,826 |
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|
7,303 |
|
Amortization of deferred interest costs |
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1,754 |
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|
1,776 |
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|
5,279 |
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|
5,343 |
|
Equity in other comprehensive income of unconsolidated partnerships |
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8 |
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|
35 |
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|
44 |
|
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|
24 |
|
Deferred settlement payments on interest rate swaps, net |
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13 |
|
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|
(11 |
) |
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|
(75 |
) |
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|
(495 |
) |
Reclassification of unrealized loss on equity securities |
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3,802 |
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4,627 |
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Reclassification on sale of equity securities |
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21 |
|
|
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21 |
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|
(538 |
) |
Unrealized loss on equity securities |
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(883 |
) |
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(4,575 |
) |
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|
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|
|
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Total other comprehensive income |
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5,080 |
|
|
|
3,279 |
|
|
|
9,147 |
|
|
|
11,637 |
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Comprehensive income |
|
|
9,951 |
|
|
|
8,215 |
|
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|
23,361 |
|
|
|
25,289 |
|
Comprehensive income attributable to noncontrolling interests |
|
|
(218 |
) |
|
|
(175 |
) |
|
|
(483 |
) |
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to common stockholders |
|
$ |
9,733 |
|
|
$ |
8,040 |
|
|
$ |
22,878 |
|
|
$ |
24,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
Dividends in |
|
|
Total |
|
|
|
|
|
|
|
|
|
Preferred |
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Excess of |
|
|
Stockholders |
|
|
Noncontrolling |
|
|
|
|
|
|
Stock |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
(Loss)/Income |
|
|
Earnings |
|
|
Equity |
|
|
Interests |
|
|
Total Equity |
|
Balance at December 31, 2010 |
|
$ |
222,413 |
|
|
|
131,046,509 |
|
|
$ |
1,310 |
|
|
$ |
2,371,488 |
|
|
$ |
(70,857 |
) |
|
$ |
(221,176 |
) |
|
$ |
2,303,178 |
|
|
$ |
9,718 |
|
|
$ |
2,312,896 |
|
Net issuances of unvested restricted common stock |
|
|
|
|
|
|
197,322 |
|
|
|
2 |
|
|
|
(2,423 |
) |
|
|
|
|
|
|
|
|
|
|
(2,421 |
) |
|
|
|
|
|
|
(2,421 |
) |
Conversion of OP units to common stock |
|
|
|
|
|
|
21,271 |
|
|
|
1 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
(49 |
) |
|
|
49 |
|
|
|
|
|
Redemption of preferred stock |
|
|
(30,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165 |
) |
|
|
(31,109 |
) |
|
|
|
|
|
|
(31,109 |
) |
Vesting of share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,554 |
|
|
|
|
|
|
|
|
|
|
|
5,554 |
|
|
|
|
|
|
|
5,554 |
|
Reallocation of equity to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(917 |
) |
|
|
|
|
|
|
|
|
|
|
(917 |
) |
|
|
917 |
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,753 |
) |
|
|
(78,753 |
) |
|
|
|
|
|
|
(78,753 |
) |
OP unit distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,790 |
) |
|
|
(1,790 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,480 |
|
|
|
26,480 |
|
|
|
281 |
|
|
|
26,761 |
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,382 |
) |
|
|
(12,382 |
) |
|
|
|
|
|
|
(12,382 |
) |
Reclassification on other-than-temporary
impairment of marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,525 |
|
|
|
|
|
|
|
4,525 |
|
|
|
102 |
|
|
|
4,627 |
|
Reclassification on sale of marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
Unrealized loss on equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,475 |
) |
|
|
|
|
|
|
(4,475 |
) |
|
|
(100 |
) |
|
|
(4,575 |
) |
Amortization of deferred interest costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,162 |
|
|
|
|
|
|
|
5,162 |
|
|
|
117 |
|
|
|
5,279 |
|
Unrealized gain on derivative instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,712 |
|
|
|
|
|
|
|
3,712 |
|
|
|
83 |
|
|
|
3,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011 |
|
$ |
191,469 |
|
|
|
131,265,102 |
|
|
$ |
1,313 |
|
|
$ |
2,373,652 |
|
|
$ |
(61,912 |
) |
|
$ |
(285,996 |
) |
|
$ |
2,218,526 |
|
|
$ |
9,377 |
|
|
$ |
2,227,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,761 |
|
|
$ |
26,374 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
105,919 |
|
|
|
83,159 |
|
Allowance for doubtful accounts |
|
|
2,194 |
|
|
|
108 |
|
Non-cash revenue adjustments |
|
|
7,699 |
|
|
|
(905 |
) |
Other non-cash adjustments |
|
|
10,442 |
|
|
|
11,208 |
|
Compensation expense related to restricted common stock and LTIP units |
|
|
5,554 |
|
|
|
5,316 |
|
Distributions representing a return on capital from unconsolidated partnerships |
|
|
1,573 |
|
|
|
1,195 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
3,641 |
|
|
|
2,971 |
|
Accounts receivable |
|
|
(2,614 |
) |
|
|
(3,306 |
) |
Accrued straight-line rents |
|
|
(17,907 |
) |
|
|
(20,501 |
) |
Deferred leasing costs |
|
|
(10,830 |
) |
|
|
(3,223 |
) |
Other assets |
|
|
(5,450 |
) |
|
|
(14,639 |
) |
Security deposits |
|
|
487 |
|
|
|
1,038 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
7,574 |
|
|
|
14,119 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
135,043 |
|
|
|
102,914 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of interests in and additions to investments in real estate and related
intangible assets |
|
|
(156,421 |
) |
|
|
(309,869 |
) |
Contributions to unconsolidated partnerships, net |
|
|
(14,351 |
) |
|
|
(4,318 |
) |
Purchases of equity securities |
|
|
(2,125 |
) |
|
|
|
|
Proceeds from the sale of equity securities |
|
|
31 |
|
|
|
1,227 |
|
Funds held in escrow for acquisitions |
|
|
(5,500 |
) |
|
|
(6,572 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(178,366 |
) |
|
|
(319,532 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from common stock offering |
|
|
|
|
|
|
545,804 |
|
Payment of common stock offering costs |
|
|
|
|
|
|
(22,048 |
) |
Redemption of Series A preferred stock |
|
|
(31,109 |
) |
|
|
|
|
Payment of deferred loan costs |
|
|
(9,711 |
) |
|
|
(8,814 |
) |
Unsecured line of credit proceeds |
|
|
400,075 |
|
|
|
366,992 |
|
Unsecured line of credit payments |
|
|
(576,425 |
) |
|
|
(750,608 |
) |
Principal payments on mortgage notes payable |
|
|
(52,554 |
) |
|
|
(5,514 |
) |
Secured term loan repayments |
|
|
|
|
|
|
(250,000 |
) |
Repurchases of exchangeable senior notes due 2026 |
|
|
|
|
|
|
(26,410 |
) |
Proceeds from exchangeable senior notes due 2030 |
|
|
|
|
|
|
180,000 |
|
Proceeds from unsecured senior notes |
|
|
397,460 |
|
|
|
247,443 |
|
Deferred settlement payments on interest rate swaps, net |
|
|
(75 |
) |
|
|
(495 |
) |
7
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Distributions to operating partnership unit and LTIP unit holders |
|
|
(1,702 |
) |
|
|
(1,305 |
) |
Dividends paid to common stockholders |
|
|
(74,779 |
) |
|
|
(44,940 |
) |
Dividends paid to preferred stockholders |
|
|
(12,973 |
) |
|
|
(12,722 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
38,207 |
|
|
|
217,383 |
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
|
(5,116 |
) |
|
|
765 |
|
Cash and cash equivalents at beginning of period |
|
|
21,467 |
|
|
|
19,922 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
16,351 |
|
|
$ |
20,687 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest (net of amounts capitalized of $5,308 and
$4,136, respectively) |
|
$ |
50,065 |
|
|
$ |
50,507 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrual for preferred stock dividends declared |
|
$ |
3,651 |
|
|
$ |
4,241 |
|
Accrual for common stock dividends declared |
|
|
26,253 |
|
|
|
22,241 |
|
Accrual for distributions declared for operating partnership unit and LTIP unit holders |
|
|
596 |
|
|
|
510 |
|
Accrued additions to real estate and related intangible assets |
|
|
17,026 |
|
|
|
23,157 |
|
See accompanying notes to consolidated financial statements.
8
BIOMED REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Investments in real estate, net |
|
$ |
3,576,304 |
|
|
$ |
3,536,114 |
|
Investments in unconsolidated partnerships |
|
|
67,383 |
|
|
|
57,265 |
|
Cash and cash equivalents |
|
|
16,351 |
|
|
|
21,467 |
|
Restricted cash |
|
|
6,330 |
|
|
|
9,971 |
|
Accounts receivable, net |
|
|
7,542 |
|
|
|
5,874 |
|
Accrued straight-line rents, net |
|
|
123,564 |
|
|
|
106,905 |
|
Acquired above-market leases, net |
|
|
24,015 |
|
|
|
30,566 |
|
Deferred leasing costs, net |
|
|
116,811 |
|
|
|
125,060 |
|
Deferred loan costs, net |
|
|
17,254 |
|
|
|
11,499 |
|
Other assets |
|
|
73,475 |
|
|
|
55,033 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,029,029 |
|
|
$ |
3,959,754 |
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL |
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
|
$ |
603,406 |
|
|
$ |
657,922 |
|
Exchangeable senior notes, net |
|
|
199,800 |
|
|
|
199,522 |
|
Unsecured senior notes, net |
|
|
645,412 |
|
|
|
247,571 |
|
Unsecured line of credit |
|
|
216,100 |
|
|
|
392,450 |
|
Security deposits |
|
|
12,397 |
|
|
|
11,749 |
|
Distributions payable |
|
|
30,500 |
|
|
|
27,029 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
86,658 |
|
|
|
98,826 |
|
Derivative instruments |
|
|
|
|
|
|
3,826 |
|
Acquired below-market leases, net |
|
|
6,853 |
|
|
|
7,963 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,801,126 |
|
|
|
1,646,858 |
|
Capital: |
|
|
|
|
|
|
|
|
Partners capital: |
|
|
|
|
|
|
|
|
Preferred units, 7.375% Series A cumulative redeemable
preferred units, $198,000,000 and $230,000,000
liquidation preference ($25.00 per unit), 7,920,000 and
9,200,000 units issued and outstanding at September 30,
2011 and December 31, 2010, respectively |
|
|
191,469 |
|
|
|
222,413 |
|
Limited partners capital, 2,979,979 and 3,001,250
units issued and outstanding at September 30, 2011 and
December 31, 2010, respectively |
|
|
9,614 |
|
|
|
9,918 |
|
General partners capital, 131,265,102 and 131,046,509
units issued and outstanding at September 30, 2011 and
December 31, 2010, respectively |
|
|
2,087,459 |
|
|
|
2,150,314 |
|
Accumulated other comprehensive loss |
|
|
(60,402 |
) |
|
|
(69,549 |
) |
|
|
|
|
|
|
|
Total partners capital |
|
|
2,228,140 |
|
|
|
2,313,096 |
|
Noncontrolling interests deficit |
|
|
(237 |
) |
|
|
(200 |
) |
|
|
|
|
|
|
|
Total capital |
|
|
2,227,903 |
|
|
|
2,312,896 |
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
4,029,029 |
|
|
$ |
3,959,754 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
9
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
83,825 |
|
|
$ |
72,971 |
|
|
$ |
245,477 |
|
|
$ |
215,950 |
|
Tenant recoveries |
|
|
26,674 |
|
|
|
22,723 |
|
|
|
76,076 |
|
|
|
63,823 |
|
Other income |
|
|
4,487 |
|
|
|
39 |
|
|
|
5,775 |
|
|
|
1,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
114,986 |
|
|
|
95,733 |
|
|
|
327,328 |
|
|
|
281,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations |
|
|
23,172 |
|
|
|
19,998 |
|
|
|
64,850 |
|
|
|
54,926 |
|
Real estate taxes |
|
|
10,883 |
|
|
|
9,408 |
|
|
|
31,902 |
|
|
|
26,832 |
|
Depreciation and amortization |
|
|
36,295 |
|
|
|
27,774 |
|
|
|
105,919 |
|
|
|
83,159 |
|
General and administrative |
|
|
7,682 |
|
|
|
6,805 |
|
|
|
21,797 |
|
|
|
19,523 |
|
Acquisition related expenses |
|
|
136 |
|
|
|
420 |
|
|
|
789 |
|
|
|
2,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
78,168 |
|
|
|
64,405 |
|
|
|
225,257 |
|
|
|
186,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
36,818 |
|
|
|
31,328 |
|
|
|
102,071 |
|
|
|
94,573 |
|
Equity in net loss of unconsolidated partnerships |
|
|
(735 |
) |
|
|
(308 |
) |
|
|
(1,849 |
) |
|
|
(686 |
) |
Interest income |
|
|
71 |
|
|
|
55 |
|
|
|
274 |
|
|
|
126 |
|
Interest expense |
|
|
(22,958 |
) |
|
|
(21,589 |
) |
|
|
(67,730 |
) |
|
|
(64,719 |
) |
Other expense |
|
|
(3,802 |
) |
|
|
|
|
|
|
(4,627 |
) |
|
|
|
|
Gain/(loss) on derivative instruments |
|
|
64 |
|
|
|
(287 |
) |
|
|
(564 |
) |
|
|
(634 |
) |
Loss on extinguishment of debt |
|
|
(521 |
) |
|
|
(22 |
) |
|
|
(814 |
) |
|
|
(2,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
8,937 |
|
|
|
9,177 |
|
|
|
26,761 |
|
|
|
26,374 |
|
Net loss attributable to noncontrolling interests |
|
|
5 |
|
|
|
18 |
|
|
|
37 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Operating Partnership |
|
|
8,942 |
|
|
|
9,195 |
|
|
|
26,798 |
|
|
|
26,412 |
|
Preferred unit distributions |
|
|
(3,901 |
) |
|
|
(4,241 |
) |
|
|
(12,382 |
) |
|
|
(12,722 |
) |
Cost on redemption of preferred units |
|
|
(165 |
) |
|
|
|
|
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to unitholders |
|
$ |
4,876 |
|
|
$ |
4,954 |
|
|
$ |
14,251 |
|
|
$ |
13,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per unit available to unitholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per unit |
|
$ |
0.03 |
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average units outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
132,793,468 |
|
|
|
115,768,368 |
|
|
|
132,759,427 |
|
|
|
109,882,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
132,793,468 |
|
|
|
115,768,368 |
|
|
|
132,759,427 |
|
|
|
109,882,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
10
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net income available to unitholders and noncontrolling interests |
|
$ |
4,871 |
|
|
$ |
4,936 |
|
|
$ |
14,214 |
|
|
$ |
13,652 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments, net |
|
|
365 |
|
|
|
1,479 |
|
|
|
3,826 |
|
|
|
7,303 |
|
Amortization of deferred interest costs |
|
|
1,754 |
|
|
|
1,776 |
|
|
|
5,279 |
|
|
|
5,343 |
|
Equity in other comprehensive income of unconsolidated partnerships |
|
|
8 |
|
|
|
35 |
|
|
|
44 |
|
|
|
24 |
|
Deferred settlement payments on interest rate swaps, net |
|
|
13 |
|
|
|
(11 |
) |
|
|
(75 |
) |
|
|
(495 |
) |
Reclassification of unrealized loss on equity securities |
|
|
3,802 |
|
|
|
|
|
|
|
4,627 |
|
|
|
|
|
Reclassification on sale of equity securities |
|
|
21 |
|
|
|
|
|
|
|
21 |
|
|
|
(538 |
) |
Unrealized loss on equity securities |
|
|
(883 |
) |
|
|
|
|
|
|
(4,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
5,080 |
|
|
|
3,279 |
|
|
|
9,147 |
|
|
|
11,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
9,951 |
|
|
$ |
8,215 |
|
|
$ |
23,361 |
|
|
$ |
25,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
11
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF CAPITAL
(In thousands, except unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series A |
|
|
Capital |
|
|
General Partners Capital |
|
|
Comprehensive |
|
|
Total Partners |
|
|
Noncontrolling |
|
|
|
|
|
|
Units |
|
|
Amount |
|
|
Units |
|
|
Amount |
|
|
Units |
|
|
Amount |
|
|
(Loss)/Income |
|
|
Equity |
|
|
Interests Deficit |
|
|
Total Equity |
|
Balance at December 31, 2010 |
|
|
9,200,000 |
|
|
$ |
222,413 |
|
|
|
3,001,250 |
|
|
$ |
9,918 |
|
|
|
131,046,509 |
|
|
$ |
2,150,314 |
|
|
$ |
(69,549 |
) |
|
$ |
2,313,096 |
|
|
$ |
(200 |
) |
|
$ |
2,312,896 |
|
Net issuances of unvested restricted
OP units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,322 |
|
|
|
(2,421 |
) |
|
|
|
|
|
|
(2,421 |
) |
|
|
|
|
|
|
(2,421 |
) |
Conversion of OP units |
|
|
|
|
|
|
|
|
|
|
(21,271 |
) |
|
|
49 |
|
|
|
21,271 |
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of preferred units |
|
|
(1,280,000 |
) |
|
|
(31,109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,109 |
) |
|
|
|
|
|
|
(31,109 |
) |
Vesting of share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,554 |
|
|
|
|
|
|
|
5,554 |
|
|
|
|
|
|
|
5,554 |
|
Reallocation of equity to limited
partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,119 |
|
|
|
|
|
|
|
(1,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
|
|
|
|
(12,382 |
) |
|
|
|
|
|
|
(1,790 |
) |
|
|
|
|
|
|
(78,753 |
) |
|
|
|
|
|
|
(92,925 |
) |
|
|
|
|
|
|
(92,925 |
) |
Net income |
|
|
|
|
|
|
12,547 |
|
|
|
|
|
|
|
318 |
|
|
|
|
|
|
|
13,933 |
|
|
|
|
|
|
|
26,798 |
|
|
|
(37 |
) |
|
|
26,761 |
|
Reclassification on
other-than-temporary impairment of
marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,627 |
|
|
|
4,627 |
|
|
|
|
|
|
|
4,627 |
|
Reclassification on sale of marketable
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
Unrealized loss on equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,575 |
) |
|
|
(4,575 |
) |
|
|
|
|
|
|
(4,575 |
) |
Amortization of deferred interest costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,279 |
|
|
|
5,279 |
|
|
|
|
|
|
|
5,279 |
|
Unrealized gain on derivative
instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,795 |
|
|
|
3,795 |
|
|
|
|
|
|
|
3,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011 |
|
|
7,920,000 |
|
|
$ |
191,469 |
|
|
|
2,979,979 |
|
|
$ |
9,614 |
|
|
|
131,265,102 |
|
|
$ |
2,087,459 |
|
|
$ |
(60,402 |
) |
|
$ |
2,228,140 |
|
|
$ |
(237 |
) |
|
$ |
2,227,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
12
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,761 |
|
|
$ |
26,374 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
105,919 |
|
|
|
83,159 |
|
Allowance for doubtful accounts |
|
|
2,194 |
|
|
|
108 |
|
Non-cash revenue adjustments |
|
|
7,699 |
|
|
|
(905 |
) |
Other non-cash adjustments |
|
|
10,442 |
|
|
|
11,208 |
|
Compensation expense related to share-based payments |
|
|
5,554 |
|
|
|
5,316 |
|
Distributions representing a return on capital from unconsolidated partnerships |
|
|
1,573 |
|
|
|
1,195 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
3,641 |
|
|
|
2,971 |
|
Accounts receivable |
|
|
(2,614 |
) |
|
|
(3,306 |
) |
Accrued straight-line rents |
|
|
(17,907 |
) |
|
|
(20,501 |
) |
Deferred leasing costs |
|
|
(10,830 |
) |
|
|
(3,223 |
) |
Other assets |
|
|
(5,450 |
) |
|
|
(14,639 |
) |
Security deposits |
|
|
487 |
|
|
|
1,038 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
7,574 |
|
|
|
14,119 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
135,043 |
|
|
|
102,914 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of interests in and additions to investments in real estate and
related intangible assets |
|
|
(156,421 |
) |
|
|
(309,869 |
) |
Contributions to unconsolidated partnerships, net |
|
|
(14,351 |
) |
|
|
(4,318 |
) |
Purchases of equity securities |
|
|
(2,125 |
) |
|
|
|
|
Proceeds from the sale of equity securities |
|
|
31 |
|
|
|
1,227 |
|
Funds held in escrow for acquisitions |
|
|
(5,500 |
) |
|
|
(6,572 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(178,366 |
) |
|
|
(319,532 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of OP units |
|
|
|
|
|
|
523,756 |
|
Redemption of Series A preferred units |
|
|
(31,109 |
) |
|
|
|
|
Payment of deferred loan costs |
|
|
(9,711 |
) |
|
|
(8,814 |
) |
Unsecured line of credit proceeds |
|
|
400,075 |
|
|
|
366,992 |
|
Unsecured line of credit payments |
|
|
(576,425 |
) |
|
|
(750,608 |
) |
Principal payments on mortgage notes payable |
|
|
(52,554 |
) |
|
|
(5,514 |
) |
Secured term loan repayments |
|
|
|
|
|
|
(250,000 |
) |
Repurchases of exchangeable senior notes due 2026 |
|
|
|
|
|
|
(26,410 |
) |
Proceeds from exchangeable senior notes due 2030 |
|
|
|
|
|
|
180,000 |
|
Proceeds from unsecured senior notes |
|
|
397,460 |
|
|
|
247,443 |
|
13
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Deferred settlement payments on interest rate swaps, net |
|
|
(75 |
) |
|
|
(495 |
) |
Distributions paid to unitholders |
|
|
(76,481 |
) |
|
|
(46,245 |
) |
Distributions paid to preferred unitholders |
|
|
(12,973 |
) |
|
|
(12,722 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
38,207 |
|
|
|
217,383 |
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
|
(5,116 |
) |
|
|
765 |
|
Cash and cash equivalents at beginning of period |
|
|
21,467 |
|
|
|
19,922 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
16,351 |
|
|
$ |
20,687 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest (net of amounts capitalized of $5,308
and $4,136, respectively) |
|
$ |
50,065 |
|
|
$ |
50,507 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrual for unit distributions declared |
|
$ |
26,849 |
|
|
$ |
22,751 |
|
Accrual for preferred unit distributions declared |
|
|
3,651 |
|
|
|
4,241 |
|
Accrued additions to real estate and related intangible assets |
|
|
17,026 |
|
|
|
23,157 |
|
See accompanying notes to consolidated financial statements.
14
BIOMED REALTY TRUST, INC.
BIOMED REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization of the Parent Company and Description of Business
BioMed Realty Trust, Inc., a Maryland corporation (the Parent Company), was incorporated in
Maryland on April 30, 2004. On August 11, 2004, the Parent Company commenced operations after
completing its initial public offering. The Parent Company operates as a fully integrated,
self-administered and self-managed real estate investment trust (REIT) focused on acquiring,
developing, owning, leasing and managing laboratory and office space for the life science industry
principally through its subsidiary, BioMed Realty, L.P., a Maryland limited partnership (the
Operating Partnership and together with the Parent Company referred to as the Company). The
Companys tenants primarily include biotechnology and pharmaceutical companies, scientific research
institutions, government agencies and other entities involved in the life science industry. The
Companys properties are generally located in markets with well-established reputations as centers
for scientific research, including Boston, San Francisco, Maryland, San Diego, New York/New Jersey,
Pennsylvania and Seattle.
The Parent Company is the sole general partner of the Operating Partnership and, as of
September 30, 2011, owned a 97.8% interest in the Operating Partnership. The remaining 2.2%
interest in the Operating Partnership is held by limited partners. Each partners percentage
interest in the Operating Partnership is determined based on the number of operating partnership
units and long-term incentive plan units (LTIP units and together with the operating partnership
units, the OP units) owned as compared to total OP units (and potentially issuable OP units, as
applicable) outstanding as of each period end and is used as the basis for the allocation of net
income or loss to each partner.
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying interim financial statements are unaudited, but have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial
information and in conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the disclosures required by GAAP for complete
financial statements. In the opinion of management, all adjustments and eliminations, consisting of
normal recurring adjustments necessary for a fair presentation of the financial statements for
these interim periods have been recorded. These financial statements should be read in conjunction
with the audited consolidated financial statements and notes therein included in the Companys
annual report on Form 10-K for the year ended December 31, 2010.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned
subsidiaries, partnerships and limited liability companies it controls, and variable interest
entities for which the Company has determined itself to be the primary beneficiary. All material
intercompany transactions and balances have been eliminated. The Company consolidates entities the
Company controls and records a noncontrolling interest for the portions not owned by the Company.
Control is determined, where applicable, by the sufficiency of equity invested and the rights of
the equity holders, and by the ownership of a majority of the voting interests, with consideration
given to the existence of approval or veto rights granted to the minority stockholder. If the
minority stockholder holds substantive participating rights, it overcomes the presumption of
control by the majority voting interest holder. In contrast, if the minority stockholder simply
holds protective rights (such as consent rights over certain actions), it does not overcome the
presumption of control by the majority voting interest holder.
15
Investments in Partnerships and Limited Liability Companies
The Company has determined that it is the primary beneficiary in six variable interest
entities, or VIEs, consisting of single-tenant properties in which the tenant has a fixed-price
purchase option, which are consolidated and reflected in the accompanying consolidated financial
statements. Selected financial data of the VIEs at September 30, 2011 and December 31, 2010
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Investment in real estate, net |
|
$ |
413,089 |
|
|
$ |
375,428 |
|
Total assets |
|
|
457,962 |
|
|
|
414,993 |
|
Total debt |
|
|
147,000 |
|
|
|
147,000 |
|
Total liabilities |
|
|
157,598 |
|
|
|
161,697 |
|
Investments in Real Estate, Net
Investments in real estate, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Land |
|
$ |
595,745 |
|
|
$ |
578,753 |
|
Land under development |
|
|
44,737 |
|
|
|
47,920 |
|
Buildings and improvements |
|
|
3,257,987 |
|
|
|
3,160,392 |
|
Construction in progress |
|
|
101,044 |
|
|
|
91,027 |
|
|
|
|
|
|
|
|
|
|
|
3,999,513 |
|
|
|
3,878,092 |
|
Accumulated depreciation |
|
|
(423,209 |
) |
|
|
(341,978 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,576,304 |
|
|
$ |
3,536,114 |
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
The Company reviews long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The review of recoverability is based on an estimate of the future undiscounted
cash flows (excluding interest charges) expected to result from the long-lived assets use and
eventual disposition. These cash flows consider factors such as expected future operating income,
trends and prospects, as well as the effects of leasing demand, competition and other factors. If
impairment exists due to the inability to recover the carrying value of a long-lived asset, an
impairment loss is recorded to the extent that the carrying value exceeds the estimated fair-value
of the property. The Company is required to make subjective assessments as to whether there are
impairments in the values of its investments in long-lived assets. These assessments have a direct
impact on the Companys net income because recording an impairment loss results in an immediate
negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective
and is based in part on assumptions regarding future occupancy, rental rates and capital
requirements that could differ materially from actual results in future periods. Although the
Companys strategy is to hold its properties over the long-term, if the Companys strategy changes
or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized
to reduce the property to the lower of the carrying amount or fair-value, and such loss could be
material. As of and through September 30, 2011, no assets have been identified as impaired and no
such impairment losses have been recognized.
Accumulated Amortization
Deferred leasing costs, acquired above-market leases, acquired below-market leases, and lease
incentives are recorded net of accumulated amortization. Accumulated amortization balances
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Deferred leasing costs |
|
$ |
173,154 |
|
|
$ |
150,702 |
|
Acquired above-market leases |
|
|
19,733 |
|
|
|
12,572 |
|
Acquired below-market leases |
|
|
33,303 |
|
|
|
32,193 |
|
Lease incentives |
|
|
7,345 |
|
|
|
5,698 |
|
16
Investments
Investments in equity securities, which are included in other assets on the accompanying
consolidated balance sheets, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Available-for-sale securities, cost basis |
|
$ |
6,032 |
|
|
$ |
4,133 |
|
Other-than-temporary unrealized loss |
|
|
(4,516 |
) |
|
|
|
|
Unrealized loss |
|
|
|
|
|
|
(73 |
) |
|
|
|
|
|
|
|
Available-for-sale securities, fair-value(1) |
|
|
1,516 |
|
|
|
4,060 |
|
Cost method securities, cost basis |
|
|
2,125 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities |
|
$ |
3,641 |
|
|
$ |
4,060 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Determination of fair-value is classified as Level 1 in the fair-value hierarchy based on
the use of quoted prices in active markets. |
The Companys investments in available-for-sale securities of two publicly traded companies
currently have fair market values that are less than the Companys initial cost basis in these
securities due to decreases in their respective stock prices during the nine months ended September
30, 2011. During the three and nine months ended September 30, 2011, the Company reclassified to
other expense from accumulated other comprehensive loss, an unrealized loss, considered to be other
than temporary, of approximately $3.8 million and $4.6 million, respectively, relating to its
investment in securities of these companies. Management will continue to periodically evaluate
whether any investment, the fair-value of which is less than the Companys initial cost basis,
should be considered other-than-temporarily-impaired. If other than temporary impairment is
considered to exist, the related unrealized loss will be reclassified from accumulated other
comprehensive income and recorded as a reduction of net income.
During the nine months ended September 30, 2010, the Company sold a portion of its
available-for-sale securities, resulting in net proceeds of approximately $1.2 million and a
realized gain on sale of approximately $865,000 (based on a specific identification of the
securities sold), which was reclassified from accumulated other comprehensive loss and recognized
in other income in the accompanying consolidated statements of income.
The Companys remaining investments consisted of securities in privately-held companies or
funds, which are recorded at cost basis due to the Companys lack of control or significant
influence over such companies or funds. The Company invested in equity securities of one
privately-held company and one privately-held fund during the nine months ended September 30, 2011.
There were no identified events or changes in circumstances that may have a significant adverse
effect on the carrying value of the Companys cost basis investments, and, therefore, no evaluation
of impairment was performed during the three months ended September 30, 2011 on the Companys cost
basis investments.
Managements Estimates
Management has made a number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reporting of revenue and expenses during the reporting
period to prepare these consolidated financial statements in conformity with GAAP. The Company
bases its estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and reported amounts of revenue and expenses
that are not readily apparent from other sources. Actual results could differ from those estimates
under different assumptions or conditions.
3. Equity of the Parent Company
During the nine months ended September 30, 2011, the Parent Company issued restricted stock
awards to the Companys employees and directors totaling 336,044 and 15,085 shares of common stock,
respectively (129,342 shares of common stock were surrendered to the Company and subsequently
retired in lieu of cash payments for taxes due on the vesting of restricted stock and 24,465 shares
were forfeited during the same period), which are included in the total of common stock outstanding
as of the period end.
17
Common Stock, Operating Partnership Units and LTIP Units
As of September 30, 2011, the Company had outstanding 131,265,102 shares of the Parent
Companys common stock and 2,593,538 and 386,441 operating partnership and LTIP units,
respectively. A share of the Parent Companys common stock and
the operating partnership and LTIP units have essentially the same economic characteristics as
they share equally in the total net income or loss and distributions of the Operating Partnership.
7.375% Series A Cumulative Redeemable Preferred Stock
As of September 30, 2011, the Company had outstanding 7,920,000 shares of the Parent Companys
7.375% Series A Cumulative Redeemable Preferred Stock, or Series A preferred stock. During the
three months ended September 30, 2011, the Company completed the repurchase of 1,280,000 shares of
the Parent Companys Series A preferred stock for approximately $31.1 million, or $24.30 per share,
net of accrued dividends of approximately $250,000, or $0.20 per share. The repurchase of the
Series A preferred stock resulted in the recognition of costs on extinguishment of preferred stock
of approximately $165,000 for the three and nine months ended September 30, 2011 as a result of the
difference between the carrying value and the price paid to repurchase the Series A preferred
stock.
Dividends and Distributions
The following table lists the dividends and distributions declared by the Parent Company and
the Operating Partnership during the nine months ended September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend and |
|
Dividend and |
|
|
|
|
|
Amount Per |
|
|
|
|
Distribution |
|
Distribution |
|
Declaration Date |
|
Securities Class |
|
Share/Unit |
|
|
Period Covered |
|
Payable Date |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 14, 2011 |
|
Common stock and OP units |
|
$ |
0.20000 |
|
|
January 1, 2011 to March 31, 2011 |
|
April 15, 2011 |
|
$ |
26,846 |
|
March 14, 2011 |
|
Series A preferred stock/units |
|
$ |
0.46094 |
|
|
January 16, 2011 to April 15, 2011 |
|
April 15, 2011 |
|
$ |
4,240 |
|
June 15, 2011 |
|
Common stock and OP units |
|
$ |
0.20000 |
|
|
April 1, 2011 to June 30, 2011 |
|
July 15, 2011 |
|
$ |
26,848 |
|
June 15, 2011 |
|
Series A preferred stock/units |
|
$ |
0.46094 |
|
|
April 16, 2011 to July 15, 2011 |
|
July 15, 2011 |
|
$ |
4,241 |
|
September 15, 2011 |
|
Common stock and OP units |
|
$ |
0.20000 |
|
|
July 1, 2011 to September 30, 2011 |
|
October 17, 2011 |
|
$ |
26,849 |
|
September 15, 2011 |
|
Series A preferred stock/units |
|
$ |
0.46094 |
|
|
July 16, 2011 to October 15, 2011 |
|
October 17, 2011 |
|
$ |
3,901 |
|
Total 2011 dividends and distributions declared through September 30, 2011 (in thousands):
|
|
|
|
|
Common stock and OP units |
|
$ |
80,543 |
|
Series A preferred stock/units |
|
|
12,382 |
|
|
|
|
|
|
|
$ |
92,925 |
|
|
|
|
|
Noncontrolling Interests
Noncontrolling interests on the consolidated balance sheets of the Parent Company relate
primarily to the OP units in the Operating Partnership that are not owned by the Parent Company.
With respect to the noncontrolling interests in the Operating Partnership, noncontrolling interests
with redemption provisions that permit the issuer to settle in either cash or common stock at the
option of the issuer are further evaluated to determine whether temporary or permanent equity
classification on the balance sheet is appropriate. Since the OP units comprising the
noncontrolling interests contain such a provision, the Company evaluated this guidance, including
the requirement to settle in unregistered shares, and determined that the OP units meet the
requirements to qualify for presentation as permanent equity.
The Company evaluates individual redeemable noncontrolling interests for the ability to
continue to recognize the noncontrolling interest as permanent equity in the consolidated balance
sheets. Any redeemable noncontrolling interest that fails to qualify as permanent equity will be
reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its
redemption value as of the end of the period in which the determination is made.
The redemption value of the OP units not owned by the Parent Company, had such units been
redeemed at September 30, 2011, was approximately $49.7 million based on the average closing price
of the Parent Companys common stock of $16.69 per share for the ten consecutive trading days
immediately preceding September 30, 2011.
18
The following table shows the vested ownership interests in the Operating Partnership were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Operating |
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
Partnership Units |
|
|
Percentage of |
|
|
Partnership Units |
|
|
Percentage of |
|
|
|
and LTIP Units |
|
|
Total |
|
|
and LTIP Units |
|
|
Total |
|
BioMed Realty Trust |
|
|
129,872,349 |
|
|
|
97.8 |
% |
|
|
129,603,445 |
|
|
|
97.8 |
% |
Noncontrolling interest consisting of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating partnership and LTIP units held by employees
and related parties |
|
|
2,332,318 |
|
|
|
1.8 |
% |
|
|
2,268,873 |
|
|
|
1.7 |
% |
Operating partnership and LTIP units held by third parties |
|
|
588,801 |
|
|
|
0.4 |
% |
|
|
588,801 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
132,793,468 |
|
|
|
100.0 |
% |
|
|
132,461,119 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Capital of the Operating Partnership
Operating Partnership Units and LTIP Units
As of September 30, 2011, the Operating Partnership had outstanding 133,858,640 operating
partnership units and 386,441 LTIP units. The Parent Company owned 97.8% of the partnership
interests in the Operating Partnership at September 30, 2011, is the Operating Partnerships
general partner and is responsible for the management of the Operating Partnerships business. As
the general partner of the Operating Partnership, the Parent Company effectively controls the
ability to issue common stock of the Parent Company upon a limited partners notice of redemption.
In addition, the general partner of the Operating Partnership has generally acquired OP units upon
a limited partners notice of redemption in exchange for shares of the Parent Companys common
stock. The redemption provisions of OP units owned by limited partners that permit the issuer to
settle in either cash or common stock at the option of the issuer are further evaluated in
accordance with applicable accounting guidance to determine whether temporary or permanent equity
classification on the balance sheet is appropriate. The Operating Partnership evaluated this
guidance, including the requirement to settle in unregistered shares, and determined that these OP
units meet the requirements to qualify for presentation as permanent equity.
The redemption value of the OP units owned by the limited partners, not including the Parent
Company, had such units been redeemed at September 30, 2011, was approximately $49.7 million based
on the average closing price of the Parent Companys common stock of $16.69 per share for the ten
consecutive trading days immediately preceding September 30, 2011.
5. Debt
Debt of the Parent Company
The Parent Company does not hold any indebtedness. All debt is held directly or indirectly by
the Operating Partnership; however, the Parent Company has guaranteed the Operating Partnerships
Exchangeable Senior Notes due 2026 (the Notes due 2026), Exchangeable Senior Notes due 2030 (the
Notes due 2030), Unsecured Senior Notes due 2016 (the Notes due 2016), Unsecured Senior Notes
due 2020 (the Notes due 2020) and unsecured line of credit.
19
Debt of the Operating Partnership
A summary of the Operating Partnerships outstanding consolidated debt as of September 30,
2011 and December 31, 2010 was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Balance |
|
|
|
|
|
Stated Fixed |
|
|
Effective |
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
Interest Rate |
|
|
Interest Rate |
|
|
2011 |
|
|
2010 |
|
|
Maturity Date |
Mortgage Notes Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ardentech Court (1) |
|
|
7.25 |
% |
|
|
5.06 |
% |
|
$ |
|
|
|
$ |
4,237 |
|
|
July 1, 2012 |
Center for
Life Science | Boston |
|
|
7.75 |
% |
|
|
7.75 |
% |
|
|
343,031 |
|
|
|
345,577 |
|
|
June 30, 2014 |
500 Kendall Street (Kendall D) |
|
|
6.38 |
% |
|
|
5.45 |
% |
|
|
62,765 |
|
|
|
64,230 |
|
|
December 1, 2018 |
6828 Nancy Ridge Drive |
|
|
7.15 |
% |
|
|
5.38 |
% |
|
|
6,402 |
|
|
|
6,488 |
|
|
September 1, 2012 |
Road to the Cure (1) |
|
|
6.70 |
% |
|
|
5.78 |
% |
|
|
|
|
|
|
14,696 |
|
|
January 31, 2014 |
10255 Science Center Drive (1) |
|
|
7.65 |
% |
|
|
5.04 |
% |
|
|
|
|
|
|
10,800 |
|
|
July 1, 2011 |
Shady Grove Road |
|
|
5.97 |
% |
|
|
5.97 |
% |
|
|
147,000 |
|
|
|
147,000 |
|
|
September 1, 2016 |
Sidney Street |
|
|
7.23 |
% |
|
|
5.11 |
% |
|
|
26,655 |
|
|
|
27,395 |
|
|
June 1, 2012 |
Sorrento West (2) |
|
|
7.42 |
% |
|
|
2.72 |
% |
|
|
13,043 |
|
|
|
13,247 |
|
|
November 10, 2011 |
9865 Towne Centre Drive (1) |
|
|
7.95 |
% |
|
|
7.95 |
% |
|
|
|
|
|
|
17,636 |
|
|
June 30, 2013 |
900 Uniqema Boulevard |
|
|
8.61 |
% |
|
|
5.61 |
% |
|
|
865 |
|
|
|
1,011 |
|
|
May 1, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,761 |
|
|
|
652,317 |
|
|
|
Unamortized premiums |
|
|
|
|
|
|
|
|
|
|
3,645 |
|
|
|
5,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
|
|
|
|
|
|
|
|
|
|
603,406 |
|
|
|
657,922 |
|
|
|
Notes due 2026 |
|
|
4.50 |
% |
|
|
6.45 |
% |
|
|
19,800 |
|
|
|
19,800 |
|
|
October 1, 2026 |
Unamortized discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes due 2026, net (3) |
|
|
|
|
|
|
|
|
|
|
19,800 |
|
|
|
19,522 |
|
|
|
Notes due 2030 |
|
|
3.75 |
% |
|
|
3.75 |
% |
|
|
180,000 |
|
|
|
180,000 |
|
|
January 15, 2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable senior notes, net |
|
|
|
|
|
|
|
|
|
|
199,800 |
|
|
|
199,522 |
|
|
|
Notes due 2016 |
|
|
3.85 |
% |
|
|
3.99 |
% |
|
|
400,000 |
|
|
|
|
|
|
April 15, 2016 |
Unamortized discount (4) |
|
|
|
|
|
|
|
|
|
|
(2,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes due 2016, net |
|
|
|
|
|
|
|
|
|
|
397,693 |
|
|
|
|
|
|
|
Notes due 2020 |
|
|
6.13 |
% |
|
|
6.27 |
% |
|
|
250,000 |
|
|
|
250,000 |
|
|
April 15, 2020 |
Unamortized discount (5) |
|
|
|
|
|
|
|
|
|
|
(2,281 |
) |
|
|
(2,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes due 2020, net |
|
|
|
|
|
|
|
|
|
|
247,719 |
|
|
|
247,571 |
|
|
|
Unsecured senior notes, net |
|
|
|
|
|
|
|
|
|
|
645,412 |
|
|
|
247,571 |
|
|
|
Unsecured line of credit (6) |
|
|
1.78 |
% |
|
|
1.78 |
% |
|
|
216,100 |
|
|
|
392,450 |
|
|
July 13, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated debt |
|
|
|
|
|
|
|
|
|
$ |
1,664,718 |
|
|
$ |
1,497,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the nine months ended September 30, 2011, the Operating Partnership voluntarily
prepaid in full the outstanding mortgage notes totaling approximately $47.2 million pertaining
to the Ardentech Court, Road to the Cure, 10255 Science Center Drive and 9865 Towne Centre
Drive properties, prior to their respective maturity dates. |
|
(2) |
|
In October 2011, the Operating Partnership voluntarily prepaid in full the outstanding
mortgage note pertaining to the Sorrento West property, in the amount of approximately $13.0
million, prior to its maturity date. |
|
(3) |
|
As of September 30, 2011 and December 31, 2010, the carrying value of the equity component
recognized was approximately $14.0 million. In October 2011, the Operating Partnership
repurchased and redeemed in full the outstanding principal amount of the Notes due 2026. |
|
(4) |
|
The unamortized debt discount will be amortized through April 15, 2016, the maturity date of
the Notes due 2016. |
|
(5) |
|
The unamortized debt discount will be amortized through April 15, 2020, the maturity date of
the Notes due 2020. |
|
(6) |
|
At September 30, 2011, the Operating Partnership had additional borrowing capacity under the
unsecured line of credit of up to approximately $526.1 million (net of outstanding letters of
credit issued by the Operating Partnership and drawable on the unsecured line of credit of
approximately $7.8 million). |
20
Exchangeable Senior Notes due 2030
The exchange rate for the Notes due 2030 may be adjusted under certain circumstances,
including the payment of cash dividends in excess of $0.14 per share of common stock. The increase
in the quarterly cash dividend from the second quarter of 2010 through the second quarter of 2011
to $0.20 per share of common stock resulted in an increase in the exchange rate of the Notes due
2030 from 55.0782 to 55.6548 shares per $1,000 principal amount of Notes due 2030, effective as of
June 28, 2011, the Companys ex-dividend date.
Unsecured Senior Notes due 2016, net
On March 30, 2011, the Operating Partnership issued $400.0 million aggregate principal amount
of its Notes due 2016. The purchase price paid by the underwriters was 99.365% of the principal
amount and the Notes due 2016 have been recorded on the consolidated balance sheet net of the
discount. The Notes due 2016 are senior unsecured obligations of the Operating Partnership and rank
equally in right of payment with all other senior unsecured indebtedness of the Operating
Partnership. However, the Notes due 2016 are effectively subordinated to the Operating
Partnerships existing and future mortgages and other secured indebtedness (to the extent of the
value of the collateral securing such indebtedness) and to all existing and future preferred equity
and liabilities, whether secured or unsecured, of the Operating Partnerships subsidiaries,
including guarantees provided by the Operating Partnerships subsidiaries under the Operating
Partnerships unsecured line of credit. Interest at a rate of 3.85% per year is payable on April 15
and October 15 of each year, beginning on October 15, 2011, until the stated maturity date of April
15, 2016. The terms of the Notes due 2016 are governed by a base indenture and supplemental
indenture, each dated March 30, 2011, among the Operating Partnership, as issuer, the Parent
Company, as guarantor, and U.S. Bank National Association, as trustee.
The Operating Partnership may redeem the Notes due 2016, in whole or in part, at any time for
cash at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes
due 2016 being redeemed; or (2) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the redemption date on a semi-annual basis at the
adjusted treasury rate plus 30 basis points, plus in each case, accrued and unpaid interest.
The terms of the indenture for the Notes due 2016 require compliance with various financial
covenants, including limits on the amount of total leverage and secured debt maintained by the
Operating Partnership and which require the Operating Partnership to maintain minimum levels of
debt service coverage. Management believes that it was in compliance with these covenants as of
September 30, 2011.
Unsecured Line of Credit
On July 14, 2011, the Operating Partnership entered into an unsecured credit agreement with
KeyBank National Association, as administrative agent, and certain other lenders. The unsecured
credit agreement provides for available borrowings under a revolving line of credit of $750.0
million and a maturity date of July 13, 2015. Subject to the administrative agents reasonable
discretion, the Operating Partnership may increase the amount of the revolving credit commitments
to $1.25 billion upon satisfying certain conditions. In addition, the Operating Partnership, at its
sole discretion, may extend the maturity date of the revolving line of credit to July 13, 2016
after satisfying certain conditions and paying an extension fee. The revolving line of credit bears
interest at a floating rate equal to, at the Operating Partnerships option, either (1) reserve
adjusted LIBOR plus a spread which ranges from 100 to 205 basis points, depending on the Companys
credit ratings, or (2) the highest of (a) the prime rate then in effect plus a spread which ranges
from 0 to 125 basis points, (b) the federal funds rate then in effect plus a spread which ranges
from 50 to 175 basis points or (c) one month LIBOR plus a spread which ranges from 100 to 205 basis
points, in each case, depending on the Companys credit ratings. In addition, a facility fee is
payable on line capacity at an annual rate depending on the Companys credit rating, which is
currently at 35 basis points.
The unsecured credit agreement includes certain restrictions and covenants which require
compliance with financial covenants relating to the minimum amounts of net worth, fixed charge
coverage, unsecured debt service coverage, overall leverage and unsecured leverage ratios, the
maximum amount of secured indebtedness and certain investment limitations. Management believes that
it was in compliance with these covenants as of September 30, 2011. The unsecured credit agreement
specifies a number of events of default (some of which are subject to applicable cure periods),
including, among others, the failure to make payments when due, noncompliance with covenants and
defaults under other agreements or instruments of indebtedness. Upon the occurrence of an event of
default, the lenders may terminate the revolving line of credit and declare all amounts outstanding
to be immediately due and payable.
21
As of September 30, 2011 principal payments due for the Operating Partnerships consolidated
indebtedness (excluding debt premiums and discounts) were as follows (in thousands):
|
|
|
|
|
2011(1) |
|
$ |
34,984 |
|
2012 |
|
|
40,478 |
|
2013 |
|
|
8,291 |
|
2014 |
|
|
339,020 |
|
2015 |
|
|
222,353 |
|
Thereafter(2) |
|
|
1,020,535 |
|
|
|
|
|
|
|
$ |
1,665,661 |
|
|
|
|
|
|
|
|
(1) |
|
Includes $19.8 million in principal payments of the Notes due 2026 which were repurchased and
redeemed in full in October 2011. |
|
(2) |
|
Includes $180.0 million in principal payments of the Notes due 2030 based on a contractual
maturity date of January 15, 2030. |
6. Earnings Per Share of the Parent Company
Through September 30, 2011 all of the Companys participating securities (including the OP
units) received dividends/distributions at an equal dividend/distribution rate per share/unit. As a
result, the portion of net income allocable to the weighted-average restricted stock outstanding
for the three and nine months ended September 30, 2011 and 2010 has been deducted from net income
available to common stockholders to calculate basic earnings per share. The calculation of diluted
earnings per share for the three and nine months ended September 30, 2011 and 2010 includes the
outstanding OP units (both vested and unvested) in the weighted-average shares, and net income
attributable to noncontrolling interests in the Operating Partnership has been added back to net
income available to common stockholders. For the three and nine months ended September 30, 2011 and
2010, the restricted stock was anti-dilutive to the calculation of diluted earnings per share and
was therefore excluded. As a result, diluted earnings per share was calculated based upon net
income available to common stockholders less net income allocable to unvested restricted stock and
distributions in excess of earnings attributable to unvested restricted stock. No shares were
issuable upon settlement of the excess exchange value pursuant to the exchange settlement feature
of the Notes due 2026 as the common stock price at September 30, 2011 and 2010 did not exceed the
exchange price then in effect. In addition, shares issuable upon settlement of the exchange feature
of the Notes due 2030 were anti-dilutive and were not included in the calculation of diluted
earnings per share based on the if converted method for the three and nine months ended September
30, 2011. No other shares were considered anti-dilutive for the three and nine months ended
September 30, 2011 and 2010.
Computations of basic and diluted earnings per share (in thousands, except share data) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
4,765 |
|
|
$ |
4,832 |
|
|
$ |
13,933 |
|
|
$ |
13,331 |
|
Less: net income allocable and distributions in
excess of earnings to participating securities |
|
|
(278 |
) |
|
|
(239 |
) |
|
|
(854 |
) |
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders basic |
|
$ |
4,487 |
|
|
$ |
4,593 |
|
|
$ |
13,079 |
|
|
$ |
12,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders basic |
|
$ |
4,487 |
|
|
$ |
4,593 |
|
|
$ |
13,079 |
|
|
$ |
12,716 |
|
Add: net income attributable to noncontrolling
interests in operating partnership |
|
|
111 |
|
|
|
122 |
|
|
|
318 |
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders and
participating securities |
|
$ |
4,598 |
|
|
$ |
4,715 |
|
|
$ |
13,397 |
|
|
$ |
13,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
129,872,349 |
|
|
|
112,910,694 |
|
|
|
129,834,429 |
|
|
|
107,003,096 |
|
Incremental shares from assumed conversion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating partnership and LTIP units |
|
|
2,979,979 |
|
|
|
3,001,250 |
|
|
|
2,985,259 |
|
|
|
3,025,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
132,852,328 |
|
|
|
115,911,944 |
|
|
|
132,819,688 |
|
|
|
110,028,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common
stockholders, basic and diluted |
|
$ |
0.03 |
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
7. Earnings Per Unit of the Operating Partnership
Through September 30, 2011 all of the Operating Partnerships participating securities
received distributions at an equal distribution rate per unit. As a result, the portion of net
income allocable to the weighted-average unvested OP units outstanding for the three and nine
months ended September 30, 2011 and 2010 has been deducted from net income available to unitholders
to calculate basic earnings per unit. For the three and nine months ended September 30, 2011 and
2010 the unvested OP units were anti-dilutive to the calculation of earnings per unit and were
therefore excluded from the calculation of diluted earnings per unit, and diluted earnings per unit
is calculated based upon net income attributable to unitholders. No shares of common stock of the
Parent Company were contingently issuable upon settlement of the excess exchange value pursuant to
the exchange settlement feature of the Notes due 2026 as the common stock price at September 30,
2011 and 2010 did not exceed the exchange price then in effect. In addition, units issuable upon
settlement of the exchange feature of the Notes due 2030 were anti-dilutive and were not included
in the calculation of diluted earnings per unit based on the if converted method for the three
and nine months ended September 30, 2011. No other units were considered anti-dilutive for the
three and nine months ended September 30, 2011 and 2010.
Computations of basic and diluted earnings per unit (in thousands, except share data) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Basic earnings per unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to unitholders |
|
$ |
4,876 |
|
|
$ |
4,954 |
|
|
$ |
14,251 |
|
|
$ |
13,690 |
|
Less: net income allocable and distributions in excess of
earnings to participating securities |
|
|
(290 |
) |
|
|
(266 |
) |
|
|
(891 |
) |
|
|
(686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to unitholders basic and diluted |
|
$ |
4,586 |
|
|
$ |
4,688 |
|
|
$ |
13,360 |
|
|
$ |
13,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average units outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
132,793,468 |
|
|
|
115,768,368 |
|
|
|
132,759,427 |
|
|
|
109,882,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per unit attributable to unitholders, basic
and diluted: |
|
$ |
0.03 |
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Investment in Unconsolidated Partnerships
The accompanying consolidated financial statements include investments in two limited
liability companies with Prudential Real Estate Investors (PREI), and in 10165 McKellar Court,
L.P. (McKellar Court), a limited partnership with Quidel Corporation, the tenant which occupies
the McKellar Court property. General information on the PREI limited liability companies and the
McKellar Court partnership (each referred to in this footnote individually as a partnership and
collectively as the partnerships) as of September 30, 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys |
|
|
Companys |
|
|
|
|
|
|
|
Ownership |
|
|
Economic |
|
|
|
Name |
|
Partner |
|
Interest |
|
|
Interest |
|
|
Date Acquired |
PREI I LLC(1) |
|
PREI |
|
|
20 |
% |
|
|
20 |
% |
|
April 4, 2007 |
PREI II LLC(2) |
|
PREI |
|
|
20 |
% |
|
|
20 |
% |
|
April 4, 2007 |
McKellar Court(3) |
|
Quidel Corporation |
|
|
22 |
% |
|
|
22 |
% |
|
September 30, 2004 |
23
|
|
|
(1) |
|
PREI I LLC owns a portfolio of six properties in Cambridge, Massachusetts comprised of
laboratory/office buildings. At September 30, 2011, there were $199.3 million in outstanding
borrowings on the PREI joint ventures secured acquisition and interim loan facility, with a
contractual interest rate of 3.73% (including the applicable credit spread) which matures on
February 10, 2012. At maturity, the PREI joint ventures may refinance the secured acquisition
and interim loan facility, depending on market conditions and the availability of credit, or
they may repay the principal balance through capital contributions of the members. During the
three months ended September 30, 2011, a wholly owned subsidiary of the Companys joint
venture with PREI I LLC entered into an agreement with certain lenders to extend the maturity
date of its secured construction loan facility, extending the maturity date to August 13, 2013
and decreasing the borrowing capacity to $139.0 million, which required the repayment of
approximately $67.0 million by capital contributions of the partners, including the Companys
share of the repayment of approximately $13.4 million. At September 30, 2011, there was $139.0
million in outstanding borrowings on the secured construction loan facility, with a
contractual interest rate of 3.23% (including the applicable credit spread). |
|
(2) |
|
The Companys remaining investment in PREI II LLC (maximum exposure to losses) was
approximately $818,000 at September 30, 2011. |
|
(3) |
|
The Companys investment in the McKellar Court partnership (maximum exposure to losses) was
approximately $12.4 million at September 30, 2011. The Companys economic interest in the
McKellar Court partnership entitles it to 75% of the extraordinary cash flows after repayment
of the partners capital contributions and 22% of the operating cash flows. |
The Company acts as the operating member or partner, as applicable, and day-to-day manager for
the partnerships. The Company is entitled to receive fees for providing construction and
development services (as applicable) and management services to the PREI joint ventures. The
Company earned approximately $244,000 and $758,000 in fees for the three and nine months ended
September 30, 2011, respectively, and approximately $225,000 and $1.1 million in fees for the three
and nine
months ended September 30, 2010, respectively, for services provided to the PREI joint
ventures, which are reflected in tenant recoveries and other income in the consolidated statements
of income.
The condensed combined balance sheets for all of the Companys unconsolidated partnerships
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Assets: |
|
|
|
|
|
|
|
|
Investments in real estate, net |
|
$ |
604,297 |
|
|
$ |
620,430 |
|
Cash and cash equivalents (including restricted cash) |
|
|
10,150 |
|
|
|
7,914 |
|
Intangible assets, net |
|
|
11,253 |
|
|
|
12,303 |
|
Other assets |
|
|
24,161 |
|
|
|
26,412 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
649,861 |
|
|
$ |
667,059 |
|
|
|
|
|
|
|
|
Liabilities and members equity: |
|
|
|
|
|
|
|
|
Mortgage notes payable and secured construction loan |
|
$ |
348,530 |
|
|
$ |
415,933 |
|
Other liabilities |
|
|
17,592 |
|
|
|
18,101 |
|
Members equity |
|
|
283,739 |
|
|
|
233,025 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
649,861 |
|
|
$ |
667,059 |
|
|
|
|
|
|
|
|
Companys net investment in unconsolidated partnerships |
|
$ |
67,383 |
|
|
$ |
57,265 |
|
|
|
|
|
|
|
|
24
The condensed combined statements of operations for the unconsolidated partnerships were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Total revenues |
|
$ |
9,232 |
|
|
$ |
9,967 |
|
|
$ |
28,196 |
|
|
$ |
26,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operations expenses and real estate taxes |
|
|
5,971 |
|
|
|
5,251 |
|
|
|
16,926 |
|
|
|
14,531 |
|
Depreciation and amortization |
|
|
4,716 |
|
|
|
4,166 |
|
|
|
14,023 |
|
|
|
10,931 |
|
Professional fees |
|
|
207 |
|
|
|
399 |
|
|
|
574 |
|
|
|
950 |
|
Interest expense, net of interest income |
|
|
3,403 |
|
|
|
2,997 |
|
|
|
10,123 |
|
|
|
8,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
14,297 |
|
|
|
12,813 |
|
|
|
41,646 |
|
|
|
34,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,065 |
) |
|
$ |
(2,846 |
) |
|
$ |
(13,450 |
) |
|
$ |
(7,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys equity in net loss of unconsolidated
partnerships |
|
$ |
(735 |
) |
|
$ |
(308 |
) |
|
$ |
(1,849 |
) |
|
$ |
(686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Derivatives and Other Financial Instruments
As of September 30, 2011, the Company had deferred interest costs of approximately $50.9
million in accumulated other comprehensive loss related to forward starting swaps, which were
settled with the corresponding counterparties in March and April 2009. The forward starting swaps
were entered into to mitigate the Companys exposure to the variability in expected future cash
flows attributable to changes in future interest rates associated with a forecasted issuance of
fixed-rate debt, with interest payments for a minimum of ten years. The deferred interest costs
will be amortized as additional interest expense over a remaining period of approximately eight
years.
The following is a summary of the Companys derivative instruments and their fair-values,
which are included in derivative instruments (liability account) or other assets based on their
respective balances on the accompanying consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fair-Value(1) |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Interest rate swaps (2) |
|
$ |
|
|
|
$ |
(3,826 |
) |
Other (3) |
|
|
13 |
|
|
|
26 |
|
|
|
|
|
|
|
|
Total derivative instruments |
|
$ |
13 |
|
|
$ |
(3,800 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fair-value of derivative instruments does not include any related accrued interest payable,
which is included in accrued expenses on the accompanying consolidated balance sheets.
Derivative valuations are classified in Level 2 of the fair-value hierarchy. |
|
(2) |
|
Two interest rate swaps with an aggregate notional amount of $150.0 million expired on August
1, 2011. |
|
(3) |
|
Includes stock purchase warrants that are recorded as derivative instruments and are
reflected in other assets on the accompanying consolidated balance sheets. Changes in the
fair-value of the stock purchase warrants are included in earnings in the period in which they
occur. |
For derivatives designated as cash flow hedges, the effective portion of changes in the
fair-value of the derivative is initially reported in accumulated other comprehensive income
(outside of earnings) and subsequently reclassified to earnings in the period in which the hedged
forecasted transaction affects earnings. During the three and nine months ended September 30, 2011
and 2010, such derivatives were used to hedge the variable cash flows associated with existing
variable-rate debt. The ineffective portion of the change in fair-value of the derivatives is
recognized directly in earnings.
25
The Companys use of proceeds from its March 2011 unsecured debt offering to repay a portion
of the outstanding indebtedness on its unsecured line of credit caused the amount of variable-rate
indebtedness to fall below the combined notional value of the outstanding interest rate swaps on
March 30, 2011, causing the Company to be overhedged. As a result, the Company re-performed tests
to assess the effectiveness of its interest rate swaps. Although the interest rate swaps with an
aggregate notional amount of $150.0 million passed the assessment tests and the $115.0 million swap
continued to qualify for hedge accounting, the $35.0 million swap no longer qualified for hedge
accounting due to the lack of variable rate debt expected to be outstanding during the remaining
term of the swap. From the date that hedge accounting was discontinued on the $35.0 million swap,
changes in the fair-value associated with this interest rate swap were recorded directly to
earnings, resulting in the recognition of a gain of approximately $12,000 for the nine months ended
September 30, 2011, which is included as a component of loss on derivative instruments. The
Company accelerated the reclassification of amounts deferred in accumulated other comprehensive
loss to earnings related to the hedged forecasted transactions that became probable of not
occurring during the period in which the Company was overhedged. This resulted in a cumulative
charge to earnings for the nine months ended September 30, 2011 of approximately $1.0 million.
During the three months ended September 30, 2011, the Company recorded total gain on
derivative instruments of $64,000 primarily related to the increase in the amount of the
variable-rate indebtedness relating to the remaining $150.0 million interest rate swaps (see above)
and changes in the fair-value of other derivative instruments. During the nine months ended
September 30, 2011, the Company recorded total loss on derivative instruments of $564,000,
primarily related to the reduction in the amount of the variable-rate indebtedness relating to the
remaining $150.0 million interest rate swaps (see above), hedge ineffectiveness on cash flow hedges
due to mismatches in maturity dates and interest rate reset dates between the interest rate swaps
and corresponding debt and changes in the fair-value of other derivative instruments. During the
three and nine months ended September 30, 2010, the Company recorded total losses on derivative
instruments of $287,000 and $634,000, respectively, primarily related to the discontinuance of
hedge accounting for the Companys former $250.0 million interest rate swap, hedge ineffectiveness
on cash flow hedges due to mismatches in maturity dates and interest rate dates between the
interest rate swaps and corresponding debt and changes in the fair-value of other derivative
instruments.
Amounts reported in accumulated other comprehensive loss related to derivatives will be
reclassified to earnings during the period in which the hedged forecasted transaction affects
earnings. The change in net unrealized (loss)/gain on derivative instruments includes
reclassifications of net unrealized losses from accumulated other comprehensive loss as (1) an
increase to interest expense of $2.2 million and $8.7 million for the three and nine months ended
September 30, 2011, respectively, and $3.5 million and $14.0 million for the three and nine months
ended September 30, 2010, respectively, and (2) a gain on derivative instruments of $64,000 for the
three months ended September 30, 2011, a loss on derivative instruments of $564,000 for the nine
months ended September 30, 2011, and a loss on derivative instruments of $287,000 and $634,000 for
the three and nine months ended September 30, 2010, respectively. During the next twelve months,
the Company estimates that an additional
$7.0 million will be reclassified from accumulated other comprehensive loss as an increase to
interest expense. In addition, approximately $41,000 and $236,000 for the three and nine months
ended September 30, 2011, respectively, and approximately $65,000 and $646,000 for the three and
nine months ended September 30, 2010, respectively, of settlement payments on interest rate swaps
have been deferred in accumulated other comprehensive loss and will be amortized over the useful
lives of the related development or redevelopment projects.
The following is a summary of the amount of loss recognized in other comprehensive income
related to the derivative instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Amount of loss
recognized in other
comprehensive
income (effective
portion): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
415 |
|
|
$ |
104 |
|
|
$ |
1,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The following is a summary of the amount of loss reclassified from accumulated other
comprehensive loss to interest expense related to the derivative instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Amount of loss
reclassified from
accumulated other
comprehensive loss to
income (effective
portion): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps(1) |
|
$ |
(444 |
) |
|
$ |
(1,676 |
) |
|
$ |
(3,385 |
) |
|
$ |
(8,647 |
) |
Forward starting swaps(2) |
|
|
(1,754 |
) |
|
|
(1,776 |
) |
|
|
(5,279 |
) |
|
|
(5,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate swaps |
|
$ |
(2,198 |
) |
|
$ |
(3,452 |
) |
|
$ |
(8,664 |
) |
|
$ |
(13,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount represents payments made to swap counterparties for the effective portion of interest
rate swaps that were recognized as an increase to interest expense for the periods presented
(the amount was recorded as an increase and corresponding decrease to accumulated other
comprehensive loss in the same accounting period). |
|
(2) |
|
Amount represents reclassifications of deferred interest costs from accumulated other
comprehensive loss to interest expense related to the Companys previously settled forward
starting swaps. |
The following is a summary of the amount of gain/(loss) recognized in income as a loss on
derivative instruments related to the ineffective portion of the derivative instruments (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Amount of gain/(loss) recognized in
income (ineffective portion and amount
excluded from effectiveness testing): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
80 |
|
|
$ |
(301 |
) |
|
$ |
|
|
|
$ |
(245 |
) |
Ineffective interest rate swaps |
|
|
|
|
|
|
|
|
|
|
(544 |
) |
|
|
(416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate swaps |
|
|
80 |
|
|
|
(301 |
) |
|
|
(544 |
) |
|
|
(661 |
) |
Other derivative instruments |
|
|
(16 |
) |
|
|
14 |
|
|
|
(20 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain/(loss) on derivative instruments |
|
$ |
64 |
|
|
$ |
(287 |
) |
|
$ |
(564 |
) |
|
$ |
(634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Fair-Value of Financial Instruments
The Companys disclosures of estimated fair-value of financial instruments at September 30,
2011 and December 31, 2010 were determined using available market information and appropriate
valuation methods. Considerable judgment is necessary to interpret market data and develop
estimated fair-value. The use of different market assumptions or estimation methods may have a
material effect on the estimated fair-value amounts.
The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable,
security deposits, accounts payable, accrued expenses and other liabilities approximate fair-value
due to the short-term nature of these instruments.
The Company utilizes quoted market prices to estimate the fair-value of its fixed-rate and
variable-rate debt, when available. If quoted market prices are not available, the Company
calculates the fair-value of its mortgage notes payable and other fixed-rate debt based on a
currently available market rate assuming the loans are outstanding through maturity and considering
the collateral. In determining the current market rate for fixed-rate debt, a market credit spread
is added to the quoted yields on federal government treasury securities with similar terms to debt.
In determining the current market rate for variable-rate debt, a market credit spread is added to
the current effective interest rate. The carrying value of interest rate swaps, as well as the
underlying hedged liability, if applicable, are reflected at their fair-value. The Company
receives quotations from a third party to use in estimating these fair-values.
27
At September 30, 2011 and December 31, 2010, the aggregate fair-value and the carrying value
of the Companys financial instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Fair-Value |
|
|
Carrying Value |
|
|
Fair-Value |
|
|
Carrying Value |
|
Mortgage notes payable, net |
|
$ |
691,610 |
|
|
$ |
603,406 |
|
|
$ |
729,561 |
|
|
$ |
657,922 |
|
Notes due 2026, net (1) |
|
|
19,800 |
|
|
|
19,800 |
|
|
|
23,244 |
|
|
|
19,522 |
|
Notes due 2030 |
|
|
196,650 |
|
|
|
180,000 |
|
|
|
209,128 |
|
|
|
180,000 |
|
Notes due 2016, net |
|
|
394,016 |
|
|
|
397,693 |
|
|
|
|
|
|
|
|
|
Notes due 2020, net |
|
|
265,090 |
|
|
|
247,719 |
|
|
|
262,950 |
|
|
|
247,571 |
|
Unsecured line of credit |
|
|
212,530 |
|
|
|
216,100 |
|
|
|
388,567 |
|
|
|
392,450 |
|
Derivative instruments (2) |
|
|
13 |
|
|
|
13 |
|
|
|
(3,800 |
) |
|
|
(3,800 |
) |
Available-for-sale securities |
|
|
1,516 |
|
|
|
1,516 |
|
|
|
4,060 |
|
|
|
4,060 |
|
|
|
|
(1) |
|
In October 2011, the Operating Partnership repurchased and redeemed in full the outstanding
principal amount of the Notes due 2026. |
|
(2) |
|
The Companys derivative instruments are reflected in other assets and derivative instruments
(liability account) on the accompanying consolidated balance sheets based on their respective
balances (see Note 9). |
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
As used herein, the terms we, us, our or the Company refer to BioMed Realty Trust,
Inc., a Maryland corporation, and any of our subsidiaries, including BioMed Realty, L.P., a
Maryland limited partnership of which BioMed Realty Trust, Inc. is the parent company and general
partner, which may be referred to herein as the operating partnership.
The following discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this report. We make statements in this report
that are forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. In particular, statements pertaining to our capital resources, portfolio performance
and results of operations contain forward-looking statements. Forward-looking statements involve
numerous risks and uncertainties and you should not rely on them as predictions of future events.
Forward-looking statements depend on assumptions, data or methods which may be incorrect or
imprecise, and we may not be able to realize them. We do not guarantee that the transactions and
events described will happen as described (or that they will happen at all). You can identify
forward-looking statements by the use of forward-looking terminology such as believes, expects,
may, will, should, seeks, approximately, intends, plans, estimates or anticipates
or the negative of these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions. The following factors,
among others, could cause actual results and future events to differ materially from those set
forth or contemplated in the forward-looking statements: adverse economic or real estate
developments in the life science industry or in our target markets, including the inability of our
tenants to obtain funding to run their businesses; reductions in asset valuations and related
impairment charges; our dependence upon significant tenants; our failure to obtain necessary
outside financing on favorable terms or at all, including the continued availability of our
unsecured line of credit; general economic conditions, including downturns in the national and
local economies; volatility in financial and securities markets; defaults on or non-renewal of
leases by tenants; our inability to compete effectively; increased interest rates and operating
costs; our inability to successfully complete real estate acquisitions, developments and
dispositions; risks and uncertainties affecting property development and construction; our failure
to successfully operate acquired properties and operations; the loss of services of one or more of
our executive officers; our failure to qualify or continue to qualify as a REIT; failure to
maintain our investment grade credit ratings with the rating agencies; government approvals,
actions and initiatives, including the need for compliance with environmental requirements; the
effects of earthquakes and other natural disasters; lack of or insufficient amounts of insurance;
and changes in real estate, zoning and other laws and increases in real property tax rates. We
disclaim any intention or obligation to update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
28
The risks included here are not exhaustive, and additional factors could adversely affect our
business and financial performance, including factors and risks included in other sections of this
report. In addition, we discussed a number of material risks in our annual report on Form 10-K for
the year ended December 31, 2010. Those risks continue to be relevant to our performance and
financial condition. Moreover, we operate in a very competitive and rapidly changing environment.
New risk factors emerge from time to time and it is not possible for management to predict all such
risk factors, nor can it assess the impact of all such risk factors on our companys business or
the extent to which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking statements as a
prediction of actual results.
Overview
We operate as a fully integrated, self-administered and self-managed REIT focused on
acquiring, developing, owning, leasing and managing laboratory and office space for the life
science industry. Our tenants primarily include biotechnology and pharmaceutical companies,
scientific research institutions, government agencies and other entities involved in the life
science industry. Our properties are generally located in markets with well-established reputations
as centers for scientific research, including Boston, San Francisco, Maryland, San Diego, New
York/New Jersey, Pennsylvania and Seattle.
At September 30, 2011, we owned or had interests in a portfolio with an aggregate of
approximately 12.3 million rentable square feet.
The following reflects the classification of our properties between stabilized properties
(operating properties in which more than 90% of the rentable square footage is under lease), lease
up (operating properties in which less than 90% of the rentable square footage is under lease),
long-term lease up (our Pacific Industrial Center, Pacific Research Center North and Pacific
Research Center South properties), redevelopment (properties that are currently being prepared for
their intended use), development (properties that are currently under development through ground up
construction) and development potential
(representing managements estimates of rentable square footage if development of these
properties was undertaken) at September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Gross |
|
|
|
|
|
|
Rentable |
|
|
Average |
|
|
|
Book Value |
|
|
Buildings |
|
|
Square Feet |
|
|
Leased (1) |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Stabilized |
|
$ |
2,822,146 |
|
|
|
92 |
|
|
|
6,920,197 |
|
|
|
99.3 |
% |
Lease up |
|
|
642,639 |
|
|
|
32 |
|
|
|
2,631,489 |
|
|
|
53.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current operating portfolio |
|
|
3,464,785 |
|
|
|
124 |
|
|
|
9,551,686 |
|
|
|
90.8 |
% |
Long-term lease up |
|
|
309,062 |
|
|
|
10 |
|
|
|
1,389,517 |
|
|
|
42.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating portfolio |
|
|
3,773,847 |
|
|
|
134 |
|
|
|
10,941,203 |
|
|
|
86.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment |
|
|
49,432 |
|
|
|
9 |
|
|
|
357,817 |
|
|
|
55.5 |
% |
Unconsolidated partnership portfolio |
|
|
67,383 |
|
|
|
7 |
|
|
|
954,558 |
|
|
|
53.7 |
% |
Development potential |
|
|
176,233 |
|
|
|
|
|
|
|
3,667,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio |
|
$ |
4,066,895 |
|
|
|
150 |
|
|
|
15,920,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated based on gross book value for each asset multiplied by the percentage leased. |
29
Acquisitions
During the nine months ended September 30, 2011, we acquired 265,000 rentable square feet of
laboratory and office space, which was 100.0% leased at acquisition, and undeveloped land which we
estimate can support up to approximately 696,000 rentable square feet of laboratory and office
space, for $40.5 million:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
Rentable |
|
|
|
|
|
|
Leased at |
|
Property |
|
Market |
|
Closing Date |
|
|
Square Feet |
|
|
Investment |
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
1701 / 1711 Research Blvd |
|
Maryland |
|
May 9, 2011 |
|
|
104,743 |
|
|
$ |
17,500 |
|
|
|
100.0 |
% |
450 Kendall Street (Kendall
G) (1) |
|
Boston |
|
May 31, 2011 |
|
|
|
|
|
|
5,030 |
|
|
|
n/a |
|
Ardsley Park |
|
New York / New Jersey |
|
June 23, 2011 |
|
|
160,500 |
|
|
|
18,000 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total / weighted average |
|
|
|
|
|
|
|
|
265,243 |
|
|
$ |
40,530 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Subsequent to quarter end,
we anticipate paying $2.9 million for an additional 19,470 square feet of
development potential, bringing our aggregate investment to approximately $8.0 million for
approximately 53,000 square feet of development potential. |
Factors Which May Influence Future Operations
Our long-term corporate strategy is to focus on acquiring, developing, owning, leasing and
managing laboratory and office space for the life science industry. As of September 30, 2011, our
current operating portfolio was 90.8% leased on a weighted average basis to 150 tenants. As of
December 31, 2010, our current operating portfolio was 88.6% leased on a weighted average basis to
149 tenants. The increase in the overall leased percentage was due to an increase in leased square
feet related to increased leasing activity and a decrease in the total rentable square feet in our
current operating portfolio due to the placement of one property into the redevelopment portfolio.
Leases representing less than 0.1% of our leased square footage expire during the fourth
quarter of 2011 and leases representing 4.9% of our leased square footage expire during 2012. Our
leasing strategy for 2011 focuses on leasing vacant space, negotiating renewals for leases
scheduled to expire during the year, and identifying new tenants or existing tenants
seeking additional space to occupy the spaces for which we are unable to negotiate such
renewals. We may proceed with additional new developments and acquisitions, as real estate and
capital market conditions permit.
As a direct result of the recent economic recession, we believe that the fair-values of some
of our properties may have declined below their respective carrying values. However, to the extent
that a property has a substantial remaining estimated useful life and management does not believe
that the property will be disposed of prior to the end of its useful life, it would be unusual for
undiscounted cash flows to be insufficient to recover the propertys carrying value. We presently
have the ability and intent to continue to own and operate our existing portfolio of properties and
estimated undiscounted future cash flows from the operation of the properties are expected to be
sufficient to recover the carrying value of each property. Accordingly, we do not believe that the
carrying value of any of our properties is impaired. If our ability and/or our intent with regard
to the operation of our properties otherwise dictate an earlier sale date, an impairment loss may
be recognized to reduce the property to the lower of the carrying amount or fair-value less costs
to sell, and such loss could be material.
A discussion of additional factors which may influence future operations can be found below
under Part II, Item 1A, Risk Factors and in our annual report on Form 10-K for the year ended
December 31, 2010.
Critical Accounting Policies
A complete discussion of our critical accounting policies can be found in our annual report on
Form 10-K for the year ended December 31, 2010.
30
Results of Operations
Comparison of the Three Months Ended September 30, 2011 to the Three Months Ended September 30,
2010
The following table sets forth the basis for presenting the historical financial information
for same properties (all properties except redevelopment/development, new properties and corporate
entities), redevelopment/development properties (properties that were entirely or primarily under
redevelopment or development during either of the three months ended September 30, 2011 or 2010),
new properties (properties that were not owned for each of the three months ended September 30,
2011 and 2010 and were not under redevelopment/development), and corporate entities (legal entities
performing general and administrative functions and fees received from our PREI joint ventures), in
thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment/Development |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
Properties |
|
|
New Properties |
|
|
Corporate |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Rental |
|
$ |
71,845 |
|
|
$ |
71,948 |
|
|
$ |
2,278 |
|
|
$ |
384 |
|
|
$ |
9,700 |
|
|
$ |
637 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Tenant recoveries |
|
|
23,728 |
|
|
|
22,218 |
|
|
|
164 |
|
|
|
111 |
|
|
|
2,497 |
|
|
|
166 |
|
|
|
285 |
|
|
|
228 |
|
Other income |
|
|
4,507 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
(21 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
100,080 |
|
|
$ |
94,199 |
|
|
$ |
2,442 |
|
|
$ |
495 |
|
|
$ |
12,198 |
|
|
$ |
803 |
|
|
$ |
266 |
|
|
$ |
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenues. Rental revenues increased $10.8 million to $83.8 million for the three months
ended September 30, 2011 compared to $73.0 million for the three months ended September 30, 2010.
The increase was primarily due to properties acquired in 2010, and the commencement of leases.
Tenant Recoveries. Revenues from tenant reimbursements increased $4.0 million to $26.7 million
for the three months ended September 30, 2011 compared to $22.7 million for the three months ended
September 30, 2010. The increase was primarily due to properties acquired in 2010, the commencement
of new leases, and higher rental operations expenses. Same property tenant recoveries increased
$1.5 million, or 6.8%, for the three months ended September 30, 2011 compared to the same period in
2010 primarily as a result of the commencement of new leases and higher rental operations expenses.
The percentage of recoverable expenses recovered at our properties increased to 78.3% for the
three months ended September 30, 2011 compared to 77.3% for the three months ended September 30,
2010. The increase was primarily due to properties acquired in 2010 and the commencement of new
leases.
Other Income. During the three months ended September 30, 2011, we recorded approximately $4.1
million in lease termination income related to an early lease termination at one of our properties.
See a further description of this lease termination below. In addition to the lease termination
income, we also recorded a lease settlement with another former tenant
for approximately $400,000. Other income for the three months ended September 30, 2010
primarily comprised development fees earned from our PREI joint ventures. Termination payments
received for terminated leases for the three months ended September 30, 2011 and 2010 aggregated
$4.4 million and $14,000, respectively.
The following table shows operating expenses for same properties, redevelopment/development
properties, new properties, and corporate entities, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment/Development |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
Properties |
|
|
New Properties |
|
|
Corporate |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Rental operations |
|
$ |
20,331 |
|
|
$ |
18,238 |
|
|
$ |
128 |
|
|
$ |
64 |
|
|
$ |
1,413 |
|
|
$ |
149 |
|
|
$ |
1,300 |
|
|
$ |
1,547 |
|
Real estate taxes |
|
|
9,245 |
|
|
|
9,264 |
|
|
|
238 |
|
|
|
44 |
|
|
|
1,400 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
28,738 |
|
|
|
27,338 |
|
|
|
1,125 |
|
|
|
114 |
|
|
|
6,432 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
58,314 |
|
|
$ |
54,840 |
|
|
$ |
1,491 |
|
|
$ |
222 |
|
|
$ |
9,245 |
|
|
$ |
571 |
|
|
$ |
1,300 |
|
|
$ |
1,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Operations Expense. Rental operations expense increased $3.2 million to $23.2 million
for the three months ended September 30, 2011 compared to $20.0 million for the three months ended
September 30, 2010. The increase was primarily due to properties acquired in 2010 and increases in
same property rental operations expense. Same property rental operations expense increased $2.1
million, or 11.5%, for the three months ended September 30, 2011 compared to 2010 primarily due to
the commencement of new leases, higher bad debt expense and higher utility costs.
For the three months ended September 30, 2011, we recorded bad debt expense of $1.3 million as
compared to net bad debt recoveries of $145,000 for three months ended September 30, 2010. The
increase in bad debt expense related to amounts considered uncollectible as a result of a lease
termination discussed below during the three months ended September 30, 2011 as compared to the
recovery of a previously recorded allowance in 2010.
Real Estate Tax Expense. Real estate tax expense increased $1.5 million to $10.9 million for
the three months ended September 30, 2011 compared to $9.4 million for the three months ended
September 30, 2010. The increase was primarily due to properties acquired in 2010.
31
Depreciation and Amortization Expense. Depreciation and amortization expense increased $8.5
million to $36.3 million for the three months ended September 30, 2011 compared to $27.8 million
for the three months ended September 30, 2010. The increase was primarily due to properties
acquired in 2010.
General and Administrative Expenses. General and administrative expenses increased $900,000 to
$7.7 million for the three months ended September 30, 2011 compared to $6.8 million for the three
months ended September 30, 2010. The increase was primarily due to an increase in aggregate
compensation costs due to higher headcount as compared to the prior year.
Acquisition Related Expenses. Acquisition related expenses decreased to $136,000 for the three
months ended September 30, 2011 compared to $420,000 for the three months ended September 30, 2010.
The decrease was primarily due to a decrease in acquisition activities in 2011 as compared to the
prior year.
Equity in Net Loss of Unconsolidated Partnerships. Equity in net loss of unconsolidated
partnerships increased $427,000 to $735,000 for the three months ended September 30, 2011 compared
to $308,000 for the three months ended September 30, 2010. The increased loss primarily reflects
the commencement of depreciation and ceasing of interest capitalization on a vacant property that
was under development in 2010 being placed into service.
Interest Expense. Interest cost incurred for the three months ended September 30, 2011 totaled
$25.0 million compared to $22.8 million for three months ended September 30, 2010. Total interest
cost incurred increased primarily as a result of the issuance of our Notes due 2016 in March 2011
and increases in the average interest rate on our outstanding borrowings due to the issuance of new
fixed-rate indebtedness with a higher interest rate than the variable-rate indebtedness it
replaced, partially offset by the expiration of derivative instruments and repayment of certain
mortgage notes payable. Interest expense increased $1.4 million to $23.0 million for the three
months ended September 30, 2011 compared to $21.6 million for the three months ended September 30,
2010. Interest expense increased primarily as the result of the increase in interest cost incurred
partially offset by an increase in capitalized interest.
Interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Mortgage notes payable |
|
$ |
10,776 |
|
|
$ |
11,838 |
|
Amortization of debt premium on mortgage notes payable |
|
|
(428 |
) |
|
|
(476 |
) |
Amortization of deferred interest costs (see Note 9) |
|
|
1,754 |
|
|
|
1,776 |
|
Derivative instruments (see Note 9) |
|
|
444 |
|
|
|
1,676 |
|
Exchangeable senior notes |
|
|
1,910 |
|
|
|
1,915 |
|
Unsecured senior notes |
|
|
7,678 |
|
|
|
3,829 |
|
Amortization of debt discount |
|
|
261 |
|
|
|
179 |
|
Unsecured line of credit |
|
|
1,435 |
|
|
|
1,004 |
|
Amortization of deferred loan fees |
|
|
1,125 |
|
|
|
1,039 |
|
|
|
|
|
|
|
|
Interest cost incurred |
|
|
24,955 |
|
|
|
22,780 |
|
Capitalized interest |
|
|
(1,997 |
) |
|
|
(1,191 |
) |
|
|
|
|
|
|
|
Total interest expense |
|
$ |
22,958 |
|
|
$ |
21,589 |
|
|
|
|
|
|
|
|
Other Expense. Other expenses for the three months ended September 30, 2011 of $3.8 million
related to the reclassification from accumulated other comprehensive loss of an unrealized loss,
considered to be other-than-temporary, related to investments in available-for-sale securities in
two publicly traded companies. See the lease termination section below for further discussion.
Gain/(Loss) on Derivative Instruments. The gain on derivative instruments for the three months
ended September 30, 2011 of $64,000 was primarily related to an increase in our variable-rate
indebtedness during the period resulting in other comprehensive income being reclassified to the
consolidated income statement due to mismatches in forecasted transactions on interest rate swaps.
The loss on derivative instruments for the three months ended September 30, 2010 of $287,000 was
primarily related to a reduction in our variable-rate indebtedness during the period, resulting in
other comprehensive loss being reclassified to the consolidated income statement due to mismatches
in forecasted transactions on interest rate swaps.
32
Loss on Extinguishment of Debt. During the three months ended September 30, 2011, we
voluntarily prepaid in full the outstanding 7.95% mortgage note totaling approximately $17.5
million pertaining to the 9865 Towne Centre Drive property, prior to its maturity date. The
prepayment resulted in the recognition of a loss on extinguishment of debt of approximately
$521,000 (representing a prepayment penalty and the write-off of deferred loan fees). During the
three months ended September 30, 2010, we repurchased $2.1 million face value of our Notes due 2026
at 100.3% of par. The repurchase resulted in the recognition of a loss on extinguishment of debt of
approximately $22,000 (representing the write-off of deferred loan fees and unamortized debt
discount).
Lease termination. During the three months ended September 30, 2011, we recorded
approximately $4.1 million in lease termination income, which has been recorded as other income,
related to an early lease termination at one of our properties. Consideration was in the form of
marketable equity securities received from the former tenant and the recognition of previously
deferred rental income related to the property. As a result of this lease termination, bad debt
expense of approximately $1.0 million was recorded and the amortization of certain intangibles was
accelerated resulting in an additional depreciation and amortization expense of approximately
$700,000. The net impact of this lease termination for the three months ended September 30, 2011
increased net income by approximately $2.4 million. In addition, as described above, other expense
includes an unrealized loss, considered to be other-than-temporary, related to investments in
marketable securities of which approximately $3.6 million relates to an investment in the former
tenant received in connection with a restructuring of the now terminated lease in a prior quarter.
The net effect of all these transactions for the three months ended September 30, 2011 reduced net
income by $1.2 million.
Comparison of the Nine Months Ended September 30, 2011 to the Nine Months Ended September 30, 2010
The following table sets forth the basis for presenting the historical financial information
for same properties (all properties except redevelopment/development and new properties),
redevelopment/development properties (properties that were entirely or primarily under
redevelopment or development during either of the nine months ended September 30, 2011 or 2010),
new properties (properties that were not owned for each of the nine months ended September 30, 2011
and 2010 and were not under redevelopment/development), and corporate entities (legal entities
performing general and administrative functions and fees received from our PREI joint ventures), in
thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment/Development |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
Properties |
|
|
New Properties |
|
|
Corporate |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Rental |
|
$ |
209,170 |
|
|
$ |
211,965 |
|
|
$ |
3,247 |
|
|
$ |
639 |
|
|
$ |
33,055 |
|
|
$ |
3,341 |
|
|
$ |
5 |
|
|
$ |
5 |
|
Tenant recoveries |
|
|
66,803 |
|
|
|
62,408 |
|
|
|
347 |
|
|
|
155 |
|
|
|
7,997 |
|
|
|
660 |
|
|
|
929 |
|
|
|
600 |
|
Other income |
|
|
5,785 |
|
|
|
188 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
(13 |
) |
|
|
1,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
281,758 |
|
|
$ |
274,561 |
|
|
$ |
3,595 |
|
|
$ |
795 |
|
|
$ |
41,054 |
|
|
$ |
4,001 |
|
|
$ |
921 |
|
|
$ |
2,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Revenues. Rental revenues increased $29.5 million to $245.5 million for the nine months
ended September 30, 2011 compared to $216.0 million for the nine months ended September 30, 2010.
The increase was primarily due to properties acquired in 2010. Same property rental revenues
decreased $2.8 million, or 1.3%, for the nine months ended September 30, 2011 compared to the same
period in 2010. The decrease in same property rental revenues was primarily due to decreases in
lease rates related to lease extensions at certain properties (which had the effect of decreasing
rental revenue recognized on a straight-line basis), lease expirations, and the full amortization
of below-market intangible assets in 2010, partially offset by the commencement of new leases in
2011 and 2010.
Tenant Recoveries. Revenues from tenant reimbursements increased $12.3 million to $76.1
million for the nine months ended September 30, 2011 compared to $63.8 million for the nine months
ended September 30, 2010. The increase was primarily due to properties acquired in 2010, the
commencement of new leases, and higher rental operations expenses. Same property tenant recoveries
increased $4.4 million, or 7.0%, for the nine months ended September 30, 2011 compared to the same
period in 2010 primarily as a result of the commencement of new leases and higher rental operations
expenses.
The percentage of recoverable expenses recovered at our properties increased to 78.6% for the
nine months ended September 30, 2011 compared to 78.1% for the nine months ended September 30,
2010. The increase in the recovery percentage in the current period is primarily due to properties
acquired in 2010 and the commencement of new leases.
33
Other Income. During the nine months ended September 30, 2011, we recorded approximately $4.1
million in lease termination income related to an early lease termination at one of our properties.
See a further description of this lease termination below. In addition to the lease termination
income, we also recorded a lease settlement with another former tenant for approximately $400,000.
Other income for the nine months ended September 30, 2010 primarily comprised realized gains from
the sale of equity investments of $865,000 and development fees earned from our PREI joint
ventures. Termination payments received for terminated leases for the nine months ended September
30, 2011 and 2010 aggregated $5.3 million and $86,000, respectively.
The following table shows operating expenses for same properties, redevelopment/development
properties, new properties, and corporate entities, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment/Development |
|
|
|
|
|
|
|
|
|
Same Properties |
|
|
Properties |
|
|
New Properties |
|
|
Corporate |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Rental operations |
|
$ |
56,019 |
|
|
$ |
50,509 |
|
|
$ |
648 |
|
|
$ |
198 |
|
|
$ |
4,494 |
|
|
$ |
326 |
|
|
$ |
3,689 |
|
|
$ |
3,893 |
|
Real estate taxes |
|
|
26,533 |
|
|
|
26,171 |
|
|
|
575 |
|
|
|
250 |
|
|
|
4,794 |
|
|
|
411 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
80,044 |
|
|
|
80,362 |
|
|
|
3,462 |
|
|
|
1,167 |
|
|
|
22,413 |
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
162,596 |
|
|
$ |
157,042 |
|
|
$ |
4,685 |
|
|
$ |
1,615 |
|
|
$ |
31,701 |
|
|
$ |
2,367 |
|
|
$ |
3,689 |
|
|
$ |
3,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Operations Expense. Rental operations expense increased $10.0 million to $64.9 million
for the nine months ended September 30, 2011 compared to $54.9 million for the nine months ended
September 30, 2010. The increase was primarily due to properties acquired in 2010 and increases in
same property rental operations expense. Same property rental operations expense increased $5.5
million, or 10.9%, for the nine months ended September 30, 2011 compared to 2010 primarily due to
the commencement of new leases, higher bad debt expense and higher utility costs.
For the nine months ended September 30, 2011 and 2010, the Company recorded bad debt expense
of $2.2 million and $108,000, respectively. The increase in bad debt expense related to increased
amounts considered uncollectible as a result of a lease termination (see discussion of this lease
termination below), expected nonpayment and renegotiation of unpaid tenant receivables at one of
our properties and increases in allowances due to uncertainty of collectibility of receivable
balances for the nine months ended September 30, 2011 as compared to the same period in 2010. As of
September 30, 2011, we have fully reserved tenant receivables (both accounts receivable and
straight-line rents) for certain tenants that have not terminated their
leases. Such tenants may be paying some or all of their rent on a current basis, but
recoverability of some or all past due receivable balances is not considered probable.
Real Estate Tax Expense. Real estate tax expense increased $5.1 million to $31.9 million for
the nine months ended September 30, 2011 compared to $26.8 million for the nine months ended
September 30, 2010. The increase was primarily due to properties acquired in 2010. Same property
real estate tax expense increased $362,000, or 1.4%, for the nine months ended September 30, 2011
compared to 2010 due to a value reassessment at one of our properties.
Depreciation and Amortization Expense. Depreciation and amortization expense increased $22.7
million to $105.9 million for the nine months ended September 30, 2011 compared to $83.2 million
for the nine months ended September 30, 2010. The increase was primarily due to properties acquired
in 2010.
General and Administrative Expenses. General and administrative expenses increased $2.3
million to $21.8 million for the nine months ended September 30, 2011 compared to $19.5 million for
the nine months ended September 30, 2010. The increase was primarily due to an increase in
aggregate compensation costs due to higher headcount as compared to the prior year.
Acquisition Related Expenses. Acquisition related expenses decreased $1.6 million to $789,000
for the nine months ended September 30, 2011 compared to $2.4 million for the nine months ended
September 30, 2010. The decrease was primarily due to a decrease in acquisition activities in 2011
as compared to the prior year.
Equity in Net Loss of Unconsolidated Partnerships. Equity in net loss of unconsolidated
partnerships increased $1.1 million to $1.8 million for the nine months ended September 30, 2011
compared to $686,000 for the nine months ended September 30, 2010. The increased loss primarily
reflects the commencement of depreciation and ceasing of interest capitalization on a vacant
property that was under development in 2010 being placed into service.
34
Interest Expense. Interest cost incurred for the nine months ended September 30, 2011 totaled
$73.0 million compared to $68.9 million for the nine months ended September 30, 2010. Total
interest cost incurred increased primarily as a result of the issuance of our unsecured senior
notes and increases in the average interest rate on our outstanding borrowings due to the issuance
of new fixed-rate indebtedness with a higher interest rate than the variable-rate indebtedness it
replaced, partially offset by the expiration of derivative instruments. Interest expense increased
$3.0 million to $67.7 million for the nine months ended September 30, 2011 compared to $64.7
million for the nine months ended September 30, 2010. Interest expense increased primarily as the
result of the increase in interest cost incurred partially offset by an increase in capitalized
interest.
Interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Mortgage notes payable |
|
$ |
33,284 |
|
|
$ |
35,539 |
|
Amortization of debt premium on mortgage notes payable |
|
|
(1,352 |
) |
|
|
(1,418 |
) |
Amortization of deferred interest costs (see Note 9) |
|
|
5,279 |
|
|
|
5,343 |
|
Derivative instruments (see Note 9) |
|
|
3,385 |
|
|
|
8,647 |
|
Secured term loan |
|
|
|
|
|
|
1,392 |
|
Exchangeable senior notes |
|
|
5,731 |
|
|
|
6,011 |
|
Unsecured senior notes |
|
|
19,227 |
|
|
|
6,466 |
|
Amortization of debt discount |
|
|
659 |
|
|
|
563 |
|
Unsecured line of credit |
|
|
3,489 |
|
|
|
3,089 |
|
Amortization of deferred loan fees |
|
|
3,336 |
|
|
|
3,223 |
|
|
|
|
|
|
|
|
Interest cost incurred |
|
|
73,038 |
|
|
|
68,855 |
|
Capitalized interest |
|
|
(5,308 |
) |
|
|
(4,136 |
) |
|
|
|
|
|
|
|
Total interest expense |
|
$ |
67,730 |
|
|
$ |
64,719 |
|
|
|
|
|
|
|
|
Other Expense. Other expenses for the nine months ended September 30, 2011 of $4.6 million
related to the reclassification from accumulated other comprehensive loss of an unrealized loss,
considered to be other-than-temporary, related to investments in available-for-sale securities in
two publicly traded companies. See the lease termination section below for further discussion.
Loss on Derivative Instruments. The losses on derivative instruments of $564,000 and $634,000
for the nine months ended September 30, 2011 and 2010, respectively, were primarily related to a
reduction in our variable-rate indebtedness during the respective periods resulting in other
comprehensive loss being reclassified to the consolidated income statement due to mismatches in
forecasted transactions on interest rate swaps.
Loss on Extinguishment of Debt. During the nine months ended September 30, 2011, we
voluntarily prepaid in full the outstanding mortgage notes totaling approximately $47.2 million
pertaining to the Ardentech Court, Road to the Cure, 10255 Science Center Drive and 9865 Towne
Centre Drive properties, prior to their maturity dates. The prepayments resulted in the recognition
of a loss on extinguishment of debt of approximately $814,000 (representing a prepayment penalty
and the write-off of deferred loan fees partially offset by the write off of unamortized debt
premium). During the nine months ended September 30, 2010, we repurchased $26.4 million face value
of our Notes due 2026. The repurchases resulted in the recognition of a loss on extinguishment of
debt of approximately $863,000 (representing the write-off of deferred loan fees and unamortized
debt discount). In addition, we recognized a loss on extinguishment of debt related to the
write-off of approximately $1.4 million of deferred loan fees and legal expenses as a result of the
prepayment of $250.0 million of the outstanding borrowings on our secured term loan.
Lease termination. During the nine months ended September 30, 2011, we recorded approximately
$4.1 million in lease termination income, which has been recorded as other income, related to an
early lease termination at one of our properties. Consideration was in the form of marketable
equity securities received from the former tenant and the recognition of previously deferred rental
income related to the property. As a result of this lease termination, bad debt expense of
approximately $1.0 million was recorded and the amortization of certain intangibles was accelerated
resulting in an additional depreciation and amortization expense of approximately $700,000. The
net impact of this lease termination for the nine months ended September 30, 2011 increased net
income by approximately $2.4 million. In addition, as described above, other expense includes an
unrealized loss, considered to be other-than-temporary, related to investments in marketable
securities of which approximately $3.6 million relates to an investment in the former tenant
received in connection with a restructuring of the now terminated lease in a prior quarter. The
net effect of all these transactions for the nine months ended September 30, 2011 reduced net
income by $1.2 million.
35
Cash Flows
Comparison of the Nine Months Ended September 30, 2011 to the Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(In thousands) |
|
Net cash provided by operating activities |
|
$ |
135,043 |
|
|
$ |
102,914 |
|
|
$ |
32,129 |
|
Net cash used in investing activities |
|
|
(178,366 |
) |
|
|
(319,532 |
) |
|
|
141,166 |
|
Net cash provided by financing activities |
|
|
38,207 |
|
|
|
217,383 |
|
|
|
(179,176 |
) |
Ending cash and cash equivalents balance |
|
|
16,351 |
|
|
|
20,687 |
|
|
|
(4,336 |
) |
Net cash provided by operating activities increased $32.1 million to $135.0 million for the
nine months ended September 30, 2011 compared to $102.9 million for the nine months ended September
30, 2010. The increase was primarily due to cash flow generated by acquisitions and cash rent
starts on new leases.
Net cash used in investing activities decreased $141.1 million to $178.4 million for the nine
months ended September 30, 2011 compared to $319.5 million for the nine months ended September 30,
2010. The decrease reflects reduced acquisition activity during the nine months ended September 30,
2011 compared to the nine months ended September 30, 2010.
Net cash provided by financing activities decreased $179.2 million to $38.2 million for the
nine months ended September 30, 2011 compared to $217.4 million for the nine months ended September
30, 2010. The decrease primarily reflects reduced financing requirements due to reduced acquisition
activity during the nine months ended September 30, 2011 compared to the nine months ended
September 30, 2010. The proceeds from the issuance of our Notes due 2016 in March 2011 were
primarily used to repay balances due under our unsecured line of credit and mortgage notes payable.
Funds from Operations
We present funds from operations, or FFO, available to common shares and OP units because we
consider it an important supplemental measure of our operating performance and believe it is
frequently used by securities analysts, investors and other
interested parties in the evaluation of REITs, many of which present FFO when reporting their
results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real
estate and related assets, which assumes that the value of real estate assets diminishes ratably
over time. Historically, however, real estate values have risen or fallen with market conditions.
Because FFO excludes depreciation and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact to operations from trends in occupancy rates, rental
rates, operating costs, development activities and interest costs, providing perspective not
immediately apparent from net income. We compute FFO in accordance with standards established by
the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, in
its March 1995 White Paper (as amended in November 1999 and April 2002). As defined by NAREIT, FFO
represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate related depreciation and amortization (excluding amortization of loan
origination costs) and after adjustments for unconsolidated partnerships and joint ventures. Our
computation may differ from the methodology for calculating FFO utilized by other equity REITs and,
accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts
available for managements discretionary use because of needed capital replacement or expansion,
debt service obligations, or other commitments and uncertainties. FFO should not be considered as
an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our
financial performance or to cash flow from operating activities (computed in accordance with GAAP)
as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to pay dividends or make distributions.
36
Our FFO available to common shares and OP units and a reconciliation to net income for the
three and nine months ended September 30, 2011 and 2010 (in thousands, except share data) was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net income available to the common stockholders |
|
$ |
4,765 |
|
|
$ |
4,832 |
|
|
$ |
13,933 |
|
|
$ |
13,331 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests in operating partnership(1) |
|
|
111 |
|
|
|
122 |
|
|
|
318 |
|
|
|
359 |
|
Interest expense on Notes due 2030(2) |
|
|
1,688 |
|
|
|
1,681 |
|
|
|
5,063 |
|
|
|
4,875 |
|
Depreciation and amortization unconsolidated partnerships |
|
|
945 |
|
|
|
835 |
|
|
|
2,810 |
|
|
|
2,192 |
|
Depreciation and amortization consolidated entities |
|
|
36,295 |
|
|
|
27,774 |
|
|
|
105,919 |
|
|
|
83,159 |
|
Depreciation and amortization allocable to
noncontrolling interest of consolidated joint ventures |
|
|
(26 |
) |
|
|
(24 |
) |
|
|
(77 |
) |
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations available to common shares and units
diluted |
|
$ |
43,778 |
|
|
$ |
35,220 |
|
|
$ |
127,966 |
|
|
$ |
103,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations per share diluted |
|
$ |
0.30 |
|
|
$ |
0.28 |
|
|
$ |
0.89 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares and units outstanding
diluted(2) |
|
|
144,260,059 |
|
|
|
127,053,959 |
|
|
|
144,261,742 |
|
|
|
121,191,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net income allocable to noncontrolling interests in the operating partnership is included in
net income available to unitholders of the operating partnership as reflected in the
consolidated financial statements of BioMed Realty, L.P., included elsewhere herein. |
|
(2) |
|
Reflects interest expense adjustment of the Notes due 2030 based on the if converted
method. The three and nine months ended September 30, 2011 include 10,017,858 shares of common
stock potentially issuable pursuant to the exchange feature of the Notes due 2030 based on the
if converted method. The three and nine months ended September 30, 2010 include 9,914,076
shares of common stock potentially issuable pursuant to the exchange feature of the Notes due
2030 based on the if converted method, respectively. The three and nine months ended
September 30, 2011 include 1,389,873 and 1,424,196 shares of unvested restricted stock, which
are considered anti-dilutive for purposes of calculating diluted earnings per share,
respectively. The three and nine months ended September 30, 2010 include 1,227,939 and
1,249,032 shares of unvested restricted stock, which are considered anti-dilutive for purposes
of calculating diluted earnings per share, respectively. |
Liquidity and Capital Resources of BioMed Realty Trust, Inc.
In this Liquidity and Capital Resources of BioMed Realty Trust, Inc. section, the term the
Company refers only to BioMed Realty Trust, Inc. on an unconsolidated basis, and excludes the
operating partnership and all other subsidiaries. For further discussion of the liquidity and
capital resources of the Company on a consolidated basis, see the section entitled Liquidity and
Capital Resources of BioMed Realty, L.P. below.
The Companys business is operated primarily through the operating partnership. The Company
issues public equity from time to time, but does not otherwise generate any capital itself or
conduct any business itself, other than incurring certain expenses in operating as a public company
which are fully reimbursed by the operating partnership. The Company itself does not hold any
indebtedness, and its only material asset is its ownership of partnership interests of the
operating partnership. The Companys principal funding requirement is the payment of dividends on
its common and preferred shares. The Companys principal source of funding for its dividend
payments is distributions it receives from the operating partnership.
As of September 30, 2011, the Company owned an approximate 97.8% partnership interest and
other limited partners, including some of our directors, executive officers and their affiliates,
owned the remaining 2.2% partnership interest (including LTIP units) in the operating partnership.
As the sole general partner of the operating partnership, BioMed Realty Trust, Inc. has the full,
exclusive and complete responsibility for the operating partnerships day-to-day management and
control.
37
The liquidity of the Company is dependent on the operating partnerships ability to make
sufficient distributions to the Company. The primary cash requirement of the Company is its payment
of dividends to its stockholders. The Company also guarantees some of the operating partnerships
debt, as discussed further in Note 5 of the Notes to Consolidated Financial Statements included
elsewhere herein. If the operating partnership fails to fulfill certain of its debt requirements,
which trigger the Companys guarantee obligations, then the Company will be required to fulfill its
cash payment commitments under such guarantees. However, the Companys only significant asset is
its investment in the operating partnership.
We believe the operating partnerships sources of working capital, specifically its cash flow
from operations, and borrowings available under its unsecured line of credit, are adequate for it
to make its distribution payments to the Company and, in turn, for the Company to make its dividend
payments to its stockholders. However, we cannot assure you that the operating partnerships
sources of capital will continue to be available at all or in amounts sufficient to meet its needs,
including its ability to make distribution payments to the Company. The unavailability of capital
could adversely affect the operating partnerships ability to pay its distributions to the Company,
which would in turn, adversely affect the Companys ability to pay cash dividends to its
stockholders.
Our short-term liquidity requirements consist primarily of funds to pay for future dividends
expected to be paid to the Companys stockholders, operating expenses and other expenditures
directly associated with our properties, interest expense and scheduled principal payments on
outstanding indebtedness, general and administrative expenses, construction projects, capital
expenditures, tenant improvements and leasing commissions.
The Company may from time to time seek to repurchase or redeem the operating partnerships
outstanding debt, the Companys shares of common stock or preferred stock or other securities in
open market purchases, privately negotiated transactions or otherwise. Such repurchases or
redemptions, if any, will depend on prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors. The amounts involved may be material.
For the Company to maintain its qualification as a REIT, it must pay dividends to its
stockholders aggregating annually at least 90% of its ordinary taxable income. While historically
the Company has satisfied this distribution requirement by making cash distributions to its
stockholders, it may choose to satisfy this requirement by making distributions of cash or other
property, including, in limited circumstances, the Companys own stock. As a result of this
distribution requirement, the operating partnership cannot rely on retained earnings to fund its
on-going operations to the same extent that other companies whose parent companies are not REITs
can. The Company may need to continue to raise capital in the equity markets to fund the operating
partnerships working capital needs, acquisitions and developments.
The Company is a well-known seasoned issuer with an effective shelf registration statement
which was amended in November 2010 that allows the Company to register an unspecified amount of
various classes of equity securities and the operating partnership to register an unspecified
amount of various classes of debt securities. As circumstances warrant, the Company may issue
equity from time to time on an opportunistic basis, dependent upon market conditions and available
pricing. When the Company receives proceeds from preferred or common equity issuances, it is
required by the operating
partnerships partnership agreement to contribute the proceeds from its equity issuances to
the operating partnership in exchange for preferred or partnership units of the operating
partnership. The operating partnership may use the proceeds to repay debt, including borrowings
under its unsecured line of credit, develop new or existing properties, acquire properties, or for
general corporate purposes.
Liquidity and Capital Resources of BioMed Realty, L.P.
In this Liquidity and Capital Resources of BioMed Realty, L.P. section, the terms we,
our and us refer to the operating partnership together with its consolidated subsidiaries or
our operating partnership and BioMed Realty Trust, Inc. together with their consolidated
subsidiaries, as the context requires. BioMed Realty Trust, Inc., or our Parent Company, is our
sole general partner and consolidates our results of operations for financial reporting purposes.
Because we operate on a consolidated basis with our Parent Company, the section entitled Liquidity
and Capital Resources of BioMed Realty Trust, Inc. should be read in conjunction with this section
to understand our liquidity and capital resources on a consolidated basis.
Our short-term liquidity requirements consist primarily of funds to pay for future dividends
expected to be paid to our Parent Companys stockholders, operating expenses and other expenditures
directly associated with our properties, interest expense and scheduled principal payments on
outstanding indebtedness, general and administrative expenses, construction projects, capital
expenditures, tenant improvements and leasing commissions.
38
The remaining principal payments due for our consolidated and our proportionate share of
unconsolidated indebtedness (excluding debt premiums and discounts) as of September 30, 2011 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
Consolidated indebtedness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate mortgages |
|
$ |
15,184 |
|
|
$ |
40,478 |
|
|
$ |
8,291 |
|
|
$ |
339,020 |
|
|
$ |
6,253 |
|
|
$ |
190,535 |
|
|
$ |
599,761 |
|
Unsecured line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,100 |
|
|
|
|
|
|
|
216,100 |
|
Notes due 2026 |
|
|
19,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,800 |
|
Notes due 2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,000 |
|
|
|
180,000 |
|
Notes due 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
|
400,000 |
|
Notes due 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated indebtedness |
|
|
34,984 |
|
|
|
40,478 |
|
|
|
8,291 |
|
|
|
339,020 |
|
|
|
222,353 |
|
|
|
1,020,535 |
|
|
|
1,665,661 |
|
Share of unconsolidated indebtedness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured acquisition loan facility |
|
|
|
|
|
|
39,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,855 |
|
Secured construction loan |
|
|
|
|
|
|
|
|
|
|
27,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share of unconsolidated indebtedness |
|
|
|
|
|
|
39,855 |
|
|
|
27,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indebtedness |
|
$ |
34,984 |
|
|
$ |
80,333 |
|
|
$ |
36,086 |
|
|
$ |
339,020 |
|
|
$ |
222,353 |
|
|
$ |
1,020,535 |
|
|
$ |
1,733,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2011, we voluntarily prepaid in full the
outstanding mortgage notes totaling approximately $47.2 million pertaining to the Ardentech Court,
Road to the Cure, 10255 Science Center Drive and 9865 Towne Centre Drive properties, prior to their
respective maturity dates. In October 2011, we voluntarily prepaid in full the outstanding
mortgage note pertaining to the Sorrento West property, in the amount of approximately $13.0
million, prior to its maturity date. Additional consolidated mortgage note maturities through 2012
include mortgages on our 6828 Nancy Ridge Drive and Sidney Street properties, with outstanding
balances of $6.4 million and $26.7 million, respectively, as of September 30, 2011.
In August 2011, we completed the repurchase of 1,280,000 shares of our Parent Companys Series
A preferred stock for approximately $31.1 million, or $24.30 per share, net of accrued dividends of
approximately $250,000.
In October 2011, we voluntarily repurchased and redeemed in full the remaining principal
amount of the Notes due 2026.
Our $350.0 million mortgage loan, which is secured by our Center for Life Science | Boston
property in Boston, Massachusetts, includes a financial covenant relating to a minimum amount of
net worth. Management believes that it was in compliance with this covenant as of September 30,
2011.
The terms of the indentures governing the Notes due 2016 and Notes due 2020 require compliance
with various financial covenants, including limits on the amount of total leverage and secured debt
maintained by us and which require us to maintain minimum levels of debt service coverage.
Management believes that it was in compliance with these covenants as of September 30, 2011.
The credit agreement governing our unsecured line of credit includes certain restrictions and
covenants which require compliance with financial covenants relating to the minimum amounts of net
worth, fixed charge coverage, unsecured debt service coverage, overall leverage and unsecured
leverage ratios, the maximum amount of secured indebtedness and certain investment limitations.
Management believes that it was in compliance with these covenants as of September 30, 2011.
Our long-term liquidity requirements consist primarily of funds to pay for scheduled debt
maturities, construction obligations, renovations, expansions, capital commitments and other
non-recurring capital expenditures that need to be made periodically, and the costs associated with
acquisitions of properties that we pursue. At September 30, 2011, we have entered into construction
contracts and lease agreements, with a remaining commitment totaling approximately $90.2 million
related to tenant improvements, leasing commissions and construction-related capital expenditures.
39
We expect to satisfy our short-term liquidity requirements through our existing working
capital and cash provided by our operations, long-term secured and unsecured indebtedness, the
issuance of additional equity or debt securities and the use of net proceeds from the disposition
of non-strategic assets. Our rental revenues, provided by our leases, generally provide cash
inflows to meet our debt service obligations, pay general and administrative expenses, and fund
regular distributions. We expect to satisfy our long-term liquidity requirements through our
existing working capital, cash provided by operations, long-term secured and unsecured indebtedness
and the issuance of additional equity or debt securities. We also expect to use funds available
under our unsecured line of credit to finance acquisition and development activities and capital
expenditures on an interim basis. In July 2011, we entered into a new unsecured line of credit
which has a maturity date of July 13, 2015, which may be extended to July 13, 2016 at our sole
discretion, after satisfying certain conditions and paying an extension fee based on the then
current facility commitment (see Note 5 in the Notes to the Consolidated Financial Statements
contained elsewhere herein). The secured acquisition and interim loan facility has a maturity date
of February 10, 2012. At maturity, we may refinance the loan, depending on market conditions and
the availability of credit, or we may repay the principal balance of the secured acquisition and
interim loan facility. During the three months ended September 30, 2011, a wholly owned subsidiary
of our joint venture with PREI I LLC entered into an agreement with certain lenders to extend the
maturity date of its secured construction loan facility, extending the maturity date to August 13,
2013 and decreasing the borrowing capacity to $139.0 million, which required the repayment of
approximately $67.0 million by capital contributions of the partners, including our share of the
repayment of approximately $13.4 million. In accordance with the loan agreement, Prudential
Insurance Corporation of America has guaranteed repayment of the secured construction loan. In
addition, we have an investment grade rating which we believe will provide us with continued access
to the unsecured debt markets, providing us with an additional source of long term financing.
On March 30, 2011, we issued $400.0 million aggregate principal amount of our Notes due 2016.
The net proceeds from the issuance were utilized to repay a portion of the outstanding indebtedness
on our unsecured line of credit and for other general corporate and working capital purposes.
BioMed Realty Trust, Inc.s total capitalization at September 30, 2011 was approximately $4.1
billion and comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Shares/Units at |
|
|
Amount or |
|
|
|
|
|
|
September 30, |
|
|
Dollar Value |
|
|
Percent of Total |
|
|
|
2011 |
|
|
Equivalent |
|
|
Capitalization |
|
|
|
(In thousands) |
|
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable(1) |
|
|
|
|
|
$ |
599,761 |
|
|
|
14.7 |
% |
Notes due 2026(2) |
|
|
|
|
|
|
19,800 |
|
|
|
0.5 |
% |
Notes due 2030 |
|
|
|
|
|
|
180,000 |
|
|
|
4.4 |
% |
Notes due 2016(3) |
|
|
|
|
|
|
400,000 |
|
|
|
9.8 |
% |
Notes due 2020(4) |
|
|
|
|
|
|
250,000 |
|
|
|
6.1 |
% |
Unsecured line of credit |
|
|
|
|
|
|
216,100 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
|
|
|
|
1,665,661 |
|
|
|
40.8 |
% |
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, operating partnership and LTIP units outstanding(5) |
|
|
134,245,081 |
|
|
|
2,224,441 |
|
|
|
54.4 |
% |
7.375% Series A Preferred shares outstanding(6) |
|
|
7,920,000 |
|
|
|
198,000 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total capital |
|
|
|
|
|
|
2,422,441 |
|
|
|
59.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
|
|
|
|
$ |
4,088,102 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount excludes debt premiums of $3.6 million recorded upon the assumption of the outstanding
indebtedness in connection with our purchase of the corresponding properties. |
|
(2) |
|
In October 2011, we voluntarily repurchased and redeemed in full the remaining principal
amount outstanding of our Notes due 2026. |
|
(3) |
|
Amount excludes a debt discount of $2.3 million. |
|
(4) |
|
Amount excludes a debt discount of $2.3 million. |
40
|
|
|
(5) |
|
Aggregate principal amount based on the market closing price of the common stock of our
Parent Company of $16.57 per share on the last trading day of the quarter (September 30,
2011). Limited partners who have been issued OP units have the right to require the operating
partnership to redeem part or all of their OP units, which right with respect to LTIP units is
subject to vesting and the satisfaction of other conditions. We may elect to acquire those OP
units in exchange for shares of our Parent Companys common stock on a one-for-one basis,
subject to adjustment. At September 30, 2011, 131,265,102 of the outstanding OP units had been
issued to our Parent Company upon receipt of the net proceeds from the issuance of an equal
number of shares of our Parent Companys common stock. |
|
(6) |
|
Based on the liquidation preference of $25.00 per share of our Parent Companys 7.375% Series
A preferred stock (we have issued a corresponding number of 7.375% Series A preferred units). |
Although our organizational documents do not limit the amount of indebtedness that we may
incur, our Parent Companys board of directors has adopted a policy of targeting our indebtedness
at approximately 50% of our total asset book value. At September 30, 2011, the ratio of debt to
total asset book value was approximately 41.3%. However, our Parent Companys board of directors
may from time to time modify our debt policy in light of current economic or market conditions
including, but not limited to, the relative costs of debt and equity capital, market conditions for
debt and equity securities and fluctuations in the market price of our Parent Companys common
stock. Accordingly, we may increase or decrease our debt to total asset book value ratio beyond the
limit described above. In addition, the terms of the indentures governing our Notes due 2016 and
Notes due 2020 and the credit agreement governing our unsecured line of credit require compliance
with various financial covenants and ratios, which are discussed in detail above and in Note 5 in
the Notes to Consolidated Financial Statements contained elsewhere herein.
We may from time to time seek to repurchase or redeem our outstanding debt, OP units or
preferred units (subject to the repurchase or redemption of an equivalent number of shares of
common stock or preferred stock by our Parent Company) or
other securities, and our Parent Company may seek to repurchase or redeem its outstanding
shares of common stock or preferred stock or other securities, in each case in open market
purchases, privately negotiated transactions or otherwise. Such repurchases or redemptions, if any,
will depend on prevailing market conditions, our liquidity requirements, contractual restrictions
and other factors.
Off-Balance Sheet Arrangements
As of September 30, 2011, we had investments in the following unconsolidated partnerships: (1)
McKellar Court limited partnership, which owns a single tenant occupied property located in San
Diego; and (2) two limited liability companies with PREI, which own a portfolio of properties
primarily located in Cambridge, Massachusetts (see Note 8 of the Notes to Consolidated Financial
Statements included elsewhere herein for more information).
The McKellar Court partnership is a VIE; however, we are not the primary beneficiary. The
limited partner at McKellar Court is the only tenant in the property and will bear a
disproportionate amount of any losses. We, as the general partner, will receive 22% of the
operating cash flows and 75% of the gains upon sale of the property. We account for our general
partner interest using the equity method. The assets of the McKellar Court partnership were $14.5
million and $14.7 million and the liabilities were $10.5 million and $10.5 million at September 30,
2011 and December 31, 2010, respectively. Our equity in net income of the McKellar Court
partnership was $230,000 and $232,000 for the three months ended September 30, 2011 and 2010,
respectively, and $684,000 and $740,000 for the nine months ended September 30, 2011 and 2010,
respectively. In December 2009, we provided funding in the form of a promissory note to the
McKellar Court partnership in the amount of $10.3 million, which matures at the earlier of (1)
January 1, 2020, or (2) the day that the limited partner exercises an option to purchase our
ownership interest. Interest-only payments on the promissory note are due monthly at a fixed rate
of 8.15% (the rate may adjust higher after January 1, 2015), with the principal balance outstanding
due at maturity.
PREI II LLC is a VIE; however, we are not the primary beneficiary. PREI will bear the majority
of any losses incurred. PREI I LLC does not qualify as a VIE. In addition, consolidation is not
required as we do not control the limited liability companies. In connection with the formation of
the PREI joint ventures in April 2007, we contributed 20% of the initial capital. However, the
amount of cash flow distributions that we receive may be more or less based on the nature of the
circumstances underlying the cash distributions due to provisions in the operating agreements
governing the distribution of funds to each member and the occurrence of extraordinary cash flow
events. We account for our member interests using the equity method for both limited liability
companies. The assets of the PREI joint ventures were $635.4 million and $652.3 million at
September 30, 2011 and December 31, 2010, respectively, and the liabilities were $355.6 million and
$423.6 million at September 30, 2011 and December 31, 2010, respectively. Our equity in net loss of
the PREI joint ventures was $965,000 and $540,000 for the three months ended September 30, 2011 and
2010, respectively, and $2.5 million and $1.4 million for the nine months ended September 30, 2011
and 2010, respectively.
41
We have been the primary beneficiary in six other VIEs, consisting of single-tenant properties
in which the tenant has a fixed-price purchase option, which are consolidated and reflected in our
consolidated financial statements.
Our proportionate share of outstanding debt related to our unconsolidated partnerships is
summarized below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount(1) |
|
|
|
|
|
Ownership |
|
|
Interest |
|
|
September 30, |
|
|
December 31, |
|
|
|
Name |
|
Percentage |
|
|
Rate(2) |
|
|
2011 |
|
|
2010 |
|
|
Maturity Date |
PREI I LLC and PREI II LLC(3) |
|
|
20 |
% |
|
|
3.7 |
% |
|
$ |
39,855 |
|
|
$ |
40,650 |
|
|
February 10, 2012 |
PREI I LLC(4) |
|
|
20 |
% |
|
|
3.2 |
% |
|
|
27,795 |
|
|
|
40,481 |
|
|
August 13, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
67,650 |
|
|
$ |
81,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount represents our proportionate share of the total outstanding indebtedness for each of
the unconsolidated partnerships. |
|
(2) |
|
Effective or weighted-average interest rate of the outstanding indebtedness as of September
30, 2011. |
|
(3) |
|
Amount represents our proportionate share of the total draws outstanding under a secured
acquisition and interim loan facility, which bears interest at a rate equal to, at the option
of our PREI joint ventures, either (a) reserve adjusted LIBOR plus 350 basis points or (b) the
higher of (i) the prime rate then in effect, (ii) the federal funds rate then in effect plus
50 basis points or (iii) one-month LIBOR plus 450 basis points, and requires interest only
monthly payments until the maturity date. At maturity, the PREI joint ventures may refinance
the secured acquisition and interim loan facility, depending on market conditions and the
availability of credit, or they may repay the principal balance through capital contributions
of the members. |
|
(4) |
|
Amount represents our proportionate share of a secured construction loan, which bears
interest at a LIBOR-indexed variable rate. The secured construction loan was executed by a
wholly owned subsidiary of PREI I LLC in connection with the construction of the 650 East
Kendall Street property. During the three months ended September 30, 2011, the wholly owned
subsidiary of PREI I LLC entered into an agreement with certain lenders of its secured
construction loan facility, extending the maturity date to August 13, 2013 and decreasing the
borrowing capacity to $139.0 million. In accordance with the loan agreement, Prudential
Insurance Corporation of America has guaranteed repayment of the secured construction loan. |
Cash Distribution Policy
We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the
Code, commencing with our taxable year ended December 31, 2004. To qualify as a REIT, we must meet
a number of organizational and operational requirements, including the requirement that we
distribute currently at least 90% of our ordinary taxable income to our stockholders. It is our
intention to comply with these requirements and maintain our REIT status. As a REIT, we generally
will not be subject to corporate federal, state or local income taxes on taxable income we
distribute currently (in accordance with the Code and applicable regulations) to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local
income taxes at regular corporate rates and may not be able to qualify as a REIT for subsequent tax
years. Even if we qualify as a REIT for federal income tax purposes, we may be subject to certain
state and local taxes on our income and to federal income and excise taxes on our undistributed
taxable income, i.e., taxable income not distributed in the amounts and in the time frames
prescribed by the Code and applicable regulations thereunder.
While we most recently paid a dividend on shares of common stock at an annual dividend rate of
$0.80 per share, the actual dividend payable in the future will be determined by our board of
directors based upon the circumstances at the time of declaration and, as a result, the actual
dividend payable in the future may vary from the current rate. The decision to declare and pay
dividends on shares of our common stock in the future, as well as the timing, amount and
composition of any such future dividends, will be at the sole discretion of our board of directors
in light of conditions then existing, including our earnings, financial condition, capital
requirements, debt maturities, the availability of debt and equity capital, applicable REIT and
legal restrictions and the general overall economic conditions and other factors.
42
The following table provides historical dividend information for our common and preferred
stock for the prior two fiscal years and the nine months ended September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend |
|
|
Dividend |
|
Quarter Ended |
|
Date Declared |
|
Date Paid |
|
per Common Share |
|
|
per Preferred Share |
|
March 31, 2009 |
|
March 16, 2009 |
|
April 15, 2009 |
|
$ |
0.33500 |
|
|
$ |
0.46094 |
|
June 30, 2009 |
|
June 15, 2009 |
|
July 15, 2009 |
|
|
0.11000 |
|
|
|
0.46094 |
|
September 30, 2009 |
|
September 15, 2009 |
|
October 15, 2009 |
|
|
0.11000 |
|
|
|
0.46094 |
|
December 31, 2009 |
|
December 15, 2009 |
|
January 15, 2010 |
|
|
0.14000 |
|
|
|
0.46094 |
|
March 31, 2010 |
|
March 15, 2010 |
|
April 15, 2010 |
|
|
0.14000 |
|
|
|
0.46094 |
|
June 30, 2010 |
|
June 15, 2010 |
|
July 15, 2010 |
|
|
0.15000 |
|
|
|
0.46094 |
|
September 30, 2010 |
|
September 15, 2010 |
|
October 15, 2010 |
|
|
0.17000 |
|
|
|
0.46094 |
|
December 31, 2010 |
|
December 15, 2010 |
|
January 17, 2011 |
|
|
0.17000 |
|
|
|
0.46094 |
|
March 31, 2011 |
|
March 14, 2011 |
|
April 15, 2011 |
|
|
0.20000 |
|
|
|
0.46094 |
|
June 30, 2011 |
|
June 15, 2011 |
|
July 15, 2011 |
|
|
0.20000 |
|
|
|
0.46094 |
|
September 30, 2011 |
|
September 15, 2011 |
|
October 17, 2011 |
|
|
0.20000 |
|
|
|
0.46094 |
|
Inflation
Some of our leases contain provisions designed to mitigate the adverse impact of inflation.
These provisions generally increase rental rates during the terms of the leases either at fixed
rates or indexed escalations (based on the Consumer Price Index or other measures). We may be
adversely impacted by inflation on the leases that do not contain indexed escalation provisions. In
addition, most of our leases require the tenant to pay an allocable share of operating expenses,
including common area maintenance costs, real estate taxes and insurance. This may reduce our
exposure to increases in costs and operating expenses resulting from inflation, assuming our
properties remain leased and tenants fulfill their obligations to reimburse us for such expenses.
Portions of our unsecured line of credit bear interest at a variable rate, which will be
influenced by changes in short-term interest rates, and will be sensitive to inflation.
43
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our future income, cash flows and fair-values relevant to financial instruments depend upon
prevailing market interest rates. Market risk is the exposure to loss resulting from changes in
interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which we believe we are exposed is interest rate risk. Many factors, including
governmental monetary and tax policies, domestic and international economic and political
considerations and other factors that are beyond our control contribute to interest rate risk.
As of September 30, 2011, our consolidated debt consisted of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Interest |
|
|
|
|
|
|
|
Percent of |
|
|
Rate at |
|
|
|
Principal Balance(1) |
|
|
Total Debt |
|
|
September 30, 2011 |
|
Fixed interest rate(2) |
|
$ |
1,448,618 |
|
|
|
87.0 |
% |
|
|
5.56 |
% |
Variable interest rate(3) |
|
|
216,100 |
|
|
|
13.0 |
% |
|
|
1.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total/weighted-average effective interest rate |
|
$ |
1,664,718 |
|
|
|
100.0 |
% |
|
|
5.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Principal balance includes only consolidated indebtedness. |
|
(2) |
|
Includes seven mortgage notes payable secured by certain of our properties (including $3.6
million of unamortized premium), our Notes due 2026, our Notes due 2030, our Notes due 2020
(including $2.3 million of unamortized debt discount), and our Notes due 2016 (including $2.3
million of unamortized debt discount). |
|
(3) |
|
Includes our unsecured line of credit, which bears interest based on a LIBOR-indexed variable
interest rate, plus a credit spread. |
To determine the fair-value of our outstanding consolidated indebtedness, we utilize quoted
market prices to estimate the fair-value, when available. If quoted market prices are not
available, we calculate the fair-value of our mortgage notes payable and other fixed-rate debt
based on an estimate of current lending rates, assuming the debt is outstanding through maturity
and considering the notes collateral. In determining the current market rate for fixed-rate debt,
a market credit spread is added to the quoted yields on federal government treasury securities with
similar terms to the debt. In determining the current market rate for variable-rate debt, a market
credit spread is added to the current effective interest rate. At September 30, 2011, the
fair-value of the fixed-rate debt was estimated to be $1.6 billion compared to the net carrying
value of $1.4 billion (includes $3.6 million of unamortized debt premium, $2.3 million of
unamortized debt discount associated with our Notes due 2020, and $2.3 million of unamortized debt
discount associated with our Notes due 2016). At September 30, 2011, the fair-value of the
variable-rate debt was estimated to be $212.5 million compared to the net carrying value of $216.1
million. We do not believe that the interest rate risk represented by our fixed-rate debt or the
risk of changes in the credit spread related to our variable-rate debt was material as of September
30, 2011 in relation to total assets of $4.0 billion and equity market capitalization of $2.4
billion of BioMed Realty Trust, Inc.s common stock and preferred stock, and BioMed Realty, L.P.s
OP units.
Based on the outstanding balances of our consolidated indebtedness at September 30, 2011, a 1%
change in interest rates would change our interest expense by approximately $2.2 million per year.
Based on the outstanding unhedged balances of our proportionate share of the outstanding balance
for the PREI joint ventures secured loan and secured construction loan at September 30, 2011, a 1%
change in interest rates would change our interest costs included in our equity in net loss of
unconsolidated partnerships by approximately $677,000 per year. This amount was determined by
considering the impact of hypothetical interest rates on our financial instruments. This analysis
does not consider the effect of any change in overall economic activity that could occur in that
environment. Further, in the event of a change of the magnitude discussed above, we may take
actions to further mitigate our exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, this analysis assumes no changes
in our financial structure.
In order to modify and manage the interest rate characteristics of our outstanding debt and to
limit the effects of interest rate risks on our operations, we may utilize a variety of financial
instruments, including interest rate swaps, caps and treasury locks in order to mitigate our
interest rate risk on a related financial instrument. The use of these types of instruments to
hedge our exposure to changes in interest rates carries additional risks, including counterparty
credit risk, the enforceability of hedging contracts and the risk that unanticipated and
significant changes in interest rates will cause a significant loss of basis in the
contract. To limit counterparty credit risk we will seek to enter into such agreements with
major financial institutions with high credit ratings. There can be no assurance that we will be
able to adequately protect against the foregoing risks and will ultimately realize an economic
benefit that exceeds the related amounts incurred in connection with engaging in such hedging
activities. We do not enter into such contracts for speculative or trading purposes.
44
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Controls and Procedures (BioMed Realty Trust, Inc.)
BioMed Realty Trust, Inc. maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in its reports under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms and that such information is accumulated and communicated to its
management, including BioMed Realty Trust, Inc.s Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Also, BioMed Realty
Trust, Inc. has investments in unconsolidated entities. As BioMed Realty Trust, Inc. manages these
entities, its disclosure controls and procedures with respect to such entities are essentially
consistent with those it maintains with respect to its consolidated entities.
As required by Securities and Exchange Commission Rule 13a-15(b) under the Exchange Act,
BioMed Realty Trust, Inc. carried out an evaluation, under the supervision and with the
participation of its management, including BioMed Realty Trust, Inc.s Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of BioMed Realty Trust,
Inc.s disclosure controls and procedures as of the end of the period covered by this report. Based
on the foregoing, BioMed Realty Trust, Inc.s Chief Executive Officer and Chief Financial Officer
concluded that BioMed Realty Trust, Inc.s disclosure controls and procedures were effective at the
reasonable assurance level.
There has been no change in BioMed Realty Trust, Inc.s internal control over financial
reporting during the quarter ended September 30, 2011 that has materially affected, or is
reasonably likely to materially affect, BioMed Realty Trust, Inc.s internal control over financial
reporting.
Controls and Procedures (BioMed Realty, L.P.)
BioMed Realty, L.P. maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in its reports under the Securities Exchange Act of 1934,
as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms and that such
information is accumulated and communicated to its management, including BioMed Realty Trust,
Inc.s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and
management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, BioMed Realty, L.P. has investments in unconsolidated
entities. As BioMed Realty, L.P. manages these entities, its disclosure controls and procedures
with respect to such entities are essentially consistent with those it maintains with respect to
its consolidated entities.
As required by Securities and Exchange Commission Rule 13a-15(b) under the Exchange Act,
BioMed Realty, L.P. carried out an evaluation, under the supervision and with the participation of
its management, including BioMed Realty Trust, Inc.s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of BioMed Realty, L.P.s disclosure
controls and procedures as of the end of the period covered by this report. Based on the foregoing,
BioMed Realty Trust, Inc.s Chief Executive Officer and Chief Financial Officer concluded that
BioMed Realty, L.P.s disclosure controls and procedures were effective at the reasonable assurance
level.
There has been no change in BioMed Realty, L.P.s internal control over financial reporting
during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely
to materially affect, BioMed Realty, L.P.s internal control over financial reporting.
45
PART II OTHER INFORMATION
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ITEM 1. |
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LEGAL PROCEEDINGS |
Although we are involved in legal proceedings arising in the ordinary course of business, we
are not currently a party to any legal proceedings nor is any legal proceeding threatened against
us that we believe would have a material adverse effect on our financial position, results of
operations or liquidity.
There are no material changes to the risk factors described under Part I, Item 1A, Risk
Factors, in our annual report on Form 10-K for the year ended December 31, 2010. Please refer to
that section for disclosures regarding the risks and uncertainties related to our business.
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ITEM 2. |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
During the three months ended September 30, 2011, our Parent Company issued an aggregate of
5,500 shares of its common stock in connection with restricted stock awards under its incentive
award plan for no cash consideration. For each share of common stock issued by our Parent Company
in connection with such an award, the operating partnership issued a restricted operating
partnership unit to our Parent Company, in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended. During the three months ended September 30,
2011, the operating partnership issued an aggregate of 5,500 restricted operating partnership units
to our Parent Company, as required by the operating partnerships partnership agreement.
The following table presents information regarding repurchases of Series A preferred stock by
our Parent Company during the quarter ended September 30, 2011.
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Total Number of |
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Shares Purchased as |
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Maximum Dollar |
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Part of Publicly |
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Value of Shares that |
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Total Number of |
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Average Price Paid |
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Announced Plans or |
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May Yet Be Purchased |
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Period |
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Shares Purchased |
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Per Share |
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Programs |
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Under the Program |
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July 1, 2011 July
31, 2011 |
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August 1, 2011
August 31, 2011 (1) |
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1,280,000 |
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$ |
24.30 |
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September 1, 2011
September 30, 2011 |
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Total |
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1,280,000 |
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$ |
24.30 |
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(1) |
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Repurchased through a privately negotiated transaction. |
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ITEM 3. |
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DEFAULTS UPON SENIOR SECURITIES |
None.
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ITEM 5. |
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OTHER INFORMATION |
None.
46
|
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Exhibit |
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Number |
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Description of Exhibit |
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10.1 |
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Unsecured Credit Agreement, dated as of July 14, 2011, by and among BioMed Realty, L.P., KeyBank
National Association, as Administrative Agent, and certain lenders party thereto.(1) |
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10.2 |
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Form of Line Note under Unsecured Credit Agreement.(1) |
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10.3 |
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Form of Competitive Bid Note under Unsecured Credit Agreement.(1) |
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10.4 |
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Form of Swing Loan Note under Unsecured Credit Agreement.(1) |
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31.1 |
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Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certifications of 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. |
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101.INS
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XBRL Instance Document. |
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101.SCH
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XBRL Taxonomy Extension Schema Document. |
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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(1) |
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Incorporated herein by reference to BioMed Realty Trust, Inc.s and BioMed Realty,
L.P.s Current Report on Form 8-K filed with the Securities and Exchange Commission on July
19, 2011. |
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|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not
filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of
the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act,
and otherwise are not subject to liability under these sections. |
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly
caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
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BIOMED REALTY TRUST, INC.
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BIOMED REALTY, L.P. |
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By: BioMed Realty Trust, Inc. |
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Its general partner |
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/s/ ALAN D. GOLD
Alan D. Gold
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/s/ ALAN D. GOLD
Alan D. Gold
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Chairman of the Board and
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Chairman of the Board and |
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Chief Executive Officer
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Chief Executive Officer |
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(Principal Executive Officer)
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(Principal Executive Officer) |
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/s/ GREG N. LUBUSHKIN
Greg N. Lubushkin
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/s/ GREG N. LUBUSHKIN
Greg N. Lubushkin
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Chief Financial Officer
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Chief Financial Officer |
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(Principal Financial Officer)
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(Principal Financial Officer) |
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Dated: November 2, 2011
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Dated: November 2, 2011 |
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48
EXHIBIT INDEX
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|
|
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Exhibit |
|
|
Number |
|
Description of Exhibit |
|
10.1 |
|
|
Unsecured Credit Agreement, dated as of July 14, 2011, by and among BioMed Realty, L.P., KeyBank
National Association, as Administrative Agent, and certain lenders party thereto.(1) |
|
|
|
|
|
|
10.2 |
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Form of Line Note under Unsecured Credit Agreement.(1) |
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|
|
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10.3 |
|
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Form of Competitive Bid Note under Unsecured Credit Agreement.(1) |
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|
|
|
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10.4 |
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Form of Swing Loan Note under Unsecured Credit Agreement.(1) |
|
|
|
|
|
|
31.1 |
|
|
Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1 |
|
|
Certifications of 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. |
|
|
|
|
|
101.INS
|
|
|
XBRL Instance Document. |
|
|
|
|
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
(1) |
|
Incorporated herein by reference to BioMed Realty Trust, Inc.s and BioMed Realty,
L.P.s Current Report on Form 8-K filed with the Securities and Exchange Commission on July
19, 2011. |
|
|
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not
filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of
the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act,
and otherwise are not subject to liability under these sections. |
49