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, 2013
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)
Maryland | 20-1142292 (BioMed Realty Trust, Inc.) |
(State or other jurisdiction of | 20-1320636 (BioMed Realty, L.P.) |
incorporation or organization) | (I.R.S. Employer Identification No.) |
17190 Bernardo Center Drive | |
San Diego, California | 92128 |
(Address of Principal Executive Offices) | (Zip Code) |
(858) 485-9840
(Registrant’s 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.
BioMed Realty Trust, Inc. | Yes þ No o |
BioMed Realty, L.P. | Yes þ 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).
BioMed Realty Trust, Inc. | Yes þ No o |
BioMed Realty, L.P. | Yes þ 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.:
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller | ||||||
reporting company) | ||||||
BioMed Realty, L.P.:
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller | ||||||
reporting company) | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
BioMed Realty Trust, Inc. | Yes o No þ |
BioMed Realty, L.P. | Yes o No þ |
The number of outstanding shares of BioMed Realty Trust, Inc.’s common stock, par value $0.01 per share, as of November 6, 2013 was 192,111,755.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2013 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 is the general partner of BioMed Realty, L.P. As of September 30, 2013, BioMed Realty Trust, Inc. owned an approximate 97.3% partnership interest and other limited partners, including some of our directors, executive officers and their affiliates, owned the remaining 2.7% 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 partnership’s 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 company’s 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 company’s 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 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:
• | better reflects how management and the analyst community view the business as a single operating unit, |
• | enhances investor understanding of our company by enabling them to view the business as a whole and in the same manner as management, |
• | is more efficient for our company and results in savings in time, effort and expense, and |
• | is more efficient for investors by reducing duplicative disclosure and providing a single document for their review. |
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.:
• | consolidated financial statements, |
• | the following notes to the consolidated financial statements: |
• | Equity / Partners’ Capital, |
• | Debt, and |
2
• | Earnings Per Share / Unit, |
• | Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and |
• | 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, 2013
TABLE OF CONTENTS
4
5
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
6
BIOMED REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, 2013 | December 31, 2012 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Investments in real estate, net | $ | 5,172,102 | $ | 4,319,716 | |||
Investments in unconsolidated partnerships | 31,978 | 32,367 | |||||
Cash and cash equivalents | 29,230 | 19,976 | |||||
Accounts receivable, net | 10,580 | 4,507 | |||||
Accrued straight-line rents, net | 169,272 | 152,096 | |||||
Deferred leasing costs, net | 202,393 | 172,363 | |||||
Other assets | 278,600 | 133,454 | |||||
Total assets | $ | 5,894,155 | $ | 4,834,479 | |||
LIABILITIES AND EQUITY | |||||||
Mortgage notes payable, net | $ | 716,733 | $ | 571,652 | |||
Exchangeable senior notes | 180,000 | 180,000 | |||||
Unsecured senior notes, net | 894,850 | 894,177 | |||||
Unsecured senior term loans | 755,226 | 405,456 | |||||
Unsecured line of credit | 20,000 | 118,000 | |||||
Accounts payable, accrued expenses and other liabilities | 311,287 | 180,653 | |||||
Total liabilities | 2,878,096 | 2,349,938 | |||||
Equity: | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $.01 par value, 15,000,000 shares authorized: 7.375% Series A cumulative redeemable preferred stock, no shares issued and outstanding at September 30, 2013; and 7,920,000 shares issued and outstanding at December 31, 2012, $198,000 liquidation preference ($25.00 per share) | — | 191,469 | |||||
Common stock, $.01 par value, 250,000,000 shares authorized, 192,106,749 shares issued and outstanding at September 30, 2013; and 200,000,000 shares authorized, 154,327,818 shares issued and outstanding at December 31, 2012 | 1,921 | 1,543 | |||||
Additional paid-in capital | 3,552,595 | 2,781,849 | |||||
Accumulated other comprehensive loss, net | (38,618 | ) | (54,725 | ) | |||
Dividends in excess of earnings | (545,819 | ) | (443,280 | ) | |||
Total stockholders’ equity | 2,970,079 | 2,476,856 | |||||
Noncontrolling interests | 45,980 | 7,685 | |||||
Total equity | 3,016,059 | 2,484,541 | |||||
Total liabilities and equity | $ | 5,894,155 | $ | 4,834,479 | |||
See accompanying notes to consolidated financial statements.
7
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenues: | |||||||||||||||
Rental | $ | 116,884 | $ | 101,467 | $ | 327,932 | $ | 288,650 | |||||||
Tenant recoveries | 38,907 | 31,765 | 104,037 | 89,155 | |||||||||||
Other revenue | 3,441 | 1,305 | 47,352 | 1,590 | |||||||||||
Total revenues | 159,232 | 134,537 | 479,321 | 379,395 | |||||||||||
Expenses: | |||||||||||||||
Rental operations | 51,688 | 38,944 | 134,182 | 112,717 | |||||||||||
Depreciation and amortization | 61,898 | 51,372 | 186,219 | 143,882 | |||||||||||
General and administrative | 11,934 | 10,226 | 32,358 | 27,416 | |||||||||||
Acquisition-related expenses | 907 | 176 | 5,263 | 13,055 | |||||||||||
Total expenses | 126,427 | 100,718 | 358,022 | 297,070 | |||||||||||
Income from operations | 32,805 | 33,819 | 121,299 | 82,325 | |||||||||||
Equity in net loss of unconsolidated partnerships | (112 | ) | (339 | ) | (697 | ) | (1,011 | ) | |||||||
Interest expense, net | (27,870 | ) | (26,817 | ) | (79,890 | ) | (72,863 | ) | |||||||
Other expense | (687 | ) | (208 | ) | (4,079 | ) | (580 | ) | |||||||
Income from continuing operations | 4,136 | 6,455 | 36,633 | 7,871 | |||||||||||
Loss from discontinued operations | — | — | — | (4,370 | ) | ||||||||||
Net income | 4,136 | 6,455 | 36,633 | 3,501 | |||||||||||
Net loss / (income) attributable to noncontrolling interests | 111 | (46 | ) | (268 | ) | 156 | |||||||||
Net income attributable to the Company | 4,247 | 6,409 | 36,365 | 3,657 | |||||||||||
Preferred stock dividends | — | (3,651 | ) | (2,393 | ) | (10,952 | ) | ||||||||
Cost on redemption of preferred stock | — | — | (6,531 | ) | — | ||||||||||
Net income / (loss) available to common stockholders | $ | 4,247 | $ | 2,758 | $ | 27,441 | $ | (7,295 | ) | ||||||
Income / (loss) from continuing operations per share available to common stockholders: | |||||||||||||||
Basic and diluted earnings per share | $ | 0.02 | $ | 0.02 | $ | 0.15 | $ | (0.02 | ) | ||||||
Loss from discontinued operations per share available to common stockholders: | |||||||||||||||
Basic and diluted earnings per share | $ | — | $ | — | $ | — | $ | (0.03 | ) | ||||||
Net income / (loss) per share available to common stockholders: | |||||||||||||||
Basic and diluted earnings per share | $ | 0.02 | $ | 0.02 | $ | 0.15 | $ | (0.05 | ) | ||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 190,646,722 | 152,785,451 | 179,138,169 | 152,739,130 | |||||||||||
Diluted | 196,131,643 | 155,728,209 | 183,121,240 | 152,739,130 | |||||||||||
See accompanying notes to consolidated financial statements.
8
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net income | $ | 4,136 | $ | 6,455 | $ | 36,633 | $ | 3,501 | |||||||
Other comprehensive income: | |||||||||||||||
Foreign currency translation adjustments | 1,866 | 576 | (252 | ) | 3,567 | ||||||||||
Unrealized (loss) / gain from derivative instruments, net | (771 | ) | (1,966 | ) | 4,405 | (5,563 | ) | ||||||||
Amortization of deferred interest costs | 1,705 | 1,730 | 5,134 | 5,209 | |||||||||||
Reclassification of unrealized loss on equity securities | — | — | — | 545 | |||||||||||
Reclassification on sale of equity securities | — | (6 | ) | — | (38 | ) | |||||||||
Unrealized gain / (loss) on equity securities | 2,280 | 10 | 8,435 | (509 | ) | ||||||||||
Total other comprehensive income | 5,080 | 344 | 17,722 | 3,211 | |||||||||||
Comprehensive income | 9,216 | 6,799 | 54,355 | 6,712 | |||||||||||
Comprehensive (income) / loss attributable to noncontrolling interests | (493 | ) | (51 | ) | (1,883 | ) | 95 | ||||||||
Comprehensive income attributable to the Company | $ | 8,723 | $ | 6,748 | $ | 52,472 | $ | 6,807 | |||||||
See accompanying notes to consolidated financial statements.
9
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF EQUITY
(In thousands, except share data)
(Unaudited)
Series A Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss)/Income, net | Dividends in Excess of Earnings | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||
Balance at December 31, 2012 | $ | 191,469 | 154,327,818 | $ | 1,543 | $ | 2,781,849 | $ | (54,725 | ) | $ | (443,280 | ) | $ | 2,476,856 | $ | 7,685 | $ | 2,484,541 | |||||||||||||||
Net proceeds from sale of common stock | — | 31,855,000 | 319 | 640,811 | — | — | 641,130 | — | 641,130 | |||||||||||||||||||||||||
Net issuances of unvested restricted common stock | — | 335,308 | 3 | (4,803 | ) | — | — | (4,800 | ) | — | (4,800 | ) | ||||||||||||||||||||||
Conversion of OP units to common stock | — | 20,396 | — | (87 | ) | — | — | (87 | ) | 87 | — | |||||||||||||||||||||||
Redemption of Series A preferred stock | (191,469 | ) | — | — | — | — | (6,531 | ) | (198,000 | ) | — | (198,000 | ) | |||||||||||||||||||||
Vesting of share-based awards | — | — | — | 9,324 | — | — | 9,324 | — | 9,324 | |||||||||||||||||||||||||
Issuance of common stock in connection with Wexford merger | — | 5,568,227 | 56 | 116,487 | — | — | 116,543 | — | 116,543 | |||||||||||||||||||||||||
Issuance of OP units | — | — | — | — | — | — | — | 48,571 | 48,571 | |||||||||||||||||||||||||
Reallocation of noncontrolling interests to equity | — | — | — | 9,014 | — | — | 9,014 | (9,014 | ) | — | ||||||||||||||||||||||||
Common stock dividends | — | — | — | — | — | (129,980 | ) | (129,980 | ) | — | (129,980 | ) | ||||||||||||||||||||||
OP unit distributions | — | — | — | — | — | — | — | (3,232 | ) | (3,232 | ) | |||||||||||||||||||||||
Net income | — | — | — | — | — | 36,365 | 36,365 | 268 | 36,633 | |||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | — | (2,393 | ) | (2,393 | ) | — | (2,393 | ) | ||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (267 | ) | — | (267 | ) | 15 | (252 | ) | ||||||||||||||||||||||
Unrealized gain on equity securities | — | — | — | — | 7,075 | — | 7,075 | 1,360 | 8,435 | |||||||||||||||||||||||||
Amortization of deferred interest costs | — | — | — | — | 5,013 | — | 5,013 | 121 | 5,134 | |||||||||||||||||||||||||
Unrealized gain on derivative instruments, net | — | — | — | — | 4,286 | — | 4,286 | 119 | 4,405 | |||||||||||||||||||||||||
Balance at September 30, 2013 | $ | — | 192,106,749 | $ | 1,921 | $ | 3,552,595 | $ | (38,618 | ) | $ | (545,819 | ) | $ | 2,970,079 | $ | 45,980 | $ | 3,016,059 | |||||||||||||||
See accompanying notes to consolidated financial statements.
10
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | |||||||
September 30, | |||||||
2013 | 2012 | ||||||
Operating activities: | |||||||
Net income | $ | 36,633 | $ | 3,501 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 186,219 | 143,974 | |||||
Allowance for doubtful accounts | 730 | 1,167 | |||||
Non-cash revenue adjustments | 9,590 | 9,045 | |||||
Other non-cash adjustments | 9,903 | 15,283 | |||||
Compensation expense related to restricted common stock and LTIP units | 9,567 | 8,670 | |||||
Distributions representing a return on capital from unconsolidated partnerships | 178 | 1,145 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (5,573 | ) | (2,040 | ) | |||
Accrued straight-line rents | (17,470 | ) | (15,740 | ) | |||
Deferred leasing costs | (12,833 | ) | (9,873 | ) | |||
Other assets | (14,001 | ) | (2,925 | ) | |||
Accounts payable, accrued expenses and other liabilities | 1,759 | 23,825 | |||||
Net cash provided by operating activities | 204,702 | 176,032 | |||||
Investing activities: | |||||||
Purchases of investments in real estate and related intangible assets | (471,910 | ) | (367,785 | ) | |||
Capital expenditures | (142,833 | ) | (110,205 | ) | |||
Contributions from historic tax credit transactions, net of deferred costs | 8,620 | — | |||||
Contributions from new market tax credit transactions, net of deferred costs | 4,078 | — | |||||
Draws on construction loan receivable | (95,303 | ) | — | ||||
Contributions to unconsolidated partnerships, net | (983 | ) | (1,351 | ) | |||
Purchases of debt and equity securities | (12,674 | ) | (5,101 | ) | |||
Proceeds from the sale of debt and equity securities | 6,103 | 133 | |||||
Net cash used in investing activities | (704,902 | ) | (484,309 | ) | |||
Financing activities: | |||||||
Proceeds from common stock offering | 668,553 | — | |||||
Payment of offering costs | (27,423 | ) | — | ||||
Redemption of Series A preferred stock | (198,000 | ) | — | ||||
Payment of deferred loan costs | (7,172 | ) | (5,989 | ) | |||
Unsecured line of credit proceeds | 687,000 | 543,000 | |||||
Unsecured line of credit payments | (785,000 | ) | (724,000 | ) | |||
Mortgage notes proceeds | 4,182 | — | |||||
Principal payments on mortgage notes payable | (112,837 | ) | (38,533 | ) | |||
Proceeds from unsecured senior term loans | 350,000 | 556,404 | |||||
Unsecured senior term loan payments | — | (156,404 | ) | ||||
Proceeds from unsecured senior notes | — | 247,815 | |||||
Release of restriction of cash for repayment of debt | 60,000 | — | |||||
Distributions to operating partnership unit and LTIP unit holders | (2,648 | ) | (1,865 | ) | |||
Dividends paid to common stockholders | (121,103 | ) | (97,116 | ) | |||
Dividends paid to preferred stockholders | (6,045 | ) | (10,950 | ) | |||
11
Nine Months Ended | |||||||
September 30, | |||||||
2013 | 2012 | ||||||
Net cash provided by financing activities | 509,507 | 312,362 | |||||
Effect of exchange rate changes on cash and cash equivalents | (53 | ) | 150 | ||||
Net increase in cash and cash equivalents | 9,254 | 4,235 | |||||
Cash and cash equivalents at beginning of period | 19,976 | 16,411 | |||||
Cash and cash equivalents at end of period | $ | 29,230 | $ | 20,646 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for interest (net of amounts capitalized of $9,999 and $6,376 during the nine months ended September 30, 2013 and 2012, respectively) | $ | 67,079 | $ | 58,978 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Accrual for preferred stock dividends declared | $ | — | $ | 3,651 | |||
Accrual for common stock dividends declared | 45,145 | 33,182 | |||||
Accrual for distributions declared for operating partnership unit and LTIP unit holders | 1,273 | 633 | |||||
Accrued additions to real estate and related intangible assets | 60,246 | 28,545 | |||||
Mortgage notes assumed (includes premiums of $8,671 and $1,802 during the nine months ended September 30, 2013 and 2012, respectively) | 254,660 | 25,947 | |||||
Equity issued in connection with Wexford merger and 320 Charles Street acquisition | 165,114 | — | |||||
Deposits applied for acquisitions | — | 18,649 | |||||
See accompanying notes to consolidated financial statements.
12
BIOMED REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
September 30, 2013 | December 31, 2012 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Investments in real estate, net | $ | 5,172,102 | $ | 4,319,716 | |||
Investments in unconsolidated partnerships | 31,978 | 32,367 | |||||
Cash and cash equivalents | 29,230 | 19,976 | |||||
Accounts receivable, net | 10,580 | 4,507 | |||||
Accrued straight-line rents, net | 169,272 | 152,096 | |||||
Deferred leasing costs, net | 202,393 | 172,363 | |||||
Other assets | 278,600 | 133,454 | |||||
Total assets | $ | 5,894,155 | $ | 4,834,479 | |||
LIABILITIES AND CAPITAL | |||||||
Mortgage notes payable, net | $ | 716,733 | $ | 571,652 | |||
Exchangeable senior notes | 180,000 | 180,000 | |||||
Unsecured senior notes, net | 894,850 | 894,177 | |||||
Unsecured senior term loans | 755,226 | 405,456 | |||||
Unsecured line of credit | 20,000 | 118,000 | |||||
Accounts payable, accrued expenses and other liabilities | 311,287 | 180,653 | |||||
Total liabilities | 2,878,096 | 2,349,938 | |||||
Capital: | |||||||
Partners’ capital: | |||||||
Preferred units, 7.375% Series A cumulative redeemable preferred units, no units issued and outstanding at September 30, 2013; and 7,920,000 units issued and outstanding at December 31, 2012, $198,000 liquidation preference ($25.00 per unit) | — | 191,469 | |||||
Limited partners' capital, 5,415,974 and 2,932,758 units issued and outstanding at September 30, 2013 and December 31, 2012, respectively | 46,498 | 7,937 | |||||
General partner's capital, 192,106,749 and 154,327,818 units issued and outstanding at September 30, 2013 and December 31, 2012, respectively | 3,005,434 | 2,338,464 | |||||
Accumulated other comprehensive loss | (35,355 | ) | (53,077 | ) | |||
Total partners’ capital | 3,016,577 | 2,484,793 | |||||
Noncontrolling interests deficit | (518 | ) | (252 | ) | |||
Total capital | 3,016,059 | 2,484,541 | |||||
Total liabilities and capital | $ | 5,894,155 | $ | 4,834,479 | |||
See accompanying notes to consolidated financial statements.
13
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except unit data)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenues: | |||||||||||||||
Rental | $ | 116,884 | $ | 101,467 | $ | 327,932 | $ | 288,650 | |||||||
Tenant recoveries | 38,907 | 31,765 | 104,037 | 89,155 | |||||||||||
Other revenue | 3,441 | 1,305 | 47,352 | 1,590 | |||||||||||
Total revenues | 159,232 | 134,537 | 479,321 | 379,395 | |||||||||||
Expenses: | |||||||||||||||
Rental operations | 51,688 | 38,944 | 134,182 | 112,717 | |||||||||||
Depreciation and amortization | 61,898 | 51,372 | 186,219 | 143,882 | |||||||||||
General and administrative | 11,934 | 10,226 | 32,358 | 27,416 | |||||||||||
Acquisition-related expenses | 907 | 176 | 5,263 | 13,055 | |||||||||||
Total expenses | 126,427 | 100,718 | 358,022 | 297,070 | |||||||||||
Income from operations | 32,805 | 33,819 | 121,299 | 82,325 | |||||||||||
Equity in net loss of unconsolidated partnerships | (112 | ) | (339 | ) | (697 | ) | (1,011 | ) | |||||||
Interest expense, net | (27,870 | ) | (26,817 | ) | (79,890 | ) | (72,863 | ) | |||||||
Other expense | (687 | ) | (208 | ) | (4,079 | ) | (580 | ) | |||||||
Income from continuing operations | 4,136 | 6,455 | 36,633 | 7,871 | |||||||||||
Loss from discontinued operations | — | — | — | (4,370 | ) | ||||||||||
Net income | 4,136 | 6,455 | 36,633 | 3,501 | |||||||||||
Net loss attributable to noncontrolling interests | 229 | 7 | 266 | 16 | |||||||||||
Net income attributable to the Operating Partnership | 4,365 | 6,462 | 36,899 | 3,517 | |||||||||||
Preferred unit distributions | — | (3,651 | ) | (2,393 | ) | (10,952 | ) | ||||||||
Cost on redemption of preferred units | — | — | (6,531 | ) | — | ||||||||||
Net income / (loss) available to unitholders | $ | 4,365 | $ | 2,811 | $ | 27,975 | $ | (7,435 | ) | ||||||
Income / (loss) from continuing operations per unit available to unitholders: | |||||||||||||||
Basic and diluted earnings per unit | $ | 0.02 | $ | 0.02 | $ | 0.15 | $ | (0.02 | ) | ||||||
Loss from discontinued operations per unit available to unitholders: | |||||||||||||||
Basic and diluted earnings per unit | $ | — | $ | — | $ | — | $ | (0.03 | ) | ||||||
Net income / (loss) per unit available to unitholders: | |||||||||||||||
Basic and diluted earnings per unit | $ | 0.02 | $ | 0.02 | $ | 0.15 | $ | (0.05 | ) | ||||||
Weighted-average units outstanding: | |||||||||||||||
Basic | 196,062,696 | 155,699,816 | 183,048,587 | 155,661,231 | |||||||||||
Diluted | 196,131,643 | 155,699,816 | 183,120,286 | 155,661,231 | |||||||||||
See accompanying notes to consolidated financial statements.
14
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net income | $ | 4,136 | $ | 6,455 | $ | 36,633 | $ | 3,501 | |||||||
Other comprehensive income: | |||||||||||||||
Foreign currency translation adjustments | 1,866 | 576 | (252 | ) | 3,567 | ||||||||||
Unrealized (loss) / gain from derivative instruments, net | (771 | ) | (1,966 | ) | 4,405 | (5,563 | ) | ||||||||
Amortization of deferred interest costs | 1,705 | 1,730 | 5,134 | 5,209 | |||||||||||
Reclassification of unrealized loss on equity securities | — | — | — | 545 | |||||||||||
Reclassification on sale of equity securities | — | (6 | ) | — | (38 | ) | |||||||||
Unrealized gain / (loss) on equity securities | 2,280 | 10 | 8,435 | (509 | ) | ||||||||||
Total other comprehensive income | 5,080 | 344 | 17,722 | 3,211 | |||||||||||
Comprehensive income | 9,216 | 6,799 | 54,355 | 6,712 | |||||||||||
Comprehensive loss attributable to noncontrolling interests | 229 | 7 | 266 | 16 | |||||||||||
Comprehensive income attributable to the Operating Partnership | $ | 9,445 | $ | 6,806 | $ | 54,621 | $ | 6,728 | |||||||
See accompanying notes to consolidated financial statements.
15
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENT OF CAPITAL
(In thousands, except unit data)
(Unaudited)
Preferred Series A | Limited Partners' Capital | General Partner's Capital | Accumulated Other Comprehensive (Loss)/Income | Total Partners' Capital | Noncontrolling Interests Deficit | Total Capital | ||||||||||||||||||||||||||||||
Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||
Balance at December 31, 2012 | 7,920,000 | $ | 191,469 | 2,932,758 | $ | 7,937 | 154,327,818 | $ | 2,338,464 | $ | (53,077 | ) | $ | 2,484,793 | $ | (252 | ) | $ | 2,484,541 | |||||||||||||||||
Proceeds from issuance of OP units | — | — | 2,034,211 | 41,518 | 31,855,000 | 641,130 | — | 682,648 | — | 682,648 | ||||||||||||||||||||||||||
Net issuances of unvested restricted OP units | — | — | 132,441 | — | 335,308 | (4,800 | ) | — | (4,800 | ) | — | (4,800 | ) | |||||||||||||||||||||||
Conversion of OP units | — | — | (20,396 | ) | 87 | 20,396 | (87 | ) | — | — | — | — | ||||||||||||||||||||||||
Redemption of Series A preferred units | (7,920,000 | ) | (198,000 | ) | — | — | — | — | — | (198,000 | ) | — | (198,000 | ) | ||||||||||||||||||||||
Vesting of share-based awards | — | — | — | — | — | 9,324 | — | 9,324 | — | 9,324 | ||||||||||||||||||||||||||
Issuance of OP units in connection with Wexford merger | — | — | 336,960 | 7,053 | 5,568,227 | 116,543 | — | 123,596 | — | 123,596 | ||||||||||||||||||||||||||
Reallocation of capital to limited partners | — | — | — | (7,399 | ) | — | 7,399 | — | — | — | — | |||||||||||||||||||||||||
Distributions | — | (2,393 | ) | — | (3,232 | ) | — | (129,980 | ) | — | (135,605 | ) | — | (135,605 | ) | |||||||||||||||||||||
Net income | — | 8,924 | — | 534 | — | 27,441 | — | 36,899 | (266 | ) | 36,633 | |||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | (252 | ) | (252 | ) | — | (252 | ) | |||||||||||||||||||||||
Unrealized gain on equity securities | — | — | — | — | — | — | 8,435 | 8,435 | — | 8,435 | ||||||||||||||||||||||||||
Amortization of deferred interest costs | — | — | — | — | — | — | 5,134 | 5,134 | — | 5,134 | ||||||||||||||||||||||||||
Unrealized gain on derivative instruments, net | — | — | — | — | — | — | 4,405 | 4,405 | — | 4,405 | ||||||||||||||||||||||||||
Balance at September 30, 2013 | — | $ | — | 5,415,974 | $ | 46,498 | 192,106,749 | $ | 3,005,434 | $ | (35,355 | ) | $ | 3,016,577 | $ | (518 | ) | $ | 3,016,059 | |||||||||||||||||
See accompanying notes to consolidated financial statements.
16
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | |||||||
September 30, | |||||||
2013 | 2012 | ||||||
Operating activities: | |||||||
Net income | $ | 36,633 | $ | 3,501 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 186,219 | 143,974 | |||||
Allowance for doubtful accounts | 730 | 1,167 | |||||
Non-cash revenue adjustments | 9,590 | 9,045 | |||||
Other non-cash adjustments | 9,903 | 15,283 | |||||
Compensation expense related to share-based payments | 9,567 | 8,670 | |||||
Distributions representing a return on capital from unconsolidated partnerships | 178 | 1,145 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (5,573 | ) | (2,040 | ) | |||
Accrued straight-line rents | (17,470 | ) | (15,740 | ) | |||
Deferred leasing costs | (12,833 | ) | (9,873 | ) | |||
Other assets | (14,001 | ) | (2,925 | ) | |||
Accounts payable, accrued expenses and other liabilities | 1,759 | 23,825 | |||||
Net cash provided by operating activities | 204,702 | 176,032 | |||||
Investing activities: | |||||||
Purchases of investments in real estate and related intangible assets | (471,910 | ) | (367,785 | ) | |||
Capital expenditures | (142,833 | ) | (110,205 | ) | |||
Contributions from historic tax credit transactions, net of deferred costs | 8,620 | — | |||||
Contributions from new market tax credit transactions, net of deferred costs | 4,078 | — | |||||
Draws on construction loan receivable | (95,303 | ) | — | ||||
Contributions to unconsolidated partnerships, net | (983 | ) | (1,351 | ) | |||
Purchases of debt and equity securities | (12,674 | ) | (5,101 | ) | |||
Proceeds from the sale of debt and equity securities | 6,103 | 133 | |||||
Net cash used in investing activities | (704,902 | ) | (484,309 | ) | |||
Financing activities: | |||||||
Proceeds from issuance of OP units | 641,130 | — | |||||
Redemption of Series A preferred units | (198,000 | ) | — | ||||
Payment of deferred loan costs | (7,172 | ) | (5,989 | ) | |||
Unsecured line of credit proceeds | 687,000 | 543,000 | |||||
Unsecured line of credit payments | (785,000 | ) | (724,000 | ) | |||
Mortgage notes proceeds | 4,182 | — | |||||
Principal payments on mortgage notes payable | (112,837 | ) | (38,533 | ) | |||
Proceeds from unsecured senior term loans | 350,000 | 556,404 | |||||
Unsecured senior term loan payments | — | (156,404 | ) | ||||
Proceeds from unsecured senior notes | — | 247,815 | |||||
Release of restriction of cash for repayment of debt | 60,000 | — | |||||
17
Nine Months Ended | |||||||
September 30, | |||||||
2013 | 2012 | ||||||
Distributions paid to unitholders | (123,751 | ) | (98,981 | ) | |||
Distributions paid to preferred unitholders | (6,045 | ) | (10,950 | ) | |||
Net cash provided by financing activities | 509,507 | 312,362 | |||||
Effect of exchange rate changes on cash and cash equivalents | (53 | ) | 150 | ||||
Net increase in cash and cash equivalents | 9,254 | 4,235 | |||||
Cash and cash equivalents at beginning of period | 19,976 | 16,411 | |||||
Cash and cash equivalents at end of period | $ | 29,230 | $ | 20,646 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for interest (net of amounts capitalized of $9,999 and $6,376 during the nine months ended September 30, 2013 and 2012, respectively) | $ | 67,079 | $ | 58,978 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Accrual for unit distributions declared | $ | 46,418 | $ | 33,815 | |||
Accrual for preferred unit distributions declared | — | 3,651 | |||||
Accrued additions to real estate and related intangible assets | 60,246 | 28,545 | |||||
Mortgage notes assumed (includes premiums of $8,671 and $1,802 during the nine months ended September 30, 2013 and 2012, respectively) | 254,660 | 25,947 | |||||
Equity issued in connection with Wexford merger and 320 Charles Street acquisition | 165,114 | — | |||||
Deposits applied for acquisitions | — | 18,649 | |||||
See accompanying notes to consolidated financial statements.
18
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”), 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 Company’s tenants primarily include biotechnology and pharmaceutical companies, scientific research institutions, government agencies and other entities involved in the life science industry. The Company’s properties are generally located in markets with well-established reputations as centers for scientific research, including Boston, San Francisco, Maryland, San Diego and New York and, through Wexford Science and Technology, LLC and related entities (collectively, "Wexford"), with universities and their related medical systems such as Wake Forest University in Winston-Salem, North Carolina, University of Pennsylvania in Philadelphia, Pennsylvania, and Washington University in St. Louis, Missouri.
The Parent Company is the sole general partner of the Operating Partnership and, as of September 30, 2013, owned a 97.3% interest in the Operating Partnership. The remaining 2.7% interest in the Operating Partnership is held by limited partners. Each partner’s 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 U.S. 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 Company’s annual report on Form 10-K for the year ended December 31, 2012.
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 (“VIEs”) 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.
Assets and liabilities of subsidiaries outside the United States with non-U.S. dollar functional currencies are translated into U.S. dollars using exchange rates as of the balance sheet dates. Income and expenses are translated using the average exchange rates for the reporting period. Foreign currency translation adjustments are recorded as a component of other comprehensive income. For the three months ended September 30, 2013 and 2012, total revenues from properties outside the United States were $4.5 million and $4.4 million, respectively, which represented 2.8% and 3.3% of the Company’s total revenues during the respective periods. For the nine months ended September 30, 2013 and 2012, total revenues from properties outside the United States were $13.5 million and $5.3 million, respectively, which represented 2.8% and 1.4% of the Company's total revenues during the respective periods. The Company’s net investment in properties outside the United States was $190.5 million and $188.8 million at September 30, 2013 and December 31, 2012, respectively.
19
Investments in Partnerships and Limited Liability Companies
The Company has determined that it is the primary beneficiary in five 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, 2013 and December 31, 2012 consist of the following (in thousands):
September 30, 2013 | December 31, 2012 | ||||||
Investment in real estate, net | $ | 332,004 | $ | 334,331 | |||
Total assets | 371,341 | 369,460 | |||||
Total debt | 143,538 | 144,889 | |||||
Total liabilities | 152,051 | 149,336 | |||||
The Company is also a party to certain VIEs through its ownership of Wexford, which are described in further detail in Note 11.
Investments in Real Estate, Net
Investments in real estate, net consisted of the following (in thousands):
September 30, 2013 | December 31, 2012 | ||||||
Land | $ | 692,633 | $ | 702,993 | |||
Land under development | 133,372 | 48,744 | |||||
Buildings and improvements | 4,771,874 | 4,028,089 | |||||
Construction in progress | 311,296 | 143,340 | |||||
5,909,175 | 4,923,166 | ||||||
Accumulated depreciation | (737,073 | ) | (603,450 | ) | |||
$ | 5,172,102 | $ | 4,319,716 | ||||
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 asset’s 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 Company’s 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 Company’s strategy is to hold its properties over the long-term, if the Company’s 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.
In April 2012, the Company completed the exchange of a property for another real estate operating property. As a result, the property disposed of was reclassified as a discontinued operation. This property was written down to its estimated fair-value of $28.0 million, less costs to sell, which resulted in an impairment loss of $4.6 million that is included in loss from discontinued operations for the nine months ended September 30, 2012. The parties to the exchange determined and agreed upon the fair-value of the property received in the transaction, which the Company considers to be a level 2 input in the fair-value hierarchy. See Note 12 for discussion of discontinued operations.
Deferred Leasing Costs, Net
Leasing commissions and other direct costs associated with obtaining new or renewal leases are recorded at cost and amortized on a straight-line basis over the terms of the respective leases, with remaining terms ranging from less than one year to approximately
20
20 years as of September 30, 2013. Deferred leasing costs also include the net carrying value of acquired in-place leases and acquired management agreements.
Deferred leasing costs, net at September 30, 2013 consisted of the following (in thousands):
Balance at | Accumulated | ||||||||||
September 30, 2013 | Amortization | Net | |||||||||
Acquired in-place leases | $ | 368,733 | $ | (225,811 | ) | $ | 142,922 | ||||
Acquired management agreements | 25,801 | (19,677 | ) | 6,124 | |||||||
Deferred leasing and other direct costs | 82,205 | (28,858 | ) | 53,347 | |||||||
$ | 476,739 | $ | (274,346 | ) | $ | 202,393 | |||||
Deferred leasing costs, net at December 31, 2012 consisted of the following (in thousands):
Balance at | Accumulated | ||||||||||
December 31, 2012 | Amortization | Net | |||||||||
Acquired in-place leases | $ | 303,521 | $ | (185,463 | ) | $ | 118,058 | ||||
Acquired management agreements | 24,963 | (15,242 | ) | 9,721 | |||||||
Deferred leasing and other direct costs | 68,175 | (23,591 | ) | 44,584 | |||||||
$ | 396,659 | $ | (224,296 | ) | $ | 172,363 | |||||
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, 2013 | December 31, 2012 | ||||||
Available-for-sale securities, historical cost | $ | 8,840 | $ | 275 | |||
Unrealized gain, net | 8,551 | 115 | |||||
Available-for-sale securities, fair-value (1) | 17,391 | 390 | |||||
Privately-held securities, cost basis | 13,130 | 12,280 | |||||
Total equity securities | $ | 30,521 | $ | 12,670 | |||
(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 Company holds investments in available-for-sale securities of certain publicly traded companies. Certain of these investments have fair-values less than the Company’s cost basis, net of previous other-than-temporary impairment in these securities due to decreases in their respective stock prices during the nine months ended September 30, 2013. However, management has the intent and ability to retain the investments for a period of time sufficient to allow for an anticipated recovery in their market value. Management will continue to periodically evaluate whether any investment, the fair-value of which is less than the Company’s 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 loss and recorded as a reduction of net income.
The Company also holds investments in securities of certain privately-held companies and funds, which are recorded at cost basis due to the Company’s lack of control or significant influence over such companies and funds.
During the nine months ended September 30, 2013, the Company recorded a $2.8 million impairment charge, which is included in other expense in the consolidated statements of operations. The impairment charge related to the Company’s investment in a privately-held company, comprising a $2.0 million cost basis equity investment and $825,000 related to notes receivable that were included in other assets on the consolidated balance sheets. Other than this investment there were no identified events or changes in circumstances that may have a significant adverse effect on the carrying value of the Company’s cost basis investments
21
and therefore, no evaluation of impairment was performed during the nine months ended September 30, 2013 on the Company’s remaining cost basis investments.
Construction Loan Receivable
The Company has a $255.0 million interest in a $355.0 million construction loan secured by first priority mortgages on a 1.1 million square foot laboratory, office and retail development project located in Boston, Massachusetts, which is 95% leased to Vertex Pharmaceuticals Incorporated to serve as its new corporate headquarters.
The construction loan matures on September 30, 2014, with two one-year extension options exercisable at the borrower’s election after paying the lenders an extension fee on the then-outstanding principal amount. The construction loan bears interest on the outstanding principal amount at a floating rate equal to the greater of (1) reserve adjusted LIBOR plus 550 basis points and (2) 6.5%. In addition, the borrower is required to pay a fee to the lenders based on a specified percentage of the average daily unfunded amount of the construction loan. The borrower may prepay the construction loan in part under certain circumstances, and may prepay the construction loan in full with prior notice and a prepayment fee to the lenders. As of September 30, 2013, the Company had invested approximately $120.9 million in the construction loan, which is included in other assets on the Company's consolidated balance sheet. The Company expects to have fully funded its obligation in early 2014.
Lease Termination
During the three and nine months ended September 30, 2013, the Company recorded lease termination revenue, net of write-offs of lease intangibles, included in other revenue on the consolidated statement of operations of approximately $1.5 million and $42.8 million, respectively. Lease termination revenue related to the termination of a lease with Elan Corporation (“Elan”) at the Company’s Science Center at Oyster Point property for which Elan paid the Company $46.5 million, and the termination of a lease effective August 2013 with Merck at the Company's 320 Bent Street property for which Merck paid the Company $8.7 million in August 2012.
Management’s 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, 2013, the Parent Company issued restricted stock awards to the Company’s employees and directors totaling 620,590 and 26,897 shares of common stock, respectively (253,289 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 38,821 shares were forfeited during the same period), which are included in the total of common stock outstanding as of the period end.
Of the restricted stock awards issued to the Company's employees, 20,069 shares were issued as part of the consideration paid in the Company's merger with Wexford (as discussed below), and 41,568 shares are subject to performance-based vesting conditions. In addition, in connection with the merger with Wexford, the Operating Partnership issued 132,441 operating partnership units which are also subject to performance-based vesting conditions. The aggregate grant date fair-value of these performance-based awards of approximately $3.6 million will be recognized as compensation expense on a straight-line basis over each respective vesting period. The total compensation expense remaining for these awards to be expensed in future periods as of September 30, 2013 was approximately $3.3 million over a weighted-average term of approximately 3.70 years. Dividends and distributions are payable on these awards from the date of issuance.
The Parent Company awarded units to certain of its executive officers (the “Performance Units”), which represent a contingent right to receive one share of the Parent Company’s common stock if vesting conditions are satisfied. Outstanding Performance Units vest ratably over two or three year periods (each, a “Performance Period”) based upon the Parent Company’s total stockholder return relative to its peer group (the "Market Conditions"). The grant date fair-value of the Performance Units was estimated using
22
a Monte Carlo simulation which considered the likelihood of achieving the Market Conditions. The expected value of the Performance Units on the grant date was determined by simulating the total stockholder return for the Parent Company and the peer group, considering the stock price variance for each of the peer group companies compared to each other and the Parent Company. In January 2013, 136,296 Performance Units, which were originally granted to certain executive officers in January 2012 and represent the maximum number of Performance Units that could have vested, were forfeited as a result of the Parent Company's total stockholder return relative to its peer group in 2012 being below the threshold for any payout. During the nine months ended September 30, 2013, the Parent Company awarded 406,288 performance units which represent the maximum number of Performance Units that may vest. The grant date fair-value of these awards of approximately $3.6 million will be recognized as compensation expense on a straight-line basis over each respective Performance Period. The total compensation remaining on the Performance Units granted during the nine months ended September 30, 2013 to be expensed in future periods over a weighted-average term of approximately 1.78 years was $2.5 million as of September 30, 2013. No dividends will be paid or accrued on the Performance Units, and shares of the Parent Company's common stock will not be issued until vesting of the Performance Units occurs.
In February 2013, the Parent Company issued 14,605,000 shares of common stock and contributed net proceeds of approximately $287.0 million, after deducting the underwriters' discounts and commissions and offering expenses, to the Operating Partnership in exchange for the issuance of 14,605,000 operating partnership units. The net proceeds to the Operating Partnership were utilized to fund the acquisition of the Woodside Technology Park property in Redwood City, California, to fund a portion of the redemption of all 7,920,000 outstanding shares of the Parent Company's 7.375% Series A Cumulative Redeemable Preferred Stock (“Series A preferred stock”), to repay a portion of the outstanding indebtedness under its unsecured line of credit and for other general corporate and working capital purposes.
In April 2013, the Parent Company issued 17,250,000 shares of common stock and contributed net proceeds of approximately $354.1 million, after deducting the underwriters' discounts and commissions and offering expenses, to the Operating Partnership in exchange for the issuance of 17,250,000 operating partnership units. The net proceeds to the Operating Partnership were utilized to repay a portion of the outstanding indebtedness under its unsecured line of credit, to fund a portion of the purchase price of the merger with Wexford and for other general corporate and working capital purposes.
In May 2013, as part of the consideration paid for the merger with Wexford, the sellers received 5,568,227 shares of the Parent Company’s common stock and 336,960 operating partnership units, of which 20,069 shares of common stock and all of the operating partnership units are subject to certain restrictions.
In June 2013, as part of the consideration paid for the Company’s acquisition of the 320 Charles Street property in Cambridge, Massachusetts, the seller received 2,034,211 operating partnership units.
Common Stock, Operating Partnership Units and LTIP Units
As of September 30, 2013, the Company had outstanding 192,106,749 shares of the Parent Company’s common stock and 5,083,400 and 332,574 operating partnership and LTIP units, respectively (excluding operating partnership units held by the Parent Company). A share of the Parent Company’s 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
On March 15, 2013, the Company redeemed all 7,920,000 outstanding shares of its Series A preferred stock for approximately $198.0 million, or $25.00 per share, net of accrued dividends of approximately $2.4 million, or $0.30217 per share. The redemption of the Series A preferred stock resulted in the recognition of costs on redemption of preferred stock of approximately $6.5 million for the nine months ended September 30, 2013 as a result of the difference between the carrying value and the price paid to redeem 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, 2013:
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Declaration Date | Securities Class | Amount Per Share/Unit | Period Covered | Dividend and Distribution Payable Date | Dividend and Distribution Amount | |||||||||
(In thousands) | ||||||||||||||
March 15, 2013 | Common stock and OP units | $ | 0.235 | January 1, 2013 to March 31, 2013 | April 15, 2013 | $ | 40,413 | |||||||
June 14, 2013 | Common stock and OP units | $ | 0.235 | April 1, 2013 to June 30, 2013 | July 15, 2013 | $ | 46,381 | |||||||
September 16, 2013 | Common stock and OP units | $ | 0.235 | July 1, 2013 to September 30, 2013 | October 15, 2013 | $ | 46,418 | |||||||
Total 2013 dividends and distributions declared through September 30, 2013 (in thousands):
Common stock and OP units | $ | 133,212 | |
Series A preferred stock/units (1) | 2,393 | ||
$ | 135,605 | ||
____________
(1) | On March 15, 2013, the Company redeemed all 7,920,000 outstanding shares of its Series A preferred stock for approximately $198.0 million, or $25.00 per share, net of accrued dividends of approximately $2.4 million, or $0.30217 per share. |
Changes in Accumulated Other Comprehensive Loss by Component
Foreign currency translation adjustments | Unrealized gains / (losses) on available-for-sale securities | Gain / (loss) on derivative instruments | Total | ||||||||||||
Balance at December 31, 2012 | $ | 3,543 | $ | 114 | $ | (58,382 | ) | $ | (54,725 | ) | |||||
Other comprehensive (loss) / income before reclassifications | (252 | ) | 8,435 | 2,653 | 10,836 | ||||||||||
Amounts reclassified from accumulated other comprehensive income (1) | — | — | 6,886 | 6,886 | |||||||||||
Net other comprehensive (loss) / income | (252 | ) | 8,435 | 9,539 | 17,722 | ||||||||||
Net other comprehensive loss allocable to noncontrolling interests | (15 | ) | (1,360 | ) | (240 | ) | (1,615 | ) | |||||||
Balance as of September 30, 2013 | $ | 3,276 | $ | 7,189 | $ | (49,083 | ) | $ | (38,618 | ) | |||||
____________
(1) | Amounts reclassified from loss on derivative instruments are included in interest expense, net in the consolidated statements of operations. See Note 9 for further information. |
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. Because 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 at the end of the period in which the determination is made.
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The redemption value of the OP units not owned by the Parent Company, had such units been redeemed at September 30, 2013, was approximately $103.2 million based on the average closing price of the Parent Company’s common stock of $19.05 per share for the ten consecutive trading days immediately preceding September 30, 2013.
The following table shows the vested ownership interests in the Operating Partnership:
September 30, 2013 | December 31, 2012 | ||||||||||
Operating Partnership Units and LTIP Units | Percentage of Total | Operating Partnership Units and LTIP Units | Percentage of Total | ||||||||
BioMed Realty Trust | 190,676,810 | 97.3 | % | 152,853,368 | 98.1 | % | |||||
Noncontrolling interest consisting of: | |||||||||||
Operating partnership and LTIP units held by employees and related parties | 2,656,388 | 1.4 | % | 2,339,314 | 1.5 | % | |||||
Operating partnership and LTIP units held by third parties | 2,627,145 | 1.3 | % | 565,051 | 0.4 | % | |||||
Total | 195,960,343 | 100.0 | % | 155,757,733 | 100.0 | % | |||||
4. Capital of the Operating Partnership
Operating Partnership Units and LTIP Units
As of September 30, 2013, the Operating Partnership had outstanding 197,190,149 operating partnership units and 332,574 LTIP units. The Parent Company owned 97.3% of the partnership interests in the Operating Partnership at September 30, 2013, is the Operating Partnership’s general partner and is responsible for the management of the Operating Partnership’s 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 partner’s notice of redemption. In addition, the Parent Company has generally acquired OP units upon a limited partner’s notice of redemption in exchange for shares of its common stock. The redemption provisions of OP units owned by limited partners that permit the Parent Company to settle in either cash or common stock at the option of the Parent Company 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, 2013, was approximately $103.2 million based on the average closing price of the Parent Company’s common stock of $19.05 per share for the ten consecutive trading days immediately preceding September 30, 2013.
Changes in Accumulated Other Comprehensive Loss by Component
Foreign currency translation adjustments | Unrealized gains on available- for-sale securities | Gain / (loss) on derivative instruments | Total | ||||||||||||
Balance at December 31, 2012 | $ | 3,611 | $ | 115 | $ | (56,803 | ) | $ | (53,077 | ) | |||||
Other comprehensive (loss) / income before reclassifications | (252 | ) | 8,435 | 2,653 | 10,836 | ||||||||||
Amounts reclassified from accumulated other comprehensive income (1) | — | — | 6,886 | 6,886 | |||||||||||
Net other comprehensive (loss) / income | (252 | ) | 8,435 | ||||||||||||