Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS
CALCULATION OF REGISTRATION FEE
|
||||||||
Title of Each Class of Securities to be Registered |
Amount to be Registered |
Maximum Offering Price Per Unit |
Maximum Aggregate Offering Price |
Amount of Registration Fee |
||||
---|---|---|---|---|---|---|---|---|
Alexandria Real Estate Equities, Inc. 3.90% Senior Notes due 2023 |
$500,000,000 | 99.712% | $498,560,000 | $68,003.59(1) | ||||
Alexandria Real Estate Equities, L.P. Guarantee of 3.90% Notes due 2023 |
(2) | (2) | (2) | (2) | ||||
|
Filed Pursuant to Rule 424(b)5
Registration File No: 333-181881
PROSPECTUS SUPPLEMENT
(To prospectus dated June 4, 2012)
$500,000,000
Alexandria Real Estate Equities, Inc.
3.90% Senior Notes due 2023
Fully and Unconditionally Guaranteed by Alexandria Real Estate Equities, L.P.
We are offering $500,000,000 of 3.90% senior notes due 2023.
The notes will bear interest at the rate of 3.90% per year. Interest on the notes is payable on December 15 and June 15 of each year, beginning on December 15, 2013. The notes will mature on June 15, 2023. The notes will be fully and unconditionally guaranteed by our subsidiary, Alexandria Real Estate Equities, L.P., a Delaware limited partnership. We may redeem some or all of the notes at any time prior to maturity and as described under the caption "Description of Notes and GuaranteeOur Redemption Rights." If the notes are redeemed on or after 90 days prior to the maturity date, the redemption price will not include a make-whole provision. We will issue the notes only in registered form in denominations of $2,000 and integral multiples of $1,000 in excess thereof.
The notes will be our unsecured senior obligations and will rank equally in right of payment with all of our other unsecured senior indebtedness from time to time outstanding and will be effectively subordinated in right of payment to all of our existing and future secured indebtedness and to all existing and future liabilities and preferred equity, whether secured or unsecured, of our subsidiaries other than Alexandria Real Estate Equities, L.P.
No market currently exists for the notes. We do not intend to list the notes on any national securities exchange.
Investing in our notes involves risks. See "Risk Factors" on page S-11.
|
|||||||
|
Per Note |
Total(1) |
|||||
---|---|---|---|---|---|---|---|
Public offering price |
99.712% | $ | 498,560,000 | ||||
Underwriting discounts and commissions |
0.650% | $ | 3,250,000 | ||||
Proceeds, before expenses, to us |
99.062% | $ | 495,310,000 | ||||
|
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the notes in book-entry form only through the facilities of The Depository Trust Company against payment on or about June 7, 2013.
J.P. Morgan | RBC Capital Markets | RBS |
Barclays |
Goldman, Sachs & Co. |
Mitsubishi UFJ Securities |
PNC Capital Markets LLC |
Scotiabank |
BBVA Securities |
BNY Mellon Capital Markets, LLC |
Credit Agricole CIB |
Credit Suisse |
Fifth Third Securities, Inc. |
HSBC |
Huntington Investment Company |
JMP Securities |
TD Securities |
The date of this prospectus supplement is May 29, 2013.
You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates. Our business, financial condition, results of operations, and prospects may have changed since those dates.
i
This prospectus supplement and the accompanying prospectus contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify the forward-looking statements by their use of forward-looking words, such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates," or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions, and financial trends that may affect our future plans of operation, business strategy, results of operations, and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to the following:
ii
This list of risks and uncertainties is not exhaustive. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under "Risk Factors" contained in this prospectus supplement and the other information contained in our publicly available filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013. We do not undertake any responsibility to update any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events, or otherwise.
iii
The following summary may not contain all of the information that is important to you. You should read this entire prospectus supplement, the accompanying prospectus, and the documents incorporated by reference into the accompanying prospectus carefully before deciding whether to invest in the notes. In this prospectus supplement and the accompanying prospectus, unless otherwise indicated, the "Company," "we," "us," and "our" refer to Alexandria Real Estate Equities, Inc. and its subsidiaries, and "GAAP" refers to accounting principles generally accepted in the United States. Unless otherwise indicated, the information in this prospectus supplement is as of March 31, 2013.
Alexandria Real Estate Equities, Inc.
Overview
We are a self-administered and self-managed investment grade REIT. We are the largest and leading REIT focused principally on owning, operating, developing, redeveloping, and acquiring high-quality, sustainable real estate for the broad and diverse life science industry. Founded in 1994, we are the first REIT to identify and pursue the laboratory niche and have since had the first-mover advantage in the core life science cluster locations, including Greater Boston, San Francisco Bay Area, San Diego, New York City, Seattle, Suburban Washington, D.C., and Research Triangle Park. Our high-credit client tenants span the life science industry, including renowned academic and medical institutions, multinational pharmaceutical companies, public and private biotechnology entities, U.S. government research agencies, medical device companies, industrial biotech companies, venture capital firms, and life science product and service companies.
Our primary business objective is to maximize stockholder value by providing our stockholders with the greatest possible total return and long-term asset value based on a multifaceted platform of internal and external growth. The key elements to our strategy include our consistent focus on high-quality assets and operations in the top life science cluster locations with our properties located in close proximity to life science entities, driving growth and technological advances within each cluster. These locations are characterized by high barriers to entry for new landlords, high barriers to exit for client tenants, and limited supply of available space. They represent highly desirable locations for tenancy by life science entities because of the close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Our strategy also includes drawing upon our deep and broad life science and real estate relationships in order to attract new and leading life science client tenants and value-added real estate.
Recent Developments:
S-1
Francisco. The lease is for 97,700 rentable square feet ("RSF"), or 45%, of the 219,600 RSF at this building. The client-tenant will open a state-of-the-art research and development center at this facility.
As of March 31, 2013:
Growth and Core Operating Strategies
We continue to demonstrate the strength and durability of our core operations, providing life science laboratory space to the broad and diverse life science industry. Our internal growth has been consistent, as demonstrated by our same property net operating income ("NOI") performance, high and relatively stable occupancy, and continuing improvement of cash flows from the leasing activity of our core operating assets. In addition, we continue to focus on our external growth through the conversion of non-income-producing assets into income-producing assets, which results in cash flow contribution from ground-up development and from redevelopment of non-laboratory space into laboratory space. We intend to selectively acquire properties that we believe provide long-term value to our stockholders. Our strategy for acquisitions will focus on the quality of the submarket locations, improvements, tenancy, and overall return. We believe the life science industry will remain keenly
S-2
focused on locations in close proximity to key innovation drivers in each major life science submarket. Owning and operating the best assets in the best locations provides the best upside potential and provides the most downside risk mitigation. This being the case, we will also focus on locations that we believe will deliver high cash flows, stability, and returns as we work to deliver the highest value to our stockholders.
We also intend to continue to focus on the completion and delivery of our existing active development and redevelopment projects in North America, aggregating approximately 1,854,859 RSF, and 331,380 RSF, respectively. Additionally, we intend to continue with preconstruction activities for certain land parcels for future ground-up development in order to preserve and create value for these projects. These important preconstruction activities add significant value to our land for future ground-up development and are required for the ultimate vertical construction of the buildings. We also continue to be very prudent with any future decisions to add new projects to our active ground-up developments. Future ground-up development projects will likely require significant pre-leasing from high-quality and/or creditworthy entities.
We intend to continue to transition our balance sheet debt from short-term and medium-term unsecured variable rate bank debt to long-term unsecured fixed rate debt. We are focused on the recycling of sale proceeds from non-core suburban assets for investment into higher-value urban or central business district ("CBD") assets and teaming with high-quality capital partners, as appropriate. We expect sources of funds for construction activities and repayment of outstanding debt to be provided by opportunistic sales of real estate, joint ventures, cash flows from operations, new secured or unsecured debt, and the issuance of additional equity securities, as appropriate. We intend to combine these sources of capital in order to achieve and maintain our overall balance sheet leverage target.
We seek to maximize balance sheet liquidity and flexibility, cash flows, and cash available for distribution to our stockholders through the ownership, operation, management, and selective acquisition, development, and redevelopment of life science properties, as well as management of our balance sheet. In particular, we seek to maximize balance sheet liquidity and flexibility, cash flows, and cash available for distribution by:
S-3
We continue to target achieving a leverage ratio of net debt to adjusted EBITDA of approximately 6.5x and a fixed charge coverage ratio of approximately 3.0x as of December 31, 2013.
First Quarter 2013 Highlights
Core Operating Metrics
S-4
FFO per sharediluted, AFFO per sharediluted, NOI, and same property NOI are non-GAAP measures. For information on the Company's FFO, AFFO, NOI, and same property NOI, including definitions and reconciliations to the most directly comparable GAAP measures, see page S-28.
Value-Added Opportunities and External Growth
As of March 31, 2013, we had six ground-up development projects in process in North America, including an unconsolidated joint venture development project, aggregating approximately 1,854,859 RSF. We also had seven active projects undergoing conversion into laboratory space through redevelopment, aggregating approximately 331,380 RSF. These projects, along with recently delivered projects, certain future projects, and contribution from same properties, are expected to contribute significant increases in rental income, NOI, and cash flows.
During the three months ended March 31, 2013, we executed leases aggregating 355,000 and 102,000 RSF, respectively, related to our development and redevelopment projects.
Our initial stabilized yield on a cash basis reflects cash rents at date of stabilization and does not reflect contractual rent escalations beyond the stabilization date. Our cash rents related to our value-added projects are expected to increase over time and our average stabilized cash yields are expected, in general, to be greater than our initial stabilized yields. Initial stabilized yield is calculated as the ratio of the estimated amounts of NOI and our investment in the property at stabilization ("Initial Stabilized Yield").
The following table summarizes the commencement of key development projects during the three months ended March 31, 2013 (dollars in thousands, except per RSF amounts):
|
|
|
|
|
|
Initial Stabilized Yield |
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Commencement Date |
|
Pre-Leased % |
Investment at Completion |
Cost Per RSF |
Key Client Tenant |
||||||||||||||||
Address/Market
|
RSF | Cash | GAAP | |||||||||||||||||||
Development |
||||||||||||||||||||||
75/125 Binney Street/Greater Boston |
January 2013 | 386,275 | 63 | % | $ | 351,439 | $ | 910 | 8.0 | % | 8.2 | % | ARIAD Pharmaceuticals, Inc. | |||||||||
269 East Grand Avenue/San Francisco Bay Area |
March 2013 | 107,250 | 100 | % | $ | 51,300 | $ | 478 | 8.1 | % | 9.3 | % | Onyx Pharmaceuticals, Inc. |
Balance Sheet Strategy and Significant Milestones
Our balance sheet strategy will continue to focus on achieving a target leverage ratio of net debt to adjusted EBITDA of approximately 6.5x and a fixed charge coverage ratio of approximately 3.0x as of December 31, 2013, by funding our significant Class A development and redevelopment projects in top life science cluster locations with leverage-neutral sources of capital and with the continuing execution of our asset recycling program. Our leverage will reflect periodic increases and decreases quarter to quarter as we execute and deliver our construction projects and execute our capital plan, including our
S-5
asset recycling program. Our balance sheet objective and our strategy to achieve and maintain our target leverage ratio includes the following:
S-6
The summary below describes the principal terms of the notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The section entitled "Description of Notes and Guarantee" of this prospectus supplement contains a more detailed description of the terms and conditions of the notes and the indenture governing the notes. As used in this section, unless stated otherwise, the terms "we," "us," "our," and the "Company" refer to Alexandria Real Estate Equities, Inc. and not to any of its subsidiaries, and references to the "Operating Partnership" or "guarantor" refer solely to Alexandria Real Estate Equities, L.P. and not to any of its subsidiaries.
Issuer | Alexandria Real Estate Equities, Inc. | |
Guarantor |
Alexandria Real Estate Equities, L.P. |
Issuer/Guarantor Structure
S-7
Securities Offered | $500,000,000 principal amount of 3.90% notes due 2023. | |
Ranking |
As of March 31, 2013, we had outstanding $730.7 million of secured indebtedness and $2.45 billion of senior unsecured indebtedness (exclusive of trade payables, distributions payable, accrued expenses and committed letters of credit) on a consolidated basis. All of our outstanding secured indebtedness as of March 31, 2013 was attributable to indebtedness of our subsidiaries other than Alexandria Real Estate Equities, L.P. |
|
The notes will be our senior unsecured obligations and will rank equally with each other and with all of our existing and future other senior unsecured indebtedness. However, the notes will be effectively subordinated to our 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 our subsidiaries other than Alexandria Real Estate Equities, L.P. |
||
Guarantee |
The notes will be fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P. The guarantee will be a senior unsecured obligation of Alexandria Real Estate Equities, L.P. and will rank equally in right of payment with other senior unsecured obligations of Alexandria Real Estate Equities, L.P. |
|
Interest |
The notes will bear interest at a rate of 3.90% per year. Interest will be payable semi-annually in arrears on December 15 and June 15 of each year, beginning on December 15, 2013. |
|
Maturity |
The notes will mature on June 15, 2023 unless previously redeemed by us at our option prior to such date. |
|
Our Redemption Rights |
At any time before 90 days prior to the maturity date, we may redeem the notes at our option and in our sole discretion, in whole or from time to time in part, at the redemption price specified herein. If the notes are redeemed on or after 90 days prior to the maturity date, the redemption price will be equal to the sum of 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon. See "Description of Notes and GuaranteeOur Redemption Rights" in this prospectus supplement. |
|
Certain Covenants |
The indenture governing the notes contains certain covenants that, among other things, limit our, our guarantor's and our subsidiaries' ability to: |
|
|
consummate a merger, consolidation or sale of all or substantially all of our assets, and |
|
|
incur secured or unsecured indebtedness. |
S-8
These covenants are subject to a number of important exceptions and qualifications. See "Description of Notes and Guarantee" in this prospectus supplement. | ||
Use of Proceeds |
We expect that the net proceeds of this offering will be approximately $494.3 million, after deducting the underwriters' discounts and commissions and our estimated offering expenses. We intend to use the net proceeds from this offering to prepay $150 million of the outstanding principal balance of our 2016 unsecured senior bank term loan, to reduce the outstanding balance on our unsecured senior line of credit to zero, and to hold the remaining proceeds in cash and cash equivalents to fund near term opportunities related to development/redevelopment projects, to fund near term property acquisitions, and for general corporate purposes. After reducing the outstanding balance of our unsecured senior line of credit to zero, the Company may also borrow from time to time under such line of credit for any of the foregoing purposes. |
|
Trading |
The notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the notes on any securities exchange or for quotation of the notes on any automated dealer quotation system. The underwriters have advised us that they intend to make a market in the notes. However, the underwriters will have no obligation to do so, and we cannot assure you that a market for the notes will develop or be maintained. |
|
Book-Entry Form |
The notes will be issued in the form of one or more fully-registered global notes in book-entry form, which will be deposited with, or on behalf of, The Depository Trust Company, commonly known as DTC. Beneficial interests in the global certificate representing the notes will be shown on, and transfers will be effected only through, records maintained by DTC and its direct and indirect participants and such interests may not be exchanged for certificated notes, except in limited circumstances. |
|
Additional Notes |
We may, without the consent of holders of the notes, increase the principal amount of the notes by issuing additional notes in the future on the same terms and conditions, except for any difference in the issue price and interest accrued prior to the issue date of the additional notes, and with the same CUSIP number as the notes offered hereby so long as such additional notes are fungible for U.S. federal income tax purposes with the notes offered hereby. |
S-9
Conflicts of Interest | Affiliates of certain of the underwriters are lenders under our unsecured senior line of credit and our 2016 unsecured senior bank term loan and will receive a portion of the net proceeds from this offering. See "UnderwritingConflicts of Interest" and "UnderwritingOther Relationships" in this prospectus supplement. | |
Risk Factors |
In analyzing an investment in the notes we are offering pursuant to this prospectus supplement, you should carefully consider, along with other matters included or incorporated by reference in this prospectus supplement, the information set forth under "Risk Factors" beginning on page S-6. |
S-10
An investment in our notes involves risks. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. You should carefully consider the risks referred to in the section of the accompanying prospectus entitled "Forward-Looking Statements," as well as the risks identified in this prospectus supplement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, which are incorporated herein by reference.
Risks Relating to this Offering
Our business operations may not generate the cash needed to service our indebtedness.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will enable us to pay our indebtedness, including the notes we are offering in this prospectus supplement. If our cash flows and future borrowings are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness, including the notes. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.
The effective subordination of the notes and guarantee may limit our ability to satisfy our obligations under the notes.
The notes are unsecured and therefore effectively will be subordinated to any of our and our subsidiaries' existing and future secured obligations. As a result, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding of our Company and/or the guarantor of the notes, our assets and the assets of the guarantor will be available to satisfy obligations of our secured debt before any payment may be made on the notes. To the extent that our assets and the assets of the guarantor cannot satisfy in full our secured debt, the holders of such debt would have a claim for any shortfall that would rank equally in right of payment with the notes. In such an event, we may not have sufficient assets remaining to pay amounts on any or all of the notes.
The notes will be issued by us and guaranteed only by the guarantor. Any claims of holders of the notes to the assets of our subsidiaries other than the guarantor derive from our direct and indirect equity interests in those subsidiaries. Claims of our subsidiaries' creditors (including general creditors and taxing authorities) will generally have priority as to the assets of our subsidiaries over our own equity interest claims and will therefore have priority over the holders of the notes. Consequently, the notes will be effectively subordinated to all liabilities, whether or not secured, of such subsidiaries, and possibly of any subsidiaries that we may in the future acquire or establish, as well as any indebtedness that may be incurred or guaranteed by certain of our existing and future subsidiaries other than the guarantor.
All of our outstanding secured indebtedness as of March 31, 2013, was attributable to indebtedness of our subsidiaries other than the guarantor. As of March 31, 2013, all of our outstanding senior unsecured indebtedness was attributable only to the Company and the guarantor, and will rank pari passu with the notes.
S-11
We will continue to have the ability to incur debt after this offering; if we incur substantial additional debt, these higher levels of debt may affect our ability to pay principal and interest on the notes.
Although the agreements governing our unsecured credit facility and certain other indebtedness limit, and the indenture governing the notes will limit, our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. If we incur substantial additional indebtedness in the future, these higher levels of indebtedness could have important consequences to you, because:
The indenture governing the notes will contain certain covenants that limit our operating flexibility.
The indenture governing the notes will contain certain covenants that, among other things, will restrict our, our guarantor's, and our subsidiaries' ability to take specific actions, even if we believe them to be in our best interest, including restrictions on our ability to:
In addition, our 4.60% unsecured senior notes payable, unsecured senior line of credit, 2016 unsecured senior bank term loan, and 2017 unsecured senior bank term loan require us to meet specified financial ratios and the indenture governing the notes will require us to maintain at all times a specified ratio of unencumbered assets to unsecured debt. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of the indenture governing the notes and our existing 4.60% unsecured senior notes payable, unsecured senior line of credit, 2016 unsecured senior bank term loan, and 2017 unsecured senior bank term loan may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events beyond our control. The breach of any of these covenants, including those contained in our unsecured senior line of credit and the indenture governing the notes, could result in a default under our indebtedness, which could cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.
If an active and liquid trading market for the notes does not develop, the market price of the notes may decline and you may be unable to sell your notes.
The notes are a new issue of securities for which there is currently no public market. We do not intend to list the notes on any national securities exchange or for a quotation of the notes on any quotation system. Accordingly, an active trading market may not develop for the notes. Even if a trading market for the notes develops, the market may not be liquid. If an active trading market does
S-12
not develop, you may be unable to resell your notes or may only be able to sell them at a substantial discount.
We may invest or spend the net proceeds in this offering in ways with which you may not agree and in ways that may not earn a profit.
We intend to use the net proceeds from this offering to prepay $150 million of the outstanding principal balance of our 2016 unsecured senior bank term loan, to reduce the outstanding balance on our unsecured senior line of credit to zero, and to hold the remaining proceeds in cash and cash equivalents to fund near term opportunities related to development/redevelopment projects, to fund near term property acquisitions, and for general corporate purposes. After reducing the outstanding balance of our unsecured senior line of credit to zero, the Company may also borrow from time to time under such line of credit for any of the foregoing purposes. However, we will retain broad discretion over the use of the proceeds from this offering. You may not agree with the ways we decide to use these proceeds, and our use of the proceeds may not yield any profits.
We may redeem your notes at our option, which may adversely affect your return.
As described under "Description of Notes and GuaranteeOur Redemption Rights," we have the right to redeem the notes in whole or in part from time to time. We may choose to exercise this redemption right when prevailing interest rates are relatively low. As a result, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the notes.
An increase in market interest rates could result in a decrease in the value of the notes.
In general, as market interest rates rise, notes bearing interest at a fixed rate generally decline in value because the premium, if any, over market interest rates will decline. Consequently, if you purchase the notes and market interest rates increase, the market value of your notes may decline. We cannot predict the future level of market interest rates.
Adverse changes in our credit ratings could negatively affect our financing ability.
Our credit ratings may affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur. There can be no assurance that we will be able to maintain our current credit ratings. In the event that our current credit ratings are downgraded or removed, we would most likely incur higher borrowing costs and experience greater difficulty in obtaining additional financing, which would in turn have a material adverse impact on our financial condition, results of operations, and liquidity.
S-13
ALEXANDRIA REAL ESTATE EQUITIES, INC.
General
We are a Maryland corporation formed in October 1994 that has elected to be taxed as a REIT for federal income tax purposes. We are the largest and leading REIT focused principally on owning, operating, developing, redeveloping, and acquiring high-quality, sustainable real estate for the broad and diverse life science industry. Founded in 1994, we are the first REIT to identify and pursue the laboratory niche and have since had the first-mover advantage in the core life science cluster locations including Greater Boston, San Francisco Bay Area, San Diego, New York City, Seattle, Suburban Washington, D.C., and Research Triangle Park. Our high-credit client tenants span the life science industry, including renowned academic and medical institutions, multinational pharmaceutical companies, public and private biotechnology entities, U.S. government research agencies, medical device companies, industrial biotech companies, venture capital firms, and life science product and service companies.
As of March 31, 2013, we had 173 properties aggregating 16.7 million RSF, composed of approximately 14.2 million RSF of operating properties, approximately 2.1 million RSF undergoing active development, and approximately 0.4 million RSF undergoing active redevelopment. Our operating properties were approximately 93.0% leased as of March 31, 2013. Our primary sources of revenues are rental income and tenant recoveries from leases of our properties. Investment-grade client tenants represented 46% of our total annualized base rent as of March 31, 2013. The comparability of financial data from period to period is affected by the timing of our property acquisition, development, and redevelopment activities.
Business Objectives and Strategies
Our primary business objective is to maximize stockholder value by providing our stockholders with the greatest possible total return and long-term asset value based on a multifaceted platform of internal and external growth. The key elements to our strategy include our consistent focus on high-quality assets and operations in the top life science cluster locations with our properties located in close proximity to life science entities, driving growth and technological advances within each cluster. These locations are characterized by high barriers to entry for new landlords, high barriers to exit for client tenants and limited supply of available space. They represent highly desirable locations for tenancy by life science entities because of the close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Our strategy also includes drawing upon our deep and broad life science and real estate relationships in order to attract new and leading life science client tenants and value-added real estate.
We focus our property operations and investment activities principally in key life science markets, including Greater Boston, San Francisco Bay Area, San Diego, Greater NYC, Suburban Washington, D.C., Seattle, and Research Triangle Park.
Our client tenant base is broad and diverse within the life science industry and reflects our focus on regional, national, and international client tenants with substantial financial and operational resources. For a more detailed description of our properties and client tenants, see "Properties." We have an experienced board of directors and are led by a senior management team with extensive experience in both the real estate and life science industries.
2013 Highlights
Core Operations
The key elements to our strategy include our consistent focus on high-quality assets and operations in the top life science cluster locations; our properties are located adjacent to life science entities,
S-14
driving growth and technological advances within each cluster. These adjacency locations are characterized by high barriers to entry for new landlords, high barriers to exit for client tenants, and limited supply of available space. They represent highly desirable locations for tenancy by life science entities because of the close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Our strategy also includes drawing upon our deep and longstanding life science and real estate relationships in order to attract new and leading life science client tenants that provide us with our unique ability to create value through strong tenant retention and strategic development and redevelopment projects.
The following table presents information regarding our asset base and value-added projects as of March 31, 2013, and December 31, 2012:
Rentable square feet
|
March 31, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
Operating properties |
14,168,626 | 14,992,086 | |||||
Development properties |
2,060,299 | 1,566,774 | |||||
Redevelopment properties |
430,523 | 547,092 | |||||
Total rentable square feet |
16,659,448 | 17,105,952 | |||||
Number of properties |
173 | 178 | |||||
Occupancy of operating properties |
93.0 | % | 93.4 | % | |||
Occupancy of operating and redevelopment properties |
90.1 | % | 89.8 | % | |||
Annualized base rent per leased rentable square foot |
$ | 34.92 | $ | 34.59 |
Leasing
For the three months ended March 31, 2013, we executed a total of 44 leases for approximately 703,000 RSF at 29 different properties (excluding month-to-month leases). Of this total, approximately 156,000 RSF related to new or renewal leases of previously leased space (renewed/re-leased space), and approximately 547,000 RSF related to developed, redeveloped, or previously vacant space. Of the 547,000 RSF, approximately 457,000 RSF related to our development or redevelopment projects, and the remaining approximately 90,000 RSF related to previously vacant space. Rental rates for renewed/re-leased spaces were, on average, approximately 5.9% higher on a cash basis and approximately 12.7% higher on a GAAP basis than rental rates for the respective expiring leases. Additionally, we granted tenant concessions, including free rent averaging approximately 1.2 months, with respect to the 703,000 RSF leased during the three months ended March 31, 2013. Approximately 65.9% of the number of leases executed during the three months ended March 31, 2013, did not include concessions for free rent. The weighted average lease term based on leased square feet for the leases executed during the three months ended March 31, 2013, was 8.7 years.
As of March 31, 2013, approximately 94% of our leases (on a RSF basis) were triple net leases, requiring client tenants to pay substantially all real estate taxes, insurance, utilities, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Additionally, approximately 96% of our leases (on a RSF basis) contained effective annual rent escalations that were either fixed or indexed based on a consumer price index or another index, and approximately 92% of our leases (on a RSF basis) provided for the recapture of certain capital expenditures.
S-15
The following table summarizes our leasing activity at our properties:
|
Three Months Ended |
Twelve Months Ended |
Year Ended | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31, 2013 | March 31, 2013 | December 31, 2012 | December 31, 2011 | December 31, 2010 | ||||||||||||||||||||||||||
|
Cash | GAAP | Cash | GAAP | Cash | GAAP | Cash | GAAP | Cash | GAAP | |||||||||||||||||||||
Leasing activity: |
|||||||||||||||||||||||||||||||
Lease expirations |
|||||||||||||||||||||||||||||||
Number of leases |
49 | 49 | 152 | 152 | 162 | 162 | 158 | 158 | 129 | 129 | |||||||||||||||||||||
Rentable square footage |
360,956 | 360,956 | 2,183,948 | 2,183,948 | 2,350,348 | 2,350,348 | 2,689,257 | 2,689,257 | 2,416,291 | 2,416,291 | |||||||||||||||||||||
Expiring rates |
$ | 32.83 | $ | 30.21 | $ | 30.95 | $ | 28.15 | $ | 30.03 | $ | 27.65 | $ | 29.98 | $ | 28.42 | $ | 27.18 | $ | 28.54 | |||||||||||
Renewed/re-leased space |
|||||||||||||||||||||||||||||||
Number of leases |
19 | 19 | 85 | 85 | 102 | 102 | 109 | 109 | 89 | 89 | |||||||||||||||||||||
Leased rentable square footage |
155,881 | 155,881 | 1,356,755 | 1,356,755 | 1,475,403 | 1,475,403 | 1,821,866 | 1,821,866 | 1,777,966 | 1,777,966 | |||||||||||||||||||||
Expiring rates |
$ | 29.70 | $ | 28.12 | $ | 31.78 | $ | 30.20 | $ | 30.47 | $ | 28.87 | $ | 30.73 | $ | 28.79 | $ | 28.84 | $ | 30.54 | |||||||||||
New rates |
$ | 31.45 | $ | 31.70 | $ | 31.45 | $ | 32.08 | $ | 29.86 | $ | 30.36 | $ | 30.16 | $ | 30.00 | $ | 29.41 | $ | 32.04 | |||||||||||
Rental rate changes |
5.9 | % | 12.7 | % | (1.0 | )% | 6.2 | % | (2.0 | )%(1) | 5.2 | %(1) | (1.9 | )% | 4.2 | % | 2.0 | % | 4.9 | % | |||||||||||
TI's/lease commissions per square foot |
$ | 5.66 | $ | 5.66 | $ | 5.93 | $ | 5.93 | $ | 6.22 | $ | 6.22 | $ | 5.82 | $ | 5.82 | % | $ | 4.40 | $ | 4.40 | ||||||||||
Average lease terms |
2.6 years | 2.6 years | 4.7 years | 4.7 years | 4.7 years | 4.7 years | 4.2 years | 4.2 years | 8.1 years | 8.1 years | |||||||||||||||||||||
Developed/redeveloped/previously vacant space leased |
|||||||||||||||||||||||||||||||
Number of leases |
25 | 25 | 83 | 83 | 85 | 85 | 81 | 81 | 53 | 53 | |||||||||||||||||||||
Rentable square footage |
547,020 | 547,020 | 1,715,316 | 1,715,316 | 1,805,693 | 1,805,693 | 1,585,610 | 1,585,610 | 966,273 | 966,273 | |||||||||||||||||||||
New rates |
$ | 50.89 | $ | 52.54 | $ | 35.08 | $ | 36.30 | $ | 30.66 | $ | 32.56 | $ | 33.45 | $ | 36.00 | $ | 36.33 | $ | 39.89 | |||||||||||
TI's/lease commissions per square foot |
$ | 7.52 | $ | 7.52 | $ | 9.77 | $ | 9.77 | $ | 11.02 | $ | 11.02 | $ | 12.78 | $ | 12.78 | $ | 8.10 | $ | 8.10 | |||||||||||
Average lease terms |
10.4 years | 10.4 years | 9.2 years | 9.2 years | 9.0 years | 9.0 years | 8.9 years | 8.9 years | 9.7 years | 9.7 years | |||||||||||||||||||||
Leasing activity summary: |
|||||||||||||||||||||||||||||||
Totals(2) |
|||||||||||||||||||||||||||||||
Number of leases |
44 | 44 | 168 | 168 | 187 | 187 | 190 | 190 | 142 | 142 | |||||||||||||||||||||
Rentable square footage |
702,901 | 702,901 | 3,072,071 | 3,072,071 | 3,281,096 | 3,281,096 | 3,407,476 | 3,407,476 | 2,744,239 | 2,744,239 | |||||||||||||||||||||
New rates |
$ | 46.58 | $ | 47.92 | $ | 33.48 | $ | 34.44 | $ | 30.30 | $ | 31.57 | $ | 31.69 | $ | 32.79 | $ | 31.84 | $ | 34.80 | |||||||||||
TI's/lease commissions per square foot |
$ | 7.11 | $ | 7.11 | $ | 8.07 | $ | 8.07 | $ | 8.87 | $ | 8.87 | $ | 9.06 | $ | 9.06 | $ | 5.70 | $ | 5.70 | |||||||||||
Average lease terms |
8.7 years | 8.7 years | 7.3 years | 7.3 years | 7.1 years | 7.1 years | 6.4 years | 6.4 years | 8.7 years | 8.7 years |
During the three months ended March 31, 2013, we granted tenant concessions/free rent averaging approximately 1.2 month with respect to the 702,901 rentable square feet leased.
Lease Structure
|
March 31, 2013 | |||
---|---|---|---|---|
Percentage of triple net leases |
94 | % | ||
Percentage of leases containing annual rent escalations |
96 | % | ||
Percentage of leases providing for the recapture of capital expenditures |
92 | % |
The following chart presents our total RSF leased by development/redevelopment space leased and renewed/re-leased/previously vacant space leased:
S-16
Development, Redevelopment, and Future Value-Added Projects
A key component of our business model is our value-added development and redevelopment projects. These programs are focused on providing high-quality, generic, and reusable life science laboratory space to meet the real estate requirements of a wide range of clients in the life science industry. Upon completion, each value-added project is expected to generate significant revenues and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to life science entities, which we believe results in higher occupancy levels, longer lease terms, and higher rental income and returns.
Development projects generally consist of the ground-up development of generic and reusable life science laboratory facilities. Redevelopment projects generally consist of the permanent change in use of office, warehouse, and shell space into generic life science laboratory space. We anticipate execution of new active development projects for aboveground vertical construction of new life science laboratory space generally with significant pre-leasing. Preconstruction activities include entitlements, permitting, design, site work, and other activities prior to commencement of vertical construction of aboveground shell and core improvements. Our objective also includes the advancement of preconstruction efforts to reduce the time required to deliver projects to prospective client tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Ultimately, these projects will provide high-quality facilities for the life science industry and are expected to generate significant revenue and cash flows for the Company.
As of March 31, 2013, we had six ground-up development projects in process, including an unconsolidated joint venture development project, aggregating approximately 1,854,859 RSF in North America. We also had seven projects undergoing conversion into laboratory space through redevelopment, aggregating approximately 331,380 RSF in North America. These projects, along with recently delivered projects, certain future projects, and contribution from same properties, are expected to contribute significant increases in rental income, NOI, and cash flows.
S-17
Our investments in real estate, net, consisted of the following as of March 31, 2013 (dollars in thousands):
|
March 31, 2013 | ||||||
---|---|---|---|---|---|---|---|
|
Book Value | Square Feet | |||||
Rental properties: |
|||||||
Land (related to rental properties) |
$ | 516,957 | |||||
Buildings and building improvements |
4,955,207 | ||||||
Other improvements |
163,864 | ||||||
Rental properties |
5,636,028 | 14,168,626 | |||||
Less: accumulated depreciation |
(849,891 | ) | |||||
Rental properties, net |
4,786,137 | ||||||
Construction in progress ("CIP")/current value-added projects: |
|||||||
Active development in North America |
579,273 | 1,441,323 | |||||
Investment in unconsolidated real estate entity |
30,730 | 413,536 | |||||
Active redevelopment in North America |
141,470 | 331,380 | |||||
Generic infrastructure/building improvement projects in North America |
62,869 | ||||||
Active development and redevelopment in Asia |
101,357 | 718,119 | |||||
|
915,699 | 2,904,358 | |||||
Subtotal |
5,701,836 | 17,072,984 | |||||
Land/future value-added projects: |
|||||||
Land subject to sale negotiations |
45,378 | 399,888 | |||||
Land undergoing preconstruction activities (additional CIP) in North America |
305,300 | 2,017,667 | |||||
Land held for future development in North America |
238,933 | 3,692,181 | |||||
Land held for future development/land undergoing preconstruction activities (additional CIP) in Asia |
83,735 | 6,828,864 | |||||
|
673,346 | 12,938,600 | |||||
Investments in real estate, net |
$ | 6,375,182 | 30,011,584 | ||||
As of March 31, 2013, our active development and redevelopment projects represent 13% of gross investments in real estate, a significant amount of which is pre-leased and expected to be primarily delivered over the next one to eight quarters. Land undergoing preconstruction activities represents 5% of gross investment in real estate. The largest project primarily included in land undergoing preconstruction consists of our 1.2 million developable square feet at Alexandria Center at Kendall Square in East Cambridge, Massachusetts. Land held for future development represent 4% of our non-income-producing assets. Over the next few years, we may also identify certain land parcels for potential sale. Non-income-producing assets as a percentage of our gross investments in real estate is targeted to decrease to a range from 15% to 17% by December 31, 2013, and targeted to be 15% or less for the subsequent periods.
S-18
The chart below shows the historical trend of non-income-producing assets as a percentage of our gross investments in real estate:
The following table presents our updated construction spending projections reflecting re-evaluation of the decision to execute a partial sale of our 75/125 Binney development project. This re-evaluation will result in increases in construction spending of approximately $47 million for the remainder of 2013 and $163 million thereafter.
Construction spending-projection
|
Nine Months Ended December 31, 2013 (in thousands) |
Thereafter (in thousands) |
|||||
---|---|---|---|---|---|---|---|
Active development projects in North America |
$ | 309,809 | $ | 326,367 | (1) | ||
Active redevelopment projects in North America |
62,335 | 14,043 | |||||
Preconstruction |
33,760 | TBD | (2) | ||||
Generic infrastructure/building improvement projects in North America(3) |
36,728 | TBD | (2) | ||||
Future projected construction projects(4) |
42,320 - 92,320 | TBD | (2) | ||||
Development and redevelopment projects in Asia |
27,799 | 23,154 | |||||
Total construction spending |
$ | 512,751 - 562,751 | $ | 363,564 | |||
S-19
The following tables provide detail on all of our active development projects in North America as of March 31, 2013 (dollars in thousands, except per RSF amounts):
|
|
|
Leased Status RSF(1) | |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Project RSF(1) | |
|||||||||||||||||||||
|
|
|
|
|
% Leased/ Negotiating |
|
|||||||||||||||||
Property/MarketSubmarket
|
CIP | Total | Leased | Negotiating | Marketing | Total | Client Tenants | ||||||||||||||||
All active development projects in North America |
|||||||||||||||||||||||
Consolidated development projects in North America |
|||||||||||||||||||||||
225 Binney Street/Greater BostonCambridge |
305,212 | 305,212 | 305,212 | | | 305,212 | 100 | % | Biogen Idec Inc. | ||||||||||||||
499 Illinois Street/San Francisco Bay AreaMission Bay |
222,780 | 222,780 | | 162,549 | 60,231 | 222,780 | 73 | % | TBA | ||||||||||||||
269 East Grand Avenue/San Francisco Bay AreaSouth San Francisco |
107,250 | 107,250 | 107,250 | | | 107,250 | 100 | % | Onyx Pharmaceuticals, Inc. | ||||||||||||||
430 East 29th Street/Greater NYCManhattan |
419,806 | 419,806 | 60,816 | 152,488 | (2) | 206,502 | 419,806 | 51 | % | Roche/TBA | |||||||||||||
75/125 Binney Street/Greater BostonCambridge |
386,275 | 386,275 | 244,123 | | 142,152 | (3) | 386,275 | 63 | % | ARIAD Pharmaceuticals, Inc. | |||||||||||||
Consolidated development projects in North America |
1,441,323 | 1,441,323 | 717,401 | 315,037 | 408,885 | 1,441,323 | 72 | % | |||||||||||||||
Unconsolidated joint venture |
|||||||||||||||||||||||
360 Longwood Avenue/Greater BostonLongwood |
413,536 | 413,536 | 154,100 | | 259,436 | 413,536 | 37 | % | Dana-Farber Cancer Institute, Inc. | ||||||||||||||
Total |
1,854,859 | 1,854,859 | 871,501 | 315,037 | 668,321 | 1,854,859 | 64 | % | |||||||||||||||
|
Investment(1) | |
|
|
|
|
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Initial Stabilized Yield(1) |
|
|
|
|||||||||||||||||||||||||||
|
|
Cost To Complete | |
|
|
|
|
||||||||||||||||||||||||
|
|
Total at Completion |
Cost Per RSF |
Projected Start Date(1) |
Occupancy Date(1) |
Initial Stabilization Date(1) |
|||||||||||||||||||||||||
Property/MarketSubmarket
|
CIP | 2013 | Thereafter | Cash | GAAP | ||||||||||||||||||||||||||
All active development projects in North America |
|||||||||||||||||||||||||||||||
Consolidated development projects in North America |
|||||||||||||||||||||||||||||||
225 Binney Street/Greater BostonCambridge |
$ | 118,595 | $ | 61,678 | $ | | $ | 180,273 | $ | 591 | 7.5 | % | 8.1 | % | 4Q11 | 4Q13 | 4Q13 | ||||||||||||||
499 Illinois Street/San Francisco Bay AreaMission Bay |
$ | 116,110 | $ | 14,298 | $ | 22,801 | $ | 153,209 | $ | 688 | 6.4 | % | 7.2 | % | 2Q11 | 2Q14 | 2014 | ||||||||||||||
269 East Grand Avenue/San Francisco Bay AreaSouth San Francisco(4) |
$ | 8,037 | $ | 13,100 | $ | 30,163 | $ | 51,300 | $ | 478 | 8.1 | % | 9.3 | % | 1Q13 | 4Q14 | 2014 | ||||||||||||||
430 East 29th Street/Greater NYCManhattan |
$ | 239,086 | $ | 113,879 | $ | 110,280 | $ | 463,245 | $ | 1,103 | 6.6 | % | 6.5 | % | 4Q12 | 4Q13 | 2015 | ||||||||||||||
75/125 Binney Street/Greater BostonCambridge(5) |
$ | 97,445 | $ | 90,871 | $ | 163,123 | $ | 351,439 | $ | 910 | 8.0 | % | 8.2 | % | 1Q13 | 1Q15 | 2015 | ||||||||||||||
Consolidated development projects in North America |
$ | 579,273 | $ | 293,826 | $ | 326,367 | $ | 1,199,466 | |||||||||||||||||||||||
Unconsolidated joint venture |
|||||||||||||||||||||||||||||||
360 Longwood Avenue/Greater BostonLongwood |
$ | 148,596 | $ | 67,744 | $ | 133,660 | $ | 350,000 | $ | 846 | 8.3 | % | 8.9 | % | 2Q12 | 4Q14 | 2016 | ||||||||||||||
JV partner capital/JV construction loan |
$ | (123,638 | ) | $ | (51,761 | ) | $ | (133,660 | ) | $ | (309,059 | ) | |||||||||||||||||||
ARE investment in 360 Longwood Avenue (27.5% ownership interest) |
$ | 24,958 | $ | 15,983 | $ | | $ | 40,941 | |||||||||||||||||||||||
Total |
$ | 604,231 | $ | 309,809 | $ | 326,367 | $ | 1,240,407 | |||||||||||||||||||||||
S-20
The following tables provide detail on all of our active redevelopment projects in North America as of March 31, 2013 (dollars in thousands, except per RSF amounts):
|
Project RSF(1) | Leased Status RSF(1) | |
|
|
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property/Market Submarket |
In Service |
CIP | Total | Leased | Negotiating | Marketing | Total | % Leased/ Negotiating |
Former Use |
Use After Conversion |
Client Tenants | |||||||||||||||||||
All active redevelopment projects in North America |
||||||||||||||||||||||||||||||
400 Technology Square/Greater BostonCambridge |
162,153 | 49,971 | 212,124 | 169,939 | | 42,185 | 212,124 | 80 | % | Office | Laboratory | Ragon Institute of MGH, MIT and Harvard; Epizyme, Inc.; Warp Drive Bio, LLC; Aramco Services Company, Inc. | ||||||||||||||||||
285 Bear Hill Road/Greater BostonRoute 128 |
| 26,270 | 26,270 | 26,270 | | | 26,270 | 100 | % | Office/ Manufacturing |
Laboratory | Intelligent Medical Devices, Inc. | ||||||||||||||||||
343 Oyster Point/San Francisco Bay AreaSouth San Francisco |
| 53,980 | 53,980 | 42,445 | | 11,535 | 53,980 | 79 | % | Office | Laboratory | Calithera BioSciences, Inc.; CytomX Therapeutics, Inc. | ||||||||||||||||||
4757 Nexus Center Drive/San DiegoUniversity Town Center |
| 68,423 | 68,423 | 68,423 | | | 68,423 | 100 | % | Manufacturing/ Warehouse/Office/ R&D |
Laboratory | Genomatica, Inc. | ||||||||||||||||||
9800 Medical Center Drive/Suburban Washington, D.C.Rockville |
8,001 | 67,055 | 75,056 | 75,056 | | | 75,056 | 100 | % | Office/Laboratory | Laboratory | National Institutes of Health | ||||||||||||||||||
1551 Eastlake Avenue/SeattleLake Union |
77,821 | 39,661 | 117,482 | 77,821 | | 39,661 | 117,482 | 66 | % | Office | Laboratory | Puget Sound Blood Center and Program | ||||||||||||||||||
1616 Eastlake Avenue/SeattleLake Union |
40,756 | 26,020 | 66,776 | 40,756 | | 26,020 | 66,776 | 61 | % | Office | Laboratory | Infectious Disease Research Institute | ||||||||||||||||||
Total |
288,731 | 331,380 | 620,111 | 500,710 | | 119,401 | 620,111 | 81 | % | |||||||||||||||||||||
|
Investment(1) | |
|
|
|
|
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Initial Stabilized Yield(1) |
|
|
|
||||||||||||||||||||||||||||||
|
March 31, 2013 | To Complete | |
|
|
|
|
|||||||||||||||||||||||||||
|
Total at Completion |
Cost Per RSF |
Project Start Date(1) |
Initial Occupancy Date(1) |
Stabilization Date(1) |
|||||||||||||||||||||||||||||
Property/MarketSubmarket
|
In Service | CIP | 2013 | Thereafter | Cash | GAAP | ||||||||||||||||||||||||||||
All active redevelopment projects in North America |
||||||||||||||||||||||||||||||||||
400 Technology Square/Greater BostonCambridge |
$ | 99,980 | $ | 32,212 | $ | 9,176 | $ | 3,320 | $ | 144,688 | $ | 682 | 8.1 | % | 8.9 | % | 4Q11 | 4Q12 | 4Q13 | |||||||||||||||
285 Bear Hill Road/Greater BostonRoute 128 |
$ | | $ | 4,654 | $ | 4,542 | $ | | $ | 9,196 | $ | 350 | 8.4 | % | 8.8 | % | 4Q11 | 3Q13 | 2013 | |||||||||||||||
343 Oyster Point/San Francisco Bay AreaSouth San Francisco |
$ | | $ | 10,912 | $ | 5,560 | $ | 867 | $ | 17,339 | $ | 321 | 9.6 | % | 9.8 | % | 1Q12 | 3Q13 | 2014 | |||||||||||||||
4757 Nexus Center Drive/San DiegoUniversity Town Center |
$ | | $ | 5,879 | $ | 23,747 | $ | 5,203 | $ | 34,829 | $ | 509 | 7.6 | % | 7.8 | % | 4Q12 | 4Q13 | 4Q13 | (2) | ||||||||||||||
9800 Medical Center Drive/Suburban Washington, D.C.Rockville |
$ | 7,454 | $ | 61,251 | $ | 11,999 | $ | | $ | 80,704 | (3) | 5.4 | % | 5.4 | % | 3Q09 | 1Q13 | 2013 | ||||||||||||||||
1551 Eastlake Avenue/SeattleLake Union |
$ | 40,711 | $ | 16,841 | $ | 6,458 | $ | | $ | 64,010 | $ | 545 | 6.7 | % | 6.7 | % | 4Q11 | 4Q11 | 4Q13 | |||||||||||||||
1616 Eastlake Avenue/SeattleLake Union |
$ | 22,589 | $ | 9,721 | $ | 853 | $ | 4,653 | $ | 37,816 | $ | 566 | 8.4 | % | 8.6 | % | 4Q12 | 2Q13 | 2014 | |||||||||||||||
Total |
$ | 170,734 | $ | 141,470 | $ | 62,335 | $ | 14,043 | $ | 388,582 | ||||||||||||||||||||||||
S-21
The following table summarizes the components of the square footage of our future value-added projects in North America as of March 31, 2013 (dollars in thousands, except per square foot amounts):
|
Land Undergoing Preconstruction Activities (Additional CIP)(1) |
Land Held for Future Development(1) |
Total(1) | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property/MarketSubmarket
|
Book Value |
Square Feet(2) |
Cost per Square Foot |
Book Value |
Square Feet(2) |
Cost per Square Foot |
Book Value |
Square Feet(2) |
Cost per Square Foot |
|||||||||||||||||||
Greater Boston: |
||||||||||||||||||||||||||||
Alexandria Center at Kendall SquareResidentialCambridge/Inner Suburbs |
$ | 1,582 | 78,000 | $ | 20 | $ | 3,413 | 150,000 | $ | 23 | $ | 4,995 | 228,000 | $ | 22 | |||||||||||||
Alexandria Center at Kendall SquareLab/OfficeCambridge/Inner Suburbs |
251,874 | 974,264 | 259 | | | | 251,874 | 974,264 | 259 | |||||||||||||||||||
SubtotalAlexandria Center at Kendall Square |
253,456 | 1,052,264 | 241 | 3,413 | 150,000 | 23 | 256,869 | 1,202,264 | 214 | |||||||||||||||||||
Technology SquareCambridge/Inner Suburbs |
| | | 7,803 | 100,000 | 78 | 7,803 | 100,000 | 78 | |||||||||||||||||||
Greater Boston |
$ | 253,456 | 1,052,264 | $ | 241 | $ | 11,216 | 250,000 | $ | 45 | $ | 264,672 | 1,302,264 | $ | 203 | |||||||||||||
San Francisco Bay Area: |
||||||||||||||||||||||||||||
Owens StreetMission Bay |
$ | | | $ | | $ | 27,762 | 290,059 | $ | 96 | $ | 27,762 | 290,059 | $ | 96 | |||||||||||||
Grand AveSouth San Francisco |
| | | 42,853 | 397,132 | 108 | 42,853 | 397,132 | 108 | |||||||||||||||||||
Rozzi/EcclesSouth San Francisco |
| | | 72,879 | 514,307 | 142 | 72,879 | 514,307 | 142 | |||||||||||||||||||
San Francisco Bay Area |
$ | | | $ | | $ | 143,494 | 1,201,498 | $ | 119 | $ | 143,494 | 1,201,498 | $ | 119 | |||||||||||||
San Diego: |
||||||||||||||||||||||||||||
Science Park RoadTorrey Pines |
$ | 16,298 | 176,500 | $ | 92 | $ | | | $ | | $ | 16,298 | 176,500 | $ | 92 | |||||||||||||
5200 Illumina WayUniversity Town Center |
14,298 | 392,983 | 36 | | | | 14,298 | 392,983 | 36 | |||||||||||||||||||
10300 Campus PointUniversity Town Center |
3,857 | 140,000 | 28 | | | | 3,857 | 140,000 | 28 | |||||||||||||||||||
Executive DriveUniversity Town Center |
3,919 | 49,920 | 79 | | | | 3,919 | 49,920 | 78 | |||||||||||||||||||
San Diego |
$ | 38,372 | 759,403 | $ | 51 | $ | | | $ | | $ | 38,372 | 759,403 | $ | 51 | |||||||||||||
Suburban Washington D.C.: |
||||||||||||||||||||||||||||
Medical Center DriveRockville |
$ | | | $ | | $ | 7,548 | 292,000 | $ | 26 | $ | 7,548 | 292,000 | $ | 26 | |||||||||||||
Research BoulevardRockville |
| | | 6,698 | 347,000 | 19 | 6,698 | 347,000 | 19 | |||||||||||||||||||
Firstfield RoadGaithersburg |
| | | 4,052 | 95,000 | 43 | 4,052 | 95,000 | 43 | |||||||||||||||||||
Freedom Center Drive and Pyramid PlaceVirginia |
| | | 11,791 | 424,905 | 28 | 11,791 | 424,905 | 28 | |||||||||||||||||||
Suburban Washington D.C. |
$ | | | $ | | $ | 30,089 | 1,158,905 | $ | 26 | $ | 30,089 | 1,158,905 | $ | 26 | |||||||||||||
Seattle: |
||||||||||||||||||||||||||||
Dexter/Terry AveLake Union |
$ | | | $ | | $ | 18,747 | 232,300 | $ | 81 | $ | 18,747 | 232,300 | $ | 81 | |||||||||||||
Eastlake AveLake Union |
13,472 | 106,000 | 127 | 15,241 | 160,266 | 95 | 28,713 | 266,266 | 108 | |||||||||||||||||||
Seattle |
$ | 13,472 | 106,000 | $ | 127 | $ | 33,988 | 392,566 | $ | 87 | $ | 47,460 | 498,566 | $ | 95 | |||||||||||||
Other Markets |
$ | | | $ | | $ | 20,146 | 789,212 | $ | 26 | $ | 20,146 | 789,212 | $ | 26 | |||||||||||||
Future value-added projects in North America |
$ | 305,300 | 1,917,667 | $ | 159 | $ | 238,933 | 3,792,181 | $ | 63 | $ | 544,233 | 5,709,848 | $ | 95 | |||||||||||||
S-22
The following table summarizes the components of the square footage of our future redevelopment projects in North America as of March 31, 2013:
MarketSubmarket
|
Future Redevelopment Square Feet(1) |
|||
---|---|---|---|---|
Greater Boston |
109,457 | |||
San Francisco Bay AreaSouth San Francisco |
40,314 | |||
San Diego |
87,488 | |||
Suburban Washington, D.C. |
490,000 | |||
Seattle |
14,914 | |||
Other markets |
94,211 | |||
Total future redevelopment in North America |
836,384 | |||
As of March 31, 2013, our rental properties, net, in Asia, consisted of five operating properties aggregating approximately 603,987 square feet, with occupancy of 67.1%. Annualized base rent of our operating properties in Asia was approximately $4.3 million as of March 31, 2013. Our primary sources of revenues are rental income and tenant recoveries from leases of our properties.
We also had construction projects in Asia aggregating approximately 718,119 and 734,444 RSF as of March 31, 2013, and December 31, 2012, respectively.
Our investments in real estate, net, in Asia, consisted of the following as of March 31, 2013 (dollars in thousands, except per square foot amounts):
|
March 31, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Book Value | Square Feet | Cost per Square Foot |
|||||||
Rental properties, net, in China |
$ | 21,352 | 299,484 | $ | 71 | |||||
Rental properties, net, in India |
35,337 | 304,503 | 116 | |||||||
CIP/current value-added projects: |
||||||||||
Active development in China |
58,500 | 309,476 | 189 | |||||||
Active development in India |
29,713 | 309,500 | 96 | |||||||
Active redevelopment projects in India |
13,144 | 99,143 | 133 | |||||||
|
101,357 | 718,119 | 141 | |||||||
Land held for future development/land undergoing preconstruction activities (additional CIP)India |
83,735 | 6,829,000 | 12 | |||||||
Total investments in real estate, net, in Asia |
$ | 241,781 | 8,151,106 | $ | 30 | |||||
Liquidity and Capital Resources
Recent Events:
S-23
We expect to meet certain long-term liquidity requirements, such as requirements for property acquisitions, development, redevelopment, other construction projects, capital improvements, tenant improvements, leasing costs, non-revenue-generating expenditures, and scheduled debt maturities, through net cash provided by operating activities, periodic asset sales, and long-term secured and unsecured indebtedness, including borrowings under our unsecured senior line of credit, unsecured senior bank term loans, and the issuance of additional debt and/or equity securities.
We expect to continue meeting our short-term liquidity and capital requirements, as further detailed in this section, generally through our working capital and net cash provided by operating activities. We believe that the net cash provided by operating activities will continue to be sufficient to enable us to make the distributions necessary to continue qualifying as a REIT.
Over the next several years, our balance sheet, capital structure, and liquidity objectives are as follows:
S-24
General
As of March 31, 2013, we had 173 properties containing approximately 16.7 million RSF of life science laboratory space. Our operating properties were approximately 93.0% leased as of March 31, 2013. The exteriors of our properties typically resemble traditional office properties, but the interior infrastructures are designed to accommodate the needs of life science industry client tenants. These improvements typically are generic to life science industry client tenants rather than being specific to a particular client tenant. As a result, we believe that the improvements have long-term value and utility and are usable by a wide range of life science industry client tenants. Laboratory improvements to our life science properties typically include:
As of March 31, 2013:
Our leases also typically give us the right to review and approve tenant alterations to the property. Generally, tenant-installed improvements to the properties are reusable generic life science laboratory improvements and remain our property after termination of the lease at our election. However, we are permitted under the terms of most of our leases to require that the client tenant, at its expense, remove certain non-generic improvements and restore the premises to their original condition.
S-25
Location of Properties
The locations of our properties are diversified among a number of life science cluster markets. The following table sets forth, as of March 31, 2013, the total RSF and annualized base rent of our properties in each of our existing markets (dollars in thousands):
|
Rentable Square Feet | |
|
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of Properties |
Annualized Base Rent(1) |
|||||||||||||||||||||||
Market
|
Operating | Development | Redevelopment | Total | % Total | ||||||||||||||||||||
Greater Boston |
3,043,048 | 691,487 | 76,241 | 3,810,776 | 23 | % | 36 | $ | 118,060 | 27 | % | ||||||||||||||
San Francisco Bay Area |
2,486,751 | 330,030 | 53,980 | 2,870,761 | 17 | 26 | 93,816 | 22 | |||||||||||||||||
San Diego |
2,575,121 | | 68,423 | 2,643,544 | 16 | 33 | 83,636 | 20 | |||||||||||||||||
Greater NYC |
494,656 | 419,806 | | 914,462 | 5 | 6 | 31,844 | 7 | |||||||||||||||||
Suburban Washington, D.C. |
2,086,468 | | 67,055 | 2,153,523 | 13 | 29 | 43,172 | 10 | |||||||||||||||||
Seattle |
680,835 | | 65,681 | 746,516 | 4 | 10 | 28,346 | 7 | |||||||||||||||||
Research Triangle Park |
941,807 | | | 941,807 | 6 | 14 | 18,852 | 4 | |||||||||||||||||
Canada |
1,103,507 | | | 1,103,507 | 7 | 5 | 9,258 | 2 | |||||||||||||||||
Non-cluster markets |
61,002 | | | 61,002 | | 2 | 611 | | |||||||||||||||||
North America |
13,473,195 | 1,441,323 | 331,380 | 15,245,898 | 91 | 161 | 427,595 | 99 | |||||||||||||||||
Asia |
603,987 | 618,976 | 99,143 | 1,322,106 | 8 | 9 | 4,337 | 1 | |||||||||||||||||
Continuing operations |
14,077,182 | 2,060,299 | 430,523 | 16,568,004 | 99 | 170 | 431,932 | 100 | % | ||||||||||||||||
Discontinued operations |
91,444 | | | 91,444 | 1 | 3 | 1,138 | ||||||||||||||||||
Total |
14,168,626 | 2,060,299 | 430,523 | 16,659,448 | 100 | % | 173 | $ | 433,070 | ||||||||||||||||
Client Tenants
Our life science properties are leased to a diverse group of client tenants, with no client tenant accounting for more than 7.1% of our annualized base rent. The following table sets forth information
S-26
regarding leases with our 20 largest client tenants based upon annualized base rent as of March 31, 2013 (dollars in thousands):
|
|
|
Remaining Lease Term in Years |
|
|
|
|
Investment-Grade Client Tenants(3) |
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Approximate Aggregate Rentable Square Feet |
Percentage of Aggregate Total Square Feet |
|
Percentage of Aggregate Annualized Base Rent |
|
||||||||||||||||||||||||||
|
|
Number of Leases |
Annualized Base Rent |
Fitch Rating |
Moody's Rating |
S&P Rating |
Education/ Research |
||||||||||||||||||||||||||
|
Client Tenant
|
(1) | (2) | ||||||||||||||||||||||||||||||
1 |
Novartis AG |
11 | 3.8 | 3.9 | 612,424 | 3.7 | % | $ | 30,515 | 7.1 | % | AA | Aa2 | AA- | | ||||||||||||||||||
2 |
Illumina, Inc. |
1 | 18.6 | 18.6 | 497,078 | 3.0 | 19,531 | 4.5 | | | | | |||||||||||||||||||||
3 |
Bristol-Myers Squibb Company |
6 | 4.6 | 4.9 | 419,624 | 2.5 | 15,840 | 3.7 | A | A2 | A+ | | |||||||||||||||||||||
4 |
Eli Lilly and Company |
5 | 8.3 | 9.9 | 262,182 | 1.6 | 15,068 | 3.5 | A | A2 | AA- | | |||||||||||||||||||||
5 |
FibroGen, Inc. |
1 | 10.6 | 10.6 | 234,249 | 1.4 | 14,197 | 3.3 | | | | | |||||||||||||||||||||
6 |
Roche |
3 | 5.0 | 5.1 | 348,918 | 2.1 | 13,867 | 3.2 | AA- | A1 | AA | | |||||||||||||||||||||
7 |
United States Government |
9 | 4.0 | 5.0 | 332,578 | 2.0 | 13,103 | 3.0 | AAA | Aaa | AA+ | | |||||||||||||||||||||
8 |
GlaxoSmithKline plc |
5 | 6.7 | 6.4 | 208,394 | 1.2 | 10,232 | 2.4 | A+ | A1 | A+ | | |||||||||||||||||||||
9 |
Celgene Corporation |
3 | 8.4 | 8.3 | 250,586 | 1.5 | 9,340 | 2.2 | | Baa2 | BBB+ | | |||||||||||||||||||||
10 |
Massachusetts Institute of Technology |
4 | 4.2 | 4.4 | 185,403 | 1.1 | 8,499 | 2.0 | | Aaa | AAA | ü | |||||||||||||||||||||
11 |
Onyx Pharmaceuticals, Inc. |
2 | 10.1 | 10.1 | 228,373 | 1.4 | 8,498 | 2.0 | | | | | |||||||||||||||||||||
12 |
NYU-Neuroscience Translational Research Institute |
2 | 11.9 | 10.8 | 86,756 | 0.5 | 8,012 | 1.8 | A- | A3 | AA- | ü | |||||||||||||||||||||
13 |
The Regents of the University of California |
3 | 8.4 | 8.4 | 188,654 | 1.1 | 7,787 | 1.8 | AA | Aa1 | AA | ü | |||||||||||||||||||||
14 |
Alnylam Pharmaceuticals, Inc. |
1 | 3.5 | 3.5 | 129,424 | 0.8 | 6,081 | 1.4 | | | | | |||||||||||||||||||||
15 |
Gilead Sciences, Inc. |
1 | 7.3 | 7.3 | 109,969 | 0.7 | 5,824 | 1.3 | | Baa1 | A- | | |||||||||||||||||||||
16 |
Pfizer Inc. |
2 | 6.2 | 5.9 | 116,518 | 0.7 | 5,502 | 1.3 | A+ | A1 | AA | | |||||||||||||||||||||
17 |
The Scripps Research Institute |
2 | 3.7 | 3.6 | 101,475 | 0.6 | 5,200 | 1.2 | AA- | Aa3 | | ü | |||||||||||||||||||||
18 |
Theravance, Inc.(4) |
2 | 7.2 | 7.2 | 130,342 | 0.8 | 4,895 | 1.1 | | | | | |||||||||||||||||||||
19 |
Infinity Pharmaceuticals, Inc. |
2 | 1.8 | 1.8 | 68,020 | 0.4 | 4,423 | 1.0 | | | | | |||||||||||||||||||||
20 |
Quest Diagnostics Incorporated |
1 | 3.8 | 3.8 | 248,186 | 1.5 | 4,341 | 1.0 | BBB+ | Baa2 | BBB+ | | |||||||||||||||||||||
|
Total/weighted average top 20 |
66 | 7.3 | 7.5 | 4,759,153 | 28.6 | % | $ | 210,755 | 48.8 | % | ||||||||||||||||||||||
The chart below shows client tenant business type by annualized base rent as of March 31, 2013:
S-27
Summary of Lease Expirations
The following table summarizes information with respect to the lease expirations at our properties as of March 31, 2013:
Year of Lease Expiration
|
Number of Leases Expiring |
RSF of Expiring Leases |
Percentage of Aggregate Total RSF |
Annualized Base Rent of Expiring Leases (per RSF) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 |
63 | (1) | 568,189 | (1) | 4.1 | % | $ | 29.30 | |||||
2014 |
93 | 1,175,374 | 8.6 | % | $ | 29.20 | |||||||
2015 |
75 | 1,385,596 | 10.1 | % | $ | 32.75 | |||||||
2016 |
57 | 1,342,621 | 9.8 | % | $ | 30.20 | |||||||
2017 |
63 | 1,573,451 | 11.5 | % | $ | 30.58 | |||||||
2018 |
28 | 1,185,758 | 8.6 | % | $ | 39.80 | |||||||
2019 |
22 | 680,031 | 5.0 | % | $ | 32.85 | |||||||
2020 |
16 | 762,229 | 5.6 | % | $ | 40.25 | |||||||
2021 |
20 | 799,802 | 5.8 | % | $ | 37.12 | |||||||
2022 |
15 | 551,214 | 4.0 | % | $ | 29.43 | |||||||
Thereafter |
26 | 2,278,602 | 16.6 | % | $ | 39.96 |
Our revenues are derived primarily from rental payments and reimbursement of operating expenses under our leases. If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely payments under its lease. Also, if tenants decide not to renew their leases or terminate early, we may not be able to re-lease the space. Even if tenants decide to renew or lease space, the terms of renewals or new leases, including the cost of any tenant improvements, concessions and lease commissions, may be less favorable to us than current lease terms. Consequently, we could lose the cash flow from the affected properties, which could negatively impact our business. We may have to divert cash flow generated by other properties to meet our mortgage payments, if any, or to pay other expenses related to owning the affected properties.
Non-GAAP Measures
FFO
GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes that real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of NAREIT established the measurement tool of FFO. Since its introduction, FFO has become a widely used non-GAAP financial measure among equity REITs. We believe that FFO is helpful to investors as an additional measure of the performance of an equity REIT. Moreover, we believe that FFO, as adjusted, is also helpful because it allows investors to compare our performance to the performance of other real estate companies between periods, and on a consistent basis, without having to account for differences caused by investment and disposition decisions, financing decisions, terms of securities, capital structures, and capital market transactions. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its NAREIT White Paper. The NAREIT White Paper defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciable real estate and land parcels and impairments of depreciable real estate (excluding land parcels), plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Impairments of real estate relate to decreases in the estimated fair value of real estate due to changes in general market conditions and do not necessarily reflect the operating performance of the properties during the corresponding period. Impairments of real estate represent the non-cash
S-28
write-down of assets when fair value over the recoverability period is less than the carrying value. Our calculation of FFO may differ from those methodologies utilized by other equity REITs for similar performance measurements, and, accordingly, may not be comparable to those of other equity REITs. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of liquidity, nor are they indicative of the availability of funds for our cash needs, including funds available to make distributions.
AFFO
AFFO is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute AFFO by adding to or deducting from FFO, as adjusted: (1) non-revenue-enhancing capital expenditures, tenant improvements, and leasing commissions (excludes development and redevelopment expenditures); (2) effects of straight-line rent and straight-line rent on ground leases; (3) capitalized income from development projects; (4) amortization of acquired above and below market leases, loan fees, and debt premiums/discounts; (5) non-cash compensation expense; and (6) allocation of AFFO attributable to unvested restricted stock awards.
We believe that AFFO is a useful supplemental performance measure because it further adjusts to: (1) deduct certain expenditures that, although capitalized and classified in depreciation expense, do not enhance the revenue or cash flows of our properties; (2) eliminate the effect of straight-lining our rental income and capitalizing income from development projects in order to reflect the actual amount of contractual rents due in the period presented; and (3) eliminate the effect of non-cash items that are not indicative of our core operations and do not actually reduce the amount of cash generated by our operations. We believe that eliminating the effect of non-cash charges related to share-based compensation facilitates a comparison of our operations across periods and among other equity REITs without the variances caused by different valuation methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that a company can use. We believe that AFFO provides useful information by excluding certain items that are not representative of our core operating results because such items are dependent upon historical costs or subject to judgmental valuation inputs and the timing of our decisions.
AFFO is not intended to represent cash flow for the period, and is intended only to provide an additional measure of performance. We believe that net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholders is the most directly comparable GAAP financial measure to AFFO. We believe that AFFO is a widely recognized measure of the operations of equity REITs, and presenting AFFO will enable investors to assess our performance in comparison to other equity REITs. However, other equity REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to AFFO calculated by other equity REITs. AFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
The following table presents a reconciliation of net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic, FFO attributable to Alexandria Real Estate Equities, Inc.'s common
S-29
stockholdersdiluted, as adjusted, and AFFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted, for the periods below (in thousands):
|
Three Months Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic |
$ | 22,442 | $ | 18,368 | |||
Depreciation and amortization |
46,995 | 43,405 | |||||
Loss on sale of real estate |
340 | | |||||
Impairment of real estate |
| | |||||
Gain on sale of land parcel |
| (1,864 | ) | ||||
Amount attributable to noncontrolling interests/unvested restricted stock awards: |
|||||||
Net income |
1,324 | 946 | |||||
FFO |
(1,064 | ) | (1,156 | ) | |||
FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic |
70,037 | 59,699 | |||||
Assumed conversion of 8.00% Unsecured Senior Convertible Notes |
5 | 5 | |||||
FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted |
70,042 | 59,704 | |||||
Realized gain on equity investment primarily related to one non-tenant life science entity |
| | |||||
Impairment of land parcel |
| | |||||
Loss on early extinguishment of debt |
| 623 | |||||
Preferred stock redemption charge |
| 5,978 | |||||
Allocation to unvested restricted stock awards |
| (53 | ) | ||||
FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted, as adjusted |
70,042 | 66,252 | |||||
Non-revenue-enhancing capital expenditures: |
|||||||
Building improvements |
(596 | ) | (210 | ) | |||
Tenant improvements and leasing commissions |
(882 | ) | (2,019 | ) | |||
Straight-line rent |
(6,198 | ) | (8,796 | ) | |||
Straight-line rent on ground leases |
538 | 1,406 | |||||
Capitalized income from development projects |
22 | 478 | |||||
Amortization of acquired above and below market leases |
(830 | ) | (800 | ) | |||
Amortization of loan fees |
2,386 | 2,643 | |||||
Amortization of debt premiums/discounts |
115 | 179 | |||||
Stock compensation |
3,349 | 3,293 | |||||
Allocation to unvested restricted stock awards |
19 | 31 | |||||
AFFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted |
$ | 67,965 | $ | 62,457 | |||
S-30
The following table presents a reconciliation of net income per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic, FFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted, as adjusted, and AFFO per share attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted, for the periods below:
|
Three Months Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||
Net income attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic |
$ | 0.36 | $ | 0.30 | |||
Depreciation and amortization |
0.74 | 0.70 | |||||
Loss on sale of real estate |
| | |||||
Impairment of real estate |
0.01 | | |||||
Gain on sale of land parcel |
| (0.03 | ) | ||||
Amount attributable to noncontrolling interests/unvested restricted stock awards: |
|||||||
Net income |
0.02 | 0.02 | |||||
FFO |
(0.02 | ) | (0.02 | ) | |||
FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersbasic |
1.11 | 0.97 | |||||
Assumed conversion of 8.00% Unsecured Senior Convertible Notes |
| | |||||
FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted |
1.11 | 0.97 | |||||
Realized gain on equity investment primarily related to one non-tenant life science entity |
| | |||||
Impairment of land parcel |
| | |||||
Loss on early extinguishment of debt |
| 0.01 | |||||
Preferred stock redemption charge |
| 0.10 | |||||
FFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted, as adjusted |
1.11 | 1.08 | |||||
Non-revenue-enhancing capital expenditures: |
|||||||
Building improvements |
(0.01 | ) | | ||||
Tenant improvements and leasing commissions |
(0.01 | ) | (0.03 | ) | |||
Straight-line rent |
(0.10 | ) | (0.14 | ) | |||
Straight-line rent on ground leases |
0.01 | 0.02 | |||||
Capitalized income from development projects |
| 0.01 | |||||
Amortization of acquired above and below market leases |
(0.01 | ) | (0.01 | ) | |||
Amortization of loan fees |
0.04 | 0.04 | |||||
Amortization of debt premiums/discounts |
| | |||||
Stock compensation |
0.05 | 0.05 | |||||
AFFO attributable to Alexandria Real Estate Equities, Inc.'s common stockholdersdiluted |
$ | 1.08 | $ | 1.02 | |||
NOI
NOI is a non-GAAP financial measure equal to income from continuing operations, the most directly comparable GAAP financial measure, plus loss (gain) on early extinguishment of debt,
S-31
impairment of land parcel, depreciation and amortization, interest expense, and general and administrative expense. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects primarily those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operating performance of our real estate assets. NOI on a cash basis is NOI on a GAAP basis, adjusted to exclude the effect of straight-line rent adjustments required by GAAP. We believe that NOI on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent adjustments to rental revenue.
Further, we believe NOI is useful to investors as a performance measure, because when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, and operating costs, providing perspective not immediately apparent from income from continuing operations. NOI excludes certain components from income from continuing operations in order to provide results that are more closely related to the results of operations of our properties. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level rather than at the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. Real estate impairments have been excluded in deriving NOI because we do not consider impairment losses to be property-level operating expenses. Real estate impairment losses relate to changes in the values of our assets and do not reflect the current operating performance with respect to related revenues or expenses. Our real estate impairments represent the write-down in the value of the assets to the estimated fair value less cost to sell. These impairments result from investing decisions and the deterioration in market conditions that adversely impact underlying real estate values. Our calculation of NOI also excludes charges incurred from changes in certain financing decisions, such as losses on early extinguishment of debt, as these charges often relate to the timing of corporate strategy. Property operating expenses that are included in determining NOI consist of costs that are related to our operating properties, such as utilities; repairs and maintenance; rental expense related to ground leases; contracted services, such as janitorial, engineering, and landscaping; property taxes and insurance; and property-level salaries. General and administrative expenses consist primarily of accounting and corporate compensation, corporate insurance, professional fees, office rent, and office supplies that are incurred as part of corporate office management. NOI presented by us may not be comparable to NOI reported by other equity REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with income from continuing operations as presented in our condensed consolidated statements of income. NOI should not be considered as an alternative to income from continuing operations as an indication of our performance, or as an alternative to cash flows as a measure of liquidity or a measure of our ability to make distributions.
The following table is a reconciliation of NOI from continuing operations to income from continuing operations and NOI from discontinued operations to income from discontinued operations,
S-32
the most directly comparable financial measure calculated and presented in accordance with GAAP (in thousands):
|
Three Months Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||
Continuing operations |
|||||||
Total revenues |
$ | 150,380 | $ | 135,711 | |||
Rental operations |
45,224 | 40,453 | |||||
Net operating income |
105,156 | 95,258 | |||||
Operating margins |
70 | % | 70 | % | |||
General and administrative |
11,648 | 10,357 | |||||
Interest |
18,020 | 16,226 | |||||
Depreciation and amortization |
46,065 | 41,786 | |||||
Loss on early extinguishment of debt |
| 623 | |||||
Income from continuing operations |
$ | 29,423 | $ | 26,266 | |||
Discontinued operations |
|||||||
Total revenues |
$ | 3,496 | $ | 9,308 | |||
Rental operations |
1,412 | 3,043 | |||||
Net operating income(1) |
2,084 | 6,265 | |||||
Operating margins |
60 | % | 67 | % | |||
Interest |
| 1 | |||||
Depreciation and amortization |
930 | 1,619 | |||||
Loss on sale of real estate |
340 | | |||||
Income from discontinued operations, net |
$ | 814 | $ | 4,645 | |||
Same Property NOI
As a result of changes within our total property portfolio, the financial data presented in the table in "Comparison of the Three Months Ended March 31, 2013, to the Three Months Ended March 31, 2012" shows significant changes in revenue and expenses from period to period. In order to supplement an evaluation of our results of operations over a given period, we analyze the operating performance for all properties that were fully operating for the entire periods presented (herein referred to as "Same Properties") separate from properties acquired subsequent to the first period presented, properties undergoing active development and active redevelopment, and corporate entities (legal entities performing general and administrative functions), which are excluded from same property results (herein referred to as "Non-Same Properties"). Additionally, rental revenues from lease termination fees, if any, are excluded from the results of operations of the Same Properties.
S-33
The following table reconciles same properties to total properties for the three months ended March 31, 2013:
|
Number of Properties |
|
Number of Properties |
|
Number of Properties |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Developmentactive | Developmentdeliveries since January 1, 2012 |
Development/RedevelopmentAsia | 7 | (1) | ||||||||
225 Binney Street |
1 |
259 East Grand Avenue |
1 |
|||||||||
269 East Grand Avenue | 1 | 400/450 East Jamie Court | 2 | Properties acquired since | ||||||||
409/499 Illinois Street | 2 | 4755 Nexus Center Drive | 1 | January 1, 2012 | ||||||||
430 East 29th Street | 1 | 5200 Illumina Way | 1 | 6 Davis Drive |
1 | |||||||
75/125 Binney Street | 1 | Canada | | (2) | ||||||||
6 | 5 | |||||||||||
Redevelopmentactive |
Redevelopmentdeliveries since January 1, 2012 |
Properties held for sale |
3 |
|||||||||
1551 Eastlake Avenue | 1 | 10300 Campus Point Drive | 1 | Total properties excluded | ||||||||
1616 Eastlake Avenue | 1 | 11119 North Torrey Pines Road | 1 | from Same Properties |
38 | |||||||
285 Bear Hill Road | 1 | 20 Walkup Drive | 1 | Same Properties | 135 | |||||||
343 Oyster Point Boulevard | 1 | 3530/3550 John Hopkins Court | 2 | Total properties as of | ||||||||
400 Technology Square | 1 | 620 Professional Drive | 1 | March 31, 2013 |
173 | |||||||
4757 Nexus Center Drive | 1 | 6275 Nancy Ridge Drive | 1 | |||||||||
9800 Medical Center Drive | 3 | 7 | ||||||||||
9 |
S-34
The following table presents a comparison of the components of NOI for our Same Properties and Non-Same Properties for the three months ended March 31, 2013, compared to the three months ended March 31, 2012, and a reconciliation of NOI to income from continuing operations, the most directly comparable financial measure (dollars in thousands):
|
Three Months Ended March, 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | $ Change | % Change | |||||||||
Revenues: |
|||||||||||||
RentalSame Properties |
$ | 91,960 | $ | 91,109 | $ | 851 | 1 | % | |||||
RentalNon-Same Properties |
19,816 | 10,092 | 9,724 | 96 | |||||||||
Total rental |
111,776 | 101,201 | 10,575 | 11 | |||||||||
Tenant recoveriesSame Properties |
30,297 | 28,828 | 1,469 | 5 | |||||||||
Tenant recoveriesNon-Same Properties |
5,314 | 3,054 | 2,260 | 74 | |||||||||
Total tenant recoveries |
35,611 | 31,882 | 3,729 | 12 | |||||||||
Other incomeSame Properties |
120 | 59 | 61 | 103 | |||||||||
Other incomeNon-Same Properties |
2,873 | 2,569 | 304 | 12 | |||||||||
Total other income |
2,993 | 2,628 | 365 | 14 | |||||||||
Total revenuesSame Properties |
122,377 | 119,996 | 2,381 | 2 | |||||||||
Total revenuesNon-Same Properties |
28,003 | 15,715 | 12,288 | 78 | |||||||||
Total revenues |
150,380 | 135,711 | 14,669 | 11 | |||||||||
Expenses: |
|||||||||||||
Rental operationsSame Properties |
35,824 | 33,748 | 2,076 | 6 | |||||||||
Rental operationsNon-Same Properties |
9,400 | 6,705 | 2,695 | 40 | |||||||||
Total rental operations |
45,224 | 40,453 | 4,771 | 12 | |||||||||
Net operating income: |
|||||||||||||
Net operating incomeSame Properties |
86,553 | 86,248 | 305 | | |||||||||
Net operating incomeNon-Same Properties |
18,603 | 9,010 | 9,593 | 107 | |||||||||
Total net operating income |
105,156 | 95,258 | 9,898 | 10 | |||||||||
Other expenses: |
|||||||||||||
General and administrative |
11,648 | 10,357 | 1,291 | 13 | |||||||||
Interest |
18,020 | 16,226 | 1,794 | 11 | |||||||||
Depreciation and amortization |
46,065 | 41,786 | 4,279 | 10 | |||||||||
Loss on early extinguishment of debt |
| 623 | (623 | ) | (100 | ) | |||||||
Total other expenses |
75,733 | 68,992 | 6,741 | 10 | |||||||||
Income from continuing operations |
$ | 29,423 | $ | 26,266 | $ | 3,157 | 12 | % | |||||
Net operating incomesame propertiesGAAP basis |
$ |
86,553 |
$ |
86,248 |
$ |
305 |
|
||||||
Less: straight-line rent adjustments |
(516 | ) | (7,194 | ) | (6,678 | ) | (93 | ) | |||||
Net operating incomesame propertiescash basis |
$ | 86,037 | $ | 79,054 | $ | 6,983 | 8.8 | % | |||||
S-35
We expect to receive approximately $494.3 million in net proceeds from the sale of the notes in this offering after payment of our expenses related to this offering and underwriting discounts and commissions. We intend to use the net proceeds from this offering to prepay $150 million of the outstanding principal balance of our 2016 unsecured senior bank term loan, to reduce the outstanding balance on our unsecured senior line of credit to zero, and to hold the remaining proceeds in cash and cash equivalents to fund near term opportunities related to development/redevelopment projects, to fund near term property acquisitions, and for general corporate purposes. As of March 31, 2013, we had approximately $0.9 billion available under our unsecured senior line of credit with a weighted average interest rate of approximately 1.40%. Our unsecured senior line of credit matures in April 2017, provided that we exercise our sole right to extend the maturity twice by an additional six months after each exercise. As of March 31, 2013, we had approximately $750 million outstanding under our 2016 unsecured senior bank term loan with a weighted average interest rate of approximately 2.39%. Our 2016 unsecured senior bank term loan matures in June 2016, provided that we exercise our sole right to extend the maturity by one year. Affiliates of each of J.P. Morgan Securities LLC, RBC Capital Markets, LLC, RBS Securities Inc., Barclays Capital Inc., Goldman Sachs & Co., Mitsubishi UFJ Securities (USA), Inc., PNC Capital Markets LLC, Scotia Capital (USA) Inc., BBVA Securities Inc., BNY Mellon Capital Markets, LLC, Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Fifth Third Securities, Inc., HSBC Securities (USA) Inc., The Huntington Investment Company, and TD Securities (USA) LLC are lenders under our unsecured senior line of credit. Affiliates of each of RBC Capital Markets, LLC, RBS Securities Inc., Mitsubishi UFJ Securities (USA), Inc., PNC Capital Markets LLC, Scotia Capital (USA) Inc., BBVA Securities Inc., and BNY Mellon Capital Markets, LLC are lenders under our 2016 unsecured senior bank term loan. See "Underwriting (Conflicts of Interest)."
S-36
The following table sets forth our capitalization as of March 31, 2013:
The information set forth in the following table should be read in conjunction with, and is qualified in its entirety by, the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, which are incorporated by reference into this prospectus supplement.
|
As of March 31, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share amounts)
|
Actual | Pro Forma |
Pro Forma As Adjusted |
|||||||
Cash and cash equivalents |
$ | 87,001 | $ | 87,001 | $ | 412,877 | ||||
Debt: |
||||||||||
Secured notes payable |
$ | 730,714 | $ | 730,714 | $ | 730,714 | ||||
Unsecured senior notes payable |
549,816 | 549,816 | 1,048,376 | |||||||
Unsecured senior line of credit |
554,000 | 18,392 | | |||||||
Unsecured senior bank term loans(1) |
1,350,000 | 1,350,000 | 1,200,000 | |||||||
Alexandria Real Estate Equities, Inc.'s stockholders' equity: |
||||||||||
Preferred stock, $0.01 par value per share; 100,000,000 shares authorized: |
||||||||||
10,000,000 shares of 7.00% Series D Cumulative Convertible Preferred Stock authorized, issued and outstanding on an actual, as adjusted, and as further adjusted basis; $25.00 liquidation value |
250,000 | 250,000 | 250,000 | |||||||
5,200,000 shares of 6.45% Series E Cumulative Redeemable Preferred Stock authorized, issued and outstanding on an actual, as adjusted, and as further adjusted basis; $25.00 liquidation value |
130,000 | 130,000 | 130,000 | |||||||
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 63,317,296, 70,907,296, and 70,907,296 shares issued and outstanding on an actual, as adjusted, and as further adjusted basis(2) |
633 | 709 | 709 | |||||||
Excess stock, $0.01 par value per share; 200,000,000 shares authorized; 0 shares issued and outstanding on an actual, as adjusted, and as further adjusted basis |
| | | |||||||
Additional paid-in capital |
3,075,860 | 3,611,392 | 3,611,392 | |||||||
Accumulated other comprehensive loss(3) |
(22,890 | ) | (22,890 | ) | (22,890 | ) | ||||
Total capitalization |
$ | 6,618,133 | $ | 6,618,133 | $ | 6,948,301 | ||||
S-37
DESCRIPTION OF NOTES AND GUARANTEE
The following description supplements, and to the extent inconsistent, amends and supersedes the description appearing in the accompanying prospectus under "Description of Debt Securities and Related Guarantees" and "Description of Global Securities." The following description summarizes certain terms and provisions of the notes and the indenture, does not purport to be complete and is subject to, and qualified in its entirety by reference to, the actual terms and provisions of the notes and the indenture. The form of the indenture has been filed as an exhibit to the registration statement of which this prospectus supplement and the accompanying prospectus are deemed a part. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the notes or the indenture, as applicable. As used in this section, unless stated otherwise, the terms "we," "us," "our" or "the Company" refer to Alexandria Real Estate Equities, Inc. and not to any of its subsidiaries, and references to the "Operating Partnership" or "guarantor" refer solely to Alexandria Real Estate Equities, L.P. and not to any of its subsidiaries.
The notes will be issued pursuant to an indenture, dated February 29, 2012, among us, the Operating Partnership, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee (the base indenture), as supplemented by a supplemental indenture to be entered into among us, the Operating Partnership, as guarantor, and the trustee (the supplemental indenture, and together with the base indenture, the indenture). You may request copies of the indenture and the form of the notes from us as described in "Where You Can Find More Information" in the accompanying prospectus.
The notes will be issued only in fully registered, book-entry form, in denominations of $2,000 and integral multiples of $1,000 in excess thereof, except under the limited circumstances described in the accompanying prospectus under "Description of Global Securities." The registered holder of a note will be treated as its owner for all purposes.
If any interest payment date, stated maturity date or redemption date is not a business day, the payment otherwise required to be made on such date will be made on the next business day without any additional payment as a result of such delay. The term "business day" means, with respect to any note, any day, except a Saturday, Sunday or legal holiday in The City of New York on which banking institutions or the corporate trust office of the trustee are authorized or required by law, regulation or executive order to close. All payments will be made in U.S. dollars.
The notes will be fully and unconditionally guaranteed by the Operating Partnership on a senior unsecured basis. See "Guarantee" below.
The terms of the notes provide that we are permitted to reduce interest payments and payments upon a redemption of notes otherwise payable to a holder for any amounts we are required to withhold by law. For example, non-United States holders of the notes may, under some circumstances, be subject to U.S. federal withholding tax with respect to payments of interest on the notes. See "Federal Income Tax Considerations" of this prospectus supplement and in the accompanying prospectus. We will set-off any such withholding tax that we are required to pay against payments of interest payable on the notes and payments upon a redemption of notes.
As of March 31, 2013, we had outstanding $730.7 million of secured indebtedness and $2.45 billion of senior unsecured indebtedness (exclusive of trade payables, distributions payable, accrued expenses and committed letters of credit) on a consolidated basis. All of our outstanding secured indebtedness as of March 31, 2013 was attributable to indebtedness of our subsidiaries other than the guarantor. As of
S-38
March 31, 2013, all of our outstanding senior unsecured indebtedness was attributable only to indebtedness of the Company and the guarantor, and will rank pari passu with the notes.
The notes will be our senior unsecured obligations and will rank equally with each other and with all of our other senior unsecured indebtedness. However, the notes will be effectively subordinated to our 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 our subsidiaries other than the Operating Partnership.
Except as described under "Certain Covenants" and "Limitations on Mergers and Other Transactions" in this prospectus supplement, the indenture governing the notes does not prohibit us or any of our subsidiaries from incurring additional indebtedness or issuing preferred equity in the future, nor does the indenture afford holders of the notes protection in the event of (1) a recapitalization transaction or other highly leveraged or similar transaction, (2) a change of control of us or (3) a merger, consolidation, reorganization, restructuring or transfer or lease of substantially all of our assets or similar transaction that may adversely affect the holders of the notes. We may, in the future, enter into certain transactions such as the sale of all or substantially all of our assets or a merger or consolidation that may increase the amount of our indebtedness or substantially change our assets, which may have an adverse effect on our ability to service our indebtedness, including the notes. See "Risk FactorsRisks Related to this OfferingThe effective subordination of the notes and guarantee may limit our ability to satisfy our obligations under the notes." in this prospectus supplement.
The notes will initially be limited to an aggregate principal amount of $500,000,000. We may, without the consent of holders of the notes, increase the principal amount of the notes by issuing additional notes in the future on the same terms and conditions, except for any difference in the issue price and interest accrued prior to the issue date of the additional notes, and with the same CUSIP number as the notes offered hereby so long as such additional notes are fungible for U.S. federal income tax purposes with the notes offered hereby (as determined by us). The notes offered by this prospectus supplement and any additional notes would rank equally and ratably in right of payment and would be treated as a single series of debt securities for all purposes under the indenture.
Interest on the notes will accrue at the rate of 3.90% per year from and including June 7, 2013 or the most recent interest payment date to which interest has been paid or provided for, and will be payable semi-annually in arrears on December 15 and June 15 of each year, beginning December 15, 2013. The interest so payable will be paid to each holder in whose name a note is registered at the close of business on the December 1 or June 1 (whether or not a business day) immediately preceding the applicable interest payment date. Interest on the notes will be computed on the basis of a 360-day year consisting of twelve 30-day months.
If we redeem the notes in accordance with the terms of such note, we will pay accrued and unpaid interest and premium, if any, to the holder that surrenders such note for redemption. However, if a redemption falls after a record date and on or prior to the corresponding interest payment date, we will pay the full amount of accrued and unpaid interest and premium, if any, due on such interest payment date to the holder of record at the close of business on the corresponding record date.
The notes will mature on June 15, 2023 and will be paid against presentation and surrender thereof at the corporate trust office of the trustee unless earlier redeemed by us at our option as
S-39
described under "Our Redemption Rights" below. The notes will not be entitled to the benefits of, or be subject to, any sinking fund.
At any time before 90 days prior to the maturity date, we may redeem the notes at our option and in our sole discretion, in whole or from time to time in part, at a redemption price equal to the sum of:
If the notes are redeemed on or after 90 days prior to the maturity date, the redemption price will be equal to the sum of 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon, if any, to, but excluding, the date of redemption, and will not include the Make-Whole Amount.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of the notes, the excess, if any, as determined by the Company, of: (1) the aggregate present value as of the date of such redemption of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable in respect of each such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semi-annual basis, such principal and interest at the Reinvestment Rate (determined by the Company on the third business day preceding the date a notice of redemption is given) from the respective dates on which such principal and interest would have been payable if such redemption or payment had not been made, over (2) the aggregate principal amount of the notes being redeemed or paid.
"Reinvestment Rate" means 0.30% plus the arithmetic mean of the yields under the respective heading "Week Ending" published in the most recent Statistical Release under "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purpose of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used.
"Statistical Release" means that statistical release designated "H.15(519)" or any successor publication that is published weekly by the Federal Reserve System and that establishes annual yields on actively traded U.S. government securities adjusted to constant maturities, or, if such statistical release is not published at the time of any determination under the indenture, then such other reasonably comparable index the Company designates. If the format or content of the Statistical Release changes in a manner that precludes determination of the Treasury yield in the above manner, then the Treasury yield shall be determined in the manner that most closely approximates the above manner, as reasonably determined by us.
Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of the notes to be redeemed. Unless we default in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the notes or portions thereof called for redemption.
S-40
If we decide to redeem the notes in part, the trustee will select the notes to be redeemed (in principal amounts of $2,000 and integral multiples of $1,000 in excess thereof) on a pro rata basis or such other method it deems fair and appropriate or is required by the depository for the notes.
In the event of any redemption of notes in part, we will not be required to:
If the paying agent holds funds sufficient to pay the redemption price of the notes on the redemption date, then on and after such date:
Such will be the case whether or not book-entry transfer of the notes in book-entry form is made and whether or not notes in certificated form, together with the necessary endorsements, are delivered to the paying agent.
We will not redeem the notes on any date if the principal amount of the notes has been accelerated, and such an acceleration has not been rescinded or cured on or prior to such date.
Limitations on Incurrence of Debt
Limitation on Total Outstanding Debt. The notes will provide that we will not, and will not permit any subsidiary to, incur any Debt, other than Intercompany Debt and guarantees of Debt incurred by us or our subsidiaries in compliance with the indenture governing the notes, if, immediately after giving effect to the incurrence of such Debt and the application of the proceeds thereof, the aggregate principal amount of all of our and our subsidiaries' outstanding Debt on a consolidated basis determined in accordance with generally accepted accounting principles is greater than 60% of the sum of (without duplication) (1) Total Assets as of the end of the calendar quarter covered in our Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Exchange Act, with the trustee) prior to the incurrence of such additional Debt and (2) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by us or any subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt.
Secured Debt. In addition to the foregoing limitation on the incurrence of Debt, the notes will provide that we will not, and will not permit any subsidiary to, incur any Debt, other than Intercompany Debt and guarantees of Debt incurred by us or our subsidiaries in compliance with the indenture governing the notes, secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind upon any of our or any of our subsidiaries' property if, immediately after giving
S-41
effect to the incurrence of such Debt and the application of the proceeds thereof, the aggregate principal amount of all of our and our subsidiaries' outstanding Debt on a consolidated basis which is secured by any mortgage, lien, charge, pledge, encumbrance or security interest on our or our subsidiaries' property is greater than 40% of the sum of (without duplication) (1) Total Assets as of the end of the calendar quarter covered in our Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Exchange Act, with the trustee) prior to the incurrence of such additional Debt and (2) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by us or any of our subsidiaries since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt; provided, that for purposes of this limitation, the amount of obligations under capital leases shown as a liability on the Company's consolidated balance sheet shall be deducted from Debt and from Total Assets.
Ratio of Consolidated EBITDA to Interest Expense. The notes will provide that we will not, and will not permit any of our subsidiaries to, incur any Debt, other than Intercompany Debt and guarantees of Debt incurred by us or our subsidiaries in compliance with the indenture governing the notes, if the ratio of Consolidated EBITDA to Interest Expense for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5 to 1.0, on an unaudited pro forma basis after giving effect to the incurrence of such additional Debt and to the application of the proceeds therefrom, and calculated on the assumption that: (1) such Debt and any other Debt incurred by us and our subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (2) the repayment or retirement of any other Debt by us and our subsidiaries since the first day of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (3) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period, with the appropriate adjustments with respect to such acquisition being included in such unaudited pro forma calculation; and (4) in the case of any acquisition or disposition by us or our subsidiaries of any asset or group of assets or other placement of any assets in service or removal of any assets from service by us or any of our subsidiaries since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition, disposition, placement in service or removal from service, or any related repayment of Debt had occurred as of the first day of such period, with the appropriate adjustments with respect to such acquisition, disposition, placement in service or removal from service, being included in such unaudited pro forma calculation and determined reasonably in good faith by us. If the Debt giving rise to the need to make the foregoing calculation or any other Debt incurred after the first day of the relevant four-quarter period bears interest at a floating rate then, for purposes of calculating the Interest Expense, the interest rate on such Debt shall be computed on a pro forma basis as if the average interest rate which would have been in effect during the entire such four-quarter period had been the applicable rate for the entire such period.
Maintenance of Unencumbered Total Asset Value
The notes will provide that we, together with our subsidiaries, will at all times maintain an Unencumbered Total Asset Value in an amount not less than 150% of the aggregate outstanding principal amount of all our and our subsidiaries' unsecured Debt, taken as a whole.
S-42
Insurance
The notes will provide that we will, and will cause each of our subsidiaries to, maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as is customarily maintained by persons engaged in similar businesses or as may be required by applicable law.
Certain Definitions
As used herein:
"Acquired Debt" means Debt of a person (1) existing at the time such person becomes a subsidiary or (2) assumed in connection with the acquisition of assets from such person, in each case, other than Debt incurred in connection with, or in contemplation of, such person becoming a subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any person or the date the acquired person becomes a subsidiary.
"Consolidated EBITDA" means, for any period of time, the net income (loss) of us and our subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles for such period, before deductions for (without duplication):
For purposes of calculating Consolidated EBITDA, GAAP is not applicable with respect to the determination of all non-cash and non-recurring items which shall be determined reasonably and in good faith by us.
"Debt" means any of our or any of our subsidiaries' indebtedness, whether or not contingent, in respect of (without duplication) (1) borrowed money evidenced by bonds, notes (including the notes offered hereby), debentures or similar instruments, (2) obligations secured by any mortgage, pledge, lien, charge, encumbrance or any security interest existing on property owned by us or any subsidiary, but only to the extent of the lesser of (a) the amount of obligations so secured and (b) the fair market value (determined in good faith by the board of directors of such person (as evidenced by an officers' certificate to the trustee) or, in the case of the Company or a subsidiary of the Company, by the Company's board of directors) of the property subject to such mortgage, pledge, lien, charge, encumbrance or security interest, (3) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued or amounts representing the balance deferred and
S-43
unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, or (4) any lease of property by us or any of our subsidiaries as lessee which is reflected on our consolidated balance sheet as a capitalized lease in accordance with generally accepted accounting principles; but only to the extent, in the case of items of indebtedness under (1) through (3) above, that any such items (other than letters of credit) would appear as a liability on our consolidated balance sheet in accordance with generally accepted accounting principles. The term "Debt" also includes, to the extent not otherwise included, any obligation of us or any of our subsidiaries to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business or for the purposes of guaranteeing the payment of all amounts due and owing pursuant to leases to which we or any of our subsidiaries are a party and have assigned our or their interest, provided that such assignee of ours is not in default of any amounts due and owing under such leases), Debt of another person (other than us or any of our subsidiaries) (it being understood that Debt shall be deemed to be incurred by us or any of our subsidiaries whenever we or such subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof).
"Intercompany Debt" means Debt to which the only parties are any of us, the Operating Partnership and any subsidiary of us or the Operating Partnership; provided, however, that with respect to any such Debt of which we or the Operating Partnership is the borrower, such Debt is subordinate in right of payment to the notes.
"Interest Expense" means, for any period of time, the aggregate amount of interest expense determined on a consolidated basis in accordance with generally accepted accounting principles for such period by us and our subsidiaries, but excluding (i) interest reserves funded from the proceeds of any loan, (ii) prepayment penalties, (iii) amortization of deferred financing costs, and (iv) swap ineffectiveness charges or charges attributable to transactions involving derivative instruments that do not qualify for hedge accounting in accordance with generally accepted accounting principles.
"Total Assets" as of any date means the sum of (1) our and all of our subsidiaries' Undepreciated Real Estate Assets and (2) all of our and our subsidiaries' other assets determined in accordance with generally accepted accounting principles (but excluding accounts receivable and acquisition intangibles, including goodwill).
"Undepreciated Real Estate Assets" as of any date means the cost (original cost plus capital improvements) of our and our subsidiaries' real estate assets on such date, before depreciation and amortization determined on a consolidated basis in accordance with generally accepted accounting principles.
"Unencumbered Total Asset Value" as of any date means the sum of (1) those Undepreciated Real Estate Assets not encumbered by any mortgage, lien, charge, pledge or security interest and (2) all of our and our subsidiaries' other assets on a consolidated basis determined in accordance with generally accepted accounting principles (but excluding accounts receivable and acquisition intangibles, including goodwill), in each case which are unencumbered by any mortgage, lien, charge, pledge or security interest; provided, however, that, in determining Unencumbered Total Asset Value for purposes of the covenant set forth above in "Maintenance of Unencumbered Total Asset Value," all investments by the Company and any subsidiary in unconsolidated joint ventures, unconsolidated limited partnerships, unconsolidated limited liability companies and other unconsolidated entities accounted for financial reporting purposes using the equity method of accounting in accordance with generally accepted accounting principles shall be excluded from Unencumbered Total Asset Value.
The Operating Partnership will fully, unconditionally and absolutely guarantee our obligations under the notes, including the due and punctual payment of principal of and interest on the notes and
S-44
all other amounts due and payable under the indenture, including any Make-Whole Amount, when and as such principal and interest and other amounts due and payable under the indenture (and, if applicable, any Make-Whole Amount) shall become due and payable, whether at stated maturity, by declaration of acceleration, call for redemption or otherwise. The guarantee will be a senior unsecured obligation of the Operating Partnership and will rank equally in right of payment with other senior unsecured obligations of the Operating Partnership.
Limitations on Mergers and Other Transactions
We and the Operating Partnership may not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our properties and assets to, any person, which we refer to as a successor person, unless:
In the event of any transaction described in and complying with the conditions listed in the immediately preceding paragraphs in which we are not the surviving entity, the successor person formed or remaining shall succeed to, and be substituted for, and may exercise every right and power of ours under the indenture, and we shall be released from our obligations and covenants under the notes and the indenture.
The indenture provides that the following events are "Events of Default" with respect to the notes:
S-45
indenture solely for the benefit of a series of debt securities other than this series), which default continues uncured for a period of 90 calendar days after we receive written notice from the trustee or we and the trustee receive written notice from the holders of at least 25% in principal amount of the outstanding notes as provided in the indenture; and
As used herein:
"Significant Subsidiary" means each Subsidiary that is a "significant subsidiary," if any, of the Company, as such term is defined in Regulation S-X under the Securities Act of 1933, as amended.
"Subsidiary" means any corporation or other entity of which a majority of the voting power of the voting equity securities are owned directly or indirectly by the Company.
No Event of Default with respect to the notes (except as to certain events of bankruptcy, insolvency or reorganization) necessarily constitutes an event of default with respect to any other series of our debt securities. The occurrence of an Event of Default may constitute an event of default under our bank credit agreements in existence from time to time. In addition, the occurrence of certain events of default or an acceleration under the indenture may constitute an event of default under certain of our other indebtedness outstanding from time to time.
If an Event of Default with respect to the notes occurs and is continuing, then the trustee or the holders of not less than 25% in principal amount of the outstanding notes may, by a notice in writing to us (and to the trustee if given by the holders), declare to be due and payable immediately the principal of, and accrued and unpaid interest, if any, on all of the notes. In the case of an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization, the principal of and accrued and unpaid interest, if any, on all outstanding debt securities will become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of outstanding notes. At any time after a declaration of acceleration with respect to notes has been made, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in principal amount of the outstanding notes may rescind and annul the acceleration if all events of default, other than the non-payment of accelerated principal and interest, if any, with respect to the notes, have been cured or waived as provided in the indenture.
The trustee will be required to give notice to the holders of notes within 90 days after a Default under the indenture unless the Default has been cured or waived. The trustee may withhold notice to the holders of the notes of any Default, except a Default in the payment of the principal of or interest on the notes, if specified responsible officers of the trustee in good faith determine that withholding the notice is in the interest of the holders. As used herein, the term "Default" means, with respect to the indenture and the notes, any event that is, or with the passage of time or giving of notice would be, an Event of Default. The indenture requires us, within 120 days after the end of our fiscal year, to furnish to the trustee a statement as to compliance with the indenture.
The indenture provides that the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of outstanding notes, unless the trustee receives indemnity satisfactory to it against any loss, liability or expense. Subject to certain rights of the trustee, the holders of a majority in principal amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the notes.
S-46
No holder of the notes will have any right to institute any proceeding, judicial or otherwise, with respect to the indenture or for the appointment of a receiver or trustee, or for any remedy under the indenture, unless:
Notwithstanding the foregoing, the holder of the notes will have an absolute and unconditional right to receive payment of the principal of, premium, if any, and any interest on that debt security on or after the due dates expressed in the notes and to institute suit for the enforcement of payment.
The indenture requires us, within 120 days after the end of the year, to furnish to the trustee a statement as to compliance with the indenture.
See "Description of Debt Securities and Related GuaranteesModification and Waiver" in the accompanying prospectus.
Defeasance of Debt Securities and Certain Covenants in Certain Circumstances
See "Description of Debt Securities and Related GuaranteesDefeasance and Covenants Defeasance" in the accompanying prospectus.
The Bank of New York Mellon Trust Company, N.A. will initially act as the trustee, registrar and paying agent for the notes, subject to replacement at our option.
If an Event of Default has occurred and is continuing, the trustee will exercise the rights and powers vested in it by the indenture and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The trustee may refuse to perform any duty or exercise any right or power at the request or direction of any holder of the notes unless it receives indemnity satisfactory to it against any loss, liability or expense.
If the trustee becomes one of our creditors, it will be subject to limitations on its rights to obtain payment of claims or to realize on some property received for any such claim, as security or otherwise. The trustee is permitted to engage in other transactions with us. If, however, it acquires any conflicting interest, it must eliminate that conflict or resign.
No Conversion or Exchange Rights
The notes will not be convertible into or exchangeable for any capital stock of us or the Operating Partnership.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder (past or present) of ours or the Operating Partnership, as such, will have any liability for any of our obligations or those of the Operating
S-47
Partnership under the notes, the guarantee or the indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.
The following description of the operations and procedures of The Depository Trust Company, or DTC, is provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. None of us, the Operating Partnership, the trustee, or the underwriters take responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the Participants) and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the underwriters), banks, trust companies, clearing corporations and other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the Indirect Participants). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the global notes, DTC will credit the accounts of the Participants designated by the underwriters with portions of the principal amount of the global notes; and
(2) ownership of these interests in the global notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the global notes).
The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a global note to such persons will be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants, the ability of a person having beneficial interests in a global note to pledge such interests to persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the global notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or "holders" thereof under the indenture governing the notes for any purpose.
Payments in respect of the principal of, and interest and premium, if any, on, a global note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture governing the notes. Under the terms of the indenture, we, the Company and the trustee will treat the persons in whose names the notes, including the global notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes.
S-48
Consequently, neither we, the Operating Partnership, the trustee nor any agent of us or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the global notes or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the global notes; or
(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of the Participants or the Indirect Participants in identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between the Participants will be effected in accordance with DTC's procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the global notes and only in respect of such portion of the aggregate principal amount at maturity of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the global notes for legended notes in certificated form, and to distribute such notes to its Participants.
See "Description of Global Securities" in the accompanying prospectus.
Same Day Settlement and Payment
We will make payments in respect of the notes represented by the global notes (including principal, premium, if any, and interest) by wire transfer of immediately available funds to the accounts specified by DTC or its nominee. We will make all payments of principal, interest and premium, if any, with respect to certificated notes by wire transfer of immediately available funds to the accounts specified by the holders of the certificated notes or, if no such account is specified, by mailing a check to each such holder's registered address. The notes represented by the global notes are expected to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in any certificated notes will also be settled in immediately available funds.
Except as otherwise provided in the indenture, notices to holders of the notes will be given by mail to the addresses of holders of the notes as they appear in the note register; provided that notices given
S-49
to holders holding notes in book-entry form may be given through the facilities of DTC or any successor depository.
The indenture, the notes and the guarantee will be governed by, and construed in accordance with, the law of the State of New York.
S-50
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material U.S. federal income tax considerations relevant to the acquisition, ownership and disposition of the notes. What follows supplements the discussion in the accompanying prospectus and should be read in connection therewith. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current and proposed Treasury regulations, administrative decisions and rulings of the Internal Revenue Service (the "IRS") and court decisions as of the date hereof, all of which are subject to change (possibly with retroactive effect) and all of which are subject to differing interpretation. The following summary does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or to persons subject to special treatment under the federal income tax laws. In particular, this discussion deals only with persons who hold the notes as capital assets within the meaning of the Code. Except as expressly provided below, this discussion does not address the tax treatment of special classes of persons, such as banks, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, persons holding the notes as part of a hedge, straddle or other risk reduction, constructive sale or conversion transaction, U.S. expatriates, persons subject to the alternative minimum tax, foreign corporations, foreign estates or trusts and persons who are not citizens or residents of the United States. Furthermore, this discussion does not address any state, local, foreign or non-income tax considerations.
For purposes of the following summary, a "U.S. Holder" generally refers to (i) an individual who is a citizen or resident of the United States; (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or of a political subdivision of the United States; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more "United States persons" (within the meaning of the Code) have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a United States person. A "Non-U.S. Holder" generally refers to a person, other than an entity treated as a partnership for U.S. federal income tax purposes, that is not a U.S. Holder.
If an entity treated as a partnership for U.S. federal income tax purposes is a beneficial owner of the notes, the U.S. federal income tax consequences to a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder that is a partnership, and the partners in such partnership, should consult their own tax advisors regarding the U.S. federal income tax considerations of an investment in the notes.
THE DISCUSSION SET FORTH BELOW IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AS WELL AS APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS.
Characterization of the Notes
If we redeem the notes, we may be obligated to pay additional amounts in excess of stated principal and interest. See "Description of Notes and GuaranteeOur Redemption Rights." Notwithstanding the possible payment of such additional amounts, we intend to take the position that the notes should not be treated as "contingent payment debt instruments" for federal income tax purposes. If the IRS successfully challenged this position, and the notes were treated as contingent payment debt instruments, holders could be required to accrue interest income at a rate higher than the stated interest rate on the notes and to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange or redemption of a note. Holders are urged to consult their tax advisors
S-51
regarding the potential application to the notes of the contingent payment debt instrument rules and the consequences thereof. The remainder of this discussion assumes the notes will not be treated as contingent payment debt instruments.
Taxation of U.S. Holders
Payments of Interest
Stated interest on a note generally will be taxable to a U.S. Holder as ordinary interest income at the time such interest is actually or constructively received, in accordance with such U.S. Holder's method of accounting for U.S. federal income tax purposes.
Sale, Exchange, or Retirement
Upon the sale, exchange, retirement or other disposition of a note, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized upon such sale, exchange, retirement or other disposition (less an amount equal to any accrued interest not previously included in income, which will be included in income as ordinary interest income) and the U.S. Holder's adjusted tax basis in the note. The amount realized by the U.S. Holder will include the amount of any cash and the fair market value of any other property received for the note. A U.S. Holder's adjusted tax basis in a note generally will be the cost of the note to such U.S. Holder, increased by any market discount (as discussed below) previously included in income with respect to the note, and decreased by the amount of any payment (other than a payment of qualified stated interest) received in respect of the note and any amortizable bond premium deducted by such holder.
Subject to the discussion of market discount below, gain or loss realized on the sale, exchange, retirement or other disposition of a note generally will be capital gain or loss and will be long-term capital gain or loss if the note has been held for more than one year. The ability of U.S. Holders to deduct capital losses is subject to limitations under the Code.
Market Discount
If a U.S. Holder purchases a note subsequent to its original issuance for an amount that is less than its stated redemption price at maturity, such difference will be treated as "market discount" unless such difference is less than a specified de minimis amount. Under the market discount rules, any principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a note will be treated as ordinary income to the extent of accrued market discount not previously included in income. In addition, a holder may be required to defer, until the maturity of the note or its earlier disposition in a taxable transaction, the deduction of all or a portion of interest expense on any indebtedness attributable to such note.
Market discount accrues ratably during the period from the date of acquisition to the maturity date of the note, unless a holder elects to accrue under a constant yield method. A holder may elect to include market discount in income currently as it accrues, in which case the rule described above regarding deferral of interest deductions will not apply. An election by a holder to include market discount in income currently, once made, applies to all market discount obligations acquired by such holder on or after the first taxable year to which the election applies and may not be revoked without the consent of the IRS.
Amortizable Bond Premium
If a holder purchases a note for an amount in excess of the sum of all amounts payable on such note after the purchase date (other than qualified stated interest), such holder will be considered to have purchased such note with "amortizable bond premium" equal to such excess. A holder generally
S-52
may elect to amortize such premium over the remaining term of the note under a constant yield method as an offset to interest when includible in income. A holder who elects to amortize bond premium must reduce its tax basis in the note by the amount of the premium amortized in any year. An election to amortize premium on a constant yield method will apply to all debt obligations held or subsequently acquired by the holder on or after the first day of the first taxable year to which the election applies. A holder may not revoke the election without the consent of the IRS.
Taxation of Non-U.S. Holders
Payments of Interest
Under current U.S. federal income tax law and subject to the discussion below concerning backup withholding, principal and interest payments received from us or our agent generally will not be subject to U.S. federal income or withholding tax, except as provided below.
Interest may be subject to a 30% withholding tax (or less under an applicable treaty, if any) if:
A Non-U.S. Holder generally will satisfy the certification requirements if the Non-U.S. Holder certifies, under penalties of perjury, that it is not a "United States person" (within the meaning of the Code) and provides its name and address (which certification may generally be made on an IRS Form W-8BEN, or a successor form). Payments otherwise subject to withholding under the rules set forth above may nevertheless be exempt from withholding (or subject to withholding at a reduced rate) if the Non-U.S. Holder provides a properly executed IRS Form W-8BEN (or successor form) claiming an exemption from, or reduction in, withholding under the benefit of a tax treaty.
A Non-U.S. Holder generally will be subject to tax in the same manner as a U.S. Holder with respect to payments of interest effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States and, if required under an applicable tax treaty, a permanent establishment maintained in the United States. In some circumstances, such effectively connected income received by a corporate Non-U.S. Holder may be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be provided by an applicable treaty.
Sale, Exchange, or Retirement
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on any capital gain or market discount realized on the sale, exchange, retirement or other disposition of a note, provided that: (a) the gain is not effectively connected with the conduct of a trade or business within the United States and, if required under an applicable tax treaty, a permanent establishment maintained in the United States if certain tax treaties apply; and (b) in the case of a Non-U.S. Holder that is an individual, the Non-U.S. Holder is not present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of the note. An individual Non-U.S. Holder
S-53
present in the United States for 183 days or more in the taxable year of sale, exchange or other disposition, subject to certain additional conditions, will be subject to U.S. federal income tax at a rate of 30% on the gain realized on the sale, exchange or other disposition.
A Non-U.S. Holder generally will be subject to tax in the same manner as a U.S. Holder with respect to gain realized on the sale, exchange, retirement or other disposition of a note if such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States and, if required under an applicable tax treaty, a permanent establishment maintained in the United States. In some circumstances, such effectively connected gain received by a corporate Non-U.S. Holder may be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be provided by an applicable treaty.
Backup Withholding and Information Reporting
In general, in the case of a U.S. Holder, other than certain exempt holders, we and other payors are required to report to the IRS all payments of principal and interest on the notes. In addition, we and other payors generally are required to report to the IRS any payment of proceeds of the sale of a note before maturity. Additionally, backup withholding generally will apply to any payments if a U.S. Holder fails to provide an accurate taxpayer identification number and certify that the taxpayer identification number is correct, the U.S. Holder is notified by the IRS that it has failed to report all interest and dividends required to be shown on its U.S. federal income tax returns, or the U.S. Holder does not certify that it has not underreported its interest and dividend income. If applicable, backup withholding will be imposed currently at a rate of 28%.
In the case of a Non-U.S. Holder, backup withholding and information reporting generally will not apply to payments made if the Non-U.S. Holder provides the required certification that it is not a United States person, or the Non-U.S. Holder otherwise establishes an exemption, provided that the payor or withholding agent does not have actual knowledge that the holder is a United States person, or that the conditions of any exemption are not satisfied.
In addition, payments of the proceeds from the sale of a note to or through a foreign office of a broker or the foreign office of a custodian, nominee, or other dealer acting on behalf of a holder generally will not be subject to information reporting or backup withholding. However, if the broker, custodian, nominee or other dealer is a United States person, the government of the United States or the government of any state or political subdivision of any state, or any agency or instrumentality of any of these governmental units, a controlled foreign corporation for U.S. federal income tax purposes, a foreign partnership that is either engaged in a trade or business within the United States or whose U.S. partners in the aggregate hold more than 50% of the income or capital interest in the partnership, a foreign person 50% or more of whose gross income for a certain period is effectively connected with a trade or business within the United States, or a U.S. branch of a foreign bank or insurance company, information reporting (but not backup withholding) generally will be required with respect to payments made to a Non-U.S. Holder unless the broker, custodian, nominee, or other dealer has documentation of such holder's foreign status and the broker, custodian, nominee, or other dealer has no actual knowledge to the contrary.
Payment of the proceeds from a sale of a note to or through the U.S. office of a broker is subject to information reporting and backup withholding, unless the Non-U.S. Holder certifies as to its non-United States person status or otherwise establishes an exemption from information reporting and backup withholding.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a holder's U.S. federal income tax liability provided the required information is furnished to the IRS.
S-54
UNDERWRITING (CONFLICTS OF INTEREST)
J.P. Morgan Securities LLC, RBC Capital Markets, LLC and RBS Securities Inc. are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the principal amount of notes set forth opposite its name below.
Underwriter
|
Principal Amount of Notes |
|||
---|---|---|---|---|
J.P. Morgan Securities LLC |
$ | 103,750,000 | ||
RBC Capital Markets, LLC |
$ | 88,750,000 | ||
RBS Securities Inc. |
$ | 88,750,000 | ||
Barclays Capital Inc. |
$ | 26,250,000 | ||
Goldman, Sachs & Co. |
$ | 26,250,000 | ||
Mitsubishi UFJ Securities (USA), Inc. |
$ | 26,250,000 | ||
PNC Capital Markets LLC |
$ | 26,250,000 | ||
Scotia Capital (USA) Inc. |
$ | 26,250,000 | ||
BBVA Securities Inc. |
$ | 11,250,000 | ||
BNY Mellon Capital Markets, LLC |
$ | 11,250,000 | ||
Credit Agricole Securities (USA) Inc. |
$ | 11,250,000 | ||
Credit Suisse Securities (USA) LLC |
$ | 11,250,000 | ||
Fifth Third Securities, Inc. |
$ | 8,500,000 | ||
HSBC Securities (USA) Inc. |
$ | 8,500,000 | ||
The Huntington Investment Company |
$ | 8,500,000 | ||
JMP Securities LLC |
$ | 8,500,000 | ||
TD Securities (USA) LLC |
$ | 8,500,000 | ||
Total |
$ | 500,000,000 | ||
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the notes sold under the underwriting agreement if any of these notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the notes to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of 0.40% of the principal amount of the notes. The underwriters may allow, and those dealers may reallow, a concession not to exceed 0.25% of the principal amount of the notes on sales to other dealers. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
S-55
The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses to us.
|
Per Note | Total | |||||
---|---|---|---|---|---|---|---|
Public offering price |
99.712 | % | $ | 498,560,000 | |||
Underwriting discounts and commissions |
0.650 | % | $ | 3,250,000 | |||
Proceeds, before expenses, to us |
99.062 | % | $ | 495,310,000 |
The expenses of the offering, not including the underwriting discounts and commissions, are estimated at $1,042,500 and are payable by us.
The notes are a new issue of securities for which there currently is no market. We do not intend to apply for the notes to be listed on any securities exchange or to arrange for the notes to be quoted on any quotation system. The underwriters have advised us that they intend to make a market in the notes after completion of the offering and as permitted by applicable law. They are not obligated, however, to make a market in the notes and any market-making may be discontinued at any time at their sole discretion. However, we cannot assure you that the prices at which the notes will sell in the market after this offering will not be lower than the initial offering price or that an active trading market for the notes will develop and continue after this offering. Accordingly, no assurance can be given as to the development or liquidity of any market for the notes.
Price Stabilization, Short Positions
In connection with the offering, the underwriters may purchase and sell our notes in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of notes than they are required to purchase in the offering. Stabilizing transactions consist of various bids for or purchases of the notes made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased notes sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our notes or preventing or retarding a decline in the market price of our notes. As a result, the price of our notes may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our notes. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Conflicts of Interest
Affiliates of each of J.P. Morgan Securities LLC, RBC Capital Markets, LLC, RBS Securities Inc., Barclays Capital Inc., Goldman Sachs & Co., Mitsubishi UFJ Securities (USA), Inc., PNC Capital Markets LLC, Scotia Capital (USA) Inc., BBVA Securities Inc., BNY Mellon Capital Markets, LLC, Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Fifth Third Securities, Inc., HSBC Securities (USA) Inc., The Huntington Investment Company, and TD Securities (USA) LLC are lenders under our unsecured senior line of credit. A portion of the net proceeds from this offering will
S-56
be used to reduce the outstanding balance of our unsecured senior line of credit to zero. See "Use of Proceeds." J.P. Morgan Securities LLC is a Joint Lead Arranger and Joint Bookrunner for our unsecured senior line of credit. An affiliate of J.P. Morgan Securities LLC is a Co-Syndication Agent for our unsecured senior line of credit. Affiliates of each of RBC Capital Markets, LLC, RBS Securities Inc., Barclays Capital Inc., Goldman, Sachs & Co., Scotia Capital (USA) Inc., BBVA Securities Inc. and Credit Agricole Securities (USA) Inc. are Co-Documentation Agents for our unsecured senior line of credit. As of March 31, 2013, we had approximately $0.9 billion available under our unsecured senior line of credit. Affiliates of each of RBC Capital Markets, LLC, RBS Securities Inc., Mitsubishi UFJ Securities (USA), Inc., PNC Capital Markets LLC, Scotia Capital (USA) Inc., BBVA Securities Inc., and BNY Mellon Capital Markets, LLC are lenders under our 2016 unsecured senior bank term loan. We intend to use the net proceeds from this offering to prepay $150 million of the outstanding principal balance of our 2016 unsecured senior bank term loan. See "Use of Proceeds." Affiliates of RBC Capital Markets, LLC and RBS Securities Inc. are Joint Lead Arrangers, Joint Book Running Managers, and Co-Syndication Agents for our 2016 unsecured senior bank term loan. Affiliates of each of Scotia Capital (USA) Inc. and BBVA Securities Inc. are Co-Documentation Agents for our 2016 unsecured senior bank term loan. As a result of the foregoing, the representatives have advised us that more than 5% of the net proceeds will be used to repay indebtedness under our unsecured senior line of credit and our 2016 unsecured senior bank term loan to banking affiliates of the underwriters.
Other Relationships
Affiliates of each of J.P. Morgan Securities LLC, RBC Capital Markets, LLC, Barclays Capital, Inc., Goldman, Sachs & Co., Mitsubishi UFJ Securities (USA), Inc., PNC Capital Markets LLC, Scotia Capital (USA) Inc., and Credit Suisse Securities (USA) LLC are lenders under our 2017 unsecured senior bank term loan. J.P. Morgan Securities LLC is a Joint Lead Arranger and Joint Lead Book Runner for our 2017 unsecured senior bank term loan. An affiliate of J.P. Morgan Securities LLC is a Co-Syndication Agent for our 2017 unsecured senior bank term loan. Affiliates of each of RBC Capital Markets, LLC and Scotia Capital (USA) Inc. are Co-Documentation Agents for our 2017 unsecured senior bank term loan.
The Bank of New York Mellon Trust Company, N.A., the trustee with respect to the notes, is an affiliate of BNY Mellon Capital Markets, LLC, one of the underwriters in this offering.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking, financial advisory and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such short positions could adversely affect future trading prices of the notes offered hereby. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research
S-57
views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Extended Settlement
We expect that delivery of the notes will be made to investors on or about June 7, 2013, which will be the seventh business day following the date of this prospectus supplement (such settlement being referred to as "T+7"). Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in three business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes on the date of pricing of the notes or the next two succeeding business days will be required, by virtue of the fact that the notes initially will settle in T+7, to specify an alternative settlement cycle at the time of any such trade to prevent failed settlement and should consult their own advisors.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date") it has not made and will not make an offer of notes which are the subject of the offering contemplated by this prospectus supplement to the public in that Relevant Member State other than:
(a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the issuer for any such offer; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of notes shall require the issuer or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an "offer of notes to the public in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
Each underwriter has represented and agreed that:
S-58
Notice to Prospective Investors in Hong Kong
The notes may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the "Financial Instruments and Exchange Law") and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the notes are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the notes under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
S-59
Certain legal matters relating to this offering will be passed upon for us by Morrison & Foerster LLP, Los Angeles, California, and certain matters with respect to Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland. Certain legal matters relating to this offering will be passed upon for the underwriters by Clifford Chance US LLP, New York, New York. Morrison & Foerster LLP and Clifford Chance US LLP will rely upon the opinion of Venable LLP as to all matters with respect to Maryland law.
The consolidated financial statements and schedule of Alexandria Real Estate Equities, Inc. and subsidiaries appearing in Alexandria Real Estate Equities, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2012, and effectiveness of Alexandria Real Estate Equities, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2012, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
S-60
PROSPECTUS
Alexandria Real Estate Equities, Inc.
Common Stock | Rights | |
Preferred Stock | Warrants | |
Debt Securities |
Alexandria Real Estate Equities, L.P.
Guarantees of Debt Securities
We may issue Alexandria Real Estate Equities, Inc.'s shares of common stock, shares of preferred stock, rights, warrants or debt securities, and we or any selling security holders may offer and sell these securities from time to time in one or more offerings. Alexandria Real Estate Equities, L.P. may guarantee any debt securities that we issue under this prospectus.
Each time that we or any selling security holders sell securities under this prospectus, we will provide a prospectus supplement or other offering material that will contain specific information about the terms of that offering. The prospectus supplement or other offering material may also add, update or change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement or other offering material, you should rely on the information in the prospectus supplement or such other offering material.
We or any selling security holders may sell the securities to or through underwriters, and also to other purchasers or through agents. The names of the underwriters will be stated in the prospectus supplements or other offering material. We also may sell securities directly to investors. We will not receive any proceeds from the sale of common stock, preferred stock, rights, warrants or debt securities sold by any selling security holder. Alexandria Real Estate Equities, L.P. will not receive any proceeds from issuing guarantees of any debt securities.
Our common stock is traded on the New York Stock Exchange under the symbol "ARE." Our 6.45% Series E cumulative redeemable preferred stock is traded on the New York Stock Exchange under the symbol "ARE PrE."
Investing in our securities involves risks. See "Risk Factors" on page 1.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is June 4, 2012.
i
Unless otherwise indicated or unless the context requires otherwise, all references in this prospectus to "we," "us," "our," "our company" or "the company" refer to Alexandria Real Estate Equities, Inc., a Maryland corporation, together with its consolidated subsidiaries, including Alexandria Real Estate Equities, Inc., L.P., a Delaware limited partnership.
This prospectus is part of a "shelf" registration statement that we have filed with the United States Securities and Exchange Commission (the "SEC"). By using a shelf registration statement, we or any selling security holders may sell the common stock, preferred stock, rights, warrants or debt securities and the related guarantees described in this prospectus, any prospectus supplement or any other offering material:
If any securities are sold pursuant to this prospectus by any persons other than us, we will, in a prospectus supplement, name the selling security holders, indicate the nature of any relationship such holders have had with us or any of our affiliates during the three years preceding such offering, state the amount of securities of the class owned by such security holder prior to the offering and the amount to be offered for the security holder's account, and state the amount and (if one percent or more) the percentage of the class to be owned by such security holder after completion of the offering.
Neither this prospectus nor any accompanying prospectus supplement contains all of the information included in the registration statement, as permitted by the rules and regulations of the SEC. To understand fully the terms of the securities we or any selling security holders are offering with this prospectus, you should carefully read this entire prospectus, the applicable prospectus supplement and any other offering material, as well as the documents we have incorporated by reference. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and therefore file reports and other information with the SEC. Statements contained in this prospectus and any accompanying prospectus supplement or other offering material about the provisions or contents of any agreement or other document are only summaries. If SEC rules or regulations require that any agreement or document be filed as an exhibit to the registration statement, you should refer to that agreement or document for its complete contents. You should not assume that the information in this prospectus, any prospectus supplement or any other offering material is accurate as of any date other than the date on the front of each document.
YOU SHOULD CAREFULLY READ THIS PROSPECTUS, THE APPLICABLE PROSPECTUS SUPPLEMENT AND ANY APPLICABLE OTHER OFFERING MATERIAL, AS WELL AS THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE AS DESCRIBED UNDER THE SECTION ENTITLED "WHERE YOU CAN FIND MORE INFORMATION." WE ARE NOT MAKING AN OFFER OF THE SECURITIES OFFERED HEREBY IN ANY STATE WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
THIS PROSPECTUS MAY NOT BE USED TO SELL SECURITIES UNLESS IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT OR OTHER OFFERING MATERIAL.
You should rely only on the information contained in this prospectus, the applicable prospectus supplement and/or other offering materials, and the documents we have incorporated by reference. We have not authorized anyone to provide you with different information. You should not assume that the information provided by this prospectus, the applicable prospectus supplement, our other offering materials or the documents we have incorporated by reference is accurate as of any date other than the date of the respective document.
ii
Investment in any securities offered pursuant to this prospectus involves risks. Before acquiring any offered securities pursuant to this prospectus, you should carefully consider the information contained or incorporated by reference in this prospectus or in any accompanying prospectus supplement, including, without limitation, the risk factors incorporated by reference to our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and the other information contained or incorporated by reference in this prospectus, as updated by our subsequent filings under the Exchange Act, and the risk factors and other information contained in the applicable accompanying prospectus supplement before acquiring any of such securities. The occurrence of any of these risks might cause you to lose all or a part of your investment in the offered securities. Please also refer to the section below entitled "Forward-Looking Statements."
WHERE YOU CAN FIND MORE INFORMATION
Where Documents are Filed; Copies of Documents
We are subject to the informational requirements of the Exchange Act in accordance with which we file reports, proxy statements and other information with the SEC. This registration statement, the exhibits and schedules forming a part thereof, and the reports, proxy statements and other information we have filed with the SEC can be inspected and copied at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Such material also may be accessed by visiting the following internet website maintained by the SEC that contains reports, proxy and information statements and other information regarding issuers, such as us, that file electronically with the SEC: http://www.sec.gov. In addition, our common stock and 6.45% Series E cumulative redeemable preferred stock are listed on the New York Stock Exchange, and similar information regarding us and the information we provide to the exchange may be inspected and copied at the offices of The New York Stock Exchange, 20 Broad Street, New York, New York 10005.
You may also access further information about us by visiting our website at www.are.com. Please note that the information and materials found on our website, except for our SEC filings expressly described below, are not part of this prospectus and are not incorporated by reference into this prospectus.
Incorporation of Documents by Reference
We have filed with the SEC a registration statement on Form S-3 with respect to the securities offered by this prospectus. This prospectus is a part of that registration statement. As allowed by the SEC, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. Instead, the SEC allows us to "incorporate by reference" information into this prospectus. This means that we can disclose particular important information to you without actually including such information in this prospectus by simply referring you to another document that we filed separately with the SEC.
The information we incorporate by reference is an important part of this prospectus and should be carefully read in conjunction with this prospectus and any prospectus supplement. Information that we file with the SEC after the date of this prospectus will automatically update and may supersede some of the information in this prospectus as well as information we previously filed with the SEC and that was incorporated by reference into this prospectus.
The following documents are incorporated by reference into this prospectus:
1
If information in any of these incorporated documents conflicts with information in this prospectus, prospectus supplement or any other offering materials, you should rely on the most recent information. If information in an incorporated document conflicts with information in another incorporated document, you should rely on the information in the most recent incorporated document.
You may request from us at no cost a copy of any document we incorporate by reference, excluding all exhibits to such incorporated documents (unless we have specifically incorporated by reference such exhibits either in this prospectus or in the incorporated document), by making such a request in writing or by telephone to the following address:
Alexandria
Real Estate Equities, Inc.
385 East Colorado Boulevard, Suite 299
Pasadena, California 91101
Attention: Investor Relations
(626) 578-0777
Except as provided above, no other information (including information on our website) is incorporated by reference into this prospectus.
2
Alexandria Real Estate Equities, Inc. is a Maryland corporation formed in October 1994 that has elected to be taxed as a real estate investment trust ("REIT") for federal income tax purposes. We are the largest owner, preeminent REIT and leading life science real estate company, focused principally on science-driven cluster development through the ownership, operation, management, selective acquisition, development, and redevelopment of properties containing life science laboratory space. We are the leading provider of high-quality, environmentally sustainable real estate, technical infrastructure, and services to the broad and diverse life science industry. Client tenants include leading multinational pharmaceutical companies, academic and medical institutions, public and private biotechnology entities, U.S. government research agencies, medical device companies, clean technology companies, venture capitalists, and life science product and service companies. Our primary business objective is to maximize stockholder value by providing our stockholders with the greatest possible total return based on a multifaceted platform of internal and external growth. Our operating platform is based on the principle of "clustering," with assets and operations located adjacent to life science entities driving growth and technological advances within each cluster.
Alexandria Real Estate Equities, L.P. is a Delaware limited partnership of which our wholly owned subsidiary, ARE-QRS Corp., is the sole general partner. Alexandria Real Estate Equities, Inc. and ARE-QRS Corp. together hold all of the limited partnership interests in Alexandria Real Estate Equities, L.P. We directly or indirectly hold a majority of our interests in our properties and land, and conduct most of our operations, through Alexandria Real Estate Equities, L.P. and its subsidiaries.
For additional information regarding our business, we refer you to our filings with the SEC incorporated by reference in this prospectus. See "Where You Can Find More Information."
Our principal executive offices are located at 385 East Colorado Boulevard, Suite 299, Pasadena, California 91101 and our telephone number is (626) 578-0777.
SECURITIES THAT MAY BE OFFERED
We or any selling security holder may offer and sell from time to time, at prices determined by negotiation, "at-the-market" or otherwise, as described by the applicable prospectus or other offering material, in one or more offerings, the following securities: