UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
Form 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
Commission File Number: 1-32261 (BioMed Realty Trust, Inc.)
000-54089 (BioMed Realty, L.P.)
BIOMED REALTY TRUST, INC.
BIOMED REALTY, L.P.
(Exact name of registrant as specified in its charter)
Maryland | 20-1142292 (BioMed Realty Trust, Inc.) |
(State or other jurisdiction of | 20-1320636 (BioMed Realty, L.P.) |
incorporation or organization) | (I.R.S. Employer Identification No.) |
17190 Bernardo Center Drive | |
San Diego, California | 92128 |
(Address of Principal Executive Offices) | (Zip Code) |
(858) 485-9840
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
BioMed Realty Trust, Inc. | Yes þ No o |
BioMed Realty, L.P. | Yes þ No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
BioMed Realty Trust, Inc. | Yes þ No o |
BioMed Realty, L.P. | Yes þ No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
BioMed Realty Trust, Inc.:
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller | ||||||
reporting company) | ||||||
BioMed Realty, L.P.:
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller | ||||||
reporting company) | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
BioMed Realty Trust, Inc. | Yes o No þ |
BioMed Realty, L.P. | Yes o No þ |
The number of outstanding shares of BioMed Realty Trust, Inc.’s common stock, par value $0.01 per share, as of October 30, 2014 was 197,442,432.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2014 of BioMed Realty Trust, Inc., a Maryland corporation, and BioMed Realty, L.P., a Maryland limited partnership of which BioMed Realty Trust, Inc. is the parent company and general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our” or “our company” refer to BioMed Realty Trust, Inc. together with its consolidated subsidiaries, including BioMed Realty, L.P. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “our operating partnership” or “the operating partnership” refer to BioMed Realty, L.P. together with its consolidated subsidiaries.
BioMed Realty Trust, Inc. operates as a real estate investment trust, or REIT, and is the general partner of BioMed Realty, L.P. As of September 30, 2014, BioMed Realty Trust, Inc. owned an approximate 97.4% partnership interest and other limited partners, including some of our directors, executive officers and their affiliates, owned the remaining 2.6% partnership interest (including long term incentive plan units) in BioMed Realty, L.P. As the sole general partner of BioMed Realty, L.P., BioMed Realty Trust, Inc. has the full, exclusive and complete responsibility for the operating partnership’s day-to-day management and control.
There are a few differences between our company and our operating partnership, which are reflected in the disclosure in this report. We believe it is important to understand the differences between our company and our operating partnership in the context of how BioMed Realty Trust, Inc. and BioMed Realty, L.P. operate as an interrelated consolidated company. BioMed Realty Trust, Inc. is a REIT, whose only material asset is its ownership of partnership interests of BioMed Realty, L.P. As a result, BioMed Realty Trust, Inc. does not conduct business itself, other than acting as the sole general partner of BioMed Realty, L.P., issuing public equity from time to time and guaranteeing certain debt of BioMed Realty, L.P. BioMed Realty Trust, Inc. itself does not hold any indebtedness but guarantees some of the secured and unsecured debt of BioMed Realty, L.P. BioMed Realty, L.P. holds substantially all the assets of the company and holds the ownership interests in the company’s joint ventures. BioMed Realty, L.P. conducts the operations of the business and is structured as a partnership with no publicly-traded equity. Except for net proceeds from public equity issuances by BioMed Realty Trust, Inc., which are generally contributed to BioMed Realty, L.P. in exchange for partnership units, BioMed Realty, L.P. generates the capital required by the company’s business through BioMed Realty, L.P.’s operations, by BioMed Realty, L.P.’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.
Noncontrolling interests and stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of BioMed Realty Trust, Inc. and those of BioMed Realty, L.P. The operating partnership and long term incentive plan units in BioMed Realty, L.P. that are not owned by BioMed Realty Trust, Inc. are accounted for as partners’ capital in BioMed Realty, L.P.’s financial statements and as noncontrolling interests in BioMed Realty Trust, Inc.’s financial statements. The noncontrolling interests in BioMed Realty, L.P.’s financial statements include the interests of joint venture partners. The noncontrolling interests in BioMed Realty Trust, Inc.’s financial statements include the same noncontrolling interests at the BioMed Realty, L.P. level as well as the limited partnership unitholders of BioMed Realty, L.P., not including BioMed Realty Trust, Inc. The differences between stockholders’ equity and partners’ capital result from the differences in the equity issued at the BioMed Realty Trust, Inc. and BioMed Realty, L.P. levels.
We believe combining the quarterly reports on Form 10-Q of BioMed Realty Trust, Inc. and BioMed Realty, L.P. into this single report:
• | better reflects how management and the analyst community view the business as a single operating unit, |
• | enhances investor understanding of our company by enabling them to view the business as a whole and in the same manner as management, |
• | is more efficient for our company and results in savings in time, effort and expense, and |
• | is more efficient for investors by reducing duplicative disclosure and providing a single document for their review. |
To help investors understand the significant differences between our company and our operating partnership, this report presents the following separate sections for each of BioMed Realty Trust, Inc. and BioMed Realty, L.P.:
• | consolidated financial statements, |
• | the following notes to the consolidated financial statements: |
• | Equity / Partners’ Capital, |
• | Debt, and |
2
• | Earnings Per Share / Unit, |
• | Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and |
• | Unregistered Sales of Equity Securities and Use of Proceeds. |
This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of BioMed Realty Trust, Inc. and BioMed Realty, L.P. in order to establish that the Chief Executive Officer and the Chief Financial Officer of BioMed Realty Trust, Inc. have made the requisite certifications and BioMed Realty Trust, Inc. and BioMed Realty, L.P. are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
3
BIOMED REALTY TRUST, INC. AND BIOMED REALTY, L.P.
FORM 10-Q - QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS
Page | ||
PART I - FINANCIAL INFORMATION | ||
4
5
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
BIOMED REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, 2014 | December 31, 2013 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Investments in real estate, net | $ | 5,535,115 | $ | 5,217,902 | |||
Investments in unconsolidated partnerships | 36,275 | 32,137 | |||||
Cash and cash equivalents | 33,864 | 34,706 | |||||
Accounts receivable, net | 18,843 | 8,421 | |||||
Accrued straight-line rents, net | 183,904 | 173,779 | |||||
Deferred leasing costs, net | 224,824 | 198,067 | |||||
Other assets | 205,487 | 307,589 | |||||
Total assets | $ | 6,238,312 | $ | 5,972,601 | |||
LIABILITIES AND EQUITY | |||||||
Mortgage notes payable, net | $ | 478,543 | $ | 709,324 | |||
Exchangeable senior notes | 95,678 | 180,000 | |||||
Unsecured senior notes, net | 1,293,572 | 895,083 | |||||
Unsecured senior term loans | 755,876 | 758,786 | |||||
Unsecured line of credit | 229,000 | 128,000 | |||||
Accounts payable, accrued expenses and other liabilities | 375,933 | 314,383 | |||||
Total liabilities | 3,228,602 | 2,985,576 | |||||
Equity: | |||||||
Stockholders’ equity: | |||||||
Common stock, $.01 par value, 250,000,000 shares authorized, 197,455,157 shares and 192,115,002 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively | 1,975 | 1,921 | |||||
Additional paid-in capital | 3,643,957 | 3,554,558 | |||||
Accumulated other comprehensive loss, net | (20,915 | ) | (32,923 | ) | |||
Dividends in excess of earnings | (675,763 | ) | (583,569 | ) | |||
Total stockholders’ equity | 2,949,254 | 2,939,987 | |||||
Noncontrolling interests | 60,456 | 47,038 | |||||
Total equity | 3,009,710 | 2,987,025 | |||||
Total liabilities and equity | $ | 6,238,312 | $ | 5,972,601 | |||
See accompanying notes to consolidated financial statements.
6
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues: | |||||||||||||||
Rental | $ | 122,838 | $ | 116,884 | $ | 363,788 | $ | 327,932 | |||||||
Tenant recoveries | 42,626 | 38,907 | 121,641 | 104,037 | |||||||||||
Other revenue | 3,452 | 3,441 | 23,524 | 47,352 | |||||||||||
Total revenues | 168,916 | 159,232 | 508,953 | 479,321 | |||||||||||
Expenses: | |||||||||||||||
Rental operations | 54,899 | 51,688 | 161,058 | 134,182 | |||||||||||
Depreciation and amortization | 64,452 | 61,898 | 189,597 | 186,219 | |||||||||||
General and administrative | 12,768 | 11,934 | 37,153 | 32,358 | |||||||||||
Acquisition-related expenses | 487 | 907 | 2,871 | 5,263 | |||||||||||
Total expenses | 132,606 | 126,427 | 390,679 | 358,022 | |||||||||||
Income from operations | 36,310 | 32,805 | 118,274 | 121,299 | |||||||||||
Equity in net income / (loss) of unconsolidated partnerships | 733 | (112 | ) | 585 | (697 | ) | |||||||||
Interest expense, net | (22,215 | ) | (27,870 | ) | (73,356 | ) | (79,890 | ) | |||||||
Other income / (expense) | 2,148 | (687 | ) | 11,338 | (4,079 | ) | |||||||||
Net income | 16,976 | 4,136 | 56,841 | 36,633 | |||||||||||
Net (income) / loss attributable to noncontrolling interests | (1,016 | ) | 111 | (3,412 | ) | (268 | ) | ||||||||
Net income attributable to the Company | 15,960 | 4,247 | 53,429 | 36,365 | |||||||||||
Preferred stock dividends | — | — | — | (2,393 | ) | ||||||||||
Cost on redemption of preferred stock | — | — | — | (6,531 | ) | ||||||||||
Net income available to common stockholders | $ | 15,960 | $ | 4,247 | $ | 53,429 | $ | 27,441 | |||||||
Net income per share available to common stockholders: | |||||||||||||||
Basic and diluted earnings per share | $ | 0.08 | $ | 0.02 | $ | 0.27 | $ | 0.15 | |||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 194,022,619 | 190,646,722 | 191,988,661 | 179,138,169 | |||||||||||
Diluted | 199,574,893 | 196,131,643 | 197,651,357 | 183,121,240 | |||||||||||
See accompanying notes to consolidated financial statements.
7
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 16,976 | $ | 4,136 | $ | 56,841 | $ | 36,633 | |||||||
Other comprehensive income / (loss): | |||||||||||||||
Foreign currency translation adjustments | (1,472 | ) | 1,866 | (484 | ) | (252 | ) | ||||||||
Unrealized gain / (loss) from derivative instruments, net | 169 | (771 | ) | (749 | ) | 4,405 | |||||||||
Amortization of deferred interest costs | 1,677 | 1,705 | 5,052 | 5,134 | |||||||||||
Reclassification on sale of equity securities | — | — | (9,322 | ) | — | ||||||||||
Unrealized gain on equity securities | 3,550 | 2,280 | 20,300 | 8,435 | |||||||||||
Total other comprehensive income | 3,924 | 5,080 | 14,797 | 17,722 | |||||||||||
Comprehensive income | 20,900 | 9,216 | 71,638 | 54,355 | |||||||||||
Comprehensive income attributable to noncontrolling interests | (1,767 | ) | (493 | ) | (6,201 | ) | (1,883 | ) | |||||||
Comprehensive income attributable to the Company | $ | 19,133 | $ | 8,723 | $ | 65,437 | $ | 52,472 | |||||||
See accompanying notes to consolidated financial statements.
8
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF EQUITY
(In thousands, except share data)
(Unaudited)
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive (Loss)/Income, net | Dividends in Excess of Earnings | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||
Balance at December 31, 2013 | 192,115,002 | $ | 1,921 | $ | 3,554,558 | $ | (32,923 | ) | $ | (583,569 | ) | $ | 2,939,987 | $ | 47,038 | $ | 2,987,025 | |||||||||||||
Offering costs from sale of common stock | — | — | (49 | ) | — | — | (49 | ) | — | (49 | ) | |||||||||||||||||||
Net issuances of unvested restricted common stock | 374,278 | 4 | (4,429 | ) | — | — | (4,425 | ) | — | (4,425 | ) | |||||||||||||||||||
Exchange of Exchangeable Senior Notes | 4,955,377 | 50 | 84,129 | — | — | 84,179 | — | 84,179 | ||||||||||||||||||||||
Conversion of OP units to common stock | 10,500 | — | (51 | ) | — | — | (51 | ) | 51 | — | ||||||||||||||||||||
Vesting of share-based awards | — | — | 11,137 | — | — | 11,137 | — | 11,137 | ||||||||||||||||||||||
Reallocation of noncontrolling interests to equity | — | — | (1,338 | ) | — | — | (1,338 | ) | 1,338 | — | ||||||||||||||||||||
Common stock dividends | — | — | — | — | (145,623 | ) | (145,623 | ) | — | (145,623 | ) | |||||||||||||||||||
OP unit distributions | — | — | — | — | — | — | (4,053 | ) | (4,053 | ) | ||||||||||||||||||||
Contributions from noncontrolling interests, net | — | — | — | — | — | — | 9,881 | 9,881 | ||||||||||||||||||||||
Net income | — | — | — | — | 53,429 | 53,429 | 3,412 | 56,841 | ||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | (471 | ) | — | (471 | ) | (13 | ) | (484 | ) | ||||||||||||||||||
Reclassification on sale of equity securities | — | — | — | (7,784 | ) | — | (7,784 | ) | (1,538 | ) | (9,322 | ) | ||||||||||||||||||
Unrealized gain on equity securities | — | — | — | 16,073 | — | 16,073 | 4,227 | 20,300 | ||||||||||||||||||||||
Amortization of deferred interest costs | — | — | — | 4,918 | — | 4,918 | 134 | 5,052 | ||||||||||||||||||||||
Unrealized loss on derivative instruments, net | — | — | — | (728 | ) | — | (728 | ) | (21 | ) | (749 | ) | ||||||||||||||||||
Balance at September 30, 2014 | 197,455,157 | $ | 1,975 | $ | 3,643,957 | $ | (20,915 | ) | $ | (675,763 | ) | $ | 2,949,254 | $ | 60,456 | $ | 3,009,710 | |||||||||||||
See accompanying notes to consolidated financial statements.
9
BIOMED REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | |||||||
September 30, | |||||||
2014 | 2013 | ||||||
Operating activities: | |||||||
Net income | $ | 56,841 | $ | 36,633 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 189,597 | 186,219 | |||||
Allowance for doubtful accounts | 526 | 730 | |||||
Non-cash revenue adjustments | 942 | 9,590 | |||||
Other adjustments | 5,146 | 9,903 | |||||
Compensation expense related to restricted common stock and LTIP units | 11,137 | 9,567 | |||||
Distributions representing a return on capital from unconsolidated partnerships | 399 | 178 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (10,607 | ) | (5,573 | ) | |||
Accrued straight-line rents | (10,466 | ) | (17,470 | ) | |||
Deferred leasing costs | (10,526 | ) | (12,833 | ) | |||
Other assets | (24,478 | ) | (14,001 | ) | |||
Accounts payable, accrued expenses and other liabilities | 15,355 | 1,759 | |||||
Net cash provided by operating activities | 223,866 | 204,702 | |||||
Investing activities: | |||||||
Purchases of investments in real estate and related intangible assets | (130,458 | ) | (471,910 | ) | |||
Capital expenditures | (300,716 | ) | (142,833 | ) | |||
Contributions from historic tax credit transactions, net | 22,557 | 8,620 | |||||
Contributions from new market tax credit transactions, net | — | 4,078 | |||||
Draws on construction loan receivable | (39,769 | ) | (95,303 | ) | |||
Repayment of construction loan receivable | 184,239 | — | |||||
Contributions to unconsolidated partnerships, net | (4,760 | ) | (983 | ) | |||
Purchases of debt and equity securities | (15,725 | ) | (12,674 | ) | |||
Proceeds from the sale of debt and equity securities | 13,952 | 6,103 | |||||
Net cash used in investing activities | (270,680 | ) | (704,902 | ) | |||
Financing activities: | |||||||
Net proceeds from common stock offering | — | 668,553 | |||||
Payment of offering costs | — | (27,423 | ) | ||||
Redemption of Series A preferred stock | — | (198,000 | ) | ||||
Payment of deferred loan costs | (3,101 | ) | (7,172 | ) | |||
Unsecured line of credit proceeds | 732,000 | 687,000 | |||||
Unsecured line of credit payments | (631,000 | ) | (785,000 | ) | |||
Mortgage notes proceeds | 39,237 | 4,182 | |||||
Principal payments on mortgage notes payable | (340,124 | ) | (112,837 | ) | |||
Proceeds from unsecured senior term loans | — | 350,000 | |||||
Proceeds from unsecured senior notes | 397,632 | — | |||||
Release of restricted cash for repayment of debt | — | 60,000 | |||||
Distributions to operating partnership unit and LTIP unit holders | (4,175 | ) | (2,648 | ) | |||
10
Nine Months Ended | |||||||
September 30, | |||||||
2014 | 2013 | ||||||
Dividends paid to common stockholders | (144,289 | ) | (121,103 | ) | |||
Dividends paid to preferred stockholders | — | (6,045 | ) | ||||
Net cash provided by financing activities | 46,180 | 509,507 | |||||
Effect of exchange rate changes on cash and cash equivalents | (208 | ) | (53 | ) | |||
Net (decrease) / increase in cash and cash equivalents | (842 | ) | 9,254 | ||||
Cash and cash equivalents at beginning of period | 34,706 | 19,976 | |||||
Cash and cash equivalents at end of period | $ | 33,864 | $ | 29,230 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for interest (net of amounts capitalized of $15,734 and $9,999, respectively) | $ | 59,233 | $ | 67,079 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Accrual for common stock dividends declared | $ | 49,363 | $ | 45,145 | |||
Accrual for distributions declared for operating partnership unit and LTIP unit holders | 1,351 | 1,273 | |||||
Accrued additions to real estate and related intangible assets | 113,704 | 60,246 | |||||
Equity issued in connection with Wexford merger and 320 Charles Street acquisition | — | 165,114 | |||||
Mortgage notes assumed (includes premiums of $3,966 and $8,671 during the nine months ended September 30, 2014 and 2013, respectively) | 71,937 | 254,660 | |||||
Exchange of Exchangeable Senior Notes to common stock | 84,322 | — | |||||
Noncontrolling interests in connection with 100 College Street and 300 George Street acquisitions | 21,740 | — | |||||
See accompanying notes to consolidated financial statements.
11
BIOMED REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
September 30, 2014 | December 31, 2013 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Investments in real estate, net | $ | 5,535,115 | $ | 5,217,902 | |||
Investments in unconsolidated partnerships | 36,275 | 32,137 | |||||
Cash and cash equivalents | 33,864 | 34,706 | |||||
Accounts receivable, net | 18,843 | 8,421 | |||||
Accrued straight-line rents, net | 183,904 | 173,779 | |||||
Deferred leasing costs, net | 224,824 | 198,067 | |||||
Other assets | 205,487 | 307,589 | |||||
Total assets | $ | 6,238,312 | $ | 5,972,601 | |||
LIABILITIES AND CAPITAL | |||||||
Mortgage notes payable, net | $ | 478,543 | $ | 709,324 | |||
Exchangeable senior notes | 95,678 | 180,000 | |||||
Unsecured senior notes, net | 1,293,572 | 895,083 | |||||
Unsecured senior term loans | 755,876 | 758,786 | |||||
Unsecured line of credit | 229,000 | 128,000 | |||||
Accounts payable, accrued expenses and other liabilities | 375,933 | 314,383 | |||||
Total liabilities | 3,228,602 | 2,985,576 | |||||
Capital: | |||||||
Partners’ capital: | |||||||
Limited partners' capital, 5,405,474 and 5,415,974 units issued and outstanding at September 30, 2014 and December 31, 2013, respectively | 44,836 | 45,708 | |||||
General partner's capital, 197,455,157 and 192,115,002 units issued and outstanding at September 30, 2014 and December 31, 2013, respectively | 2,967,581 | 2,970,650 | |||||
Accumulated other comprehensive loss, net | (18,327 | ) | (30,663 | ) | |||
Total partners’ capital | 2,994,090 | 2,985,695 | |||||
Noncontrolling interests | 15,620 | 1,330 | |||||
Total capital | 3,009,710 | 2,987,025 | |||||
Total liabilities and capital | $ | 6,238,312 | $ | 5,972,601 | |||
See accompanying notes to consolidated financial statements.
12
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except unit data)
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues: | |||||||||||||||
Rental | $ | 122,838 | $ | 116,884 | $ | 363,788 | $ | 327,932 | |||||||
Tenant recoveries | 42,626 | 38,907 | 121,641 | 104,037 | |||||||||||
Other revenue | 3,452 | 3,441 | 23,524 | 47,352 | |||||||||||
Total revenues | 168,916 | 159,232 | 508,953 | 479,321 | |||||||||||
Expenses: | |||||||||||||||
Rental operations | 54,899 | 51,688 | 161,058 | 134,182 | |||||||||||
Depreciation and amortization | 64,452 | 61,898 | 189,597 | 186,219 | |||||||||||
General and administrative | 12,768 | 11,934 | 37,153 | 32,358 | |||||||||||
Acquisition-related expenses | 487 | 907 | 2,871 | 5,263 | |||||||||||
Total expenses | 132,606 | 126,427 | 390,679 | 358,022 | |||||||||||
Income from operations | 36,310 | 32,805 | 118,274 | 121,299 | |||||||||||
Equity in net income / (loss) of unconsolidated partnerships | 733 | (112 | ) | 585 | (697 | ) | |||||||||
Interest expense, net | (22,215 | ) | (27,870 | ) | (73,356 | ) | (79,890 | ) | |||||||
Other income / (expense) | 2,148 | (687 | ) | 11,338 | (4,079 | ) | |||||||||
Net income | 16,976 | 4,136 | 56,841 | 36,633 | |||||||||||
Net (income) / loss attributable to noncontrolling interests | (587 | ) | 229 | (1,948 | ) | 266 | |||||||||
Net income attributable to the Operating Partnership | 16,389 | 4,365 | 54,893 | 36,899 | |||||||||||
Preferred unit distributions | — | — | — | (2,393 | ) | ||||||||||
Cost on redemption of preferred units | — | — | — | (6,531 | ) | ||||||||||
Net income available to unitholders | $ | 16,389 | $ | 4,365 | $ | 54,893 | $ | 27,975 | |||||||
Net income per unit available to unitholders: | |||||||||||||||
Basic and diluted earnings per unit | $ | 0.08 | $ | 0.02 | $ | 0.27 | $ | 0.15 | |||||||
Weighted-average units outstanding: | |||||||||||||||
Basic | 199,428,093 | 196,062,696 | 197,395,750 | 183,048,587 | |||||||||||
Diluted | 199,574,893 | 196,131,643 | 197,651,357 | 183,120,286 | |||||||||||
See accompanying notes to consolidated financial statements.
13
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 16,976 | $ | 4,136 | $ | 56,841 | $ | 36,633 | |||||||
Other comprehensive income / (loss): | |||||||||||||||
Foreign currency translation adjustments | (1,472 | ) | 1,866 | (484 | ) | (252 | ) | ||||||||
Unrealized income / (loss) from derivative instruments, net | 169 | (771 | ) | (749 | ) | 4,405 | |||||||||
Amortization of deferred interest costs | 1,677 | 1,705 | 5,052 | 5,134 | |||||||||||
Reclassification on sale of equity securities | — | — | (9,322 | ) | — | ||||||||||
Unrealized gain on equity securities | 3,550 | 2,280 | 20,300 | 8,435 | |||||||||||
Total other comprehensive income | 3,924 | 5,080 | 14,797 | 17,722 | |||||||||||
Comprehensive income | 20,900 | 9,216 | 71,638 | 54,355 | |||||||||||
Comprehensive (income) / loss attributable to noncontrolling interests | (1,253 | ) | 229 | (4,409 | ) | 266 | |||||||||
Comprehensive income attributable to the Operating Partnership | $ | 19,647 | $ | 9,445 | $ | 67,229 | $ | 54,621 | |||||||
See accompanying notes to consolidated financial statements.
14
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENT OF CAPITAL
(In thousands, except unit data)
(Unaudited)
Limited Partners' Capital | General Partner's Capital | Accumulated Other Comprehensive (Loss)/Income | Total Partners' Capital | Noncontrolling Interests | Total Capital | ||||||||||||||||||||||||
Units | Amount | Units | Amount | ||||||||||||||||||||||||||
Balance at December 31, 2013 | 5,415,974 | $ | 45,708 | 192,115,002 | $ | 2,970,650 | $ | (30,663 | ) | $ | 2,985,695 | $ | 1,330 | $ | 2,987,025 | ||||||||||||||
Offering costs from issuance of OP units | — | — | — | (49 | ) | — | (49 | ) | — | (49 | ) | ||||||||||||||||||
Net issuances of unvested restricted OP units | — | — | 374,278 | (4,425 | ) | — | (4,425 | ) | — | (4,425 | ) | ||||||||||||||||||
Conversion of OP units | (10,500 | ) | 51 | 10,500 | (51 | ) | — | — | — | — | |||||||||||||||||||
Exchange of Exchangeable Senior Notes | — | — | 4,955,377 | 84,179 | — | 84,179 | — | 84,179 | |||||||||||||||||||||
Vesting of share-based awards | — | — | — | 11,137 | — | 11,137 | — | 11,137 | |||||||||||||||||||||
Reallocation of capital to limited partners | — | 1,666 | — | (1,666 | ) | — | — | — | — | ||||||||||||||||||||
Distributions | — | (4,053 | ) | — | (145,623 | ) | — | (149,676 | ) | — | (149,676 | ) | |||||||||||||||||
Contributions from noncontrolling interests, net | — | — | — | — | — | — | 9,881 | 9,881 | |||||||||||||||||||||
Net income | — | 1,464 | — | 53,429 | — | 54,893 | 1,948 | 56,841 | |||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (484 | ) | (484 | ) | — | (484 | ) | ||||||||||||||||||
Reclassification on sale of equity securities | — | — | — | — | (7,784 | ) | (7,784 | ) | (1,538 | ) | (9,322 | ) | |||||||||||||||||
Unrealized gain on equity securities | — | — | — | — | 16,301 | 16,301 | 3,999 | 20,300 | |||||||||||||||||||||
Amortization of deferred interest costs | — | — | — | — | 5,052 | 5,052 | — | 5,052 | |||||||||||||||||||||
Unrealized loss on derivative instruments, net | — | — | — | — | (749 | ) | (749 | ) | — | (749 | ) | ||||||||||||||||||
Balance at September 30, 2014 | 5,405,474 | $ | 44,836 | 197,455,157 | $ | 2,967,581 | $ | (18,327 | ) | $ | 2,994,090 | $ | 15,620 | $ | 3,009,710 | ||||||||||||||
See accompanying notes to consolidated financial statements.
15
BIOMED REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | |||||||
September 30, | |||||||
2014 | 2013 | ||||||
Operating activities: | |||||||
Net income | $ | 56,841 | $ | 36,633 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 189,597 | 186,219 | |||||
Allowance for doubtful accounts | 526 | 730 | |||||
Non-cash revenue adjustments | 942 | 9,590 | |||||
Other adjustments | 5,146 | 9,903 | |||||
Compensation expense related to share-based payments | 11,137 | 9,567 | |||||
Distributions representing a return on capital from unconsolidated partnerships | 399 | 178 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (10,607 | ) | (5,573 | ) | |||
Accrued straight-line rents | (10,466 | ) | (17,470 | ) | |||
Deferred leasing costs | (10,526 | ) | (12,833 | ) | |||
Other assets | (24,478 | ) | (14,001 | ) | |||
Accounts payable, accrued expenses and other liabilities | 15,355 | 1,759 | |||||
Net cash provided by operating activities | 223,866 | 204,702 | |||||
Investing activities: | |||||||
Purchases of investments in real estate and related intangible assets | (130,458 | ) | (471,910 | ) | |||
Capital expenditures | (300,716 | ) | (142,833 | ) | |||
Contributions from historic tax credit transactions, net | 22,557 | 8,620 | |||||
Contributions from new market tax credit transactions, net | — | 4,078 | |||||
Draws on construction loan receivable | (39,769 | ) | (95,303 | ) | |||
Repayment of construction loan receivable | 184,239 | — | |||||
Contributions to unconsolidated partnerships, net | (4,760 | ) | (983 | ) | |||
Purchases of debt and equity securities | (15,725 | ) | (12,674 | ) | |||
Proceeds from the sale of debt and equity securities | 13,952 | 6,103 | |||||
Net cash used in investing activities | (270,680 | ) | (704,902 | ) | |||
Financing activities: | |||||||
Net proceeds from issuance of OP units | — | 641,130 | |||||
Redemption of Series A preferred units | — | (198,000 | ) | ||||
Payment of deferred loan costs | (3,101 | ) | (7,172 | ) | |||
Unsecured line of credit proceeds | 732,000 | 687,000 | |||||
Unsecured line of credit payments | (631,000 | ) | (785,000 | ) | |||
Mortgage notes proceeds | 39,237 | 4,182 | |||||
Principal payments on mortgage notes payable | (340,124 | ) | (112,837 | ) | |||
Proceeds from unsecured senior term loans | — | 350,000 | |||||
Proceeds from unsecured senior notes | 397,632 | — | |||||
Release of restricted cash for repayment of debt | — | 60,000 | |||||
16
Nine Months Ended | |||||||
September 30, | |||||||
2014 | 2013 | ||||||
Distributions paid to unitholders | (148,464 | ) | (123,751 | ) | |||
Distributions paid to preferred unitholders | — | (6,045 | ) | ||||
Net cash provided by financing activities | 46,180 | 509,507 | |||||
Effect of exchange rate changes on cash and cash equivalents | (208 | ) | (53 | ) | |||
Net (decrease) / increase in cash and cash equivalents | (842 | ) | 9,254 | ||||
Cash and cash equivalents at beginning of period | 34,706 | 19,976 | |||||
Cash and cash equivalents at end of period | $ | 33,864 | $ | 29,230 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for interest (net of amounts capitalized of $15,734 and $9,999, respectively) | $ | 59,233 | $ | 67,079 | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Accrual for unit distributions declared | $ | 50,714 | $ | 46,418 | |||
Accrued additions to real estate and related intangible assets | 113,704 | 60,246 | |||||
Equity issued in connection with Wexford merger and 320 Charles Street acquisition | — | 165,114 | |||||
Mortgage notes assumed (includes premiums of $3,966 and $8,671 during the nine months ended September 30, 2014 and 2013, respectively) | 71,937 | 254,660 | |||||
Exchange of Exchangeable Senior Notes to common stock | 84,322 | — | |||||
Noncontrolling interests in connection with 100 College Street and 300 George Street acquisitions | 21,740 | — | |||||
See accompanying notes to consolidated financial statements.
17
BIOMED REALTY TRUST, INC.
BIOMED REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization of the Parent Company and Description of Business
BioMed Realty Trust, Inc., a Maryland corporation (the “Parent Company”), operates as a fully integrated, self-administered and self-managed real estate investment trust (“REIT”) focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry principally through its subsidiary, BioMed Realty, L.P., a Maryland limited partnership (the “Operating Partnership” and together with the Parent Company referred to as the “Company”). The Company’s tenants primarily include biotechnology and pharmaceutical companies, scientific research institutions, government agencies and other entities involved in the life science industry. The Company’s properties are generally located in markets with well-established reputations as centers for scientific research, including Boston, San Francisco, San Diego, Maryland, New York/New Jersey, Pennsylvania, North Carolina, Seattle and Cambridge (United Kingdom) and, through Wexford Science & Technology, LLC and related entities (collectively, "Wexford"), with universities and their related medical systems.
The Parent Company is the sole general partner of the Operating Partnership and, as of September 30, 2014, owned a 97.4% interest in the Operating Partnership. The remaining 2.6% interest in the Operating Partnership is held by limited partners. Each partner’s percentage interest in the Operating Partnership is determined based on the number of operating partnership units and long-term incentive plan units (“LTIP units” and together with the operating partnership units, the “OP units”) owned as compared to total OP units (and potentially issuable OP units, as applicable) outstanding as of each period end and is used as the basis for the allocation of net income or loss to each partner.
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments and eliminations, consisting of normal recurring adjustments necessary for a fair presentation of the financial statements for these interim periods have been recorded. These financial statements should be read in conjunction with the audited consolidated financial statements and notes therein included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, partnerships and limited liability companies it controls, and variable interest entities (“VIEs”) for which the Company has determined itself to be the primary beneficiary. All material intercompany transactions and balances have been eliminated. The Company consolidates entities the Company controls and records a noncontrolling interest for the portions not owned by the Company. Control is determined, where applicable, by the sufficiency of equity invested and the rights of the equity holders, and by the ownership of a majority of the voting interests, with consideration given to the existence of approval or veto rights granted to the minority stockholder. If the minority stockholder holds substantive participating rights, it overcomes the presumption of control by the majority voting interest holder. In contrast, if the minority stockholder simply holds protective rights (such as consent rights over certain actions), it does not overcome the presumption of control by the majority voting interest holder.
Assets and liabilities of subsidiaries outside the United States with non-U.S. dollar functional currencies are translated into U.S. dollars using exchange rates as of the balance sheet dates. Income and expenses are translated using the average exchange rates for the reporting period. Foreign currency translation adjustments are recorded as a component of other comprehensive income. For the three months ended September 30, 2014 and 2013, total revenues from properties outside the United States were $6.5 million and $4.5 million, respectively, which represented 3.8% and 2.8% of the Company's total revenues during the respective periods. For the nine months ended September 30, 2014 and 2013, total revenues from properties outside the United States were $16.1 million and $13.5 million, respectively, which represented 3.2% and 2.8% of the Company's total revenues during the respective periods. The Company’s net investments in properties outside the United States were $198.2 million and $190.2 million at September 30, 2014 and December 31, 2013, respectively.
Investments in Partnerships and Limited Liability Companies
18
The Company has determined that it is the primary beneficiary in six VIEs (excluding certain VIEs associated with tax credits discussed below), consisting of properties in which a tenant has a fixed-price purchase option, which are consolidated and reflected in the accompanying consolidated financial statements. Selected financial data of these VIEs at September 30, 2014 and December 31, 2013 consist of the following (in thousands):
September 30, 2014 | December 31, 2013 | ||||||
Investment in real estate, net | $ | 437,927 | $ | 336,832 | |||
Total assets | 498,975 | 375,443 | |||||
Total debt | 190,878 | 143,067 | |||||
Total liabilities | 204,323 | 154,953 | |||||
Historic Tax Credits and New Market Tax Credits
The Company is a party to certain contractual arrangements with tax credit investors (“TCIs”) that were established to enable the TCIs to receive the benefits of historic tax credits (“HTCs”) and/or new market tax credits (“NMTCs”) for certain properties owned by Wexford. At September 30, 2014, Wexford owned nine properties that had syndicated HTCs or NMTCs, or both, to TCIs.
Capital contributions are made by TCIs into special purpose entities that ultimately invest these funds in the entity that owns the subject property that generates the tax credits. The TCIs are allocated substantially all of the tax credits and hold only a noncontrolling interest in the economic risk and rewards of the special purpose entities. HTCs are delivered to the TCI upon substantial completion of the project. NMTCs are allowed for up to 39% of a qualified investment and are delivered to the TCI after the investment has been funded and spent on a qualified business. HTCs are subject to 20% recapture per year beginning one year after the completion of the historic rehabilitation of the subject property. NMTCs are subject to 100% recapture until the end of the seventh year following the qualifying investment. The Company has provided the TCIs with certain guarantees which protect the TCIs from loss should a tax credit recapture event occur. The contractual arrangements with the TCIs include a put/call provision whereby the Company may be obligated or entitled to repurchase the ownership interest of the TCIs in the special purpose entities at the end of the tax credit recapture period. The Company anticipates that either the TCIs will exercise their put rights or the Company will exercise its call rights; however, the Company believes that the put rights are more likely to be exercised.
The Company has determined that the special purpose entities are VIEs, since there is insufficient capital to finance their activities without further subordinated financial support. The Company has determined that it is the primary beneficiary of these VIEs, because it has the authority to direct the activities which most significantly impact their economic performance.
The portion of the TCI’s capital contribution that is attributed to the put is recorded at fair-value at inception and is accreted to the expected put price as interest expense in the consolidated statement of income. At September 30, 2014, approximately $4.4 million of put liabilities were included in other liabilities in the consolidated balance sheets. The remaining balance of the TCI’s capital contribution is initially recorded in other liabilities in the consolidated balance sheets and is reclassified, upon delivery of the tax credit to the TCI, to reduce the carrying value of the subject property, net of allocated expenses. Direct and incremental costs incurred in structuring the transaction, consisting of third-party legal, accounting and other professional fees are deferred and will be recognized as an increase in the cost basis of the subject property upon the recognition of the related tax credit as discussed above. During the nine months ended September 30, 2014, $22.6 million of tax credits, net of costs and estimated put payments, were contributed by TCIs and recorded as other liabilities in the consolidated balance sheets and $29.2 million in tax credits were delivered to the TCIs and reclassified as a reduction of the carrying value of the subject property.
The Company has determined that certain special purpose entities owning properties under development are VIEs, since there is insufficient capital to finance the remaining development activities without further subordinated financial support. The Company has determined it is the primary beneficiary of these VIEs, because it has the authority to direct the activities which most significantly impact their economic performance. Selected financial data of the VIEs at September 30, 2014 and December 31, 2013 consisted of the following (in thousands):
19
September 30, 2014 | December 31, 2013 | ||||||
Investment in real estate, net | $ | 200,536 | $ | 177,901 | |||
Total assets | 217,889 | 198,968 | |||||
Total liabilities | 67,636 | 60,197 | |||||
Investments in Real Estate, Net
Investments in real estate, net consisted of the following (in thousands):
September 30, 2014 | December 31, 2013 | ||||||
Land | $ | 701,977 | $ | 713,955 | |||
Land under development | 158,389 | 119,325 | |||||
Buildings and improvements | 5,018,091 | 4,854,175 | |||||
Construction in progress | 595,273 | 316,025 | |||||
6,473,730 | 6,003,480 | ||||||
Accumulated depreciation | (938,615 | ) | (785,578 | ) | |||
$ | 5,535,115 | $ | 5,217,902 | ||||
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived asset’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair-value of the property. The Company is required to make subjective assessments as to whether there are impairments in the values of its investments in long-lived assets. These assessments have a direct impact on the Company’s net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Although the Company’s strategy is to hold its properties over the long-term, if the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to the lower of the carrying amount or fair-value, and such loss could be material. As of and for the three and nine months ended September 30, 2014, no assets have been identified as impaired and no such impairment losses have been recognized.
Deferred Leasing Costs, Net
Leasing commissions and other direct costs associated with obtaining new or renewal leases are recorded at cost and amortized on a straight-line basis over the terms of the respective leases, with remaining terms ranging from less than one year to approximately 20 years as of September 30, 2014. Deferred leasing costs also include the net carrying value of acquired in-place leases and acquired management agreements.
Deferred leasing costs, net at September 30, 2014 consisted of the following (in thousands):
Balance at | Accumulated | ||||||||||
September 30, 2014 | Amortization | Net | |||||||||
Acquired in-place leases | $ | 416,366 | $ | (262,123 | ) | $ | 154,243 | ||||
Acquired management agreements | 25,801 | (21,540 | ) | 4,261 | |||||||
Deferred leasing and other direct costs | 102,848 | (36,528 | ) | 66,320 | |||||||
$ | 545,015 | $ | (320,191 | ) | $ | 224,824 | |||||
Deferred leasing costs, net at December 31, 2013 consisted of the following (in thousands):
20
Balance at | Accumulated | ||||||||||
December 31, 2013 | Amortization | Net | |||||||||
Acquired in-place leases | $ | 365,753 | $ | (233,935 | ) | $ | 131,818 | ||||
Acquired management agreements | 25,801 | (20,053 | ) | 5,748 | |||||||
Deferred leasing and other direct costs | 91,142 | (30,641 | ) | 60,501 | |||||||
$ | 482,696 | $ | (284,629 | ) | $ | 198,067 | |||||
Investments
Investments in equity securities, which are included in other assets on the accompanying consolidated balance sheets, consisted of the following (in thousands):
September 30, 2014 | December 31, 2013 | ||||||
Available-for-sale securities, historical cost | $ | 7,297 | $ | 8,543 | |||
Unrealized gain, net | 22,109 | 11,023 | |||||
Available-for-sale securities, fair-value (1) | 29,406 | 19,566 | |||||
Privately-held securities, cost basis | 30,929 | 18,485 | |||||
Total equity securities | $ | 60,335 | $ | 38,051 | |||
(1) | Determination of fair-value is classified as Level 1 in the fair-value hierarchy based on the use of quoted prices in active markets. |
The Company holds investments in available-for-sale securities of certain publicly-traded companies. Changes in the fair-value of investments classified as available-for-sale are recorded in comprehensive income. The fair-value of the Company's equity investments in publicly-traded companies are based upon the closing trading price of the equity security as of the balance sheet date. At September 30, 2014, none of these investments have fair-values less than the Company’s cost basis, net of previous other-than-temporary impairment. However, management will continue to periodically evaluate whether any investment, the fair-value of which is less than the Company’s cost basis, should be considered other-than-temporarily impaired. If other-than-temporary impairment is considered to exist, the related unrealized loss will be reclassified from accumulated other comprehensive loss and recorded as a reduction of net income.
The Company also holds investments in securities of certain privately-held companies and funds, which are recorded at cost basis due to the Company’s lack of control or significant influence over such companies and funds.
During the nine months ended September 30, 2014, the Company recorded a $1.3 million impairment charge, which is included in other expense in the consolidated statements of income. The impairment charge related to the Company’s investment in a privately-held company. Other than this investment there were no identified events or changes in circumstances that may have a significant adverse effect on the carrying value of the Company’s cost basis investments and therefore, no evaluation of impairment was performed during the nine months ended September 30, 2014 on the Company’s remaining cost basis investments.
Construction Loan Receivable
The Company had a $255.0 million interest in a $355.0 million construction loan secured by first priority mortgages on a 1.1 million square foot laboratory, office and retail development project located in Boston, Massachusetts, which is 95% leased to Vertex Pharmaceuticals Incorporated to serve as its new corporate headquarters (the "Construction Loan"). As of December 31, 2013, the Company had invested approximately $151.8 million in the Construction Loan, which is included in other assets on the Company's consolidated balance sheets. In May 2014, the borrower repaid the then outstanding principal and accrued interest balance prior to maturity, of which the Company's portion was approximately $191.2 million. The Company also received prepayment fees of approximately $8.1 million, resulting in other revenue of $7.5 million, net of deferred loan fees write-offs.
Lease Termination
During the three and nine months ended September 30, 2014, the Company recorded lease termination revenue, net of write-offs of lease intangibles, included in other revenue on the consolidated statements of income of approximately $3.3 million and $9.8 million, respectively. Lease termination revenue for the three months ended September 30, 2014 primarily related to the
21
early termination of leases at two of the Company's properties. For the nine months ended September 30, 2014, lease termination revenue also included the early termination of leases at the Company's 4570 Executive Drive property. During the three and nine months ended September 30, 2013, the Company recorded lease termination revenue, net of write-offs of lease intangibles, included in other revenue on the consolidated statements of income of approximately $1.5 million and $42.8 million, respectively. Lease termination revenue for the nine months ended September 30, 2013 primarily related to the termination of a lease with Elan Corporation at the Company’s Science Center at Oyster Point property for which Elan paid the Company $46.5 million. The impact of the Elan lease termination was recognized through the date of the termination of the lease in April 2013.
Management’s Estimates
Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reporting of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts of revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.
3. Equity of the Parent Company
During the nine months ended September 30, 2014, the Parent Company issued restricted stock awards to the Company’s employees and directors totaling 565,107 and 22,555 shares of common stock, respectively (218,663 shares of common stock were surrendered to the Company and subsequently retired in lieu of cash payments for taxes due on the vesting of restricted stock and 7,702 shares were forfeited during the same period), which are included in the total of common stock outstanding as of the period end.
During the three months ended September 30, 2014, at the request of the holders that exercised their exchange right pursuant to the terms of the Operating Partnership's Exchangeable Senior Notes due 2030 (the "Exchangeable Senior Notes"), the Parent Company issued 4,955,377 shares of its common stock in exchange for approximately $84.3 million in aggregate principal amount of the Exchangeable Senior Notes.
The Parent Company awarded units to certain of its executive officers (the “Performance Units”), which represent a contingent right to receive one share of the Parent Company’s common stock if vesting conditions are satisfied. Outstanding Performance Units vest ratably over two or three year periods (each, a “Performance Period”) based upon the Parent Company’s total stockholder return relative to its peer group (the "Market Conditions"). The grant date fair-value of the Performance Units was estimated using a Monte Carlo simulation which considered the likelihood of achieving the Market Conditions. The expected value of the Performance Units on the grant date was determined by simulating the total stockholder return for the Parent Company and the peer group, considering the stock price variance for each of the peer group companies compared to each other and the Parent Company. In January 2014, of the 136,296 Performance Units which were originally granted to certain executive officers in January 2012 and represent the maximum number of Performance Units that could have vested, 20,224 Performance Units vested (resulting in the issuance of 20,224 shares of the Parent Company’s common stock, 7,243 shares of which were surrendered to the Company and subsequently retired in lieu of cash payments for taxes due on the vesting of the Performance Units) and the remaining 116,072 Performance Units were forfeited, based on the Parent Company’s total stockholder return relative to its peer group for the two years ended December 31, 2013. During the nine months ended September 30, 2014, the Parent Company awarded 494,410 Performance Units which represent the maximum number of Performance Units that may vest and which vest over a three-year Performance Period. The grant date fair-value of these awards of approximately $3.8 million will be recognized as compensation expense on a straight-line basis over each respective Performance Period. The total compensation remaining on the Performance Units granted during the nine months ended September 30, 2014 to be expensed in future periods over a weighted-average term of approximately 2.3 years was $2.9 million as of September 30, 2014. No dividends will be paid or accrued on the Performance Units, and shares of the Parent Company's common stock will not be issued until vesting of the Performance Units occurs.
Common Stock, Operating Partnership Units and LTIP Units
As of September 30, 2014, the Company had outstanding 197,455,157 shares of the Parent Company’s common stock and 5,083,400 and 322,074 operating partnership and LTIP units, respectively (excluding operating partnership units held by the Parent Company). A share of the Parent Company’s common stock and the operating partnership and LTIP units have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership.
Dividends and Distributions
22
The following table lists the dividends and distributions declared by the Parent Company and the Operating Partnership during the nine months ended September 30, 2014:
Declaration Date | Securities Class | Amount Per Share/Unit | Period Covered | Dividend and Distribution Payable Date | Dividend and Distribution Amount | |||||||||
(In thousands) | ||||||||||||||
March 17, 2014 | Common stock and OP units | $ | 0.250 | January 1, 2014 to March 31, 2014 | April 15, 2014 | $ | 49,479 | |||||||
June 16, 2014 | Common stock and OP units | $ | 0.250 | April 1, 2014 to June 30, 2014 | July 15, 2014 | $ | 49,483 | |||||||
September 15, 2014 | Common stock and OP units | $ | 0.250 | July 1, 2014 to September 30, 2014 | October 15, 2014 | $ | 50,714 | |||||||
Changes in Accumulated Other Comprehensive Loss by Component
The following table shows the changes in accumulated other comprehensive loss for the Parent Company for the nine months ended September 30, 2014, by component (in thousands):
Foreign currency translation adjustments | Unrealized gains on available-for-sale securities | Gain / (loss) on derivative instruments | Total | ||||||||||||
Balance at December 31, 2013 | $ | 3,905 | $ | 8,938 | $ | (45,766 | ) | $ | (32,923 | ) | |||||
Other comprehensive (loss) / income before reclassifications | (484 | ) | 20,300 | (3,426 | ) | 16,390 | |||||||||
Amounts reclassified from accumulated other comprehensive income (1) | — | (9,322 | ) | 7,729 | (1,593 | ) | |||||||||
Net other comprehensive (loss) / income | $ | (484 | ) | $ | 10,978 | $ | 4,303 | $ | 14,797 | ||||||
Net other comprehensive loss / (income) allocable to noncontrolling interests | 13 | (2,689 | ) | (113 | ) | (2,789 | ) | ||||||||
Balance as of September 30, 2014 | $ | 3,434 | $ | 17,227 | $ | (41,576 | ) | $ | (20,915 | ) | |||||
(1) | Amounts reclassified from unrealized gain on available-for-sale securities are included in other income, net in the consolidated statements of income. Amounts reclassified from loss on derivative instruments are included in interest expense, net in the consolidated statements of income. See Note 9 for further information on derivative instruments. |
Noncontrolling Interests
Noncontrolling interests on the consolidated balance sheets of the Parent Company relate primarily to the OP units in the Operating Partnership that are not owned by the Parent Company. With respect to the noncontrolling interests in the Operating Partnership, noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common stock at the option of the issuer are further evaluated to determine whether temporary or permanent equity classification on the balance sheet is appropriate. Because the OP units comprising the noncontrolling interests contain such a provision, the Company evaluated this guidance, including the requirement to settle in unregistered shares, and determined that the OP units meet the requirements to qualify for presentation as permanent equity.
The Company evaluates individual redeemable noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the consolidated balance sheets. Any redeemable noncontrolling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value at the end of the period in which the determination is made.
The redemption value of the OP units not owned by the Parent Company, had such units been redeemed at September 30, 2014, was approximately $110.8 million based on the average closing price of the Parent Company’s common stock of $20.50 per share for the ten consecutive trading days immediately preceding September 30, 2014.
The following table shows the vested ownership interests in the Operating Partnership:
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September 30, 2014 | December 31, 2013 | ||||||||||
Operating Partnership Units and LTIP Units | Percentage of Total | Operating Partnership Units and LTIP Units | Percentage of Total | ||||||||
BioMed Realty Trust | 196,034,482 | 97.4 | % | 190,676,428 | 97.3 | % | |||||
Noncontrolling interest consisting of: | |||||||||||
Operating partnership and LTIP units held by employees and related parties | 2,645,888 | 1.3 | % | 2,656,388 | 1.4 | % | |||||
Operating partnership and LTIP units held by third parties | 2,627,145 | 1.3 | % | 2,627,145 | 1.3 | % | |||||
Total | 201,307,515 | 100.0 | % | 195,959,961 | 100.0 | % | |||||
4. Capital of the Operating Partnership
Operating Partnership Units and LTIP Units
As of September 30, 2014, the Operating Partnership had outstanding 202,538,557 operating partnership units and 322,074 LTIP units. The Parent Company owned 97.4% of the partnership interests in the Operating Partnership at September 30, 2014, is the Operating Partnership’s general partner and is responsible for the management of the Operating Partnership’s business. As the general partner of the Operating Partnership, the Parent Company effectively controls the ability to issue common stock of the Parent Company upon a limited partner’s notice of redemption. In addition, the Parent Company has generally acquired OP units upon a limited partner’s notice of redemption in exchange for shares of its common stock. The redemption provisions of OP units owned by limited partners that permit the Parent Company to settle in either cash or common stock at the option of the Parent Company are further evaluated in accordance with applicable accounting guidance to determine whether temporary or permanent equity classification on the balance sheet is appropriate. The Operating Partnership evaluated this guidance, including the requirement to settle in unregistered shares, and determined that these OP units meet the requirements to qualify for presentation as permanent equity.
The redemption value of the OP units owned by the limited partners, not including the Parent Company, had such units been redeemed at September 30, 2014, was approximately $110.8 million based on the average closing price of the Parent Company’s common stock of $20.50 per share for the ten consecutive trading days immediately preceding September 30, 2014.
Changes in Accumulated Other Comprehensive Loss by Component
The following table shows the changes in accumulated other comprehensive loss for the Operating Partnership for the nine months ended September 30, 2014, by component (in thousands):
Foreign currency translation adjustments | Unrealized gains on available- for-sale securities | Gain / (loss) on derivative instruments | Total | ||||||||||||
Balance at December 31, 2013 | $ | 4,006 | $ | 9,186 | $ | (43,855 | ) | $ | (30,663 | ) | |||||
Other comprehensive (loss) / income before reclassifications | (484 | ) | 20,300 | $ | (3,426 | ) | 16,390 | ||||||||
Amounts reclassified from accumulated other comprehensive income (1) | — | (9,322 | ) | $ | 7,729 | (1,593 | ) | ||||||||
Net other comprehensive (loss) / income | $ | (484 | ) | $ | 10,978 | $ | 4,303 | $ | 14,797 | ||||||
Net other comprehensive income allocable to noncontrolling interest | — | (2,461 | ) | — | (2,461 | ) | |||||||||
Balance as of September 30, 2014 | $ | 3,522 | $ | 17,703 | $ | (39,552 | ) | $ | (18,327 | ) | |||||
(1) | Amounts reclassified from unrealized gain on available-for-sale securities are included in other income, net in the consolidated statements of income. Amounts reclassified from loss on derivative instruments are included in interest expense, net in the consolidated statements of income. See Note 9 for further information on derivative instruments. |
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5. Debt
Debt of the Parent Company
The Parent Company does not hold any indebtedness. All debt is held directly or indirectly by the Operating Partnership; however, the Parent Company has guaranteed the Operating Partnership’s Exchangeable Senior Notes, Unsecured Senior Notes due 2016 (the “Notes due 2016”), Unsecured Senior Notes due 2019 (the "Notes due 2019"), Unsecured Senior Notes due 2020 (the “Notes due 2020”), Unsecured Senior Notes due 2022 (the “Notes due 2022”), Unsecured Senior Term Loan due 2017 (the “Term Loan due 2017”), Unsecured Senior Term Loan due 2018 (the “Term Loan due 2018”) and unsecured line of credit.
Debt of the Operating Partnership
The following is a summary of the Operating Partnership’s outstanding consolidated debt as of September 30, 2014 and December 31, 2013 (dollars in thousands):
Stated Interest Rate | Effective Interest Rate | Principal Balance | |||||||||||||
September 30, 2014 | December 31, 2013 | Maturity Date | |||||||||||||
Mortgage Notes Payable | |||||||||||||||
9900 Belward Campus Drive | 5.64 | % | 3.99 | % | $ | 10,523 | $ | 10,631 | July 1, 2017 | ||||||
9901 Belward Campus Drive | 5.64 | % | 3.99 | % | 12,959 | 13,091 | July 1, 2017 | ||||||||
Center for Life Science | Boston (1) | 7.75 | % | 7.75 | % | — | 334,447 | June 30, 2014 | ||||||||
100 College Street (2) | 2.40 | % | 2.40 | % | 61,224 | — | August 2, 2016 | ||||||||
4320 Forest Park Avenue | 4.00 | % | 2.70 | % | 21,000 | 21,000 | June 30, 2015 | ||||||||
300 George Street (2) | 6.20 | % | 4.91 | % | 45,481 | — | July 1, 2025 | ||||||||
Hershey Center for Applied Research | 6.15 | % | 4.71 | % | 13,072 | 13,449 | May 5, 2027 | ||||||||
500 Kendall Street (Kendall D) | 6.38 | % | 5.45 | % | 56,155 | 57,927 | December 1, 2018 | ||||||||
Shady Grove Road | 5.97 | % | 5.97 | % | 141,631 | 143,067 | September 1, 2016 | ||||||||
University of Maryland BioPark I | 5.93 | % | 4.69 | % | 16,237 | 16,752 | May 15, 2025 | ||||||||
University of Maryland BioPark II | 5.20 | % | 4.33 | % | 62,170 | 62,946 | September 5, 2021 | ||||||||
University of Maryland BioPark Garage | 5.20 | % | 4.33 | % | 4,679 | 4,738 | September 1, 2021 | ||||||||
University of Miami Life Science & Technology Park | 4.00 | % | 2.89 | % | 20,000 | 20,000 | February 1, 2016 | ||||||||
465,131 | 698,048 | ||||||||||||||
Unamortized premiums | 13,412 | 11,276 | |||||||||||||
Mortgage notes payable, net | 478,543 | 709,324 | |||||||||||||
Exchangeable Senior Notes | 3.75 | % | 3.75 | % | 95,678 | 180,000 | |||||||||