June 14, 2013
VIA EDGAR
Daniel L. Gordon, Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Alexandria Real Estate Equities, Inc.
Form 10-K for Year Ended December 31, 2012
Filed February 26, 2013
File No. 001-12993
Dear Mr. Gordon:
This letter is submitted in response to your letter dated May 23, 2013, to Mr. Dean A. Shigenaga, Chief Financial Officer of Alexandria Real Estate Equities, Inc. (the “Company”).
For convenience of reference, each of the following comments contained in the letter dated May 23, 2013, is reprinted below in italics followed by our response.
Form 10-K for the Fiscal Year Ended December 31, 2012 filed February 26, 2013
General
Comment 1
In future Exchange Act periodic reports, please describe how you monitor credit quality and identify any material changes in quality.
Response to Comment 1
In future Exchange Act periodic reports, we will describe how we monitor tenant credit quality and identify any material changes in quality by including disclosure substantially similar to the following:
“During the term of each lease, we monitor the credit quality of our client tenants by 1) reviewing the credit rating of tenants that are rated by a nationally recognized credit rating agency, 2) reviewing financial statements of the client tenants that are publicly available or that are required to be delivered to us pursuant to the applicable lease, 3) monitoring news reports regarding our tenants and their respective businesses, and 4) monitoring the timeliness of lease payments. We have a team of employees who, among them, have graduate and undergraduate degrees in biology, chemistry and industrial biotechnology and experience in the life science industry, as well as in finance. This life science research team is responsible for assessing and monitoring the credit quality of our tenants and any material changes in credit quality.”
Based upon this monitoring, if the Company determines there has been a material unfavorable change in the credit quality of a significant tenant, the Company will discuss this trend in future Exchange Act periodic reports.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of operations, page 60
Comment 2
We note your disclosure relating to net operating income on a cash basis on page 61 and the disclosure of the percentage of increase in same property cash operating income on page 2. In future filings, please include a reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure as required by Item 10(e)(1)(i)(B) of Regulation S-K.
Response to Comment 2
In future filings, we will reconcile same properties net operating income on a cash basis to income from continuing operations, its most directly comparable GAAP financial measure. As an illustration of the disclosure approach we expect to take with respect to future filings, we submit the following, which is marked in bold to show our proposed changes to the disclosures contained on page 62 of our 2012 Form 10-K:
Page 62
Comparison of the year ended December 31, 2012, to the year ended December 31, 2011
The following table presents a comparison of the components of net operating income for our Same Properties and Non-Same Properties for the year ended December 31, 2012, compared to the year ended December 31, 2011, and a reconciliation of net operating income to income from continuing operations, the most directly comparable financial measure (in thousands):
|
| Year Ended December 31, |
| |||||||||
|
| 2012 |
| 2011 |
| $ | Change |
| % Change |
| ||
Revenues: |
|
|
|
|
|
|
|
|
| |||
Rental – Same Properties |
| $ | 317,839 |
| $ | 316,041 |
| $ | 1,798 |
| 1 | % |
Rental – Non-Same Properties |
| 114,613 |
| 98,123 |
| 16,490 |
| 17 |
| |||
Total rental |
| 432,452 |
| $ | 414,164 |
| 18,288 |
| 4 |
| ||
Tenant recoveries – Same Properties |
| 105,628 |
| 104,616 |
| 1,012 |
| 1 |
| |||
Tenant recoveries – Non-Same Properties |
| 29,558 |
| 23,683 |
| 5,875 |
| 25 |
| |||
Total tenant recoveries |
| 135,186 |
| 128,299 |
| 6,887 |
| 5 |
| |||
Other income – Same Properties |
| 349 |
| 32 |
| 317 |
| 991 |
| |||
Other income – Non-Same Properties |
| 18,086 |
| 5,730 |
| 12,356 |
| 216 |
| |||
Total other income |
| 18,435 |
| 5,762 |
| 12,673 |
| 220 |
| |||
Total revenues – Same Properties |
| 423,816 |
| 420,689 |
| 3,127 |
| 1 |
| |||
Total revenues – Non-Same Properties |
| 162,257 |
| 127,536 |
| 34,721 |
| 27 |
| |||
Total revenues |
| 586,073 |
| 548,225 |
| 37,848 |
| 7 |
| |||
Expenses: |
|
|
|
|
|
|
|
|
| |||
Rental operations – Same Properties |
| 126,283 |
| 121,599 |
| 4,684 |
| 4 |
| |||
Rental operations – Non-Same Properties |
| 48,240 |
| 37,968 |
| 10,272 |
| 27 |
| |||
Total rental operations |
| 174,523 |
| 159,567 |
| 14,956 |
| 9 |
| |||
Net operating income: |
|
|
|
|
|
|
|
|
| |||
Net operating income – Same Properties – GAAP basis |
| 297,533 |
| 299,090 |
| (1,557 | ) | (1 | ) | |||
Net operating income – Non-Same Properties |
| 114,017 |
| 89,568 |
| 24,449 |
| 27 |
| |||
Total net operating income |
| 411,550 |
| 388,658 |
| 22,892 |
| 6 |
| |||
Other expenses: |
|
|
|
|
|
|
|
|
| |||
General and administrative |
| 47,795 |
| 41,127 |
| 6,668 |
| 16 |
| |||
Interest |
| 69,184 |
| 63,378 |
| 5,806 |
| 9 |
| |||
Depreciation and amortization |
| 188,850 |
| 153,087 |
| 35,763 |
| 23 |
| |||
Impairment of land parcel |
| 2,050 |
| – |
| 2,050 |
| 100 |
| |||
Loss on early extinguishment of debt |
| 2,225 |
| 6,485 |
| (4,260 | ) | (66 | ) | |||
|
| 310,104 |
| 264,077 |
| 46,027 |
| 17 |
| |||
Income from continuing operations |
| $ | 101,446 |
| $ | 124,581 |
| $ | (23,135 | ) | (19 | %) |
|
|
|
|
|
|
|
|
|
| |||
Net operating income – Same Properties – GAAP basis |
| $ | 297,533 |
| $ | 299,090 |
| $ | (1,557 | ) | (1 | %) |
Less: straight-line rent adjustments |
| (5,434) |
| (16,966) |
| 11,532 |
| (68 | ) | |||
Net operating income – Same Properties – cash basis |
| $ | 292,099 |
| $ | 282,124 |
| $ | 9,975 |
| 4 | % |
************************
In connection with the aforementioned responses, Alexandria Real Estate Equities, Inc. acknowledges that:
· we are responsible for the adequacy and accuracy of the disclosure in the filing;
· staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
· we may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
If you should have any additional questions please contact me directly at (626) 578-0777.
| Very truly yours, | |
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| |
|
| |
| /s/ Dean A. Shigenaga |
|
|
| |
| Dean A. Shigenaga | |
| Chief Financial Officer |
cc: Joel S. Marcus, Chief Executive Officer
Kenneth Kohler, Esq., Morrison & Foerster LLP
David Cormack, CPA, Ernst & Young LLP