Photographs by Robert Burroughs

BioMed Realty finds opportunity in the life sciences industry

By Jennifer D. Duell

While the search continues for cures to Alzheimer’s, cancer and diabetes, BioMed Realty Trust Inc. (NYSE: BMR) is playing a part in helping life sciences companies triumph over these diseases and many others.

The company is one of only two REITs that focus on the life sciences sub-sector. Its portfolio consists of 56 laboratory and research properties totaling 7.9 million square feet, occupied by a variety of public and private tenants ranging from Human Genome Sciences Inc. to the National Institutes of Health.

BioMed Realty President and CEO Alan Gold

“Our tenants bring hope to people,”says BioMed Realty President and CEO Alan Gold. “They have the opportunity to enhance people’s lives. Seeing what these companies are doing for society is unbelievable, and our company is part of creating better livesfor society in general.”

A Booming Industry

Gold identified the life sciences niche in 1989 and was one of the founders of the first life sciences-focused REIT, Alexandria Real Estate Equities Inc. (NYSE: ARE). Almost 10 years later, Gold and Gary Kreitzer founded Bernardo Property Advisors, a private real estate company focused on properties suitable for tenants operating in the life sciences industry. Bernardo became BioMed Realty in October 2004 with a $405 million initial public offering.

Alan Gold    In 2006, the life sciences industry raised more than $7.2 billion of venture capital, representing 28.1 percent of total venture investment and a 19.2 percent increase from 2005, according to BioMed.

The REIT has grown quickly since its IPO, doubling in size in 2005 and again in 2006. For 2006, BioMed’s total revenues increased 59.4 percent to $221.4 million, while net income jumped from $17 million in 2005 to $35 million in 2006 and funds from operations (FFO) increased 89 percent to $34.2 million for the first quarter of 2007 from $18.1 million in the first quarter of 2006.

“Life sciences properties are a proven investment, and BioMed’s business model is valid,” says Sri Nagarajan, an analyst with Cohen & Steers, adding that the life sciences industry continues to grow as the U.S. population expands and Americans live longer. “As baby boomers age, they are driving investment in life sciences and biotechnology.”

In 2006, the life sciences industry raised more than $7.2 billion of venture capital, representing a 19.2 percent increase from 2005, a 28.1 percent of total venture investment, according to BioMed.

This growth has continued and robust investment minimizes the risk for BioMed, Gold says. “We deal with some companies that have volatile stocks or companies that aren’t making any money, but that doesn’t translate into risk for us as their landlord,” he says. “Very few of these companies go bankrupt, and even if the stock goes down, they continue to pay rent because they can’t operate without these spaces.”

“There is minimal danger of the life sciences companies getting the capital valve shut off,” Nagarajan says. “The investment in these companies has been more robust than technology companies.”

Clustered in Core Markets

Human Genome Sciences Inc. (HGSI) became BioMed’s largest tenant in early 2006 when the REIT purchased the Rockville, Md.-based biotech company’s headquarters campus for roughly $425 million. The campus consists of three recently constructed buildings totaling 925,000 square feet, a parking structure and undeveloped land that can accommodate 500,000 square feet of additional laboratory and office space. The REIT did a 20-year sale-leaseback with HGSI with two 10-year extension options.

		Upside-Downside Samplings of what analysts are saying about BioMed Realty Trust Inc.

“The Human Genome deal highlights the relationships BioMed has in the life sciences space,” Nagarajan says, adding that the REIT’s executive team also boasts a strong background in the life sciences industry.

BioMed’s properties are clustered in markets/regions that are well known as centers for scientific research: Maryland, Massachusetts, New Jersey, New York, Pennsylvania, San Diego, San Francisco and Seattle. In fact, Maryland and San Francisco account for more than a third of the REIT’s portfolio.

“We buy assets in our core markets not because it’s convenient for us but because they’re established markets and there’s more demand.” R. Kent Griffin

“We buy assets in our core markets not because it’s convenient for us but because they’re established markets and there’s more demand,” says BioMed’s CFO R. Kent Griffin. Additionally, he says BioMed is content to expand in its core markets and has no plans to enter any new markets.

Nagarajan supports BioMed’s core market strategy. “These companies tend to cluster in the same area because the highly educated people are there,” he says. “These people are key to the formation of new businesses that lease lab space too, because employees at existing biotech companies branch off and start their own companies.”

David Loeb, an analyst with Robert W. Baird & Co., says that the REIT has plenty of opportunity to grow its market share in its existing markets, pointing out that the ownership of most life sciences space is located in specific markets. “BioMed has some interesting opportunities not only with acquisitions, but also development and redevelopment,” he says.

Robust Acquisitions

Acquisitions continue to be a core component of BioMed’s aggressive growth strategy. For 2007, BioMed forecasts acquisition activity of $510 million. In 2006, the REIT acquired $1.3 billion worth of assets, almost double what it acquired in 2005. “This management team has demonstrated ability to find quality assets and keep them full,” Loeb says.

The 2006 acquisitions consisted of 16 properties totaling 3.1 million square feet of existing space; 797,000 square feet under construction; and undeveloped land that can support up to 900,000 square feet.

BIOMED REALTY INC. 17140 Bernardo Center Drive, Suite 222 San Diego, California 92128 Phone: (858) 485-9840 web site: www.biomedrealty.com Ticker Symbol: NYSE: BMR Management: Alan Gold, chairman, president and CEO; R. Kent Griffin, chief financial officer; Gary Kreitzer, executive vice president, general counsel, secretary and director •52-week high: $32.41 •52-week low: $25.59

One of the REIT’s most talked about acquisitions last year was the $214 million purchase of Sun Microsystems Inc.’s 1.3 million-square-foot campus in Newark, Calif. BioMed has renamed the campus Pacific Research Center and has plans to redevelop the 10 office buildings into lab space once Sun MicroSystems vacates the space in 2007 and 2008.

“A lot of people who think short-term questioned BioMed’s decision, but they made the investment with a long-term perspective in mind,” Nagarajan says.

In November 2006, BioMed made another noteworthy acquisition: The Center for Life Science in Boston, a 703,000-square-foot laboratory facility under construction in the heart of the Longwood medical area. The center, which is 80 percent pre-leased to Beth Israel Deaconess Medical Center, Dana-Farber Cancer Institute, Children’s Hospital Boston and the CBR Institute for Biomedical Research, boosted the REIT’s presence in the Boston area to more than 2 million square feet and established it as the largest life sciences landlord in the city.

Full Speed Ahead

According to Gold, BioMed is focused on finding unique investment opportunities. “We’re scouring our markets to find deals that will outperform,” he says.

“BioMed is developing space for unlevered returns of 12 percent to 15 percent,” Loeb says, noting that in addition to the projects it has under development today, the company has land banked for 1.4 million square feet of new development.

Earlier in 2007, BioMed announced a landmark deal—the acquisition of Lyme Timber Co.’s portfolio, which includes approximately 600,000 square feet of life sciences space that can support approximately 266,000 square feet of life sciences laboratory and office space at Kendall Square in Cambridge, Mass.

“We’re a hungry team that will continue to work very hard to bring value to our shareholders,” Gold says.