##### Table of Contents



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, 2004. Commission File Number: 1-32261   BIOMED REALTY TRUST, INC.  Maryland
    
    20-1142292(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)17140 Bernardo Center Drive, Suite 222San Diego, California
    
    92128-2093(Address of Principal Executive Offices)
    
    (Zip Code)
 (858) 485-9840
(Registrants telephone number, including area code)17140 Bernardo Center Drive, Suite 222, San Diego, California 92128
(Former Address, if Changed Since Last Report)   Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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. x Yes o No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x The number of outstanding shares of issuers common stock, par value $0.01
per share, as of November 12, 2004 was 31,386,333.




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BIOMED REALTY TRUST, INC. FORM 10-Q  QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS PagePART I  FINANCIAL INFORMATIONItem 1 Consolidated Financial StatementsConsolidated Balance Sheets for BioMed Realty Trust, Inc. as of September 30, 2004 (Unaudited) and for Inhale 201 Industrial Road, L.P. (Predecessor) as of December 31, 2003
    
    
    2Consolidated Statements of Income for BioMed Realty Trust, Inc. for the period from August 11, 2004 through September 30, 2004, and for Inhale 201 Industrial Road, L.P. (Predecessor) for the period from July 1, 2004 through August 17, 2004 and for the three months ended September 30, 2003 (Unaudited)
    
    
    3Consolidated Statements of Income for BioMed Realty Trust, Inc. for the period from August 11, 2004 through September 30, 2004, and for Inhale 201 Industrial Road, L.P. (Predecessor) for the period from January 1, 2004 through August 17, 2004 and for the nine months ended September 30, 2003 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for BioMed Realty Trust, Inc. and Inhale 201 Industrial Road, L.P. (Predecessor) for the nine months ended September 30, 2004 and for Inhale 201 Industrial Road, L.P. (Predecessor) for the nine months ended September 30, 2003 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4 Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    23Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3 Defaults Upon Senior Securities
    
    
    24Item 4 Submission of Matters to a Vote of Security Holders
    
    
    24Item 5 Other Information
    
    
    24Item 6 Exhibits
    
    
    24SIGNATURES
    
    
    25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  1




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PART 1  FINANCIAL INFORMATION 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) 
 CONSOLIDATED BALANCE SHEETS
   INHALE 201INDUSTRIALBIOMED REALTY
    
    ROAD, L.P.TRUST,
INC.
    
    (PREDECESSOR)September 30, 2004
    
    December 31, 2003AssetsRental property:Land
    
    $
    58,410
    
    
    $
    12,000Buildings and improvements
    
    
    331,823
    
    
    
    37,588Land lease
    
    
    14,210
    
    
    
    404,443
    
    
    
    49,588Less: accumulated depreciation and amortization
    
    
    (989
    )
    
    
    (2,563
    )Net rental property
    
    
    403,454
    
    
    
    47,025Investment in unconsolidated partnership
    
    
    2,508
    
    
    
    Cash and cash equivalents
    
    
    36,863
    
    
    
    157Restricted cash
    
    
    854
    
    
    
    Accounts receivable
    
    
    1,074
    
    
    
    Due from affiliates
    
    
    48
    
    
    
    16Accrued straight-line rents
    
    
    2,535
    
    
    
    2,427Acquired above market leases, net of accumulated amortization of $160 in 2004
    
    
    8,357
    
    
    
    Acquired in-place leases, net of accumulated amortization of $1,077 in 2004
    
    
    50,424
    
    
    
    Acquired management agreements, net of accumulated amortization of $184 in 2004
    
    
    8,038
    
    
    
    Deferred loan costs, net of accumulated amortization of $49 in 2004
    
    
    1,388
    
    
    
    Prepaid expenses
    
    
    1,601
    
    
    
    Other assets
    
    
    2,620
    
    
    
    431Total assets
    
    $
    519,764
    
    
    $
    50,056Liabilities and Stockholders and Owners EquitySecured notes payable, net
    
    $
    47,598
    
    
    $
    34,208Security deposits
    
    
    3,258
    
    
    
    Due to affiliates
    
    
    91
    
    
    
    3,000Dividends and distributions payable
    
    
    5,055
    
    
    
    Accounts payable and accrued expenses
    
    
    7,663
    
    
    
    389Acquired lease obligations, net of accumulated amortization of $48 in 2004
    
    
    6,918
    
    
    
    Total liabilities
    
    
    70,583
    
    
    
    37,597Minority interests
    
    
    22,708
    
    
    
    Stockholders and owners equity:Preferred stock, $.01 par value, 15,000,000 shares authorized,
none issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 100,000,000 shares authorized,
31,383,333 shares issued and outstanding
    
    
    314
    
    
    
    Additional paid-in capital
    
    
    433,702
    
    
    
    Deferred compensation
    
    
    (4,672
    )
    
    
    Dividends in excess of earnings
    
    
    (2,871
    )
    
    
    Owners equity
    
    
    
    
    
    
    12,459Total stockholders and owners equity
    
    
    426,473
    
    
    
    12,459Total liabilities and stockholders and owners equity
    
    $
    519,764
    
    
    $
    50,056
 See accompanying notes to consolidated financial statements. 2




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) 
 CONSOLIDATED STATEMENTS OF INCOME
   BIOMED REALTY
    
    INHALE 201 INDUSTRIAL ROAD, L.P.TRUST, INC.
    
    (PREDECESSOR)Period August 11, 2004
    
    Period July 1, 2004
    
    Three Monthsthrough
    
    through
    
    EndedSeptember 30, 2004
    
    August 17, 2004
    
    September 30, 2003Revenues:Rental
    
    $
    6,107
    
    
    $
    796
    
    
    $
    1,569Tenant recoveries
    
    
    2,878
    
    
    
    76
    
    
    
    186Total revenues
    
    
    8,985
    
    
    
    872
    
    
    
    1,755Expenses:Rental operations
    
    
    3,539
    
    
    
    46
    
    
    
    190Depreciation and amortization
    
    
    2,251
    
    
    
    122
    
    
    
    238General and administrative
    
    
    1,195
    
    
    
    
    
    
    
    Total expenses
    
    
    6,985
    
    
    
    168
    
    
    
    428Income from operations
    
    
    2,000
    
    
    
    704
    
    
    
    1,327Interest income
    
    
    124
    
    
    
    
    
    
    
    Interest expense
    
    
    (218
    )
    
    
    (312
    )
    
    
    (707
    )Income before minority interests
    
    
    1,906
    
    
    
    392
    
    
    
    620Minority interests
    
    
    (79
    )
    
    
    
    
    
    
    Net income
    
    $
    1,827
    
    
    $
    392
    
    
    $
    620Basic earnings per share
    
    $
    0.06Diluted earnings per share
    
    $
    0.06Weighted-average common shares
outstanding:Basic
    
    
    30,673,883Diluted
    
    
    30,754,840
 See accompanying notes to consolidated financial statements. 3




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) 
 CONSOLIDATED STATEMENTS OF INCOME
   BIOMED REALTY
    
    INHALE 201 INDUSTRIAL ROAD, L.P.TRUST, INC.
    
    (PREDECESSOR)Period August 11, 2004
    
    Period January 1, 2004
    
    Nine Monthsthrough
    
    through
    
    EndedSeptember 30, 2004
    
    August 17, 2004
    
    September 30, 2003Revenues:Rental
    
    $
    6,107
    
    
    $
    3,933
    
    
    $
    4,706Tenant recoveries
    
    
    2,878
    
    
    
    375
    
    
    
    558Total revenues
    
    
    8,985
    
    
    
    4,308
    
    
    
    5,264Expenses:Rental operations
    
    
    3,539
    
    
    
    353
    
    
    
    625Depreciation and amortization
    
    
    2,251
    
    
    
    600
    
    
    
    713General and administrative
    
    
    1,195
    
    
    
    
    
    
    
    6Total expenses
    
    
    6,985
    
    
    
    953
    
    
    
    1,344Income from operations
    
    
    2,000
    
    
    
    3,355
    
    
    
    3,920Interest income
    
    
    124
    
    
    
    
    
    
    
    1Interest expense
    
    
    (218
    )
    
    
    (1,700
    )
    
    
    (2,149
    )Income before minority interests
    
    
    1,906
    
    
    
    1,655
    
    
    
    1,772Minority interests
    
    
    (79
    )
    
    
    
    
    
    
    Net income
    
    $
    1,827
    
    
    $
    1,655
    
    
    $
    1,772Basic earnings per share
    
    $
    0.06Diluted earnings per share
    
    $
    0.06Weighted-average common shares
outstanding:Basic
    
    
    30,673,883Diluted
    
    
    30,754,840
 See accompanying notes to consolidated financial statements. 4




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   BIOMED REALTYTRUST, INC. ANDINHALE 201
    
    INHALE 201INDUSTRIAL ROAD,
    
    INDUSTRIAL ROAD,L.P. (PREDECESSOR)
    
    L.P. (PREDECESSOR)Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003Operating activities:Net income
    
    $
    3,482
    
    
    $
    1,772Adjustments to reconcile net income to net cash
provided by operating activities:Minority interests
    
    
    79
    
    
    
    Depreciation and amortization
    
    
    2,851
    
    
    
    713Revenue recognized related to acquired leases
    
    
    (49
    )
    
    
    Compensation expense for restricted stock awards
    
    
    328
    
    
    
    Revenue reduction attributable to acquired above market leases
    
    
    160
    
    
    
    Amortization of loan costs
    
    
    49
    
    
    
    54Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,074
    )
    
    
    75Due from affiliates
    
    
    (32
    )
    
    
    (506
    )Accrued straight-line rents
    
    
    (830
    )
    
    
    (26
    )Prepaid expenses
    
    
    (1,601
    )
    
    
    Other assets
    
    
    (272
    )
    
    
    (93
    )Due to affiliates
    
    
    91
    
    
    
    Restricted cash
    
    
    (854
    )
    
    
    Accounts payable and accrued expenses
    
    
    5,861
    
    
    
    (358
    )Net cash provided by operating activities
    
    
    8,189
    
    
    
    1,631Investing activities:Expenditures for improvements to rental property
    
    
    
    
    
    
    (105
    )Purchases of
interests in rental property and related intangible assets
    
    
    (397,870
    )
    
    
    Security deposits received from prior owners of rental property
    
    
    3,258
    
    
    
    Tenant improvement funds received from prior owners of rental property
    
    
    1,413
    
    
    
    Funds held in escrow for acquisitions
    
    
    (1,850
    )
    
    
    Repayment of
related party payables
    
    
    (3,000
    )
    
    
    Net cash used in investing activities
    
    
    (398,049
    )
    
    
    (105
    )Financing activities:Proceeds from initial public offering
    
    
    465,753
    
    
    
    Payment of offering costs
    
    
    (36,734
    )
    
    
    Payments of loan costs
    
    
    (1,222
    )
    
    
    Principal payments on mortgage loans
    
    
    (44
    )
    
    
    (329
    )Distributions to owners of Predecessor
    
    
    (1,187
    )
    
    
    (1,534
    )Net cash provided by (used in) financing activities
    
    
    426,566
    
    
    
    (1,863
    )Net increase (decrease) in cash and cash equivalents
    
    
    36,706
    
    
    
    (337
    )Cash and cash equivalents at beginning of period
    
    
    157
    
    
    
    512Cash and cash equivalents at end of period
    
    $
    36,863
    
    
    $
    175
 See accompanying notes to consolidated financial statements. 5




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) BIOMED REALTYTRUST, INC. ANDINHALE 201
    
    INHALE 201INDUSTRIAL ROAD,
    
    INDUSTRIAL ROAD,L.P. (PREDECESSOR)
    
    L.P. (PREDECESSOR)Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    1,995
    
    
    $
    1,894Supplementary disclosure of non-cash investing and financing activities:Mortgage
loans assumed (includes premium of $4,730)
    
    
    47,642
    
    
    
    Historic
cost basis of assets transferred from Predecessor (including $2,061
of accrued straight-line rents as of August 17, 2004)
    
    
    49,592
    
    
    
    Operating
partnership units issued for interests in certain contributed
properties
    
    
    21,666
    
    
    
    Investment in unconsolidated partnership acquired by issuing Operating
Partnership units
    
    
    2,508
    
    
    
    Distributions in excess of equity balance to owners of Predecessor
    
    
    7,061
    
    
    
    Accrual for offering costs
    
    
    (602
    )
    
    
    Accrual for dividends and distributions declared
    
    
    5,055
    
    
    
    Restricted stock awards
    
    
    4,997
    
    
    
    
 See accompanying notes to consolidated financial statements. 6




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Organization and Description of Business BioMed Realty Trust, Inc. (the Company) was incorporated in Maryland on
April 30, 2004. On August 11, 2004, the Company commenced operations after
completing its initial public offering (the Offering) of 27,000,000 shares of
its common stock, par value $.01 per share. The Offering price was $15.00 per
share resulting in gross proceeds of $405.0 million. On August 16, 2004, in
connection with the exercise of the underwriters over-allotment option, the
Company issued an additional 4,050,000 shares of common stock and received
gross proceeds of $60.8 million. The aggregate proceeds to the Company, net of
underwriting discounts and commissions and Offering costs, were approximately
$429.0 million. In addition, simultaneously with the Offering, the Company
obtained a $100.0 million revolving unsecured credit facility (Note 5), which
will be used to finance acquisitions and for other corporate purposes. The
Company issued a stock warrant in connection with the Offering to the lead
underwriter for the right to purchase 270,000 common shares at $15.00 per
share, which equals the estimated fair value at the date of grant. The warrant
vested immediately and is exercisable six months after the Offering date. The Company is the majority owner and sole general partner of BioMed
Realty, L.P. (the Operating Partnership), which was also formed on April 30,
2004. The Company contributed the net proceeds from the Offering to the
Operating Partnership, through which the Company will carry on its primary
operations. The Company acquires, owns, leases, manages and selectively
develops laboratory and office space to life science tenants. Tenants include
biotechnology and pharmaceutical companies, scientific research institutions,
government agencies, physician groups and other entities involved in the life science industry.
From inception through August 11, 2004, neither the Company nor its Operating
Partnership had any operations. From the completion of the Offering on August 11, 2004 through September
30, 2004, the Company, through the Operating Partnership, completed the
acquisition of the 13 properties previously described in the Companys initial
public offering prospectus. The Company acquired 201 Industrial Road, L.P.
(Industrial Road), Science Center Drive, Bernardo Center Drive, Balboa
Avenue, Eisenhower Road and a general partnership interest in McKellar Court
from affiliates and others for an aggregate of approximately 2.9 million
limited partnership units in the Operating Partnership (Units), aggregate
cash consideration of approximately $77.0 million using net proceeds of the
Companys initial public offering and the assumption of $14.0 million of debt
(excluding $1.7 million of premium). In addition, the Company acquired seven
properties from unaffiliated third parties: Landmark at Eastview, King of
Prussia, Elliott Avenue, Monte Villa Parkway, Bridgeview, Bayshore Boulevard
and Towne Centre Drive. The Company acquired these properties for aggregate
cash consideration of approximately $323.2 million using net proceeds of the
Companys initial public offering and the assumption of $29.0 million of debt
(excluding $3.0 million of premium). Together, the 13 properties represent a
total of 2.3 million rentable square feet. The seller of the Bridgeview
property exercised its right to extend the closing date on a portion of the
property, consisting of one building representing $16.1 million (or
approximately 50% of the purchase price), to March 2005 to facilitate a
like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended (the Code). Industrial Road (the Predecessor) is the largest of the properties
acquired in the Offering and therefore has been identified as the accounting
acquirer pursuant to paragraph 17 of SFAS No. 141, Business Combinations. As
such, the historical financial statements presented herein for Industrial Road
were prepared on a stand-alone basis up to and including the acquisition date,
August 17, 2004. Upon completion of the Offering, the interest in the
Predecessor acquired from affiliates was recorded at historic cost. The
acquisitions of the unaffiliated interests in the Predecessor and the interests
in all of the other properties have been accounted for as a purchase in
accordance with SFAS No. 141. McKellar Court is accounted for under the equity
method. 7




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 2. Basis of Presentation and Summary of Significant Accounting Policies The accompanying interim financial statements are unaudited, but have been
prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial information and in
conjunction with the rules and regulations of the 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 (consisting solely of normal and recurring adjustments) necessary
for a fair presentation of the financial statements for these interim periods
have been included. These financial statements should be read in conjunction
with the financial statements included in the Companys registration statement
on Form S-11, as amended, declared effective by the Securities and Exchange
Commission on August 5, 2004. Principles of Consolidation The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, and partnerships and limited liability companies
it controls. All material intercompany transactions and balances have been
eliminated. The Company consolidates entities the Company controls and records
a minority 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 shareholder. If the minority shareholder holds
substantive participation rights, it overcomes the presumption of control by
the majority voting interest holder. In contrast, if the minority shareholder
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. With respect to the partnerships and limited liability companies, the
Company determines control through a consideration of each partys financial
interests in profits and losses and the ability to participate in major
decisions such as the acquisition, sale or refinancing of principal assets. Revenue Recognition All leases are classified as operating leases and minimum rents are
recognized on a straight-line basis over the terms of the leases. The excess of
rents recognized over amounts contractually due pursuant to the underlying
leases are included in accrued straight-line rents on the accompanying
consolidated balance sheets and contractually due but unpaid rents are included
in accounts receivable. We also maintain an allowance for doubtful accounts for
estimated losses resulting from the inability of tenants to make required rent
payments. The computation of this allowance is based on the tenants payment
history and current credit status. Certain lease agreements also contain provisions that require tenants to
reimburse us for real estate taxes, insurance and common area maintenance
costs. We recognize these reimbursements in the period that the expenses are
incurred. Payments received under master lease agreements entered into with the
sellers of the Bayshore and King of Prussia properties to lease space that was
not producing rent at the time of the acquisition are recorded as a reduction
to buildings and improvements rather than as rental income in accordance with
EITF 85-27, Recognition of Receipts from Made-Up Rental Shortfalls. Investments in Rental Property Investments in rental property are carried at depreciated cost.
Depreciation and amortization are recorded on a straight-line basis over the
estimated useful lives as follows: Buildings and improvements
    
    40 yearsLand lease
    
    Remaining life of the related leaseTenant improvements
    
    Shorter of the useful lives or the terms of the related leasesFurniture, fixtures, and equipment
    
    3-5 yearsAcquired in-place leases
    
    Non-cancelable term of the related leaseAcquired management agreements
    
    Non-cancelable term of the related agreement
 (Continued) 8




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Purchase accounting was applied, on a pro-rata basis where appropriate, to
the assets and liabilities of real estate entities in which we acquired an
interest or a partial interest. The fair value of tangible assets of an
acquired property (which includes land, buildings, and improvements) is
determined by valuing the property as if it were vacant, and the as-if-vacant
value is then allocated to land, buildings and improvements based on
managements determination of the relative fair value of these assets. We
determine the as-if-vacant fair value using methods similar to those used by
independent appraisers. Factors considered by us in performing these analyses
include an estimate of the carrying costs during the expected lease-up periods,
current market conditions and costs to execute similar leases. In estimating
carrying costs, we include real estate taxes, insurance and other operating
expenses and estimates of lost rental revenue during the expected lease-up
periods based on current market demand. In allocating fair value to the identified intangible assets and
liabilities of an acquired property, above-market and below-market in-place
leases are recorded based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the difference
between (a) the contractual amounts to be paid pursuant to the in-place leases
and (b) our estimate of the fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable
term of the leases. The capitalized above-market lease values are amortized as
a reduction of rental income over the remaining non-cancelable terms of the
respective leases. The capitalized below-market lease values (presented as
acquired lease obligations in the accompanying consolidated balance sheets) are
amortized as an increase to rental income over the initial term and any fixed
rate renewal periods in the respective leases. The aggregate value of other acquired intangible assets consists of
acquired in-place leases and acquired management agreements. The fair value
allocated to acquired in-place leases consists of a variety of components
including, but not necessarily limited to: (a) the value associated with
avoiding the cost of originating the acquired in-place leases (i.e. the market
cost to execute a lease, including leasing commissions and legal fees if any);
(b) the value associated with lost revenue related to tenant reimbursable
operating costs estimated to be incurred during the assumed lease-up period
(i.e. real estate taxes, insurance and other operating expenses); (c) the value
associated with lost rental revenue from existing leases during the assumed
lease-up period; and (d) the value associated with avoided tenant improvement
costs or other inducements to secure a tenant lease. The fair value assigned to
the acquired management agreements are recorded at the present value (using an
interest rate which reflects the risks associated with the management
agreements acquired) of the acquired management agreements with certain tenants
of the acquired properties. The values of in-place leases and management
agreements are amortized to expense over the remaining non-cancelable period of
the respective leases or agreements. The Company has recorded a preliminary allocation of purchase price to
tangible and intangible assets as of September 30, 2004 and prior to December
31, 2004 will finalize the
allocations for acquisitions completed in the third quarter. The Company has a leasehold interest in the Landmark at Eastview property
through a 99-year ground lease. Following the sellers completion of certain
property subdivisions, the ground lease will terminate and a fee simple
interest in the property will be transferred to the Company for no additional
consideration. Under the terms of the ground lease, the
Company has $1.25 million in escrow, which will be used by the seller to
complete certain improvements required in connection with completing
the property subdivisions. The $1.25 million is included in other assets on the
consolidated balance sheets as of September 30, 2004. 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. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows, undiscounted and without interest, expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. (Continued) 9




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less. We maintain our cash at insured financial institutions. The combined
account balances at each institution periodically exceed FDIC insurance
coverage, and, as a result, there is a concentration of credit risk related to
amounts in excess of FDIC limits. We believe that the risk is not significant. Statements of Cash Flows The statements of cash flows of the Company and the Predecessor have been
combined for the nine months ended September 30, 2004 in an effort to make them
comparable to the same period in 2003 for the Predecessor. Restricted Cash Restricted cash primarily consists of deposits for real estate taxes,
insurance and capital reserves as required by certain loan agreements. Capitalization of Costs The Company capitalizes certain acquisition related costs to the carrying
costs of the property acquired. Capitalized costs associated with unsuccessful
acquisitions are charged to expense when an acquisition is abandoned. Deferred Loan Costs Loan costs are capitalized and amortized to interest expense over the
terms of the related loan using a method that approximates the
effective-interest method. Minority Interests Minority interests relate to the interests in the Operating Partnership
that are not owned by the Company, which at September 30, 2004 amounted to
approximately 8.5%. During the period from August 11, 2004 to September 30,
2004, the minority interest carrying value fluctuated due to the timing of the
underwriters over-allotment option of 4,050,000 shares, which closed on August
16, 2004, and the closing of certain acquisitions in which Units were issued.
In conjunction with the formation of the Company, certain persons and entities
contributing interests in properties to the Operating Partnership received
Units. Limited partners who acquired Units in the formation transactions have
the right, commencing approximately one year after the Offering, to require the
Operating Partnership to redeem part or all of their Units for cash based upon
the fair market value of an equivalent number of shares of the Companys common
stock at the time of redemption. Alternatively, the Company may elect to
acquire those Units in exchange for shares of the Companys common stock on a
one-for-one basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of stock rights, specified extraordinary distributions and
similar events. Minority interests also include an 11% interest of the limited
partner in the limited partnership that owns the King of Prussia property,
which is a consolidated entity of the Company. Unconsolidated Partnership Investment in unconsolidated partnership is accounted for using the equity
method whereby our investment is recorded at cost and the investment account is
adjusted for our share of the entitys income or loss and for distributions and
contributions. Incentive Awards The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, under which compensation expense is recorded for stock granted to
employees. (Continued) 10




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Equity Offering Costs Underwriting commissions and offering costs are reflected as a reduction
to additional paid-in-capital. Income Taxes The Company intends to qualify and be taxed as a real estate investment
trust (REIT) under Sections 856 through 860 of the Code, commencing with its
taxable year ending December 31, 2004. As a REIT, the Company will be permitted to deduct distributions paid to
its stockholders, eliminating the federal taxation of income represented by
such distributions at the Company level. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any taxable year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) and, in most of the states,
state income tax on its taxable income at regular corporate tax rates. Tax Indemnification Agreements and Minimum Debt Requirements As a result of the contribution of properties to the Operating
Partnership, the Company has indemnified the contributors of the properties
against adverse tax consequences if it directly or indirectly sells, exchanges
or otherwise disposes of the properties in a taxable transaction before the
tenth anniversary of the completion of the Companys initial public offering.
The Company also has agreed to use its reasonable best efforts to maintain at
least $8.0 million of debt for a period of ten years following the date of the
Companys initial public offering to enable certain contributors to guarantee
the debt in order to defer potential taxable gain they may incur if the
Operating Partnership repays the existing debt. Segment Reporting The Company operates in one industry
segmentreal estate ownership,
management and development. Concentration of Credit Risk Life science entities comprise the vast majority of the Companys tenant
base. Because of the dependence on a single industry, adverse conditions
affecting that industry will more adversely affect our business. Two tenants
comprise 12.1% and 10.9%, respectively, of annualized rent. The inability of
either of these two tenants to make lease payments could materially adversely
affect our business. Use of Estimates The preparation of financial statements in conformity with GAAP requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. 3. Earnings Per Share Earnings per share is calculated based on the weighted number of shares of
our common stock outstanding during the period. The effect of the vesting of
unvested restricted stock that has been granted or has been committed to be
granted and the assumed exercise of the stock warrant, using the treasury
method, were dilutive and included in the calculation of diluted
weighted-average shares for the period from August 11, 2004 through September
30, 2004. For the period from August 11, 2004 through September 30, 2004,
2,177,347 Operating Partnership Units, representing the weighted-average Units
outstanding for the period, were excluded from the calculation of diluted
weighted-average shares because they were anti-dilutive. (Continued) 11




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\

BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) The following table sets forth information related to the computations of
basic and diluted earnings per share (EPS) (in thousands, except share and
per share amounts): Period August 11, 2004throughSeptember 30, 2004Net income attributable to common shares
    
    $
    1,827Weighted-average common shares outstanding:Basic
    
    
    30,673,883Incremental shares from assumed:Vesting of restricted stock
    
    
    46,787Stock warrant
    
    
    34,170Diluted
    
    
    30,754,840Net income per share  basic and diluted
    
    $
    0.06
 4. Secured Notes Payable A summary of our outstanding consolidated secured indebtedness as of
September 30, 2004 is as follows: StatedFixed
    
    Effective
    
    PrincipalInterest
    
    Interest
    
    AmountRate
    
    Rate
    
    (in thousands)
    
    Maturity DateScience Center Drive
    
    
    7.65
    %
    
    
    5.04
    %
    
    $
    11,729
    
    
    July 1, 2011Bridgeview
    
    
    8.07
    %
    
    
    5.04
    %
    
    
    11,856
    
    
    January 1, 2011Elliott Avenue
    
    
    7.38
    %
    
    
    4.63
    %
    
    
    17,108
    
    
    November 24, 2007Eisenhower Road
    
    
    5.80
    %
    
    
    4.63
    %
    
    
    2,263
    
    
    May 5, 200842,956Plus premium
    
    
    
    
    
    
    
    
    
    
    4,730Less accretion (amortization) of premium
    
    
    
    
    
    
    
    
    
    
    (88
    )$
    47,598
 Mortgage debt aggregating $77.0 million secured by the King of Prussia
property was repaid in August 2004 concurrent with the purchase of the
property. Premiums were recorded upon assumption of the notes at the time of
acquisitions to account for above-market interest rates. Amortization of these
premiums is recorded as a reduction to interest expense over the remaining term
of the respective note. 5. Line of Credit On August 11, 2004, the Company entered into a $100.0 million revolving
unsecured loan agreement, which bears interest at LIBOR plus 1.20%, or higher
depending on the leverage ratio of the Company at the time of the
draw, or a
reference rate, and expires on August 11, 2007. The Company, at its sole
discretion, may extend the maturity date to August 11, 2008 after satisfying
certain conditions and paying an extension fee totaling .20% of the then
outstanding commitment. The Company may increase the amount of the commitment
up to $200.0 million upon satisfying certain conditions and agreement of the lender. The
credit facility requires payment of a quarterly unused commitment fee ranging
from .15% to .25% depending on the total unused commitment and an annual
administrative fee equal to $10,000 times the number of banks participating in
the facility. As of September 30, 2004, the Company had not drawn on the credit
facility. (Continued) 12




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) The terms of the credit facility include certain restrictions and
covenants, which limit, among other things, the payment of dividends, and the
incurrence of additional indebtedness and liens. The terms also require
compliance with financial ratios relating to the minimum amounts of net worth,
fixed charge coverage, unsecured interest expense coverage, leverage ratio,
cash flow coverage, the maximum amount of unsecured, secured and recourse
indebtedness, and certain investment limitations. The dividend restriction
referred to above provides that, except to enable the Company to continue to
qualify as a REIT for federal income tax purposes, the Company will not during
any four consecutive quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 95% of funds from
operations, as defined, for such period, subject to other adjustments.
Management believes that it was in compliance with the covenants as of
September 30, 2004; however, only limited operating results for the period
August 11, 2004 through September 30, 2004 were available due to the timing of
the Offering, and the Company obtained a waiver of the covenants from the
lender as of September 30, 2004. 6. Incentive Award Plan The Company has adopted the BioMed
Realty Trust, Inc. and BioMed Realty, L.P. 2004 Incentive Award Plan (the Plan). The Plan provides for the grant to
directors, employees and consultants of the Company, and the Operating
Partnership (and their respective subsidiaries) of stock options, restricted
stock, stock appreciation rights, dividend equivalents, and other incentive
awards. The Company has reserved 2,500,000 shares of common stock for issuance
pursuant to the Plan, subject to adjustments as set forth in the Plan. Upon
consummation of the Offering, the Company granted 8,000 shares of restricted
stock with an aggregate value of $120,000 to four independent directors of the
Board, which vest one year from the date of grant. In addition, upon
consummation of the Offering, the Company granted 325,333 shares of restricted
stock with an aggregate value of $4.9 million to certain officers and key
employees pursuant to the Plan. The restricted shares generally vest in three
equal installments on January 1, 2005, January 1, 2006 and January 1, 2007.
During the period from August 11, 2004 through September 30, 2004, $328,000 of
compensation expense was recognized in general and administrative expense. 7. Unconsolidated Partnership As of September 30, 2004, we had an investment in McKellar Court, L.P.
(McKellar Court). The acquisition of the investment in McKellar Court closed
on September 30, 2004. McKellar Court is a variable interest entity as defined
in Financial Accounting Standards Board Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities; however, the Company is not the
primary beneficiary. The limited partner is also the only tenant in
the property and will bear a disproportionate amount of any losses. The Company, as the general partner, will receive 21% of
the operating cash flows and 75% of the gains upon sale of the property. We
account for our general partner interest using the equity method. Significant
accounting policies used by the unconsolidated partnership that own or owned
this property are similar to those used by the Company. The assets and
liabilities of McKellar Court were $17.5 million and $11.4 million,
respectively, at September 30, 2004. 8. Financial Interests Subject to Put and Call Options The limited partner in the King of Prussia limited partnership has a put
option that would require the Company to purchase the limited partners
interest in the property beginning August 21, 2007 through November 11, 2007
for $1.8 million less any distributions paid to the limited partner. If the put
option is not exercised, then the Company has a call option beginning in May
11, 2008 through August 11, 2008 to purchase the limited partners interest for
$1.9 million less any distributions paid to the limited partner. If the Company
does not exercise the option, then the limited partnership will continue in
existence under the terms of the partnership agreement. As of September 30,
2004, the Company has determined the value of the put and call options to be
diminimus and has not recorded any value on the consolidated balance sheets or
statements of income. (Continued) 13




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BIOMED REALTY TRUST, INC. AND
INHALE 201 INDUSTRIAL ROAD, L.P. (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 9. Subsequent Events On October 21, 2004, the Company, through the Operating Partnership,
completed the acquisition of the San Diego Science Center in San Diego,
California for cash consideration of approximately $29.5 million. In
conjunction with the purchase, the Company drew approximately $10.0 million on
the $100.0 million revolving unsecured loan agreement. The Company entered into an agreement to acquire Ardentech Court, a
property located in the Ardenwood Technology Park in Fremont, California, for
approximately $5.6 million of cash and the assumption of approximately $4.9
million of debt. The acquisition is expected to close in November 2004. 14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. We make
statements in this report that are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. In particular,
statements pertaining to our capital resources, portfolio performance and
results of operations contain forward-looking statements. Forward-looking
statements involve numerous risks and uncertainties and you should not rely on
them as predictions of future events. Forward-looking statements depend on
assumptions, data or methods which may be incorrect or imprecise, and we may
not be able to realize them. We do not guarantee that the transactions and
events described will happen as described (or that they will happen at all).
You can identify forward-looking statements by the use of forward-looking
terminology such as believes, expects, may, will, should, seeks,
approximately, intends, plans, estimates or anticipates or the
negative of these words and phrases or similar words or phrases. You can also
identify forward-looking statements by discussions of strategy, plans or
intentions. The following factors, among others, could cause actual results
and future events to differ materially from those set forth or contemplated in
the forward-looking statements: general risks affecting the real estate
industry (including, without limitation, the inability to enter into or renew
leases, dependence on tenants financial condition, and competition from other
developers, owners and operators of real estate); adverse economic or real
estate developments in the life science industry or the California region;
risks associated with the availability and terms of financing and the use of
debt to fund acquisitions and developments; failure to manage effectively our
growth and expansion into new markets, or to complete or integrate acquisitions
successfully; risks and uncertainties affecting property development and
construction; risks associated with downturns in the national and local
economies, increases in interest rates, and volatility in the securities
markets; potential liability for uninsured losses and environmental
contamination; risks associated with our potential failure to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, or the Code, and possible
adverse changes in tax and environmental laws; and risks associated with our
dependence on key personnel whose continued service is not guaranteed. We
disclaim any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. A more complete discussion of our critical accounting policies can be
found in our registration statement on Form S-11, as amended, declared
effective by the Securities and Exchange Commission on August 5, 2004. Overview From the completion of our initial public offering on August 11, 2004
through September 30, 2004, we, through our Operating Partnership, completed
the acquisition of the 13 properties previously described in our initial public
offering prospectus. We acquired 201 Industrial Road, L.P., Science Center
Drive, Bernardo Center Drive, Balboa Avenue, Eisenhower Road, and the general
partnership in McKellar Court from affiliates for an aggregate of approximately
2.9 million limited partnership units in the Operating Partnership, aggregate
cash consideration of approximately $77.0 million using net proceeds of our
initial public offering and the assumption of $14.0 million of debt (excluding
$1.7 million of premium). In addition, we acquired seven properties from
unaffiliated third parties: Landmark at Eastview, King of Prussia, Elliott
Avenue, Monte Villa Parkway, Bridgeview, Bayshore Boulevard and Towne Centre
Drive. The Company acquired these properties for aggregate cash consideration
of approximately $323.2 million using net proceeds of our initial public
offering and the assumption of $29.0 million of debt (excluding $3.0 million of
premium). Together, the 13 properties represent a total of 2.3 million
rentable square feet. Our results of operations for the three month and nine month periods ended
September 30, 2004 and 2003 include the accounts of one of the properties
acquired, Industrial Road, or the Predecessor, which is the largest of the
properties acquired in our initial public offering and therefore has been
identified as the accounting acquirer pursuant to paragraph 17 of SFAS No. 141,
Business Combinations. As such, the historical financial statements presented
herein for Industrial Road were prepared on a stand-alone basis. Upon
completion of our initial public offering, the interest in the Predecessor
acquired from affiliates was recorded at historic cost. The
acquisitions of the unaffiliated interests in the Predecessor and the
interests in all of the other
properties have been accounted for as a purchase in accordance with SFAS No.
141. 15




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Results of Operations Comparison of Three Months Ended September 30, 2004 to Three Months Ended September 30, 2003 Rental Revenues. Rental revenues increased $5.3 million, or 331.3%, to
$6.9 million for the three months ended September 30, 2004 compared to $1.6
million for the three months ended September 30, 2003. The increase was
primarily due to the inclusion of rental revenues for the properties acquired
in connection with our initial public offering. Tenant Recoveries. Revenues from tenant reimbursements increased $2.8
million, or 1505.4%, to $3.0 million for the three months ended September 30,
2004 compared to $186,000 for the three months ended September 30, 2003. The
increase was primarily due to the inclusion of tenant reimbursements for the
properties acquired in connection with our initial public offering. Rental Operations Expenses. Rental operations expenses increased $3.4
million, or 1789.5%, to $3.6 million for the three months ended September 30,
2004 compared to $190,000 for the three months ended September 30, 2003. The
increase was primarily due to the inclusion of rental property operations
expenses for the properties acquired in connection with our initial public
offering. Depreciation and Amortization Expense. Depreciation and amortization
expense increased $2.1 million, or 882.4%, to $2.4 million for the three months
ended September 30, 2004 compared to $238,000 for the three months ended
September 30, 2003. The increase was primarily due to the inclusion of
depreciation and amortization expense for the properties acquired in connection
with our initial public offering. General and Administrative Expenses.General and administrative expenses
increased to $1.2 million for the three months ended September 30, 2004 from $0
for the three months ended September 30, 2003. The increase was primarily due
to the initial public offering, the hiring of new personnel after the initial
public offering, the addition of expenses relating to operating a public
company, the compensation expense related to unvested restricted stock
compensation awards accrued during the three months ended September 30, 2004
and increases resulting from the consolidation of the properties acquired in
connection with our initial public offering. Interest
Income. Interest income increased to $124,000 for the three months
ended September 30, 2004 from $0 for the three months ended September 30, 2003.
This is primarily due to interest earned on funds held by us following the
consummation of the initial public offering. Interest Expense.Interest expense decreased $177,000, or 25.0%, to
$530,000 for the three months ended September 30, 2004 compared to $707,000 for
the three months ended September 30, 2003. The decrease in interest is a
result of less overall debt outstanding after the consummation of the initial
public offering and a reduction of interest expense in 2004 due to the
accretion of debt premium, which decreased interest expense by $88,000. Minority
Interests.Minority interests increased to $79,000 for the three
months ended September 30, 2004 from $0 for the three months ended September
30, 2003. The increase is primarily a result of allocating approximately 7.0%
of the consolidated income before minority interests to the limited partner
unit holders of our Operating Partnership for the period from August 11, 2004
to September 23, 2004 and 8.5% for the period after September 24, 2004. The
increase in the percentage allocated resulted from the closing of the Science
Center and McKellar Court property acquisitions in late September 2004. The
increase is partially offset by 11% of losses allocated to the limited partner
in the King of Prussia property. Comparison of Nine Months Ended September 30, 2004 to Nine Months Ended September 30, 2003 Rental Revenues. Rental revenues increased $5.3 million, or 112.8%, to
$10.0 million for the nine months ended September 30, 2004 compared to $4.7
million for the nine months ended September 30, 2003. The increase was
primarily due to the inclusion of rental revenues for the properties acquired
in connection with our initial public offering. Tenant Recoveries. Revenues from tenant reimbursements increased $2.7
million, or 483.9%, to $3.3 million for the nine months ended September 30,
2004 compared to $558,000 for the nine months ended September 30, 2003. The
increase was primarily due to the inclusion of tenant reimbursements for the
properties acquired in connection with our initial public offering. 16




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Rental Operations Expenses. Rental operations expenses increased $3.3
million, or 528.0%, to $3.9 million for the nine months ended September 30,
2004 compared to $625,000 for the nine months ended September 30, 2003. The
increase was primarily due to the inclusion of rental property operations
expenses for the properties acquired in connection with our initial public
offering. Depreciation and Amortization Expense. Depreciation and amortization
expense increased $2.1 million, or 294.5%, to $2.9 million for the nine months
ended September 30, 2004 compared to $713,000 for the nine months ended
September 30, 2003. The increase was primarily due to the inclusion of
depreciation and amortization expense for the properties acquired in connection
with our initial public offering. General and Administrative Expenses.General and administrative expenses
increased $1.2 million for the nine months ended September 30, 2004 compared to
$6,000 for the nine months ended September 30, 2003. The increase was primarily
due to the initial public offering, the hiring of new personnel after the
initial public offering, the addition of expenses relating to operating a public company, the
compensation expense related to unvested restricted stock compensation awards
accrued during the nine months ended September 30, 2004 and increases resulting
from the consolidation of the properties acquired in connection with our
initial public offering. Interest
Income. Interest income increased to $124,000 for the nine months
ended September 30, 2004 from $1,000 for the nine months ended September 30,
2003. This is primarily due to interest earned on funds held by us following
the consummation of the initial public offering. Interest Expense.Interest expense decreased $231,000, or 11.0%, to $1.9
million for the nine months ended September 30, 2004 compared to $2.1 million
for the nine months ended September 30, 2003. The decrease in interest is a
result of less overall debt outstanding after the consummation of the initial
public offering and a reduction of interest expense in 2004 due to the
accretion of debt premium, which decreased interest expense by $88,000. Minority
Interests.Minority interests increased to $79,000 for the nine
months ended September 30, 2004, compared to $0 for the nine months ended
September 30, 2003. The increase is primarily a result of allocating
approximately 7.0% of the consolidated income before minority interests to the
limited partner unit holders of the Operating Partnership for the period August
11, 2004 to September 23, 2004 and 8.5% for the period after September 24,
2004. The increase in the percentage allocation resulted from the closing of
the Science Center and McKellar property acquisitions in late September 2004.
The increase is partially offset by 11% of losses allocated to the limited
partner in the King of Prussia property. Cash Flows Comparison of Nine Months Ended September 30, 2004 to Nine Months Ended September 30, 2003 Cash and cash equivalents were $36.9 million and $175,000, respectively,
at September 30, 2004 and 2003. Net
cash provided by operating activities increased $6.6 million to
$8.2 million for the nine months ended September 30, 2004 compared to $1.6 million
for the nine months ended September 30, 2003. The increase was primarily due to
the increases in net income, depreciation and amortization, and other operating assets and liabilities, partially offset by decreases in
accounts payable and accrued expenses. Net
cash used in investing activities increased $397.9 million to
$398.0 million for the nine months ended September 30, 2004 compared to $105,000 for
the nine months ended September 30, 2003. The increase was primarily due to
$398.6 million paid to acquire interests in real estate
entities, funds held in escrow for acquisitions, and the repayment of
related party payables, partially offset by funds received from prior
owners for security deposits and tenant improvements. Net
cash provided by (used in) financing activities increased $428.5 million to $426.6 million for the nine months ended September 30, 2004 compared
to $(1.9) million for the nine months ended September 30, 2003. The increase
was primarily due to the net proceeds received from the offering of our stock
on August 11, 2004 and the exercise of the underwriters over-allotment option
on August 16, 2004, offset by the payment of initial public offering costs,
principal payments on mortgage loans, the payment of loan costs, and
distributions to owners of the Predecessor. 17




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Funds from Operations We present funds from operations, or FFO, because we consider it an
important supplemental measure of our operating performance and believe it is
frequently used by securities analysts, investors and other interested parties
in the evaluation of REITs, many of which present FFO when reporting their
results. FFO is intended to exclude GAAP historical cost depreciation and
amortization of real estate and related assets, which assumes that the value of
real estate assets diminishes ratably over time. Historically, however, real
estate values have risen or fallen with market conditions. Because FFO excludes
depreciation and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, it provides a performance
measure that, when compared year over year, reflects the impact to operations
from trends in occupancy rates, rental rates, operating costs, development
activities and interest costs, providing perspective not immediately apparent
from net income. We compute FFO in accordance with standards established by the
Board of Governors of the National Association of Real Estate Investment
Trusts, or NAREIT, in its March 1995 White Paper (as amended in November 1999
and April 2002). As defined by NAREIT, FFO represents net income (computed in
accordance with GAAP), excluding gains and losses from sales of property, plus
real estate related depreciation and amortization (excluding amortization of
loan origination costs) and after adjustments for unconsolidated partnerships
and joint ventures. Our computation may differ from the methodology for
calculating FFO utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Further, FFO does not represent amounts
available for managements discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties. FFO should not be considered as an alternative to net income
(loss) (computed in accordance with GAAP) as an indicator of our financial
performance or to cash flow from operating activities (computed in accordance
with GAAP) as an indicator of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to pay dividends or
make distributions. The following table provides the calculation of the Companys FFO and a
reconciliation to net income for the period from August 11, 2004 through
September 30, 2004 (in thousands, except per share amounts): Net income
    
    $
    1,827AdjustmentsMinority interest
    
    
    (137
    )Depreciation and amortization  real estate assets
    
    
    2,251Funds from operations
    
    $
    3,941Funds from operations per share  diluted
    
    $
    0.13Weighted-average common shares outstanding  diluted
    
    
    30,754,840
 18




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##### Table of Contents



Property and Lease Information The following table is a summary of our property portfolio as of September 30,
2004 (annualized base rent in thousands): RentableNumber of
    
    Square
    
    AnnualizedBuildings
    
    Feet
    
    Base Rent(1)
    
    OccupancyMarketsSan Francisco
    
    
    6
    
    
    
    567,982
    
    
    $
    11,564
    
    
    
    87.7
    %(2)San Diego
    
    
    7
    
    
    
    338,163
    
    
    
    10,047
    
    
    
    100.0Seattle
    
    
    2
    
    
    
    185,989
    
    
    
    6,215
    
    
    
    92.5
    (3)New York
    
    
    8
    
    
    
    751,648
    
    
    
    14,935
    
    
    
    94.9Pennsylvania
    
    
    6
    
    
    
    454,859
    
    
    
    9,498
    
    
    
    100.0Total
    
    
    29
    
    
    
    2,298,641
    
    
    $
    52,259
    
    
    
    94.7
    %
  (1) Includes contractual amounts to be received pursuant to
master lease agreements on certain properties, which are not
included in rental income for GAAP purposes.  (2) Includes 45,574 square feet of space leased, but remaining vacant at
September 30, 2004.  (3) All vacant space in Seattle is leased to a tenant with a January 1,
2005 commencement date. The following table provides information with respect to the lease expirations
of our properties as of September 30, 2004: Annualized BaseNumber
    
    Square
    
    Percentage of
    
    Rent of Expiringof
    
    Footage of
    
    Aggregate
    
    Leases at LeaseYear of Lease
    
    Expiring
    
    Expiring
    
    Portfolio Leased
    
    Expiration (perExpiration
    
    Leases
    
    Leases
    
    Square Footage
    
    square foot)Current vacancy
    
    
    
    
    
    
    122,177
    
    
    
    5.3
    %
    
    
    2004
    
    
    5
    
    
    
    24,463
    
    
    
    1.1
    
    
    $
    7.342005
    
    
    6
    
    
    
    104,374
    
    
    
    4.5
    
    
    
    13.782006
    
    
    6
    
    
    
    105,757
    
    
    
    4.6
    
    
    
    12.662007
    
    
    6
    
    
    
    431,336
    
    
    
    18.8
    
    
    
    26.252008
    
    
    6
    
    
    
    319,503
    
    
    
    13.9
    
    
    
    26.992009
    
    
    4
    
    
    
    305,134
    
    
    
    13.3
    
    
    
    20.912010
    
    
    3
    
    
    
    276,058
    
    
    
    12.0
    
    
    
    24.672011
    
    
    1
    
    
    
    55,898
    
    
    
    2.4
    
    
    
    72.592012
    
    
    1
    
    
    
    39,053
    
    
    
    1.7
    
    
    
    33.002013
    
    
    2
    
    
    
    104,952
    
    
    
    4.6
    
    
    
    19.19Thereafter
    
    
    6
    
    
    
    409,936
    
    
    
    17.8
    
    
    
    41.65Total
    
    
    
    
    
    
    2,298,641
    
    
    
    100.0
    %
 19




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##### Table of Contents



Liquidity and Capital Resources Our short-term liquidity requirements consist primarily of funds to pay
for operating expenses and other expenditures directly associated with our
properties, including:  
    
    interest expense and scheduled principal payments on outstanding indebtedness,
    
    general and administrative expenses,
    
    future distributions expected to be paid to our stockholders, and
    
    unanticipated capital expenditures, tenant improvements and leasing commissions. We expect to satisfy our short-term liquidity requirements through our
existing working capital and cash provided by our operations. Our rental
revenue, provided by our triple-net leases, and minimal unreimbursed operating
expenses generally provide cash inflows to meet our debt service obligations,
pay general and administrative expenses, and fund regular distributions. Our long-term liquidity requirements consist primarily of funds to pay for
scheduled debt maturities, renovations, expansions and other non-recurring
capital expenditures that need to be made periodically and the costs associated
with acquisitions of properties that we pursue. We expect to satisfy our
long-term liquidity requirements through our existing working capital, cash
provided by operations, long-term secured and unsecured indebtedness, the
issuance of additional equity or debt securities and the use of net proceeds
from the disposition of non-strategic assets. We also expect to use funds
available under our revolving loan agreement to finance acquisition and
development activities and capital expenditures on an interim basis. Our total market capitalization at September 30, 2004 was approximately
$650.1 million based on the market closing price of our common stock at
September 30, 2004 of $17.59 per share (assuming the conversion of 2,870,564
operating partnership units to common stock) and our debt outstanding was
approximately $47.6 million (exclusive of accounts payable and accrued
expenses). As a result, our debt to total market capitalization ratio was
approximately 7.3% at September 30, 2004. Our board of directors adopted a
policy of limiting our indebtedness to approximately 60% of our total market
capitalization. However, our board of directors may from time to time modify
our debt policy in light of current economic or market conditions including,
but not limited to, the relative costs of debt and equity capital, market
conditions for debt and equity securities and fluctuations in the market price
of our common stock. Accordingly, we may increase or decrease our debt to
market capitalization ratio beyond the limit described above. In August 2004, we entered into a new $100.0 million revolving loan
agreement with a maturity date of August 11, 2007. At September 30, 2004, we
had not drawn on our revolving loan agreement leaving $100.0 million available
to borrow. At our option, amounts borrowed under our revolving loan agreement
bear interest at either LIBOR plus 1.20% or higher depending on the leverage
ratio at the time of borrowing or a reference rate. We may increase the
revolving loan agreement commitment up to $200.0 million upon
satisfying certain
conditions and agreement of the lender. We may in the future enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks in order to mitigate our interest
rate risk on a related financial instrument; however, we are not a party to any
derivative financial instruments at September 30, 2004. Further, we do not
enter into derivative or interest rate transactions for speculative or trading
purposes. During
2005, the Company expects to pay $4.6 million of tenant related
capital requirements, which we expect to be drawn on our credit
facility. Cash Distribution Policy We will elect to be taxed as a REIT under the Code commencing with our
taxable year ending December 31, 2004. To qualify as a REIT, we must meet a
number of organizational and operational requirements, including the
requirement that we distribute currently at least 90% of our ordinary taxable
income to our stockholders. It is our intention to comply with these
requirements and maintain our REIT status. As a REIT, we generally will not be
subject to corporate federal, state or local income taxes on taxable income we
distribute currently (in accordance with the Code and applicable regulations)
to our stockholders. If we fail to qualify as a REIT in any taxable year, we
will be subject to federal, state and local income taxes at regular corporate
rates and may not be able to qualify as a REIT for subsequent tax years. Even
if we qualify for federal taxation as a REIT, we may be subject to certain
state and local taxes on our income and to federal income and excise taxes on
our undistributed taxable income, i.e., taxable income not distributed in the
amounts and in the time frames prescribed by the Code and applicable
regulations thereunder. 20




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On September 14, 2004, our board of directors declared the first dividend
to stockholders and unit holders of record on September 30, 2004, totaling $5.1
million, or $0.1497 per common share. This dividend was pro rated based on a
dividend rate of $0.27 per common share for the full quarter and is equivalent
to an annual rate of $1.08 per common share. The dividend was paid on or about
October 15, 2004. Inflation Some of our leases contain provisions designed to mitigate the adverse
impact of inflation. These provisions generally increase rental rates during
the terms of the leases either at fixed rates or indexed escalations (based on
the Consumer Price Index or other measures). We may be adversely impacted by
inflation on the leases that do not contain indexed escalation provisions. In
addition, most of our leases require the tenant to pay an allocable share of
operating expenses, including common area maintenance costs, real estate taxes
and insurance. This may reduce our exposure to increases in costs and operating
expenses resulting from inflation, assuming our properties remain leased and
tenants fulfill their obligations to reimburse us for such expenses. Our revolving loan agreement bears interest at a variable rate, which will
be influenced by changes in short-term interest rates, and will be sensitive to
inflation. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our future income, cash flows and fair values relevant to financial
instruments depend upon prevailing market interest rates. Market risk is the
exposure to loss resulting from changes in interest rates, foreign currency
exchange rates, commodity prices and equity prices. The primary market risk to
which we believe we are exposed is interest rate risk. Many factors, including
governmental monetary and tax policies, domestic and international economic and
political considerations and other factors that are beyond our control
contribute to interest rate risk. As of September 30, 2004, our debt consisted solely of fixed-rate notes
with a carrying value of $47.6 million (including $4.7 million premium) and a
weighted-average interest rate of 7.6%. To determine fair value, the fixed-rate
debt is discounted at a rate based on an estimate of current lending rates,
assuming the debt is outstanding through maturity and considering the notes
collateral. At September 30, 2004, the fair value of the fixed-rate debt is
estimated to be $47.7 million compared to the net carrying value of $47.6
million (including $4.7 million premium). We do not believe that the interest
rate risk represented by our fixed rate debt is material as of September 30,
2004 in relation to total assets of $519.8 million and a market capitalization
of $602.5 million of our common stock and operating units. In order to modify and manage the interest rate characteristics of our
outstanding debt and to limit the effects of interest rate risks on our
operations, we may utilize a variety of financial instruments, including
interest rate swaps, caps and treasury locks in order to mitigate our interest
rate risk on a related financial instrument. The use of these types of
instruments to hedge our exposure to changes in interest rates carries
additional risks, including counterparty credit risk, the enforceability of
hedging contracts and the risk that unanticipated and significant changes in
interest rates will cause a significant loss of basis in the contract. To limit
counterparty credit risk we will seek to enter into such agreements with major
financial institutions with high credit ratings. There can be no assurance that
we will be able to adequately protect against the foregoing risks and will
ultimately realize an economic benefit that exceeds the related amounts
incurred in connection with engaging in such hedging activities. We do not
enter into such contracts for speculative or trading purposes. For the period from
August 11, 2004 to September 30, 2004, we were not a party to any such
financial instruments. 
 ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms and that such
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. 21




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As required by Securities and Exchange Commission Rule 13a-15(b), we
carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive officer and chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the quarter covered by this report.
Based on the foregoing, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were effective at the
reasonable assurance level. There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting. 22




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##### Table of Contents



PART II  OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS None. 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (a) On August 13, 2004 and August 17, 2004, in connection with our
formation and initial public offering, an aggregate of 2,328,566 limited
partnership units in BioMed Realty, L.P., our operating partnership, with an
aggregate value of approximately $34.9 million based on the initial public
offering price of our common stock, were issued to Alan D. Gold, Gary A.
Kreitzer, John F. Wilson, II, SciMed Prop III, Inc., SunMar Investments, Inc.,
HW Investments, Inc., Matthew G. McDevitt and Holly K. McDevitt in exchange for
the contribution to us of interests in the entities that owned our Balboa
Avenue, Bernardo Center Drive, Industrial Road and Eisenhower Road properties.
Each limited partnership unit is redeemable after one year for cash equal to
the then-current market value of one share of our common stock or, at our
option, one share of our common stock. The limited partnership units were issued in reliance upon the exemption
from registration provided for by Section 4(2) of the Securities Act of 1933,
as amended. The limited partnership units were issued without general
solicitation or advertising and each recipient of limited partnership units
represented that he or she was an accredited investor within the meaning of
Regulation D under the Securities Act. (b) Our initial public offering of common stock was affected through a
Registration Statement on Form S-11 (File No. 333-115204) that was declared
effective by the Securities and Exchange Commission on August 5, 2004. On
August 11, 2004, 27,000,000 shares of common stock were sold on our behalf at
an initial public offering price of $15.00 per share, for an aggregate offering
price of $405.0 million. On August 16, 2004, in connection with the exercise of
the underwriters over-allotment option, 4,050,000 additional shares of common
stock were sold on our behalf at the initial public offering price of $15.00
per share, for an aggregate offering price of $60.8 million. Following the
sale of the 31,050,000 shares, the offering terminated. We paid to the underwriters an aggregate of $33.1 million in underwriting
discounts and commissions in connection with the offering. We incurred
additional expenses of approximately $3.6 million in connection with the
offering, which when added to the underwriting discounts and commissions paid
by us, amounts to total expenses of approximately $36.7 million. Thus, the net
offering proceeds to us, after deducting underwriting discounts and commissions
and offering expenses, were approximately $429.0 million. No offering expenses
were paid directly or indirectly to any of our directors or officers (or their
associates) or persons owning ten percent or more of any class of our equity
securities or to any other affiliates. We contributed the net proceeds from the offering to our operating
partnership. Our operating partnership used the net proceeds received from us
as follows:  
    
    $323.2 million to acquire from unaffiliated third parties our
Landmark at Eastview, King of Prussia, Elliott Avenue, Monte Villa
Parkway, Bridgeview, Bayshore Boulevard and Towne Centre Drive
properties, including $77.0 million to repay debt on our King of
Prussia property and $59,000 in prepayment fees on our Bridgeview
property,
    
    $20.7 million to acquire the interests of the contributors of
our Industrial Road and Science Center Drive properties who did not
receive limited partnership units in our operating partnership,
including $117,000 in assumption fees related to the assumption of
secured debt on the Science Center Drive property,
    
    $56.3 million to repay debt related to the acquisition of our
Industrial Road, Bernardo Center Drive and Balboa Avenue properties,
including $618,000 for prepayment fees, and
    
    $19.5 million to fund a portion of the purchase price of our
San Diego Science Center property, which was acquired from an
unaffiliated third party after the period covered by this report. 23




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(c) Upon our formation on April 30, 2004, Bruce A. Ives was issued 1,000
shares of our common stock for total consideration of $1,000 in cash in order
to provide our initial capitalization. We repurchased these shares at cost upon
completion of our initial public offering on August 11, 2004. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 4, 2004, our sole stockholder acted by written consent to
approve an amendment and restatement of our charter, our 2004 Incentive Award
Plan and the employment agreements with our executive officers. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 24




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. BioMed Realty Trust, Inc.Dated: November 12, 2004
    /s/ ALAN D. GOLDAlan D. GoldChairman of the Board, President and Chief Executive
Officer
(Principal Executive Officer) /s/ JOHN F. WILSON, IIJohn F. Wilson, IIChief Financial Officer
(Principal Financial Officer) 25