UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 1-12993

ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
95-4502084
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
 385 East Colorado Boulevard, Suite 299, Pasadena, California 91101
(Address of principal executive offices) (Zip code)

(626) 578-0777
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, 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.  Yes ý     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o   (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý

As of July 15, 2015, 72,307,596 shares of common stock, par value $.01 per share, were outstanding.



TABLE OF CONTENTS

 
 
Page
 
 
 
 
FINANCIAL STATEMENTS (UNAUDITED)
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2015, and December 31, 2014
 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended
June 30, 2015 and 2014
 
 
 
 
Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests for the Six Months Ended June 30, 2015
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





GLOSSARY

The following abbreviations or acronyms that may be used in this document shall have the adjacent meanings set forth below:

ABR
Annualized Base Rent
AFFO
Adjusted Funds from Operations
bps
Basis Points
CIP
Construction in Progress
EBITDA
Earnings before Interest, Taxes, Depreciation, and Amortization
EPS
Earnings per Share
FASB
Financial Accounting Standards Board
FFO
Funds from Operations
GAAP
U.S. Generally Accepted Accounting Principles
HVAC
Heating, Ventilation, and Air Conditioning
LEED®
Leadership in Energy and Environmental Design
LIBOR
London Interbank Offered Rate
NAREIT
National Association of Real Estate Investment Trusts
NAV
Net Asset Value
NBV
Net Book Value
NOI
Net Operating Income
NYSE
New York Stock Exchange
REIT
Real Estate Investment Trust
RSF
Rentable Square Feet/Foot
SEC
Securities and Exchange Commission
SoMa
South of Market (submarket of the San Francisco market)
U.S.
United States
VIE
Variable Interest Entity



3



PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Alexandria Real Estate Equities, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)

 
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Investments in real estate
$
7,442,875

 
$
7,226,016

Cash and cash equivalents
68,617

 
86,011

Restricted cash
44,191

 
26,884

Tenant receivables
9,279

 
10,548

Deferred rent
257,427

 
234,124

Deferred leasing and financing costs
210,709

 
201,798

Investments
360,614

 
236,389

Other assets
131,179

 
114,266

Total assets
$
8,524,891

 
$
8,136,036

 
 
 
 
Liabilities, Noncontrolling Interests, and Equity
 
 
 
Secured notes payable
$
771,435

 
$
652,209

Unsecured senior notes payable
1,747,531

 
1,747,370

Unsecured senior line of credit
624,000

 
304,000

Unsecured senior bank term loans
950,000

 
975,000

Accounts payable, accrued expenses, and tenant security deposits
531,612

 
489,085

Dividends payable
61,194

 
58,814

Total liabilities
4,685,772

 
4,226,478

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Redeemable noncontrolling interests
14,248

 
14,315

 
 
 
 
Alexandria Real Estate Equities, Inc.’s stockholders’ equity:
 
 
 
Series D cumulative convertible preferred stock
237,163

 
237,163

Series E cumulative redeemable preferred stock
130,000

 
130,000

Common stock
717

 
715

Additional paid-in capital
3,371,016

 
3,461,189

Accumulated other comprehensive income (loss)
83,980

 
(628
)
Alexandria’s stockholders’ equity
3,822,876

 
3,828,439

Noncontrolling interests
1,995

 
66,804

Total equity
3,824,871

 
3,895,243

Total liabilities, noncontrolling interests, and equity
$
8,524,891

 
$
8,136,036


The accompanying notes are an integral part of these consolidated financial statements.

4



Alexandria Real Estate Equities, Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Rental
$
151,805

 
$
134,992

 
$
295,413

 
$
265,562

Tenant recoveries
49,594

 
40,944

 
97,988

 
82,626

Other income
2,757

 
466

 
7,508

 
4,400

Total revenues
204,156

 
176,402

 
400,909

 
352,588

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Rental operations
62,250

 
52,353

 
123,473

 
104,860

General and administrative
14,989

 
13,836

 
29,376

 
27,060

Interest
26,668

 
17,433

 
49,904

 
36,556

Depreciation and amortization
62,171

 
57,314

 
121,091

 
107,735

Impairment of real estate
—

 
—

 
14,510

 
—

Loss on early extinguishment of debt
189

 
—

 
189

 
—

Total expenses
166,267

 
140,936

 
338,543

 
276,211

 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated joint ventures
541

 
—

 
1,115

 
—

Income from continuing operations
38,430

 
35,466

 
63,481

 
76,377

Loss from discontinued operations
—

 
(147
)
 
(43
)
 
(309
)
Gain on sales of real estate – land parcels
—

 
797

 
—

 
797

Net income
38,430

 
36,116

 
63,438

 
76,865

 
 
 
 
 
 
 
 
Dividends on preferred stock
(6,246
)
 
(6,472
)
 
(12,493
)
 
(12,943
)
Net income attributable to noncontrolling interests
(263
)
 
(1,307
)
 
(755
)
 
(2,502
)
Net income attributable to unvested restricted stock awards
(630
)
 
(405
)
 
(1,113
)
 
(779
)
Net income attributable to Alexandria’s common stockholders
$
31,291

 
$
27,932

 
$
49,077

 
$
60,641

 
 
 
 
 
 
 
 
EPS attributable to Alexandria’s common stockholders – basic and diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.44

 
$
0.39

 
$
0.69

 
$
0.85

Discontinued operations
—

 
—

 
—

 
—

EPS – basic and diluted
$
0.44

 
$
0.39

 
$
0.69

 
$
0.85

 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
0.77

 
$
0.72

 
$
1.51

 
$
1.42


The accompanying notes are an integral part of these consolidated financial statements.


5



Alexandria Real Estate Equities, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
38,430

 
$
36,116

 
$
63,438

 
$
76,865

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on marketable securities:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
55,401

 
(2,734
)
 
83,836

 
16,045

Reclassification adjustment for losses included in net income
1,362

 
406

 
2,465

 
406

Unrealized gains (losses) on marketable securities, net
56,763

 
(2,328
)
 
86,301

 
16,451

 
 
 
 
 
 
 
 
Unrealized (losses) gains on interest rate swap agreements:
 
 
 
 
 
 
 
Unrealized interest rate swap losses arising during the period
(1,225
)
 
(2,526
)
 
(4,238
)
 
(3,914
)
Reclassification adjustment for amortization of losses to interest expense included in net income
710

 
1,123

 
1,215

 
4,613

Unrealized (losses) gains on interest rate swap agreements, net
(515
)
 
(1,403
)
 
(3,023
)
 
699

 
 
 
 
 
 
 
 
Unrealized (losses) gains on foreign currency translation:
 
 
 
 
 
 
 
Unrealized foreign currency translation (losses) gains arising during the period
(1,507
)
 
5,915

 
(7,778
)
 
2,809

Reclassification adjustment for losses included in net income
—

 
—

 
9,236

 
—

Unrealized (losses) gains on foreign currency translation, net
(1,507
)
 
5,915

 
1,458

 
2,809

 
 
 
 
 
 
 
 
Total other comprehensive income
54,741

 
2,184

 
84,736

 
19,959

Comprehensive income
93,171

 
38,300

 
148,174

 
96,824

Less: comprehensive income attributable to noncontrolling interests
(237
)
 
(1,307
)
 
(883
)
 
(2,502
)
Comprehensive income attributable to Alexandria’s common stockholders
$
92,934

 
$
36,993

 
$
147,291

 
$
94,322


The accompanying notes are an integral part of these consolidated financial statements.


6



Alexandria Real Estate Equities, Inc.
Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests
(Dollars in thousands)
(Unaudited)

 
 
Alexandria Real Estate Equities, Inc.’s Stockholders’ Equity
 
 
 
 
 
 
 
 
Series D
Cumulative
Convertible
Preferred
Stock
 
Series E
Cumulative
Redeemable
Preferred
Stock
 
Number of
Common
Shares
 
Common
Stock
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive (Loss) Income
 
Noncontrolling
Interests
 
Total
Equity
 
Redeemable
Noncontrolling
Interests
Balance as of December 31, 2014
 
$
237,163

 
$
130,000

 
71,463,876

 
$
715

 
$
3,461,189

 
$
—

 
$
(628
)
 
$
66,804

 
$
3,895,243

 
$
14,315

Net income
 
—

 
—

 
—

 
—

 
—

 
62,683

 
—

 
227

 
62,910

 
528

Total other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
84,608

 
128

 
84,736

 
—

Contributions by noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
340

 
340

 
—

Distributions to noncontrolling interests
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(595
)
Issuances of common stock
 
—

 
—

 
56,874

 
1

 
5,051

 
—

 
—

 
—

 
5,052

 
—

Issuances pursuant to stock plan
 
—

 
—

 
168,054

 
1

 
12,032

 
—

 
—

 
—

 
12,033

 
—

Purchase of noncontrolling interest
 
—

 
—

 
—

 
—

 
(48,463
)
 
—

 
—

 
(65,504
)
 
(113,967
)
 
—

Dividends declared on common stock
 
—

 
—

 
—

 
—

 
—

 
(108,983
)
 
—

 
—

 
(108,983
)
 
—

Dividends declared on preferred stock
 
—

 
—

 
—

 
—

 
—

 
(12,493
)
 
—

 
—

 
(12,493
)
 
—

Distributions in excess of earnings
 
—

 
—

 
—

 
—

 
(58,793
)
 
58,793

 
—

 
—

 
—

 
—

Balance as of June 30, 2015
 
$
237,163

 
$
130,000

 
71,688,804

 
$
717

 
$
3,371,016

 
$
—

 
$
83,980

 
$
1,995

 
$
3,824,871

 
$
14,248



The accompanying notes are an integral part of these consolidated financial statements.

7



Alexandria Real Estate Equities, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2015
 
2014
Operating Activities
 
 
 
Net income
$
63,438

 
$
76,865

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
121,091

 
107,735

Loss on early extinguishment of debt
189

 
—

Gain on sales of real estate – land parcels
—

 
(797
)
Impairment of real estate
14,510

 
—

Equity in earnings from unconsolidated joint ventures
(1,115
)
 
—

Distributions of earnings from unconsolidated joint ventures
648

 
—

Amortization of loan fees
5,723

 
5,304

Amortization of debt (premiums) discounts
(182
)
 
136

Amortization of acquired below-market leases
(1,939
)
 
(1,434
)
Deferred rent
(23,193
)
 
(24,619
)
Stock compensation expense
7,744

 
6,304

Investment gains
(13,710
)
 
(6,225
)
Investment losses
7,877

 
5,240

Changes in operating assets and liabilities:
 
 
 
Restricted cash
110

 
—

Tenant receivables
1,243

 
(735
)
Deferred leasing costs
(24,503
)
 
(17,452
)
Other assets
(4,921
)
 
(5,916
)
Accounts payable, accrued expenses, and tenant security deposits
(1,610
)
 
85

Net cash provided by operating activities
151,400

 
144,491

 
 
 
 
Investing Activities
 
 
 
Proceeds from sales of real estate
92,455

 
17,868

Additions to real estate
(226,302
)
 
(210,792
)
Purchase of real estate
(137,493
)
 
(97,785
)
Deposits for investing activities
(15,501
)
 
—

Change in restricted cash related to construction projects
—

 
5,650

Investment in unconsolidated real estate joint ventures
(3,182
)
 
(1,405
)
Additions to investments
(52,738
)
 
(25,358
)
Sales of investments
22,474

 
8,794

Repayment of notes receivable
4,247

 
29,851

Net cash used in investing activities
$
(316,040
)
 
$
(273,177
)

8



Alexandria Real Estate Equities, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2015
 
2014
Financing Activities
 
 
 
Borrowings from secured notes payable
$
42,867

 
$
77,762

Repayments of borrowings from secured notes payable
(10,075
)
 
(219,427
)
Borrowings from unsecured senior line of credit
915,000

 
637,000

Repayments of borrowings from unsecured senior line of credit
(595,000
)
 
(270,000
)
Repayments of borrowings from unsecured senior bank term loans
(25,000
)
 
—

Change in restricted cash related to financing activities
(1,520
)
 
1,212

Payment of loan fees
(3,559
)
 
(310
)
Proceeds from the issuance of common stock
5,052

 
—

Dividends on common stock
(106,603
)
 
(98,867
)
Dividends on preferred stock
(12,493
)
 
(12,943
)
Contributions by noncontrolling interests
340

 
19,410

Distributions to and purchases of noncontrolling interests
(61,890
)
 
(1,983
)
Net cash provided by financing activities
147,119

 
131,854

 
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
127

 
837

 
 
 
 
Net (decrease) increase in cash and cash equivalents
(17,394
)
 
4,005

Cash and cash equivalents as of the beginning of period
86,011

 
57,696

Cash and cash equivalents as of the end of period
$
68,617

 
$
61,701

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest, net of interest capitalized
$
44,332

 
$
31,922

 
 
 
 
Non-Cash Investing Activities
 
 
 
Change in accrued construction
$
(27,469
)
 
$
592

Assumption of secured notes payable in connection with purchase of real estate
$
(82,000
)
 
$
(48,329
)
 
 
 
 
Non-Cash Financing Activities
 
 
 
Payable for purchase of noncontrolling interest
$
(52,672
)
 
$
—


The accompanying notes are an integral part of these consolidated financial statements.


9

Alexandria Real Estate Equities, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

1.
Background

As used in this quarterly report on Form 10-Q, references to the “Company,” “Alexandria,” “ARE,” “we,” “us,” and “our” refer to Alexandria Real Estate Equities Inc., and its consolidated subsidiaries.

Alexandria Real Estate Equities, Inc. (NYSE:ARE) is a self-administered, and self-managed office REIT uniquely focused on collaborative science and technology campuses in urban innovation clusters with a total market capitalization of $10.7 billion as of June 30, 2015, and an asset base of 31.1 million square feet, including 18.8 million RSF of operating and current value-creation projects, as well as an additional 12.3 million square feet of near-term and future ground-up value-creation development projects. Alexandria pioneered this niche in 1994 and has since established a dominant market presence in AAA locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park. Alexandria is known for its high-quality and diverse client tenant base. Alexandria has a longstanding and proven track record of developing Class A assets clustered in urban science and technology campuses that provide its innovative client tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. We believe these advantages result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value. For additional information on Alexandria, please visit our website at www.are.com.

Our asset base consisted of the following, as of June 30, 2015:
 
 
Square Feet
Operating properties
 
16,822,194

Current value-creation projects (includes unconsolidated joint ventures)
 
1,995,729

Total operating and current value-creation projects
 
18,817,923

 
 
 
Near-term value-creation projects (CIP)
 
2,026,669

Future value-creation projects:
 
 
North America
 
3,807,375

Asia
 
6,419,707

 
 
10,227,082

 
 
 
Near-term and future value-creation projects
 
12,253,751

 
 
 
Total
 
31,071,674


As of June 30, 2015:

•
Investment-grade client tenants represented approximately 53% of our total annualized base rent;
•
Approximately 94% of our leases (on an RSF basis) contained effective annual rent escalations that were either fixed (generally ranging from 3% to 3.5%) or indexed based on a consumer price index or other indices;
•
Approximately 96% of our leases (on an RSF basis) were triple net leases, requiring client tenants to pay substantially all real estate taxes, insurance, utilities, common area, and other operating expenses (including increases thereto) in addition to base rent; and
•
Approximately 94% of our leases (on an RSF basis) provided for the recapture of certain capital expenditures (such as HVAC systems maintenance and/or replacement, roof replacement, and parking lot resurfacing) that we believe would typically be borne by the landlord in traditional office leases.

Any references to the number of buildings, square footage, number of leases, occupancy, and any amounts derived from these values in the notes to the consolidated financial statements are unaudited and outside the scope of our independent registered public accounting firm’s review of our interim consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board.

10


2.
Basis of presentation and summary of significant accounting policies (continued)

2.
Basis of presentation and summary of significant accounting policies

We have prepared the accompanying interim consolidated financial statements in accordance with GAAP and in conformity with the rules and regulations of the SEC.  In our opinion, the interim consolidated financial statements presented herein reflect all adjustments that are necessary to fairly present the interim consolidated financial statements.  The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2014.

Basis of presentation and consolidation

The accompanying consolidated financial statements include the accounts of Alexandria Real Estate Equities, Inc. and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated.

In certain circumstances, we may enter into joint venture arrangements with outside partners. On a quarterly basis, we evaluate each joint venture arrangement under the VIE model, and if the entity is determined not to be a VIE, we then evaluate the entity under the voting model to determine if the entity should be consolidated.

Under the VIE model, an entity is determined to be a VIE if it has any of the following characteristics:

•
The entity does not have sufficient equity to finance its activities without additional subordinated financial support;
•
The equity holders, as a group, lack the characteristics of a controlling financial interest; or
•
The legal entity is established with non-substantive voting rights.

If an entity is determined to be a VIE, we evaluate whether we are the primary beneficiary using qualitative analyses. Factors considered include, but are not limited to, the purpose and design of the VIE, risks that the VIE was designed to create and pass through, the form of our ownership interest, our representation on the entity’s governing body, the size and seniority of our investment, our ability to participate in policy-making decisions, and the rights of the other investors to participate in the decision-making process and/or liquidate the venture, if applicable. We consolidate VIEs whenever we determine that we are the primary beneficiary.

If an entity is determined not to be a VIE, we then evaluate such entity under the voting model. Under the voting model, if we are the general partner or managing member, or have a similar role that can direct the operations of the entity, we have a presumption that we control the entity and we should consolidate regardless of our ownership percentage. If we determine that the other equity holders have any one of the following rights, it is assumed that we do not control the entity and therefore should not consolidate the entity: (i) the substantive ability to dissolve the entity or remove us from the lead role of the entity or (ii) substantive rights that allow them to participate in the activities that most significantly impact the entity’s economic performance.

As of June 30, 2015, we had two joint ventures that did not meet the requirements for consolidation and were accounted for under the equity method of accounting. Refer to Note 3 – “Investments in Real Estate,” appearing elsewhere in this quarterly report on Form 10-Q, for further information on our unconsolidated joint ventures.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and equity; the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements; and the amounts of revenues and expenses during the reporting period.  Actual results could materially differ from those estimates.


11


2.
Basis of presentation and summary of significant accounting policies (continued)

Investments in real estate and properties classified as “held-for-sale”

We recognize real estate acquired (including the intangible value of above- or below-market leases, acquired in-place leases, client tenant relationships, and other intangible assets or liabilities), liabilities assumed, and any noncontrolling interest in an acquired entity at their fair value as of the acquisition date.  If there is a bargain fixed-rate renewal option for the period beyond the non-cancelable lease term of an in-place lease, we evaluate factors such as the business conditions in the industry in which the lessee operates, the economic conditions in the area in which the property is located, and the ability of the lessee to sublease the property during the renewal term, in order to determine the likelihood that the lessee will renew.  When we determine there is reasonable assurance that such bargain purchase option will be exercised, we consider its impact in determining the intangible value of such lease and its related amortization period.  The value of tangible assets acquired is based upon our estimation of value on an as-if-vacant basis.  The value of acquired in-place leases includes the estimated costs during the hypothetical lease-up period and other costs that would have been incurred in the execution of similar leases, considering market conditions at the acquisition date of the acquired in-place lease.  We assess the fair value of tangible and intangible assets based on numerous factors, including estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors, including the historical operating results, known trends, and market/economic conditions that may affect the property.  We also recognize the fair values of assets acquired, the liabilities assumed, and any noncontrolling interest in acquisitions of less than a 100% interest when the acquisition constitutes a change in control of the acquired entity.  Acquisition-related costs related to the acquisition of businesses, including real estate acquired with in-place leases, are expensed as incurred.

The values allocated to buildings and building improvements, land improvements, tenant improvements, and equipment are depreciated on a straight-line basis using the shorter of the term of the respective ground lease and up to 40 years for buildings and building improvements, an estimated life of 20 years for land improvements, the respective lease term for tenant improvements, and the estimated useful life for equipment. The values of acquired above- and below-market leases are amortized over the terms of the related leases and recognized as either an increase (for below-market leases) or a decrease (for above-market leases) to rental income. The values of acquired in-place leases are classified in other assets in the accompanying consolidated balance sheets and amortized over the remaining terms of the related leases.

We are required to capitalize project costs, including predevelopment costs, interest, property taxes, insurance, and other costs directly related and essential to the acquisition, development, redevelopment, predevelopment, or construction of a project.  Capitalization of development, redevelopment, predevelopment, and construction costs is required while activities are ongoing to prepare an asset for its intended use.  Fluctuations in our development, redevelopment, predevelopment, and construction activities could result in significant changes to total expenses and net income.  Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred.  Should development, redevelopment, predevelopment, or construction activity cease, interest, property taxes, insurance, and certain other costs would no longer be eligible for capitalization and would be expensed as incurred.  Expenditures for repairs and maintenance are expensed as incurred.

A property is classified as “held-for-sale” when all of the following criteria for a plan of sale have been met: (i) management, having the authority to approve the action, commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale of the property is probable and is expected to be completed within one year; (v) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation of assets ceases upon designation of a property as “held-for-sale.” Prior to our adoption of the new discontinued operations accounting standard on October 1, 2014, the operations of properties “held-for-sale” were classified as discontinued operations in our consolidated statements of income.

Subsequent to the adoption of the new discontinued operations accounting standard on October 1, 2014, if the disposal of the property represents a strategic shift that has (or will have) a major effect on our operations or financial results, such as (i) a major line of business, (ii) a major geographic area, (iii) a major equity method investment, or (iv) other major parts of an entity, then the operations of the property “held-for-sale,” including any interest expense directly attributable to it, are classified as discontinued operations in our consolidated statements of income, and amounts for all prior periods presented are reclassified from continuing operations to discontinued operations. The disposal of an individual property generally will not represent a strategic shift and therefore will typically not meet the criteria for classification as discontinued operations.


12


2.
Basis of presentation and summary of significant accounting policies (continued)

Impairment of long-lived assets

Long-lived assets to be held and used, including our rental properties, CIP, land held for development, and intangibles, are individually evaluated for impairment when conditions exist that may indicate that the amount of a long-lived asset may not be recoverable.  The amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  Impairment indicators or triggering events for long-lived assets to be held and used, including our rental properties, CIP, land held for development, and intangibles, are assessed by project and include significant fluctuations in estimated rental revenues less rental operating expenses, occupancy changes, significant near-term lease expirations, current and historical operating and/or cash flow losses, construction costs, estimated completion dates, rental rates, and other market factors.  We assess the expected undiscounted cash flows based upon numerous factors, including, but not limited to, construction costs, available market information, current and historical operating results, known trends, current market/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.  Upon determination that an impairment has occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value.  If an impairment loss is not required to be recognized, the recognition of depreciation is adjusted prospectively, as necessary, to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used.  We may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives.

We use the “held-for-sale” impairment model for our properties classified as “held-for-sale.”  The “held-for-sale” impairment model is different from the held-and-used impairment model.  Under the “held-for-sale” impairment model, an impairment loss is recognized if the amount of the long-lived asset classified as “held-for-sale” exceeds its fair value less cost to sell.  Because of these two different models, it is possible for a long-lived asset previously classified as held and used to require the recognition of an impairment charge upon classification as “held-for-sale.”

On a quarterly basis, we review current activities and changes in the business conditions of all of our properties prior to and subsequent to the end of each quarter to determine the existence of any triggering events requiring an impairment analysis. If triggering events are identified, we review an estimate of the future undiscounted cash flows for the properties, including a probability-weighted approach if multiple outcomes are under consideration.

Investments

We hold equity investments in certain publicly traded companies and investments in certain privately held entities primarily involved in the science industry.  All of our investments in actively traded public companies are considered “available-for-sale” and are reflected in the accompanying consolidated balance sheets at fair value.  Fair value has been determined based upon the closing price as of each balance sheet date, with unrealized gains and losses shown as a separate component of comprehensive income.  The classification of each investment is determined at the time each investment is made, and such determination is reevaluated at each balance sheet date.  The cost of each investment sold is determined by the specific identification method, with realized gains or losses classified in other income in the accompanying consolidated statements of income.  Investments in privately held entities are generally accounted for under the cost method when our interest in the entity is so minor that we have virtually no influence over the entity’s operating and financial policies. Certain investments in privately held entities are accounted for under the equity method unless our interest in the entity is deemed to be so minor that we have virtually no influence over the entity’s operating and financial policies. Under the equity method of accounting, we recognize our investment initially at cost and adjust the amount of the investment to recognize our share of the earnings or losses of the investee subsequent to the date of our investment.  Additionally, we limit our ownership percentage in the voting stock of each individual entity to less than 10%.  As of June 30, 2015, and December 31, 2014, our ownership percentage in the voting stock of each individual entity was less than 10%.

We monitor each of our equity investments throughout the year for new developments, including operating results, results of clinical trials, capital-raising events, and merger and acquisition activities. Individual investments are evaluated for impairment when changes in conditions may indicate an impairment exists.  The factors that we consider in making these assessments include, but are not limited to, market prices, market conditions, available financing, prospects for favorable or unfavorable clinical trial results, new product initiatives, and new collaborative agreements.  If there are no identified events or changes in circumstances that might have an adverse effect on our cost method investments, we do not estimate the investment’s fair value.  For all of our investments, if a decline in the fair value of an investment below the carrying value is determined to be other than temporary, such investment is written down to its estimated fair value with a charge to current earnings.


13


2.
Basis of presentation and summary of significant accounting policies (continued)

Recognition of rental income and tenant recoveries

Rental income from leases is recognized on a straight-line basis over the respective lease terms.  We classify amounts currently recognized as income, and expected to be received in later years as deferred rent in the accompanying consolidated balance sheets.  Amounts received currently but recognized as income in future years are classified in accounts payable, accrued expenses, and tenant security deposits in the accompanying consolidated balance sheets.  We commence recognition of rental income at the date the property is ready for its intended use and the client tenant takes possession or controls the physical use of the property.

Tenant recoveries related to reimbursement of real estate taxes, insurance, utilities, repairs and maintenance, common area expenses, and other operating expenses are recognized as revenue in the period during which the applicable expenses are incurred.

Tenant receivables consist primarily of amounts due for contractual lease payments, reimbursements of common area maintenance expenses, property taxes, and other expenses recoverable from client tenants.  Tenant receivables are expected to be collected within one year.  We may maintain an allowance for estimated losses that may result from the inability of our client tenants to make payments required under the terms of the lease and for tenant recoveries due.  If a client tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the amount of uncollectible tenant receivables and deferred rent arising from the straight-lining of rent.  As of June 30, 2015, and December 31, 2014, we had no allowance for uncollectible tenant receivables and deferred rent.

Monitoring client tenant credit quality

During the term of each lease, we monitor the credit quality of our client tenants by (i) reviewing the credit rating of client tenants that are rated by a nationally recognized credit rating agency, (ii) 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, (iii) monitoring news reports regarding our client tenants and their respective businesses, and (iv) 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 science and technology industries, as well as in finance. Our research team is responsible for assessing and monitoring the credit quality of our client tenants and any material changes in their credit quality.

Other income

The following is a summary of the other income in the accompanying consolidated statements of income for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Management fee income
 
$
257

 
$
916

 
$
811

 
$
1,642

Interest and other income
 
379

 
911

 
864

 
1,773

Investment income (loss)
 
2,121

 
(1,361
)
 
5,833

 
985

Total other income
 
$
2,757

 
$
466

 
$
7,508

 
$
4,400


Income taxes

We are organized and qualify as a REIT pursuant to the Internal Revenue Code (the “Code”). Under the Code, a REIT that distributes at least 90% of its REIT taxable income to its shareholders annually and meets certain other conditions is not subject to federal income taxes, but could be subject to certain state and local taxes. We distribute 100% of our taxable income annually; therefore, a provision for federal income taxes is not required. In addition to our REIT returns, we file federal, state, and local tax returns for our subsidiaries. We file with jurisdictions located in the U.S., Canada, India, China, and other international locations. Our tax returns are subject to routine examination in various jurisdictions for calendar years 2010 through 2013.


14


2.
Basis of presentation and summary of significant accounting policies (continued)

Recent accounting pronouncements

In February 2015, the FASB issued an Accounting Standards Update that requires reporting entities to evaluate whether they should consolidate certain legal entities. The Accounting Standards Update modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and eliminates the presumption that a general partner should consolidate a limited partnership. This Accounting Standards Update affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships. The Accounting Standards Update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. A reporting entity may apply the amendments in the Accounting Standards Update by (i) using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or (ii) applying the amendments retrospectively. We are currently assessing the potential impact that the adoption of the Accounting Standards Update will have on our consolidated financial statements.

In April 2015, the FASB issued an Accounting Standards Update that requires reporting entities to present debt issuance costs as a direct deduction from the face amount of the related note payable presented in the balance sheet. The Accounting Standards Update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. A reporting entity is required to apply the amendments in the Accounting Standards Update retrospectively to all prior periods. We are currently assessing the potential impact that the adoption of the Accounting Standards Update will have on our consolidated financial statements.


15



3.
Investments in real estate

Our investments in real estate consisted of the following as of June 30, 2015, and December 31, 2014 (in thousands):
 
 
June 30, 2015
 
December 31, 2014
Land (related to rental properties)
 
$
683,670

 
$
624,681

Buildings and building improvements
 
6,690,157

 
6,171,504

Other improvements
 
234,393

 
192,128

Rental properties
 
7,608,220

 
6,988,313

 
 
 
 
 
Current value-creation projects/Construction in progress (CIP):
 
 
 
 
Current development in North America
 
409,619

 
500,894

Current redevelopment in North America
 
—

 
42,482

Current development in Asia
 
—

 
14,065

 
 
409,619

 
557,441

 
 
 
 
 
Rental properties and current value-creation projects
 
8,017,839

 
7,545,754

 
 
 
 
 
Near-term value-creation projects in North America (CIP):
 
 
 
 
Alexandria Center® at Kendall Square – Binney Street (1)
 
140,488

 
321,907

Other projects
 
105,623

 
107,471

 
 
246,111

 
429,378

 
 
 
 
 
Future value-creation projects:
 
 
 
 
North America
 
183,984

 
175,175

Asia
 
78,911

 
78,548

 
 
262,895

 
253,723

 
 
 
 
 
Near-term and future value-creation projects
 
509,006

 
683,101

 
 
 
 
 
Value-creation pipeline
 
918,625

 
1,240,542

 
 
 
 
 
Gross investments in real estate
 
8,526,845

 
8,228,855

Equity method of accounting – unconsolidated joint ventures
 
121,055

 
117,406

Gross investments in real estate – including unconsolidated joint ventures
 
8,647,900

 
8,346,261

Less: accumulated depreciation
 
(1,205,025
)
 
(1,120,245
)
Investments in real estate
 
$
7,442,875

 
$
7,226,016


(1)
Includes amounts related to 100 Binney Street as of June 30, 2015, and 50, 60, and 100 Binney Street as of December 31, 2014.

Acquisitions
    
During the six months ended June 30, 2015, we acquired real estate and real estate related assets with an aggregate purchase price of $327.2 million, consisting of one operating property, including the assumption of debt, two land parcels, and the outstanding noncontrolling interest related to seven operating properties.


16


3.
Investments in real estate (continued)

Sales of real estate assets and related impairment charges

In June 2015, we completed the sale of 270 Third Street, a residential development project with 91 units at our Alexandria Center® at Kendall Square in our Cambridge submarket in Greater Boston, for a sales price of $43.0 million. The net proceeds of $25.5 million reflect the assumption by the buyer of the cost to complete the construction of $17.5 million. The net proceeds from the sale approximated our carrying amount.

During the three months ended March 31, 2015, we completed the sale of our land and land improvements at 661 University Avenue in Toronto, Canada, for $54.1 million. In December 2014, we recognized an impairment charge of $16.6 million to lower the carrying costs of this property to its estimated fair value less cost to sell, including an estimated $5.0 million foreign exchange loss. Also, during the three months ended March 31, 2015, we sold a 21,859 RSF rental property located in Pennsylvania for $1.9 million. The sales price less cost to sell for this property approximated its carrying value at the time of sale and resulted in no gain or loss on sale.

During the three months ended December 31, 2014, we placed into service a 175,000 RSF building in Hyderabad, India. We completed a probability-weighted cash flow analysis for this building, inclusive of the estimated costs to complete, and determined that the estimated undiscounted cash flows exceeded the carrying amount of the building as of December 31, 2014.

During the three months ended March 31, 2015, we determined that this building in Hyderabad, India, met the criteria for classification as “held-for-sale,” including, among others, the following: (i) management committed to sell the real estate and executed a purchase and sale agreement on March 23, 2015, and (ii) management determined that the sale was probable within one year. Upon classification as “held for sale,” we recognized an impairment charge of $14.5 million to lower the carrying costs of the real estate to its estimated fair value less cost to sell, including an estimated $4.2 million foreign exchange loss. On March 26, 2015, we completed the sale of the building to the Indian multispecialty healthcare provider for $12.4 million.

As a result of our sales in Canada and India discussed above, our statement of comprehensive income reflects an aggregate $9.2 million of losses that we realized during the six months ended June 30, 2015, related to foreign currency exchange translation losses, noted above, that were previously classified in accumulated other comprehensive income (loss) on our accompanying consolidated balance sheets.

Current value-creation development and redevelopment projects

As of June 30, 2015, we had eight ground-up development projects, including two unconsolidated joint venture development projects, in process in North America. The projects at completion will aggregate 2.6 million RSF. An aggregate of 2.0 million RSF are currently in construction in progress, with the remainder already placed into service.

Investments in unconsolidated joint ventures

Refer to our consolidation policy described in Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies,” regarding the following two unconsolidated joint ventures.

360 Longwood Avenue

We are currently developing a building aggregating 413,536 RSF in our Longwood Medical submarket of the Greater Boston market through an unconsolidated joint venture. The cost at completion for this unconsolidated joint venture real estate project is approximately $350.0 million. As of June 30, 2015, the project was 63% leased and 209,628 RSF, or 51%, has been placed in service. The joint venture has a secured construction loan with commitments aggregating $213.2 million, $170.5 million of which was outstanding as of June 30, 2015. The remaining cost to complete the development is expected to be funded primarily from the remaining commitments of $42.7 million under the secured construction loan. The secured construction loan bears interest at LIBOR+3.75%, with a floor of 5.25%. The maturity date of the loan is April 1, 2017, with two, one-year options to extend the stated maturity date to April 1, 2019, subject to certain conditions.

We have a 27.5% interest in this unconsolidated joint venture that we account for under the equity method of accounting. Our investment under the equity method of accounting was $49.7 million as of June 30, 2015, and is classified in investments in real estate in our accompanying consolidated balance sheets.


17


3.
Investments in real estate (continued)

1455/1515 Third Street

In September 2014, Alexandria and Uber Technologies, Inc. (“Uber”), entered into a joint venture agreement and acquired two land parcels supporting the development of two buildings aggregating 422,980 RSF at 1455/1515 Third Street in the Mission Bay submarket of the San Francisco market for a total purchase price of $125.0 million. We have a 51% interest and Uber has a 49% interest in this unconsolidated joint venture. The purchase price was funded by contributions into the joint venture by Uber and us. We account for our investment in this joint venture under the equity method of accounting. Our investment under the equity method of accounting was $71.3 million as of June 30, 2015, and was classified in investments in real estate in our accompanying consolidated balance sheets. The project is expected to be funded by equity contributions from Uber and us. The joint venture may also fund a portion of the project with proceeds from a secured construction loan. The project is 100% leased to Uber for a 15-year term.

Near-term value-creation projects in North America (CIP)
    
Land undergoing predevelopment activities is classified as CIP and is undergoing activities prior to commencement of construction of aboveground building improvements.  We generally will not commence ground-up development of any parcels without first securing pre-leasing for such space, except when there is solid market demand.  If aboveground construction is not initiated at completion of predevelopment activities, the land parcel will be classified as future value-creation projects.  Our objective with predevelopment is to reduce the time it takes to deliver projects to prospective client tenants.  Additionally, during predevelopment, we focus on the design of cost-effective buildings with generic and reusable infrastructure to accommodate single-tenancy and multi-tenancy. As of June 30, 2015, we had $246.1 million of land undergoing predevelopment activities in North America aggregating 2.0 million square feet.

Predevelopment costs generally include the following activities prior to commencement of vertical construction:

•
Traditional predevelopment costs, including entitlement, design, construction drawings, BIM (3-D virtual modeling), budgeting, sustainability and energy optimization reviews, permitting, and planning for all aspects of the project; and

•
Site and infrastructure construction costs, including belowground site work, utility connections, land grading, drainage, egress and regress access points, foundation, and other costs to prepare the site for construction of aboveground building improvements.

Future value-creation projects

Future value-creation projects represent land that we plan to develop in the future, but for which, as of each period presented, no construction or predevelopment activities were ongoing. As a result, interest, property taxes, insurance, and other costs are expensed as incurred. As of June 30, 2015, we had $262.9 million of land held for future development supporting an aggregate of 10.2 million square feet of ground-up development.


18



4.
Investments

Our investments in privately held entities are primarily accounted for under the cost method. Our investments in publicly traded companies are principally marketable equity securities that are accounted for as “available-for-sale” marketable equity securities that are carried at their fair values.  Investments in “available-for-sale” marketable equity securities with gross unrealized losses as of June 30, 2015, had been in a continuous unrealized loss position for less than 12 months. We have the ability and intent to hold these investments for a reasonable period of time sufficient for the recovery of our investment. We believe that these unrealized losses are temporary; accordingly, there are no other-than-temporary impairments in accumulated other comprehensive income related to “available-for-sale” marketable equity securities as of June 30, 2015, or December 31, 2014.

The following table summarizes our investments as of June 30, 2015, and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
“Available-for-sale” marketable equity securities, cost basis
$
33,897

 
$
21,898

Unrealized gains
139,459

 
53,625

Unrealized losses
(791
)
 
(1,258
)
“Available-for-sale” marketable equity securities, at fair value
172,565

 
74,265

Investments accounted for under cost method
188,049

 
162,124

Total investments
$
360,614

 
$
236,389

    
The following table outlines our investment income (loss), which is classified in other income in the accompanying consolidated statements of income (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Investment gains
$
7,773

 
$
2,185

 
$
13,710

 
$
6,225

Investment losses
(5,652
)
 
(3,546
)
 
(7,877
)
 
(5,240
)
Investment income (loss)
$
2,121

 
$
(1,361
)
 
$
5,833

 
$
985


5.
Fair value measurements

We are required to disclose fair value information about all financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value.  We measure and disclose the estimated fair value of financial assets and liabilities utilizing a fair value hierarchy that distinguishes between data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions.  This hierarchy consists of three broad levels, as follows: (i) quoted prices in active markets for identical assets or liabilities, (ii) “significant other observable inputs,” and (iii) “significant unobservable inputs.”  “Significant other observable inputs” can include quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.  “Significant unobservable inputs” are typically based on an entity’s own assumptions, since there is little, if any, related market activity.  In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.  There were no transfers between the levels in the fair value hierarchy during the six months ended June 30, 2015 and 2014.


19


5.
Fair value measurements (continued)

The following tables set forth the assets and liabilities that we measure at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2015, and December 31, 2014 (in thousands):
 
 
 
 
June 30, 2015
Description
 
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
Assets:
 
 
 
 
 
 
 
 
“Available-for-sale” marketable equity securities
 
$
172,565

 
$
172,565

 
$
—

 
$
—

Interest rate swap agreements
 
$
19

 
$
—

 
$
19

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
3,951

 
$
—

 
$
3,951

 
$
—

 
 
 
 
December 31, 2014
Description
 
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
Assets:
 
 
 
 
 
 
 
 
“Available-for-sale” marketable equity securities
 
$
74,265

 
$
74,265

 
$
—

 
$
—

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
909

 
$
—

 
$
909

 
$
—


The carrying values of cash and cash equivalents, restricted cash, tenant receivables, other assets, accounts payable, accrued expenses, and tenant security deposits approximate fair value.  Our “available-for-sale” marketable equity securities and our interest rate swap agreements have been recognized at fair value.  Refer to Note 7 – “Interest Rate Swap Agreements,” for further details on our interest rate swap agreements. The fair values of our secured notes payable, unsecured senior notes payable, unsecured senior line of credit, and unsecured senior bank term loans were estimated using widely accepted valuation techniques, including discounted cash flow analyses of “significant other observable inputs” such as available market information on discount and borrowing rates with similar terms, maturities, and credit ratings.  Because the valuations of our financial instruments are based on these types of estimates, the actual fair value of our financial instruments may differ materially if our estimates do not prove to be accurate.  Additionally, the use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

As of June 30, 2015, and December 31, 2014, the book and estimated fair values of our “available-for-sale” marketable equity securities, interest rate swap agreements, secured notes payable, unsecured senior notes payable, unsecured senior line of credit, and unsecured senior bank term loans were as follows (in thousands):
 
June 30, 2015
 
December 31, 2014
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Assets:
 
 
 
 
 
 
 
“Available-for-sale” marketable equity securities
$
172,565

 
$
172,565

 
$
74,265

 
$
74,265

Interest rate swap agreements
$
19

 
$
19

 
$
—

 
$
—

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swap agreements
$
3,951

 
$
3,951

 
$
909

 
$
909

Secured notes payable
$
771,435

 
$
801,330

 
$
652,209

 
$
693,338

Unsecured senior notes payable
$
1,747,531

 
$
1,782,455

 
$
1,747,370

 
$
1,793,255

Unsecured senior line of credit
$
624,000

 
$
624,207

 
$
304,000

 
$
304,369

Unsecured senior bank term loans
$
950,000

 
$
953,387

 
$
975,000

 
$
976,010


Fair value measurements for other than on a non-recurring basis

Refer to Note 3 – “Investments in Real Estate” and Note 11 – “Noncontrolling Interests.”

20



6.
Secured and unsecured senior debt

The following table summarizes our secured and unsecured senior debt as of June 30, 2015 (dollars in thousands):
 
Fixed-Rate/Hedged
Variable-Rate
 
Unhedged
Variable-Rate
 
Total
Consolidated
 
Percentage of Total Debt
 
Weighted-Average
Interest Rate at
End of Period (1)
 
Weighted-Average
Remaining Term
(in years)
Secured notes payable
$
480,340

 
$
291,095

 
$
771,435

 
18.8
%
 
4.25
%
 
2.9
Unsecured senior notes payable
1,747,531

 
—

 
1,747,531

 
42.7

 
3.98

 
7.8
$1.5 billion unsecured senior line of credit
—

 
624,000

 
624,000

 
15.2

 
1.22

 
3.5
2019 Unsecured Senior Bank Term Loan
600,000

 
—

 
600,000

 
14.7

 
1.71

 
3.5
2021 Unsecured Senior Bank Term Loan
350,000

 
—

 
350,000

 
8.6

 
1.52

 
5.5
Total/weighted average
$
3,177,871

 
$
915,095

 
$
4,092,966

 
100.0
%
 
3.07
%
 
5.4
Percentage of total debt
78
%
 
22
%
 
100
%
 
 
 
 
 
 

(1)
Represents the weighted-average interest rate as of the end of the period plus the impact of debt premiums/discounts and our interest rate swap agreements. The weighted-average interest rate excludes bank fees and amortization of loan fees.


21


6.
Secured and unsecured senior debt (continued)

The following table summarizes our outstanding indebtedness and respective principal maturities as of June 30, 2015 (dollars in thousands):
 
 
Stated 
Rate
 
Weighted- Average
Interest Rate(1)
 
Maturity Date(2)
  
Principal Payments Remaining for the Periods Ending December 31,
 
 
 
 
Debt
 
 
 
  
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Secured notes payable
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 

Greater Boston, San Francisco, and San Diego
 
5.73
%
 
5.73
%
 
1/1/16
  
$
914

 
$
75,501

 
$
—

 
$
—

 
$
—

 
$
—

 
$
76,415

Greater Boston, San Diego, and New York City
 
5.82
 
 
5.82
 
 
4/1/16
  
494

 
29,389

 
—

 
—

 
—

 
—

 
29,883

San Diego
 
5.74
 
 
3.00
 
 
4/15/16
 
88

 
6,916

 
—

 
—

 
—

 
—

 
7,004

San Francisco
 
L+1.40
 
 
1.59
 
 
6/1/16
(3) 
—

 
20,631

 
—

 
—

 
—

 
—

 
20,631

San Francisco
 
L+1.50
 
 
1.69
 
 
7/1/16
(4) 
—

 
47,183

 
—

 
—

 
—

 
—

 
47,183

San Francisco
 
6.35
 
 
6.35
 
 
8/1/16
 
1,313

 
126,715

 
—

 
—

 
—

 
—

 
128,028

Maryland
 
2.17
 
 
2.17
 
 
1/20/17
 
—

 
—

 
76,000

 
—

 
—

 
—

 
76,000

Greater Boston
 
L+1.35
 
 
1.54
 
 
8/23/17
(5) 
—

 
—

 
147,281

 
—

 
—

 
—

 
147,281

San Diego, Maryland, and Seattle
 
7.75
 
 
7.75
 
 
4/1/20
 
800

 
1,696

 
1,832

 
1,979

 
2,138

 
104,352

 
112,797

San Diego
 
4.66
 
 
4.66
 
 
1/1/23
 
703

 
1,464

 
1,540

 
1,614

 
1,692

 
31,674

 
38,687

Greater Boston
 
3.93
 
 
3.10
 
 
3/10/23
 
—

 
—

 
—

 
1,091

 
1,505

 
79,404

 
82,000

San Francisco
 
6.50
 
 
6.50
 
 
7/1/36
  
10

 
19

 
20

 
22

 
23

 
728

 
822

Unamortized premiums
 
 
 
 
 
 
 
 
 
367

 
610

 
573

 
588

 
595

 
1,971

 
4,704

Secured notes payable weighted-average/subtotal
 
4.37
%
 
4.25
 
 
 
  
4,689

 
310,124

 
227,246

 
5,294

 
5,953

 
218,129

 
771,435

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Unsecured Senior Bank Term Loan
 
L+1.20
%
 
1.71
 
 
1/3/19
 
—

 
—

 
—

 
—

 
600,000

 
—

 
600,000

2021 Unsecured Senior Bank Term Loan
 
L+1.10
%
 
1.52
 
 
1/15/21
 
—

 
—

 
—

 
—

 
—

 
350,000

 
350,000

$1.5 billion unsecured senior line of credit
 
L+1.10
%
(6) 
1.22
 
 
1/3/19
  
—

 
—

 
—

 
—

 
624,000

 
—

 
624,000

Unsecured senior notes payable
 
2.75
%
 
2.79
 
 
1/15/20
  
—

 
—

 
—

 
—

 
—

 
400,000

 
400,000

Unsecured senior notes payable
 
4.60
%
 
4.61
 
 
4/1/22
  
—

 
—

 
—

 
—

 
—

 
550,000

 
550,000

Unsecured senior notes payable
 
3.90
%
 
3.94
 
 
6/15/23
 
—

 
—

 
—

 
—

 
—

 
500,000

 
500,000

Unsecured senior notes payable
 
4.50
%
 
4.51
 
 
7/30/29
 
—

 
—

 
—

 
—

 
—

 
300,000

 
300,000

Unamortized discounts
 
 
 
 
 
 
 
 
 
(165
)
 
(337
)
 
(350
)
 
(362
)
 
(375
)
 
(880
)
 
(2,469
)
Unsecured debt weighted-average/subtotal
 
 
 
 
2.79
 
 
 
  
(165
)
 
(337
)
 
(350
)
 
(362
)
 
1,223,625

 
2,099,120

 
3,321,531

Weighted-average/total
 
 
 
 
3.07
%
 
 
  
$
4,524

 
$
309,787

 
$
226,896

 
$
4,932

 
$
1,229,578

 
$
2,317,249

 
$
4,092,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balloon payments
 
 
 
 
 
 
 
 
  
$
—

 
$
304,713

 
$
223,281

 
$
—

 
$
1,224,000

 
$
2,304,466

 
$
4,056,460

Principal amortization
 
 
 
 
 
 
 
 
  
4,524

 
5,074

 
3,615

 
4,932

 
5,578

 
12,783

 
36,506

Total consolidated debt
 
 
 
 
 
 
 
 
  
$
4,524

 
$
309,787

 
$
226,896

 
$
4,932

 
$
1,229,578

 
$
2,317,249

 
$
4,092,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate/hedged variable-rate debt
 
 
 
 
 
 
 
 
  
$
4,524

 
$
241,973

 
$
3,615

 
$
4,932

 
$
605,578

 
$
2,317,249

 
$
3,177,871

Unhedged variable-rate debt
 
 
 
 
 
 
 
 
  
—

 
67,814

 
223,281

 
—

 
624,000

 
—

 
915,095

Total consolidated debt
 
 
 
 
 
 
 
 
  
$
4,524

 
$
309,787

 
$
226,896

 
$
4,932

 
$
1,229,578

 
$
2,317,249

 
$
4,092,966


(1)
Represents the weighted-average interest rate as of the end of the period plus the impact of debt premiums/discounts and our interest rate swap agreements. The weighted-average interest rate excludes bank fees and amortization of loan fees.
(2)
Includes any extension options that we control.
(3)
We have two, one-year options to extend the stated maturity date to June 1, 2018, subject to certain conditions.
(4)
We have a one-year option to extend the stated maturity date to July 1, 2017, subject to certain conditions.
(5)
We have a one-year option to extend the stated maturity date to August 23, 2018, subject to certain conditions.
(6)
Our unsecured senior line of credit contains a feature that allows lenders to competitively bid on the interest rate for borrowings under the facility. This may result in an interest rate that is below the stated rate of LIBOR+1.10%. In addition to the cost of borrowing, the facility is subject to an annual facility fee of 0.20%, based on the aggregate commitments outstanding.



22


6.
Secured and unsecured senior debt (continued)

Interest expense

The following table summarizes interest expense for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Gross interest
$
35,105

 
$
28,735

 
$
69,312

 
$
59,871

Capitalized interest
(8,437
)
 
(11,302
)
 
(19,408
)
 
(23,315
)
Interest expense
$
26,668

 
$
17,433

 
$
49,904

 
$
36,556


Amendment of unsecured senior bank term loan

In June 2015, we completed a partial principal repayment of $25.0 million and extended the maturity of the remaining $350.0 million unsecured senior bank term loan (“2021 Unsecured Senior Bank Term Loan”) from July 31, 2015, to June 30, 2019, subject to our option to extend the maturity up to three times upon the satisfaction of certain conditions, for an additional term of six months for the first and second extensions and for an additional term ending on January 15, 2021, for the third extension. In addition, we reduced the applicable interest rate margin with respect to borrowings outstanding under the loan to LIBOR+1.10% from LIBOR+1.20%. In conjunction with the amendment of our 2021 Unsecured Senior Bank Term Loan and the principal repayment, we recognized a loss on early extinguishment of debt aggregating $189 thousand related to the write-off of a portion of unamortized loan fees.

Secured construction loans

In June 2015, we exercised the first of two, one-year extensions on a $47.2 million secured construction loan, which extended the maturity date from July 1, 2015, to July 1, 2016.

The following table summarizes our secured construction loans as of June 30, 2015 (dollars in thousands):
Market
 
Stated Rate
 
Maturity Date
 
Outstanding Balance
 
Remaining Commitments
 
Total Commitments
San Francisco
 
 
L+1.40
%
 
6/1/16
(1) 
 
$
20,631

 
$
15,369

 
$
36,000

San Francisco
 
 
L+1.50
%
 
7/1/16
(2) 
 
47,183

 
7,817

 
55,000

Greater Boston
 
 
L+1.35
%
 
8/23/17
(3) 
 
147,281

 
103,119

 
250,400

 
 
 
 
 
 
 
 
 
 
$
215,095

 
$
126,305

 
$
341,400


(1)
We have two, one-year options to extend the stated maturity date to June 1, 2018, subject to certain conditions.
(2)
We have a one-year option to extend the stated maturity date to July 1, 2017, subject to certain conditions.
(3)
We have a one-year option to extend the stated maturity date to August 23, 2018, subject to certain conditions.


23

7.
Interest rate swap agreements

We use interest rate swap agreements to hedge the variable cash flows associated with certain of our existing LIBOR-based variable-rate debt, including our unsecured senior line of credit and unsecured senior bank term loans.  The ineffective portion of the change in fair value of our interest rate swap agreements is required to be recognized directly in earnings.  During the six months ended June 30, 2015 and 2014, our interest rate swap agreements were 100% effective; as a result, no hedge ineffectiveness was recognized in earnings.  Changes in fair value, including accrued interest and adjustments for non-performance risk, on the effective portion of our interest rate swap agreements that are designated and that qualify as cash flow hedges are classified in accumulated other comprehensive income (loss). Amounts classified in accumulated other comprehensive income (loss) are subsequently reclassified into earnings in the period during which the hedged transactions affect earnings.  During the next 12 months, we expect to reclassify approximately $2.4 million in accumulated other comprehensive income (loss) to earnings as an increase to interest expense. As of June 30, 2015, and December 31, 2014, the fair values of our interest rate swap agreements aggregating an asset balance were classified in other assets, and those aggregating a liability balance were classified in accounts payable, accrued expenses, and tenant security deposits, based upon their respective fair values, without any offsetting pursuant to master netting agreements. Refer to Note 5 – “Fair Value Measurements.” Under our interest rate swap agreements, we have no collateral posting requirements.

The Company has agreements with certain of its derivative counterparties that contain a provision wherein (i) the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness; or (ii) if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company had breached any of these provisions as of June 30, 2015, it could have been required to settle its obligations under the agreements at their termination value of $4.0 million.

We had the following outstanding interest rate swap agreements that were designated as cash flow hedges of interest rate risk as of June 30, 2015 (dollars in thousands):
 
 
 
 
Number of Contracts
 
Weighted-Average Interest Pay Rate (1)
 
Fair Value as of 6/30/15
 
Notional Amount in Effect as of
Effective Date
 
Maturity Date
 
 
 
 
6/30/15
 
12/31/15
 
12/31/16
 
12/31/17
December 31, 2014
 
March 31, 2016
 
3
 
0.53%
 
$
(804
)
 
$
500,000

 
$
500,000

 
$
—

 
$
—

March 31, 2015
 
March 31, 2016
 
7
 
0.42%
 
(370
)
 
450,000

 
450,000

 
—

 
—

March 31, 2016
 
March 31, 2017
 
9
 
1.25%
 
(2,501
)
 
—

 
—

 
800,000

 
—

March 31, 2017
 
March 31, 2018
 
4
 
1.76%
 
(257
)
 
—

 
—

 
—

 
200,000

Total
 
 
 
 
 
 
 
$
(3,932
)
 
$
950,000

 
$
950,000

 
$
800,000

 
$
200,000


(1)
In addition to the interest pay rate for each swap agreement, interest is payable at an applicable margin for borrowings outstanding as of June 30, 2015. Borrowings under our 2019 unsecured senior bank term loan (“2019 Unsecured Senior Bank Term Loan”) include an applicable margin of 1.20%, and borrowings outstanding under our unsecured senior line of credit and 2021 Unsecured Senior Bank Term Loan include an applicable margin of 1.10%.

During July 2015, we executed the following additional interest rate swap agreements that were designated as cash flow hedges of interest rate risk (dollars in thousands):
 
 
 
 
Number of Contracts
 
Weighted-Average Interest Pay Rate (1)
 
Fair Value as of 6/30/15
 
Notional Amount in Effect as of
Effective Date
 
Maturity Date
 
 
 
 
6/30/15
 
12/31/15
 
12/31/16
 
12/31/17
March 31, 2017
 
March 31, 2018
 
3
 
1.51%
 
none
 
$
—

 
$
—

 
$
—

 
$
150,000


(1)
In addition to the interest pay rate for each swap agreement, interest is payable at an applicable margin for borrowings outstanding as of June 30, 2015. Borrowings under our 2019 Unsecured Senior Bank Term Loan include an applicable margin of 1.20%, and borrowings outstanding under our unsecured senior line of credit and 2021 Unsecured Senior Bank Term Loan include an applicable margin of 1.10%.


24

8. Accounts payable, accrued expenses, and tenant security deposits

The following table summarizes the components of accounts payable, accrued expenses, and tenant security deposits as of June 30, 2015, and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
Accounts payable and accrued expenses
$
126,510

 
$
127,828

Accrued construction
59,849

 
91,110

Acquired below-market leases
28,135

 
8,810

Conditional asset retirement obligations
8,912

 
9,108

Deferred rent liabilities
27,780

 
36,231

Interest rate swap liabilities
3,951

 
909

Prepaid rent and tenant security deposits
202,372

 
193,699

Other liabilities (1)
74,103

 
21,390

Total
$
531,612

 
$
489,085


(1)
Our June 30, 2015, balance includes a $54.0 million liability related to the second installment payment for our acquisition of the remaining noncontrolling interest in our 1.2 million RSF flagship campus at Alexandria Technology Square®. For additional information, refer to Note 11 – “Noncontrolling Interests” to our unaudited consolidated financial statements under Item 1 of this report.

25



9.
Earnings per share

We use income from continuing operations attributable to Alexandria’s common stockholders as the “control number” in determining whether potential common shares are dilutive or antidilutive to EPS.  Pursuant to the presentation and disclosure literature on gains or losses on sales or disposals by REITs and EPS required by the SEC and the FASB, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below income from discontinued operations in the consolidated statements of income and included in the numerator for the computation of EPS for income from continuing operations.

We account for unvested restricted stock awards that contain nonforfeitable rights to dividends as participating securities and include these securities in the computation of EPS using the two-class method.  Our 7% series D cumulative convertible preferred stock (“Series D Convertible Preferred Stock”) is not a participating security, and is not included in the computation of EPS using the two-class method.  Under the two-class method, we allocate net income after preferred stock dividends, preferred stock redemption charge, and amounts attributable to noncontrolling interests to common stockholders and unvested restricted stock awards based on their respective participation rights to dividends declared (or accumulated) and undistributed earnings.  Diluted EPS is computed using the weighted-average shares of common stock outstanding determined for the basic EPS computation plus the effect of any dilutive securities. We had no dilutive securities outstanding during the three and six months ended June 30, 2015 and 2014.

The table below is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three and six months ended June 30, 2015 and 2014 (in thousands, except per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Income from continuing operations
$
38,430

 
$
35,466

 
$
63,481

 
$
76,377

Gain on sales of real estate – land parcels
—

 
797

 
—

 
797

Dividends on preferred stock
(6,246
)
 
(6,472
)
 
(12,493
)
 
(12,943
)
Net income attributable to noncontrolling interests
(263
)
 
(1,307
)
 
(755
)
 
(2,502
)
Net income attributable to unvested restricted stock awards
(630
)
 
(405
)
 
(1,113
)
 
(779
)
Income from continuing operations attributable to Alexandria’s common stockholders – basic and diluted
31,291

 
28,079

 
49,120

 
60,950

Loss from discontinued operations
—

 
(147
)
 
(43
)
 
(309
)
Net income attributable to Alexandria’s common stockholders – basic and diluted
$
31,291

 
$
27,932

 
$
49,077

 
$
60,641

 
 
 
 
 
 
 
 
Weighted-average shares of common stock
outstanding – basic and diluted
71,412

 
71,126

 
71,389

 
71,100

 
 
 
 
 
 
 
 
EPS attributable to Alexandria’s common stockholders – basic and diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.44

 
$
0.39

 
$
0.69

 
$
0.85

Discontinued operations
—

 
—

 
—

 
—

EPS – basic and diluted
$
0.44

 
$
0.39

 
$
0.69

 
$
0.85



26


9.
Stockholders’ equity (continued)


10.
Stockholders’ equity

“At the market” common stock offering program

During the three months ended June 30, 2015, we sold an aggregate of 56,874 shares of common stock for gross proceeds of $5.3 million at an average stock price of $94.02 and net proceeds of approximately $5.1 million, including commissions and other expenses of approximately $295 thousand.

Dividends

In June 2015, we declared cash dividends on our common stock for the second quarter of 2015, aggregating $55.7 million, or $0.77 per share.  Also in June 2015, we declared cash dividends on our Series D Convertible Preferred Stock for the second quarter of 2015, aggregating approximately $4.2 million, or $0.4375 per share.  Additionally, we declared cash dividends on our Series E cumulative redeemable preferred stock (“Series E Preferred Stock”) for the second quarter of 2015, aggregating approximately $2.1 million, or $0.403125 per share.  In July 2015, we paid the cash dividends on our common stock, Series D Preferred Stock, and Series E Preferred Stock for the second quarter of 2015.

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) attributable to Alexandria consists of the following (in thousands):
 
 
Unrealized Gain on Marketable Securities
 
Unrealized Loss on Interest Rate Swap Agreements
 
Unrealized Loss on Foreign Currency Translation
 
Total
Balance as of December 31, 2014
 
$
52,367

 
$
(909
)
 
$
(52,086
)
 
$
(628
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
83,836

 
(4,238
)
 
(7,778
)
 
71,820

Amounts reclassified from other comprehensive income (loss)
 
2,465

 
1,215

 
9,236

 
12,916

 
 
86,301

 
(3,023
)
 
1,458

 
84,736

Amounts attributable to noncontrolling interest
 
—

 
—

 
(128
)
 
(128
)
Net other comprehensive income (loss)
 
86,301

 
(3,023
)
 
1,330

 
84,608

 
 
 
 
 
 
 
 
 
Balance as of June 30, 2015
 
$
138,668

 
$
(3,932
)
 
$
(50,756
)
 
$
83,980


Preferred stock and excess stock authorizations

Our charter authorizes the issuance of up to 100.0 million shares of preferred stock, of which 14.7 million shares were issued and outstanding as of June 30, 2015.  In addition, 200.0 million shares of “excess stock” (as defined in our charter) are authorized, none of which were issued and outstanding as of June 30, 2015.


27



11.
Noncontrolling interests

Noncontrolling interests represent the third-party interests in certain entities in which we have a controlling interest.  These entities owned four projects as of June 30, 2015, and are included in our consolidated financial statements.  Noncontrolling interests are adjusted for additional contributions and distributions, the proportionate share of the net earnings or losses, and other comprehensive income or loss.  Distributions, profits, and losses related to these entities are allocated in accordance with the respective operating agreements.

The following table represents income from continuing operations and discontinued operations attributable to Alexandria Real Estate Equities, Inc., for the three and six months ended June 30, 2015 and 2014, excluding the amounts attributable to these noncontrolling interests:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Income from continuing operations attributable to Alexandria
 
$
38,167

 
$
34,956

 
$
62,726

 
$
74,672

Loss from discontinued operations
 
$
—

 
$
(147
)
 
$
(43
)
 
$
(309
)

Certain of our noncontrolling interests have the right to require us to redeem their ownership interests in the respective entities.  We classify these ownership interests in the entities as redeemable noncontrolling interests outside of total equity in the accompanying consolidated balance sheets.  Redeemable noncontrolling interests are adjusted for additional contributions and distributions, the proportionate share of the net earnings or losses, and other comprehensive income or loss.  Distributions, profits, and losses related to these entities are allocated in accordance with the respective operating agreements.  If the amount of a redeemable noncontrolling interest is less than the maximum redemption value at the balance sheet date, such amount is adjusted to the maximum redemption value.  Subsequent declines in the redemption value are recognized only to the extent that previous increases have been recognized.

During the three months ended March 31, 2015, we executed an agreement to purchase the outstanding 10% noncontrolling interest in our 1.2 million RSF flagship campus at Alexandria Technology Square® for $108.3 million. The first installment of $54.3 million was paid on April 1, 2015, and the second installment of $54.0 million is due on April 1, 2016. Upon execution of the purchase agreement, we recognized a liability representing the fair value of the aggregate consideration, primarily consisting of the purchase price in accounts payable, accrued expenses, and tenant security deposits on our accompanying consolidated balance sheet. We measured the fair value of the liability using significant observable inputs, including a discount rate that approximates our cost of debt capital in effect during the period the liability is outstanding. The difference between the noncontrolling interest purchase liability and the noncontrolling interest balance of $48.5 million was recognized as a reduction of additional paid-in capital.


28

12.
Assets classified as “held for sale”

On October 1, 2014, we adopted an Accounting Standards Update on the reporting of discontinued operations that raised the threshold for classification of assets “held for sale” as discontinued operations. This Accounting Standards Update was applied prospectively, and since our adoption of this Accounting Standards Update, no additional properties have met the criteria for classification as a discontinued operation in our consolidated financial statements. Prior to the adoption of this Accounting Standards Update, certain properties met the previous criteria for classification as discontinued operations. As of June 30, 2015, none of our properties qualified for classification as discontinued operations.

The following is a summary of net assets “held for sale” as of June 30, 2015, and December 31, 2014, including the assets classified as “held for sale” subsequent to our adoption of the new Accounting Standards Update (in thousands):
 
June 30, 2015
 
December 31, 2014
Properties classified as “held for sale”
$
114,456

 
$
173,706

Other assets
5,501

 
10,147

Total assets
119,957

 
183,853

 
 

 
 
Total liabilities
—

 
(6,044
)
Net assets classified as “held for sale” (1)
$
119,957

 
$
177,809


(1)
As of June 30, 2015, net assets classified as “held for sale” were composed of two properties.

The following is a summary of the income (loss) included in our income from continuing operations for the three and six months ended June 30, 2015 and 2014, from assets classified as “held for sale” subsequent to our adoption of the new Accounting Standards Update (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Total revenues
 
$
2,497

 
$
2,426

 
$
4,827

 
$
4,926

Operating expenses
 
(999
)
 
(781
)
 
(1,765
)
 
(1,482
)
Total revenues less operating expenses from assets classified as “held for sale,” not qualifying for classification as discontinued operations
 
1,498

 
1,645

 
3,062

 
3,444

Depreciation expense
 
—

 
(1,782
)
 
(127
)
 
(3,673
)
Impairment of real estate
 
—

 
—

 
(14,510
)
 
—

Income (loss) from assets classified as “held for sale,” not qualifying as discontinued operations (1)
 
$
1,498

 
$
(137
)
 
$
(11,575
)
 
$
(229
)

(1)
Includes the results of operations of two properties with an aggregate 234,186 RSF that were classified as “held for sale” as of June 30, 2015, and three properties with an aggregate 196,859 RSF that were sold during the six months ended June 30, 2015, but do not qualify for classification as discontinued operations. For additional information, refer to Note 2 – “Basis of Presentation and Summary of Significant Accounting Policies.”


29



13.
Subsequent events

Sale of 225 Binney Street

In July 2015, we executed an agreement to sell a 70% interest in our 305,212 RSF, property at 225 Binney Street in our Cambridge submarket in Greater Boston to a high quality institutional investor for $190.1 million. We expect to complete the sale in the fourth quarter of 2015.

Commencement of value-creation development project at 100 Binney Street

In July 2015, we commenced development of a 431,483 RSF value-creation project at 100 Binney Street in our Cambridge submarket; it is 98% leased/negotiating, including 48% leased to Bristol-Myers Squibb Company.

Acquisition of 10290 Campus Point Drive
    
In July 2015, we acquired 10290 Campus Point Drive, a property aggregating 304,326 RSF. This highly strategic acquisition is located adjacent to our uniquely positioned life science campus at the Alexandria Center® for Life Science at Campus Pointe with high-quality on-site amenities in the heart of our University Town Center submarket. The acquired property is 100% leased to the previous owner through September 30, 2015. In June 2015, we leased the entire 304,326 RSF to Eli Lilly and Company for 15.5 years. In October 2015, we expect to commence conversion of the space into Class A office/laboratory space through redevelopment. Upon completion of this redevelopment project, Eli Lilly and Company will relocate its existing presence at 10300 Campus Point Drive of 125,409 RSF and the previously announced 106,173 RSF expansion, into our recently acquired 10290 Campus Point Drive. These changes resulted in a net increase of 72,744 RSF leased to Eli Lilly and Company at the campus. Our campus will ultimately contain an aggregate of 1,046,472 RSF, including 292,387 RSF of capacity for future ground-up development.






30

14.
Condensed consolidating financial information

Alexandria Real Estate Equities, Inc. (the “Issuer”) has sold certain debt securities registered under the Securities Act of 1933, as amended, that are fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P. (the “LP” or the “Guarantor Subsidiary”), an indirectly 100% owned subsidiary of the Issuer. The Company’s other subsidiaries, including, but not limited to, the subsidiaries that own substantially all of its real estate (collectively, the “Combined Non-Guarantor Subsidiaries”), will not provide a guarantee of such securities, including the subsidiaries that are partially or 100% owned by the LP. The following condensed consolidating financial information presents the condensed consolidating balance sheets as of June 30, 2015, and December 31, 2014, the condensed consolidating statements of income and comprehensive income for the three and six months ended June 30, 2015 and 2014, and the condensed consolidating cash flows for the six months ended June 30, 2015 and 2014, for the Issuer, the Guarantor Subsidiary, and the Combined Non-Guarantor Subsidiaries, as well as the eliminations necessary to arrive at the information for Alexandria Real Estate Equities, Inc., on a consolidated basis, and consolidated amounts. In presenting the condensed consolidating financial statements, the equity method of accounting has been applied to (i) the Issuer’s interests in the Guarantor Subsidiary and the Combined Non-Guarantor Subsidiaries, (ii) the Guarantor Subsidiary’s interests in the Combined Non-Guarantor Subsidiaries, and (iii) the Combined Non-Guarantor Subsidiaries’ interests in the Guarantor Subsidiary, where applicable, even though all such subsidiaries meet the requirements to be consolidated under GAAP. All intercompany balances and transactions between the Issuer, the Guarantor Subsidiary, and the Combined Non-Guarantor Subsidiaries have been eliminated, as shown in the column “Eliminations.” All assets and liabilities have been allocated to the Issuer, the Guarantor Subsidiary, and the Combined Non-Guarantor Subsidiaries generally based on legal entity ownership.



31


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Balance Sheet
as of June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria Real Estate Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate
$
—

 
$
—

 
$
7,442,875

 
$
—

 
$
7,442,875

Cash and cash equivalents
35,230

 
—

 
33,387

 
—

 
68,617

Restricted cash
74

 
—

 
44,117

 
—

 
44,191

Tenant receivables
—

 
—

 
9,279

 
—

 
9,279

Deferred rent
—

 
—

 
257,427

 
—

 
257,427

Deferred leasing and financing costs
33,666

 
—

 
177,043

 
—

 
210,709

Investments
—

 
5,274

 
355,340

 
—

 
360,614

Investments in and advances to affiliates
7,195,934

 
6,488,974

 
132,875

 
(13,817,783
)
 
—

Other assets
22,981

 
—

 
108,198

 
—

 
131,179

Total assets
$
7,287,885

 
$
6,494,248

 
$
8,560,541

 
$
(13,817,783
)
 
$
8,524,891

Liabilities, Noncontrolling Interests, and Equity
 
 
 
 
 
 
 
 
 
Secured notes payable
$
—

 
$
—

 
$
771,435

 
$
—

 
$
771,435

Unsecured senior notes payable
1,747,531

 
—

 
—

 
—

 
1,747,531

Unsecured senior line of credit
624,000

 
—

 
—

 
—

 
624,000

Unsecured senior bank term loans
950,000

 
—

 
—

 
—

 
950,000

Accounts payable, accrued expenses, and tenant security deposits
82,572

 
—

 
449,040

 
—

 
531,612

Dividends payable
60,906

 
—

 
288

 
—

 
61,194

Total liabilities
3,465,009

 
—

 
1,220,763

 
—

 
4,685,772

Redeemable noncontrolling interests
—

 
—

 
14,248

 
—

 
14,248

Alexandria’s stockholders’ equity
3,822,876

 
6,494,248

 
7,323,535

 
(13,817,783
)
 
3,822,876

Noncontrolling interests
—

 
—

 
1,995

 
—

 
1,995

Total equity
3,822,876

 
6,494,248

 
7,325,530

 
(13,817,783
)
 
3,824,871

Total liabilities, noncontrolling interests, and equity
$
7,287,885

 
$
6,494,248

 
$
8,560,541

 
$
(13,817,783
)
 
$
8,524,891



32


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Balance Sheet
as of December 31, 2014
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Investments in real estate
$
—

 
$
—

 
$
7,226,016

 
$
—

 
$
7,226,016

Cash and cash equivalents
52,491

 
63

 
33,457

 
—

 
86,011

Restricted cash
67

 
—

 
26,817

 
—

 
26,884

Tenant receivables
—

 
—

 
10,548

 
—

 
10,548

Deferred rent
—

 
—

 
234,124

 
—

 
234,124

Deferred leasing and financing costs
35,462

 
—

 
166,336

 
—

 
201,798

Investments
—

 
5,235

 
231,154

 
—

 
236,389

Investments in and advances to affiliates
6,874,866

 
6,295,852

 
128,943

 
(13,299,661
)
 
—

Other assets
19,461

 
—

 
94,805

 
—

 
114,266

Total assets
$
6,982,347

 
$
6,301,150

 
$
8,152,200

 
$
(13,299,661
)
 
$
8,136,036

Liabilities, Noncontrolling Interests, and Equity
 
 
 
 
 
 
 
 
 
Secured notes payable
$
—

 
$
—

 
$
652,209

 
$
—

 
$
652,209

Unsecured senior notes payable
1,747,370

 
—

 
—

 
—

 
1,747,370

Unsecured senior line of credit
304,000

 
—

 
—

 
—

 
304,000

Unsecured senior bank term loans
975,000

 
—

 
—

 
—

 
975,000

Accounts payable, accrued expenses, and tenant security deposits
69,013

 
—

 
420,072

 
—

 
489,085

Dividends payable
58,525

 
—

 
289

 
—

 
58,814

Total liabilities
3,153,908

 
—

 
1,072,570

 
—

 
4,226,478

Redeemable noncontrolling interests
—

 
—

 
14,315

 
—

 
14,315

Alexandria’s stockholders’ equity
3,828,439

 
6,301,150

 
6,998,511

 
(13,299,661
)
 
3,828,439

Noncontrolling interests
—

 
—

 
66,804

 
—

 
66,804

Total equity
3,828,439

 
6,301,150

 
7,065,315

 
(13,299,661
)
 
3,895,243

Total liabilities, noncontrolling interests, and equity
$
6,982,347

 
$
6,301,150

 
$
8,152,200

 
$
(13,299,661
)
 
$
8,136,036





33


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Income
for the Three Months Ended June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Rental
$
—

 
$
—

 
$
151,805

 
$
—

 
$
151,805

Tenant recoveries
—

 
—

 
49,594

 
—

 
49,594

Other income
3,509

 
—

 
3,425

 
(4,177
)
 
2,757

Total revenues
3,509

 
—

 
204,824

 
(4,177
)
 
204,156

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Rental operations
—

 
—

 
62,250

 
—

 
62,250

General and administrative
13,223

 
—

 
5,943

 
(4,177
)
 
14,989

Interest
19,867

 
—

 
6,801

 
—

 
26,668

Depreciation and amortization
1,469

 
—

 
60,702

 
—

 
62,171

Impairment of real estate
—

 
—

 
—

 
—

 
—

Loss on early extinguishment of debt
189

 
—

 
—

 
—

 
189

Total expenses
34,748

 
—

 
135,696

 
(4,177
)
 
166,267

 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated joint ventures
—

 
—

 
541

 
—

 
541

Equity in earnings of affiliates
69,406

 
65,246

 
1,270

 
(135,922
)
 
—

Net income
38,167

 
65,246

 
70,939

 
(135,922
)
 
38,430

 
 
 
 
 
 
 
 
 
 
Dividends on preferred stock
(6,246
)
 
—

 
—

 
—

 
(6,246
)
Net income attributable to noncontrolling interests
—

 
—

 
(263
)
 
—

 
(263
)
Net income attributable to unvested restricted stock awards
(630
)
 
—

 
—

 
—

 
(630
)
Net income attributable to Alexandria’s common stockholders
$
31,291

 
$
65,246

 
$
70,676

 
$
(135,922
)
 
$
31,291




34


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Income
for the Three Months Ended June 30, 2014
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Rental
$
—

 
$
—

 
$
134,992

 
$
—

 
$
134,992

Tenant recoveries
—

 
—

 
40,944

 
—

 
40,944

Other income
2,916

 
(1,535
)
 
2,532

 
(3,447
)
 
466

Total revenues
2,916

 
(1,535
)
 
178,468

 
(3,447
)
 
176,402

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Rental operations
—

 
—

 
52,353

 
—

 
52,353

General and administrative
11,506

 
—

 
5,777

 
(3,447
)
 
13,836

Interest
12,493

 
—

 
4,940

 
—

 
17,433

Depreciation and amortization
1,456

 
—

 
55,858

 
—

 
57,314

Total expenses
25,455

 
—

 
118,928

 
(3,447
)
 
140,936

 
 
 
 
 
 
 
 
 
 
Equity in earnings of affiliates
57,355

 
56,302

 
1,081

 
(114,738
)
 
—

Income from continuing operations
34,816

 
54,767

 
60,621

 
(114,738
)
 
35,466

Loss from discontinued operations
(7
)
 
—

 
(140
)
 
—

 
(147
)
Gain on sales of real estate – land parcels
—

 
—

 
797

 
—

 
797

Net income
34,809

 
54,767

 
61,278

 
(114,738
)
 
36,116

 
 
 
 
 
 
 
 
 
 
Dividends on preferred stock
(6,472
)
 
—

 
—

 
—

 
(6,472
)
Net income attributable to noncontrolling interests
—

 
—

 
(1,307
)
 
—

 
(1,307
)
Net income attributable to unvested restricted stock awards
(405
)
 
—

 
—

 
—

 
(405
)
Net income attributable to Alexandria’s common stockholders
$
27,932

 
$
54,767

 
$
59,971

 
$
(114,738
)
 
$
27,932




35


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Income
for the Six Months Ended June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Rental
$
—

 
$
—

 
$
295,413

 
$
—

 
$
295,413

Tenant recoveries
—

 
—

 
97,988

 
—

 
97,988

Other income
6,535

 
(41
)
 
8,989

 
(7,975
)
 
7,508

Total revenues
6,535

 
(41
)
 
402,390

 
(7,975
)
 
400,909

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Rental operations
—

 
—

 
123,473

 
—

 
123,473

General and administrative
25,449

 
—

 
11,902

 
(7,975
)
 
29,376

Interest
37,024

 
—

 
12,880

 
—

 
49,904

Depreciation and amortization
2,716

 
—

 
118,375

 
—

 
121,091

Impairment of real estate
—

 
—

 
14,510

 
—

 
14,510

Loss on early extinguishment of debt
189

 
—

 
—

 
—

 
189

Total expenses
65,378

 
—

 
281,140

 
(7,975
)
 
338,543

 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated joint ventures
—

 
—

 
1,115

 
—

 
1,115

Equity in earnings of affiliates
121,526

 
110,836

 
2,187

 
(234,549
)
 
—

Income from continuing operations
62,683

 
110,795

 
124,552

 
(234,549
)
 
63,481

Loss from discontinued operations
—

 
—

 
(43
)
 
—

 
(43
)
Net income
62,683

 
110,795

 
124,509

 
(234,549
)
 
63,438

 
 
 
 
 
 
 
 
 
 
Dividends on preferred stock
(12,493
)
 
—

 
—

 
—

 
(12,493
)
Net income attributable to noncontrolling interests
—

 
—

 
(755
)
 
—

 
(755
)
Net income attributable to unvested restricted stock awards
(1,113
)
 
—

 
—

 
—

 
(1,113
)
Net income attributable to Alexandria’s common stockholders
$
49,077

 
$
110,795

 
$
123,754

 
$
(234,549
)
 
$
49,077




36


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Income
for the Six Months Ended June 30, 2014
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Rental
$
—

 
$
—

 
$
265,562

 
$
—

 
$
265,562

Tenant recoveries
—

 
—

 
82,626

 
—

 
82,626

Other income
5,835

 
(1,535
)
 
7,165

 
(7,065
)
 
4,400

Total revenues
5,835

 
(1,535
)
 
355,353

 
(7,065
)
 
352,588

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Rental operations
—

 
—

 
104,860

 
—

 
104,860

General and administrative
22,366

 
—

 
11,759

 
(7,065
)
 
27,060

Interest
26,032

 
—

 
10,524

 
—

 
36,556

Depreciation and amortization
2,927

 
—

 
104,808

 
—

 
107,735

Total expenses
51,325

 
—

 
231,951

 
(7,065
)
 
276,211

 
 
 
 
 
 
 
 
 
 
Equity in earnings of affiliates
119,860

 
114,608

 
2,229

 
(236,697
)
 
—

Income from continuing operations
74,370

 
113,073

 
125,631

 
(236,697
)
 
76,377

Loss from discontinued operations
(7
)
 
—

 
(302
)
 
—

 
(309
)
Gain on sales of real estate – land parcels
—

 
—

 
797

 
—

 
797

Net income
74,363

 
113,073

 
126,126

 
(236,697
)
 
76,865

 
 
 
 
 
 
 
 
 
 
Dividends on preferred stock
(12,943
)
 
—

 
—

 
—

 
(12,943
)
Net income attributable to noncontrolling interests
—

 
—

 
(2,502
)
 
—

 
(2,502
)
Net income attributable to unvested restricted stock awards
(779
)
 
—

 
—

 
—

 
(779
)
Net income attributable to Alexandria’s common stockholders
$
60,641

 
$
113,073

 
$
123,624

 
$
(236,697
)
 
$
60,641










37


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Comprehensive Income
for the Three Months Ended June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
38,167

 
$
65,246

 
$
70,939

 
$
(135,922
)
 
$
38,430

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
Unrealized gains on marketable securities:
 
 
 
 
 
 
 
 
 
Unrealized holding gains arising during the period
—

 
76

 
55,325

 
—

 
55,401

Reclassification adjustment for losses included in net income
—

 
—

 
1,362

 
—

 
1,362

Unrealized gains on marketable securities
—

 
76

 
56,687

 
—

 
56,763

 
 
 
 
 
 
 
 
 
 
Unrealized losses on interest rate swap agreements:
 
 
 
 
 
 
 
 
 
Unrealized interest rate swap losses arising during the period
(1,225
)
 
—

 
—

 
—

 
(1,225
)
Reclassification adjustment for amortization of interest income included in net income
710

 
—

 
—

 
—

 
710

Unrealized losses on interest rate swap agreements
(515
)
 
—

 
—

 
—

 
(515
)
 
 
 
 
 
 
 
 
 
 
Unrealized losses on foreign currency translation:
 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation losses during the period
—

 
—

 
(1,507
)
 
—

 
(1,507
)
Reclassification adjustment for losses included in net income
—

 
—

 
—

 
—

 
—

Unrealized losses on foreign currency translation
—

 
—

 
(1,507
)
 
—

 
(1,507
)
 
 
 
 
 
 
 
 
 
 
Total other comprehensive (loss) income
(515
)
 
76

 
55,180

 
—

 
54,741

Comprehensive income
37,652

 
65,322

 
126,119

 
(135,922
)
 
93,171

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
(237
)
 
—

 
(237
)
Comprehensive income attributable to Alexandria’s common stockholders
$
37,652

 
$
65,322

 
$
125,882

 
$
(135,922
)
 
$
92,934




38


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Comprehensive Income
for the Three Months Ended June 30, 2014
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
34,809

 
$
54,767

 
$
61,278

 
$
(114,738
)
 
$
36,116

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on marketable securities:
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during the period
—

 
310

 
(3,044
)
 
—

 
(2,734
)
Reclassification adjustment for losses included in net income
—

 
—

 
406

 
—

 
406

Unrealized gains (losses) on marketable securities
—

 
310

 
(2,638
)
 
—

 
(2,328
)
 
 
 
 
 
 
 
 
 
 
Unrealized losses on interest rate swap agreements:
 
 
 
 
 
 
 
 
 
Unrealized interest rate swap losses arising during the period
(2,526
)
 
—

 
—

 
—

 
(2,526
)
Reclassification adjustment for amortization of interest expense included in net income
1,123

 
—

 
—

 
—

 
1,123

Unrealized losses on interest rate swap agreements
(1,403
)
 
—

 
—

 
—

 
(1,403
)
 
 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation gains
—

 
—

 
5,915

 
—

 
5,915

 
 
 
 
 
 
 
 
 
 
Total other comprehensive (loss) income
(1,403
)
 
310

 
3,277

 
—

 
2,184

Comprehensive income
33,406

 
55,077

 
64,555

 
(114,738
)
 
38,300

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
(1,307
)
 
—

 
(1,307
)
Comprehensive income attributable to Alexandria’s common stockholders
$
33,406

 
$
55,077

 
$
63,248

 
$
(114,738
)
 
$
36,993



39


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Comprehensive Income
for the Six Months Ended June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
62,683

 
$
110,795

 
$
124,509

 
$
(234,549
)
 
$
63,438

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
Unrealized gains on marketable securities:
 
 
 
 
 
 
 
 
 
Unrealized holding gains arising during the period
—

 
22

 
83,814

 
—

 
83,836

Reclassification adjustment for losses included in net income
—

 
41

 
2,424

 
—

 
2,465

Unrealized gains on marketable securities
—

 
63

 
86,238

 
—

 
86,301

 
 
 
 
 
 
 
 
 
 
Unrealized losses on interest rate swap agreements:
 
 
 
 
 
 
 
 
 
Unrealized interest rate swap losses arising during the period
(4,238
)
 
—

 
—

 
—

 
(4,238
)
Reclassification adjustment for amortization of interest income included in net income
1,215

 
—

 
—

 
—

 
1,215

Unrealized losses on interest rate swap agreements
(3,023
)
 
—

 
—

 
—

 
(3,023
)
 
 
 
 
 
 
 
 
 
 
Unrealized losses on foreign currency translation:
 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation losses during the period
—

 
—

 
(7,778
)
 
—

 
(7,778
)
Reclassification adjustment for losses included in net income
—

 
—

 
9,236

 
—

 
9,236

Unrealized losses on foreign currency translation
—

 
—

 
1,458

 
—

 
1,458

 
 
 
 
 
 
 
 
 
 
Total other comprehensive (loss) income
(3,023
)
 
63

 
87,696

 
—

 
84,736

Comprehensive income
59,660

 
110,858

 
212,205

 
(234,549
)
 
148,174

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
(883
)
 
—

 
(883
)
Comprehensive income attributable to Alexandria’s common stockholders
$
59,660

 
$
110,858

 
$
211,322

 
$
(234,549
)
 
$
147,291




40


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Comprehensive Income
for the Six Months Ended June 30, 2014
(In thousands)
(Unaudited)

 
Alexandria
Real Estate
Equities, Inc.
(Issuer)
 
Alexandria
Real Estate
Equities, L.P.
(Guarantor
Subsidiary)
 
Combined
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
74,363

 
$
113,073

 
$
126,126

 
$
(236,697
)
 
$
76,865

Other comprehensive income:
 
 
 
 
 
 
 
 
 
Unrealized gains on marketable securities:
 
 
 
 
 
 
 
 
 
Unrealized holding gains arising during the year
—

 
310

 
15,735

 
—

 
16,045

Reclassification adjustment for losses included in net income
—

 
—

 
406

 
—

 
406

Unrealized gains on marketable securities
—

 
310

 
16,141

 
—

 
16,451

 
 
 
 
 
 
 
 
 
 
Unrealized gains on interest rate swap agreements:
 
 
 
 
 
 
 
 
 
Unrealized interest rate swap losses arising during the year
(3,914
)
 
—

 
—

 
—

 
(3,914
)
Reclassification adjustment for amortization of interest expense included in net income
4,613

 
—

 
—

 
—

 
4,613

Unrealized gains on interest rate swap agreements
699

 
—

 
—

 
—

 
699

 
 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation gains
—

 
—

 
2,809

 
—

 
2,809

 
 
 
 
 
 
 
 
 
 
Total other comprehensive income
699

 
310

 
18,950

 
—

 
19,959

Comprehensive income
75,062

 
113,383

 
145,076

 
(236,697
)
 
96,824

Less: comprehensive income attributable to noncontrolling interests
—

 
—

 
(2,502
)
 
—

 
(2,502
)
Comprehensive income attributable to Alexandria’s common stockholders
$
75,062

 
$
113,383

 
$
142,574

 
$
(236,697
)
 
$
94,322





41


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Cash Flows
for the Six Months Ended June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria Real
Estate Equities,
Inc. (Issuer)
 
Alexandria Real
Estate Equities,
L.P. (Guarantor
Subsidiary)
 
Combined
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net income
$
62,683

 
$
110,795

 
$
124,509

 
$
(234,549
)
 
$
63,438

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
2,716

 
—

 
118,375

 
—

 
121,091

Loss on early extinguishment of debt
189

 
—

 
—

 
—

 
189

Impairment of real estate
—

 
—

 
14,510

 
—

 
14,510

Equity in earnings from unconsolidated joint ventures
—

 
—

 
(1,115
)
 
—

 
(1,115
)
Distributions of earnings from unconsolidated joint ventures
—

 
—

 
648

 
—

 
648

Amortization of loan fees
3,852

 
—

 
1,871

 
—

 
5,723

Amortization of debt discounts (premiums)
161

 
—

 
(343
)
 
—

 
(182
)
Amortization of acquired below-market leases
—

 
—

 
(1,939
)
 
—

 
(1,939
)
Deferred rent
—

 
—

 
(23,193
)
 
—

 
(23,193
)
Stock compensation expense
7,744

 
—

 
—

 
—

 
7,744

Equity in earnings of affiliates
(121,526
)
 
(110,836
)
 
(2,187
)
 
234,549

 
—

Investment gains
—

 
—

 
(13,710
)
 
—

 
(13,710
)
Investment losses
—

 
41

 
7,836

 
—

 
7,877

Changes in operating assets and liabilities:
 
 
 
 
 
 


 
 
Restricted cash
(7
)
 
—

 
117

 
—

 
110

Tenant receivables
—

 
—

 
1,243

 
—

 
1,243

Deferred leasing costs
—

 
—

 
(24,503
)
 
—

 
(24,503
)
Other assets
(6,208
)
 
—

 
1,287

 
—

 
(4,921
)
Accounts payable, accrued expenses, and tenant security deposits
10,367

 
—

 
(11,977
)
 
—

 
(1,610
)
Net cash (used in) provided by operating activities
(40,029
)
 
—

 
191,429

 
—

 
151,400

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Proceeds from sale of real estate
—

 
—

 
92,455

 
—

 
92,455

Additions to real estate
—

 
—

 
(226,302
)
 
—

 
(226,302
)
Purchase of real estate
—

 
—

 
(137,493
)
 
—

 
(137,493
)
Deposits for investing activities
—

 
—

 
(15,501
)
 
—

 
(15,501
)
Investment in unconsolidated real estate entities
—

 
—

 
(3,182
)
 
—

 
(3,182
)
Investments in subsidiaries
(199,541
)
 
(82,309
)
 
(1,711
)
 
283,561

 
—

Additions to investments
—

 
—

 
(52,738
)
 
—

 
(52,738
)
Sales of investments
—

 
6

 
22,468

 
—

 
22,474

Repayment of notes receivable
—

 
—

 
4,247

 
—

 
4,247

Net cash used in investing activities
$
(199,541
)
 
$
(82,303
)
 
$
(317,757
)
 
$
283,561

 
$
(316,040
)








42


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Cash Flows (continued)
for the Six Months Ended June 30, 2015
(In thousands)
(Unaudited)

 
Alexandria Real
Estate Equities,
Inc. (Issuer)
 
Alexandria Real
Estate Equities,
L.P. (Guarantor
Subsidiary)
 
Combined
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Financing Activities
 
 
 
 
 
 
 
 
 
Borrowings from secured notes payable
$
—

 
$
—

 
$
42,867

 
$
—

 
$
42,867

Repayments of borrowings from secured notes payable
—

 
—

 
(10,075
)
 
—

 
(10,075
)
Borrowings from unsecured senior line of credit
915,000

 
—

 
—

 
—

 
915,000

Repayments of borrowings from unsecured senior line of credit
(595,000
)
 
—

 
—

 
—

 
(595,000
)
Repayments of borrowings from unsecured senior bank term loans
(25,000
)
 
—

 
—

 
—

 
(25,000
)
Transfer to/from parent company
43,457

 
82,240

 
157,864

 
(283,561
)
 
—

Change in restricted cash related to financing activities
—

 
—

 
(1,520
)
 
—

 
(1,520
)
Loan fees
(2,104
)
 
—

 
(1,455
)
 
—

 
(3,559
)
Proceeds from the issuance of common stock
5,052

 
—

 
—

 
—

 
5,052

Dividends on common stock
(106,603
)
 
—

 
—

 
—

 
(106,603
)
Dividends on preferred stock
(12,493
)
 
—

 
—

 
—

 
(12,493
)
Contributions by noncontrolling interests
—

 
—

 
340

 
—

 
340

Distributions to and purchases of noncontrolling interests
—

 
—

 
(61,890
)
 
—

 
(61,890
)
Net cash provided by financing activities
222,309

 
82,240

 
126,131

 
(283,561
)
 
147,119

 
 
 
 
 
 
 
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
—

 
—

 
127

 
—

 
127

 
 
 
 
 
 
 
 
 
 
Net decrease in cash and cash equivalents
(17,261
)
 
(63
)
 
(70
)
 
—

 
(17,394
)
Cash and cash equivalents as of the beginning of period
52,491

 
63

 
33,457

 
—

 
86,011

Cash and cash equivalents as of the end of period
$
35,230

 
$
—

 
$
33,387

 
$
—

 
$
68,617

 
 
 
 
 
 
 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
 
 
 
 
 
Cash paid during the period for interest, net of interest capitalized
$
33,695

 
$
—

 
$
10,637

 
$
—

 
$
44,332

 
 
 
 
 
 
 
 
 
 
Non-Cash Investing Activities
 
 
 
 
 
 
 
 
 
Change in accrued construction
$
—

 
$
—

 
$
(27,469
)
 
$
—

 
$
(27,469
)
Assumption of secured notes payable in connection with purchase of properties
$
—

 
$
—

 
$
(82,000
)
 
$
—

 
$
(82,000
)
 
 
 
 
 
 
 
 
 
 
Non-Cash Financing Activities
 
 
 
 
 
 
 
 
 
Payable for purchase of noncontrolling interest
$
(52,672
)
 
$
—

 
$
—

 
$
—

 
$
(52,672
)

43


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Cash Flows
for the Six Months Ended June 30, 2014
(In thousands)
(Unaudited)

 
Alexandria Real
Estate Equities,
Inc. (Issuer)
 
Alexandria Real
Estate Equities,
L.P. (Guarantor
Subsidiary)
 
Combined
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Operating Activities
 
 
 
 
 
 
 
 
 
Net income
$
74,363

 
$
113,073

 
$
126,126

 
$
(236,697
)
 
$
76,865

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
2,927

 
—

 
104,808

 
—

 
107,735

Gain on sale of land parcel
—

 
—

 
(797
)
 
—

 
(797
)
Amortization of loan fees
3,542

 
—

 
1,762

 
—

 
5,304

Amortization of debt discounts
80

 
—

 
56

 
—

 
136

Amortization of acquired below-market leases
—

 
—

 
(1,434
)
 
—

 
(1,434
)
Deferred rent
—

 
—

 
(24,619
)
 
—

 
(24,619
)
Stock compensation expense
6,304

 
—

 
—

 
—

 
6,304

Equity in earnings of affiliates
(119,860
)
 
(114,608
)
 
(2,229
)
 
236,697

 
—

Investment gains
—

 
—

 
(6,225
)
 
—

 
(6,225
)
Investment losses
—

 
1,535

 
3,705

 
—

 
5,240

Changes in operating assets and liabilities:
 
 
 
 
 
 


 
 
Restricted cash
(9
)
 
—

 
9

 
—

 
—

Tenant receivables
—

 
—

 
(735
)
 
—

 
(735
)
Deferred leasing costs
—

 
—

 
(17,452
)
 
—

 
(17,452
)
Other assets
(4,264
)
 
—

 
(1,652
)
 
—

 
(5,916
)
Accounts payable, accrued expenses, and tenant security deposits
20,850

 
—

 
(20,765
)
 
—

 
85

Net cash (used in) provided by operating activities
(16,067
)
 
—

 
160,558

 
—

 
144,491

 
 
 
 
 
 
 
 
 
 
Investing Activities
 
 
 
 
 
 
 
 
 
Proceeds from sale of properties
—

 
—

 
17,868

 
—

 
17,868

Additions to real estate
—

 
—

 
(210,792
)
 
—

 
(210,792
)
Purchase of real estate
—

 
—

 
(97,785
)
 
—

 
(97,785
)
Change in restricted cash related to construction projects
—

 
—

 
5,650

 
—

 
5,650

Investment in unconsolidated joint venture
—

 
—

 
(1,405
)
 
—

 
(1,405
)
Investments in subsidiaries
(235,931
)
 
(205,546
)
 
(8,095
)
 
449,572

 
—

Additions to investments
—

 
—

 
(25,358
)
 
—

 
(25,358
)
Sales of investments
—

 
—

 
8,794

 
—

 
8,794

Proceeds from repayment of note receivable
—

 
—

 
29,851

 
—

 
29,851

Net cash used in investing activities
$
(235,931
)
 
$
(205,546
)
 
$
(281,272
)
 
$
449,572

 
$
(273,177
)





44


14.
Condensed consolidating financial information (continued)

Condensed Consolidating Statement of Cash Flows (continued)
for the Six Months Ended June 30, 2014
(In thousands)
(Unaudited)

 
Alexandria Real
Estate Equities,
Inc. (Issuer)
 
Alexandria Real
Estate Equities,
L.P. (Guarantor
Subsidiary)
 
Combined
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Financing Activities
 
 
 
 
 
 
 
 
 
Borrowings from secured notes payable
$
—

 
$
—

 
$
77,762

 
$
—

 
$
77,762

Repayments of borrowings from secured notes payable
—

 
—

 
(219,427
)
 
—

 
(219,427
)
Borrowings from unsecured senior line of credit
637,000

 
—

 
—

 
—

 
637,000

Repayments of borrowings from unsecured senior line of credit
(270,000
)
 
—

 
—

 
—

 
(270,000
)
Transfer to/from parent company
103

 
205,546

 
243,923

 
(449,572
)
 
—

Change in restricted cash related to financing activities
—

 
—

 
1,212

 
—

 
1,212

Loan fees
(44
)
 
—

 
(266
)
 
—

 
(310
)
Dividends on common stock
(98,867
)
 
—

 
—

 
—

 
(98,867
)
Dividends on preferred stock
(12,943
)
 
—

 
—

 
—

 
(12,943
)
Contributions by noncontrolling interests
—

 
—

 
19,410

 
—

 
19,410

Distributions to noncontrolling interests
—

 
—

 
(1,983
)
 
—

 
(1,983
)
Net cash provided by financing activities
255,249

 
205,546

 
120,631

 
(449,572
)
 
131,854

 
 
 
 
 
 
 
 
 
 
Effect of foreign exchange rate changes on cash and cash equivalents
—

 
—

 
837

 
—

 
837

 
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
3,251

 
—

 
754

 
—

 
4,005

Cash and cash equivalents as of the beginning of period
14,790

 
—

 
42,906

 
—

 
57,696

Cash and cash equivalents as of the end of period
$
18,041

 
$
—

 
$
43,660

 
$
—

 
$
61,701

 
 
 
 
 
 
 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
 
 
 
 
 
Cash paid during the period for interest, net of interest capitalized
$
22,218

 
$
—

 
$
9,704

 
$
—

 
$
31,922

 
 
 
 
 
 
 
 
 
 
Non-Cash Investing Activities
 
 
 
 
 
 
 
 
 
Change in accrued construction
$
—

 
$
—

 
$
592

 
$
—

 
$
592

Assumption of secured notes payable in connection with purchase of properties
$
—

 
$
—

 
$
(48,329
)
 
$
—

 
$
(48,329
)








45



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain information and statements included in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “forecast,” “guidance,” “projects,” “estimates,” “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” “seeks,” “should,” or “will,” or the negative of these words or similar words, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements involve inherent risks and uncertainties regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, results of operations, and financial position.  A number of important factors could cause actual results to differ materially from those included within or contemplated by the forward-looking statements, including, but not limited to, the following:
 
•
Operating factors such as a failure to operate our business successfully in comparison to market expectations or in comparison to our competitors, our inability to obtain capital when desired or refinance debt maturities when desired, and/or a failure to maintain our status as a REIT for federal tax purposes.
•
Market and industry factors such as adverse developments concerning the science and technology industries and/or our client tenants.
•
Government factors such as any unfavorable effects resulting from federal, state, local, and/or foreign government policies, laws, and/or funding levels.
•
Global factors such as negative economic, political, financial, credit market, and/or banking conditions.
•
Other factors such as climate change, cyber intrusions, and/or changes in laws, regulations, and financial accounting standards.

This list of risks and uncertainties is not exhaustive. Additional information regarding risk factors that may affect us is included under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2014.  Readers of this quarterly report on Form 10-Q should also read our other documents filed publicly with the SEC for further discussion regarding such factors.


46



Overview

We are a Maryland corporation formed in October 1994 that has elected to be taxed as a REIT for federal income tax purposes. We are the largest and leading office REIT uniquely focused on collaborative science and technology campuses in urban innovation clusters with a total market capitalization of $10.7 billion as of June 30, 2015, and an asset base of 31.1 million square feet, including 18.8 million RSF of operating and current value-creation projects, as well as an additional 12.3 million square feet of near-term and future ground-up development projects. Alexandria pioneered this niche in 1994 and has since established a dominant market presence in AAA locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park. Alexandria is known for its high-quality and diverse client tenant base, with approximately 53% of total annualized base rent as of June 30, 2015, generated from investment-grade client tenants – a REIT industry-leading percentage. Alexandria has a longstanding and proven track record of developing Class A assets clustered in urban science and technology campuses that provide its innovative client tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. We believe these advantages result in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.

Our primary business objective is to maximize stockholder value by providing our stockholders with the greatest possible total return and long-term asset value based on a multifaceted platform of internal and external growth. A key element of our strategy is our unique focus on Class A assets clustered in urban campuses. These key urban campus locations are characterized by high barriers to entry for new landlords, and a limited supply of available space. They represent highly desirable locations for tenancy by science and technology entities because of their close proximity to concentrations of specialized skills, knowledge, institutions, and related businesses. Our strategy also includes drawing upon our deep and broad real estate, science, and technology relationships in order to identify and attract new and leading client tenants and to source additional value-creation real estate opportunities.

Executive summary

Our first-in-class team executed another strong quarter of financial and operating results, including the following key highlights:

•
Executed agreement for the sale of a 70% interest in our Class A facility located at 225 Binney Street, Cambridge, MA, to TIAA-CREF for a sale price of $190.1 million at a cash cap rate of 4.5%; we expect to complete the sale in the fourth quarter of 2015;
•
2015 recipient of the NAREIT Investor CARE (Communication and Reporting Excellence) Gold Award by NAREIT as a best-in-class REIT that delivers transparency, quality, and efficient communications and reporting to the investment community;
•
FFO per share - diluted for the three months ended June 30, 2015, of $1.31, up 10.1%, compared to $1.19 for the three months ended June 30, 2014;
•
Same property NOI growth of 0.5% and 4.7% (cash basis) for the three months ended June 30, 2015, as compared to the three months ended June 30, 2014;
•
Rental rate increases of 14.5% and 7.0% (cash basis) for the three months ended June 30, 2015; on lease renewals and re-leasing of space aggregating 783,042 RSF;
•
Executed 1.9 million RSF of leasing during the three months ended June 30, 2015; strong demand and pricing power in our key cluster markets;
•
Executed 1.1 million RSF (included in the 1.9 million RSF above) of leases related to Class A ground-up development space providing further visibility into key near-term multi-year growth drivers; further increasing proportion of total ABR in the future from Class A assets and high-quality tenants; and
•
Common stock dividend for the three months ended June 30, 2015, of $0.77 per common share, up 5 cents, or 7%, over the three months ended June 30, 2014; continuation of strategy to share growth in cash flows from operating activities with our shareholders while also retaining important capital for investment.



47



4.5% Cash cap rate on sale of 70% interest in core real estate asset

•
In July 2015, we executed an agreement for the sale of a 70% interest in our Class A facility located at 225 Binney Street, Cambridge, MA, to TIAA-CREF for a sale price of $190.1 million at a cash cap rate of 4.5%; we expect to complete the sale in the fourth quarter of 2015

2015 Recipient of NAREIT Investor CARE Award

•
2015 recipient of the Investor CARE (Communication and Reporting Excellence) Gold Award by NAREIT as a best-in-class REIT that delivers transparency, quality, and efficient communications and reporting to the investment community

Results

•
FFO attributable to Alexandria’s common stockholders – basic and diluted:
•
$1.31 per share for the three months ended June 30, 2015, up 10.1%, compared to
$1.19 per share for the three months ended June 30, 2014
•
$2.59 per share for the six months ended June 30, 2015, up 9.7%, compared to
$2.36 per share for the six months ended June 30, 2014
•
$93.4 million for the three months ended June 30, 2015, up $8.9 million, or 10.6%, compared to
$84.5 million for the three months ended June 30, 2014
•
$184.8 million for the six months ended June 30, 2015, up $17.2 million, or 10.3%, compared to
$167.6 million for the six months ended June 30, 2014
•
Net income attributable to Alexandria’s common stockholders – diluted:
•
$31.3 million, or $0.44 per share, for the three months ended June 30, 2015, compared to
$27.9 million, or $0.39 per share, for the three months ended June 30, 2014
•
$49.1 million, or $0.69 per share, for the six months ended June 30, 2015, compared to
$60.6 million, or $0.85 per share, for the six months ended June 30, 2014

Core operating metrics

•
Total revenues:
•
$204.2 million for the three months ended June 30, 2015, up $27.8 million, or 15.7%, compared to
$176.4 million for the three months ended June 30, 2014
•
$400.9 million for the six months ended June 30, 2015, up $48.3 million, or 13.7%, compared to
$352.6 million for the six months ended June 30, 2014
•
NOI, including our share of unconsolidated joint ventures:
•
$142.8 million for the three months ended June 30, 2015, up $18.8 million, or 15.1%, compared to
$124.0 million for the three months ended June 30, 2014
•
$279.2 million for the six months ended June 30, 2015, up $31.5 million, or 12.7%, compared to
$247.7 million for the six months ended June 30, 2014
•
Same property NOI growth:
•
0.5% and 4.7% (cash basis) increase for the three months ended June 30, 2015, as compared to the three months ended June 30, 2014
•
1.4% and 6.2% (cash basis) increase for the six months ended June 30, 2015, as compared to the six months ended June 30, 2014
•
Executed leases for 1,915,379 RSF during the three months ended June 30, 2015, the highest quarterly leasing volume in the Company’s history, including:
•
304,326 RSF to Eli Lilly and Company, representing 100% of the recently acquired redevelopment project at 10290 Campus Point Drive in our University Town Center submarket in San Diego
•
300,000 RSF to Stripe, Inc., representing 100% of 510 Townsend Street in our SoMa submarket in San Francisco
•
208,394 RSF to Bristol-Myers Squibb Company, representing 48% of 100 Binney Street in our Cambridge submarket in Greater Boston
•
90,423 RSF to Juno Therapeutics, Inc., representing 31% of 400 Dexter Avenue North in our Lake Union submarket in Seattle

48



•
14.5% and 7.0% (cash basis) rental rate increases on lease renewals and re-leasing of space aggregating 783,042 RSF
•
Executed leases for 2,938,048 RSF during the six months ended June 30, 2015:
•
20.3% and 11.2% (cash basis) rental rate increases on lease renewals and re-leasing of space aggregating 1,272,328 RSF
•
Occupancy at 95.9% for properties in North America as of June 30, 2015
•
Operating margins at 70% for the three months ended June 30, 2015
•
Adjusted EBITDA margins at 65% for the three months ended June 30, 2015

External growth: value-creation projects and acquisitions

Value-creation projects

•
Current development projects underway were on average 88% leased or under negotiation (71% leased and 17% under negotiation)
•
Near-term value-creation projects with estimated commencement of construction during the six months ending December 31, 2015, aggregating 1,097,564 RSF, were on average 100% leased or under negotiation (80% leased and 20% under negotiation)
•
Key value-creation projects placed into service during the three months ended June 30, 2015, include:
•
112,500 RSF to FORUM Pharmaceuticals Inc. at 225 Second Avenue in our Route 128 submarket in Greater Boston
•
51,997 RSF, including 48,990 RSF to the Dana-Farber Cancer Institute, Inc. at 360 Longwood Avenue in our Longwood Medical submarket in Greater Boston
•
Commencements of development project during the three months ended June 30, 2015:
•
287,806 RSF development project at 400 Dexter Avenue North in our Lake Union submarket in Seattle; 64% leased/negotiating (31% leased and 33% under negotiation)
Acquisitions

•
In April 2015, we acquired 505 Brannan Street, a near-term development project in our SoMa submarket. The property is currently entitled for 135,000 RSF, and we are seeking entitlements for an additional 165,000 RSF. The purchase price of the land parcel was $34.0 million.
•
Refer to “Subsequent Events” section below for details on our acquisition of 10290 Campus Point Drive in our University Town Center submarket

Balance sheet

•
$10.7 billion total market capitalization as of June 30, 2015
•
12% of gross investment in real estate in value-creation pipeline (50% of pipeline undergoing construction)
•
7.5 times net debt to Adjusted EBITDA – second quarter of 2015 annualized; the 2015 target range from 6.5 times to 7.5 times, with goal of less than 7.0 times by the fourth quarter of 2015
•
3.4 times fixed-charge coverage ratio – second quarter of 2015 annualized
•
In June 2015, we completed a partial principal repayment of $25.0 million, extended the maturity date of the remaining $350 million unsecured senior bank term loan from 2016 to 2021, and reduced pricing to LIBOR+1.10% from LIBOR+1.20%
•
In June 2015, we exercised the first of two, one-year extensions on a $47.2 million secured construction loan, which extended the maturity date from July 1, 2015, to July 1, 2016
•
Limited debt maturities through 2018; well-laddered maturity profile
•
Executed additional interest rate swap agreements in April, June, and July 2015, with an aggregate notional amount of $550 million, to increase notional hedged variable-rate debt to a minimum of $800 million and $350 million during 2016 and 2017, respectively
•
22% unhedged variable-rate debt as a percentage of total debt as of June 30, 2015, with goal of less than 15% by December 31, 2015


49



LEED statistics

•
51 LEED projects, including 35 LEED certified projects aggregating 5.4 million RSF and 16 additional LEED projects in process aggregating 3.3 million square feet
•
55% of our total annualized base rent will be generated from LEED projects upon completion of our in-process projects

Subsequent events

•
In July 2015, we commenced development of a 431,483 RSF value-creation project at 100 Binney Street in our Cambridge submarket; 98% leased/negotiating, including 48% leased to Bristol-Myers Squibb Company.
•
In July 2015, we acquired 10290 Campus Point Drive, a property aggregating 304,326 RSF. This highly strategic acquisition is located adjacent to our uniquely positioned life science campus at the Alexandria Center® for Life Science at Campus Pointe with high-quality on-site amenities in the heart of our University Town Center submarket. The acquired property is 100% leased to the previous owner through September 30, 2015. In June 2015, we leased the entire 304,326 RSF to Eli Lilly and Company for 15.5 years. In October 2015, we expect to commence conversion of the space into Class A office/laboratory space through redevelopment. Upon completion of this redevelopment project, Eli Lilly and Company will relocate its existing presence at 10300 Campus Point Drive of 125,409 RSF and the previously announced 106,173 RSF expansion, into our recently acquired 10290 Campus Point Drive. These changes resulted in a net increase of 72,744 RSF leased to Eli Lilly and Company at the campus. Our campus will ultimately contain an aggregate of 1,046,472 RSF, including 292,387 RSF of capacity for future ground-up development.


50



Operating summary

Core operations

The following table presents information regarding our asset base as of June 30, 2015, and December 31, 2014:
 
June 30, 2015
 
December 31, 2014
(Rentable square feet)
 
 
 
Operating properties
16,822,194

 
16,727,985

Development properties
1,995,729

 
1,857,520

Redevelopment properties
—

 
143,777

RSF of total properties
18,817,923

 
18,729,282

 
 
 
 
Number of properties
194

 
193

Occupancy in North America at period-end – operating
95.9
%
 
97.0
%
Occupancy in North America at period-end – operating and redevelopment
95.9
%
 
96.1
%
Annualized base rent per occupied RSF at period-end
$
38.70

 
$
37.23


Leasing

•
Executed a total of 132 leases, with a weighted-average lease term of 9.1 years, for 2,938,048 RSF, including 1,513,159 RSF related to our development or redevelopment projects during the six months ended June 30, 2015.
•
Achieved rental rate increases for renewed/re-leased space of 20.3% and 11.2% (cash basis) on 1,272,328 RSF during the six months ended June 30, 2015.
•
Occupancy rate for operating properties in North America of 95.9% as of June 30, 2015.

Approximately 67% of the 132 leases executed during the six months ended June 30, 2015, did not include concessions for free rent. Tenant concessions/free rent averaged approximately 2.6 months with respect to the 2,938,048 RSF leased during the six months ended June 30, 2015.


51



The following table summarizes our leasing activity at our properties:
 
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
 
Year Ended
December 31, 2014
 
 
Including
Straight-line Rent
 
Cash Basis
 
Including
Straight-line Rent
 
Cash Basis
 
Including
Straight-line Rent
 
Cash Basis
(Dollars are per RSF)
 
 
 
 
 
 
 
 
 
 
 
 
Leasing activity:
 
 
 
 
 
 
 
 
 
 
 
 
Renewed/re-leased space (1)
 
 

 
 

 
 

 
 

 
 

 
 

Rental rate changes
 
14.5%

 
7.0%

 
20.3%

 
11.2%

 
13.3%

 
5.4%

New rates
 
$
36.35

 
$
36.57

 
$
36.60

 
$
36.99

 
$
40.32

 
$
40.73

Expiring rates
 
$
31.76

 
$
34.17

 
$
30.42

 
$
33.25

 
$
35.60

 
$
38.63

Rentable square footage
 
783,042

 
 
 
1,272,328

 
 
 
1,447,516

 
 
Number of leases
 
57

 
 
 
92

 
 
 
124

 
 
Tenant improvements/leasing commissions per square foot
 
$
7.95

 
 
 
$
9.59

 
 
 
$
10.49

 
 
Average lease terms
 
5.1 years

 
 
 
4.7 years

 
 
 
3.5 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed/redeveloped/previously vacant space leased
 
 
 
 
 
 
 
 
 
 
 
 
New rates
 
$
61.07

 
$
54.55

 
$
56.85

 
$
50.90

 
$
40.62

 
$
36.50

Rentable square footage
 
1,132,337

 
 
 
1,665,720

 
 
 
1,321,317

 
 
Number of leases
 
23

 
 
 
40

 
 
 
66

 
 
Tenant improvements/leasing commissions per square foot
 
$
15.20

 
 
 
$
16.47

 
 
 
$
14.96

 
 
Average lease terms
 
12.5 years

 
 
 
12.4 years

 
 
 
11.5 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing activity summary (totals):
 
 
 
 
 
 
 
 
 
 
 
 
New rates
 
$
50.97

 
$
47.20

 
$
48.08

 
$
44.88

 
$
40.46

 
$
38.71

Rentable square footage
 
1,915,379

 
 
 
2,938,048

(2) 
 
 
2,768,833

 
 
Number of leases
 
80

 
 
 
132

 
 
 
190

 
 
Tenant improvements/leasing commissions per square foot
 
$
12.24

 
 
 
$
13.49

 
 
 
$
12.62

 
 
Average lease terms
 
9.5 years

 
 
 
9.1 years

 
 
 
7.3 years

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease expirations (1)
 
 
 
 
 
 
 
 
 
 
 
 
Expiring rates
 
$
30.06

 
$
31.77

 
$
29.39

 
$
31.88

 
$
33.09

 
$
35.79

Rentable square footage
 
1,010,951

 
 
 
1,627,479

 
 
 
1,733,614

 
 
Number of leases
 
69

 
 
 
116

 
 
 
151

 
 

(1)
Excludes 20 month-to-month leases for 32,498 RSF and 43,672 RSF as of June 30, 2015, and December 31, 2014, respectively.
(2)
During the six months ended June 30, 2015, we granted tenant concessions/free rent averaging 2.6 months with respect to the 2,938,048 RSF leased.


52



Summary of lease expirations
    
The following table summarizes information with respect to the lease expirations at our properties as of June 30, 2015:
Year of Lease Expiration
 
Number of Leases Expiring
 
RSF of Expiring Leases
 
Percentage of
Aggregate Total RSF
 
ABR of
Expiring Leases (per RSF)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
33

(1) 
 
 
466,006

(1) 
 
 
2.8
%
 
 
 
$
27.79

 
2016
 
 
88

 
 
 
1,382,244

 
 
 
8.2
%
 
 
 
$
31.59

 
2017
 
 
84

 
 
 
1,542,984

 
 
 
9.2
%
 
 
 
$
27.46

 
2018
 
 
82

 
 
 
1,742,989

 
 
 
10.4
%
 
 
 
$
39.06

 
2019
 
 
62

 
 
 
1,345,086

 
 
 
8.0
%
 
 
 
$
35.77

 
2020
 
 
57

 
 
 
1,482,844

 
 
 
8.8
%
 
 
 
$
36.35

 
2021
 
 
39

 
 
 
1,306,329

 
 
 
7.8
%
 
 
 
$
38.84

 
2022
 
 
26

 
 
 
896,973

 
 
 
5.3
%
 
 
 
$
34.31

 
2023
 
 
22

 
 
 
1,188,496

 
 
 
7.1
%
 
 
 
$
37.63

 
2024
 
 
15

 
 
 
794,391

 
 
 
4.7
%
 
 
 
$
45.09

 
Thereafter
 
 
44

 
 
 
3,498,160

 
 
 
20.8
%
 
 
 
$
47.88

 

(1)
Excludes 20 month-to-month leases for 32,498 RSF.

The following tables present information by market with respect to our lease expirations as of June 30, 2015, for the remainder of 2015 and all of 2016:
 
 
2015 RSF of Expiring Leases
 
ABR of
Expiring Leases
(per RSF)
 
 
Leased
 
Negotiating/
Anticipating
 
Targeted for
Redevelopment
 
Remaining
Expiring Leases
 
Total (1)
 
Market
 
 
 
 
 
 
Greater Boston
 
14,460

 
8,023

 
—

 
32,211

 
54,694

 
$
40.18

San Francisco
 
114,769

 
8,878

 
—

 
—

 
123,647

 
38.06

New York City
 
—

 
—

 
—

 
9,727

 
9,727

 
 N/A

San Diego
 
—

 
—

 
182,611

(2) 
1,000

 
183,611

 
15.77

Seattle
 
—

 
—

 
—

 
39,578

 
39,578

 
22.93

Maryland
 
17,369

 
—

 
—

 
24,939

 
42,308

 
11.24

Research Triangle Park
 
4,575

 
—

 
—

 
443

 
5,018

 
N/A

Non-cluster markets
 
—

 
—

 
—

 
5,647

 
5,647

 
 N/A

Asia
 
—

 
—

 
—

 
1,776

 
1,776

 
16.20

Total
 
151,173

 
16,901

 
182,611

 
115,321

 
466,006

 
$
27.79

Percentage of expiring leases
 
32
%
 
4
%
 
39
%
 
25
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 RSF of Expiring Leases
 
ABR of
Expiring Leases
(per RSF)
 
 
Leased
 
Negotiating/
Anticipating
 
Targeted for
Redevelopment
 
Remaining
Expiring Leases
 
Total
 
Market
 
 
 
 
 
 
Greater Boston
 
34,676

 
62,073

 
—

 
129,002

 
225,751

 
$
44.66

San Francisco
 
6,233

 
13,589

 
—

 
143,320

 
163,142

 
30.69

New York City
 
—

 
—

 
—

 
5,447

 
5,447

 
 N/A

San Diego
 
—

 
—

 
—

 
525,658

(3) 
525,658

 
32.86

Seattle
 
2,468

 
—

 
—

 
44,188

 
46,656

 
34.33

Maryland
 
12,103

 
4,457

 
—

 
106,403

 
122,963

 
26.73

Research Triangle Park
 
32,008

 
—

 
—

 
110,336

 
142,344

 
23.15

Canada
 
60,917

 
—

 
—

 
—

 
60,917

 
24.35

Non-cluster markets
 
—

 
—

 
—

 
3,854

 
3,854

 
 N/A

Asia
 
—

 
81,170

 
—

 
4,342

 
85,512

 
16.48

Total
 
148,405

 
161,289

 
—

 
1,072,550

 
1,382,244

 
$
31.59

Percentage of expiring leases
 
11
%
 
12
%
 
—
%
 
77
%
 
100
%
 

 

(1)
Excludes 20 month-to-month leases for 32,498 RSF.
(2)
Comprises 133,731 RSF at 9625 Towne Centre Drive and 48,880 RSF at 10151 Barnes Canyon Road, which were acquired with the intent to redevelop them into tech office spaces in the third quarter of 2015 and the fourth quarter of 2015, respectively, upon expiration of the acquired in-place leases.
(3)
Includes 125,409 RSF leased to Eli Lilly and Company at 10300 Campus Point Drive with a contractual expiration in the fourth quarter of 2016. This tenant will relocate and expand into 304,326 RSF at our recently acquired redevelopment project at 10290 Campus Point Drive.

53



Location of properties

The locations of our properties are diversified among a number of science and technology cluster markets. The following table sets forth, as of June 30, 2015, the total RSF, number of properties, and annualized base rent of our properties in each of our existing markets (dollars in thousands):
 
 
RSF
 
Number of Properties
 
Annualized Base Rent
 
ABR
Market
 
Operating
 
Development
 
Total
 
% Total
 
 
 
per RSF (1)
Greater Boston
 
4,483,924

 
734,385

 
5,218,309

 
28
%
 
42

 
$
214,065

 
36
%
 
$
49.50

San Francisco
 
2,712,903

 
422,980

 
3,135,883

 
17

 
27

 
116,944

 
19

 
43.11

New York City
 
682,427

 
130,402

 
812,829

 
4

 
4

 
52,963

 
9

 
77.92

San Diego
 
3,197,821

 
358,609

 
3,556,430

 
19

 
49

 
100,950

 
17

 
33.41

Seattle
 
746,260

 
287,806

 
1,034,066

 
5

 
11

 
30,305

 
5

 
42.32

Maryland
 
2,156,196

 
—

 
2,156,196

 
11

 
29

 
49,257

 
8

 
24.40

Research Triangle Park
 
980,763

 
61,547

 
1,042,310

 
6

 
15

 
19,332

 
3

 
21.65

Canada
 
322,967

 
—

 
322,967

 
2

 
4

 
8,156

 
1

 
25.43

Non-cluster markets
 
105,033

 
—

 
105,033

 
1

 
3

 
1,347

 
—

 
18.87

North America
 
15,388,294

 
1,995,729

 
17,384,023

 
93

 
184

 
593,319

 
98

 
40.20

Asia
 
1,199,714

 
—

 
1,199,714

 
6

 
8

 
6,863

 
1

 
9.66

Subtotal
 
16,588,008

 
1,995,729

 
18,583,737

 
99

 
192

 
600,182

 
99

 
38.80

Properties “held for sale” (2)
 
234,186

 
—

 
234,186

 
1

 
2

 
6,668

 
1

 
31.72

Total
 
16,822,194

 
1,995,729

 
18,817,923

 
100
%
 
194

 
$
606,850

 
100
%
 
$
38.70


(1)
Represents ABR per occupied RSF as of June 30, 2015.
(2)
Refer to Note 12 – “Assets Classified as Held-for-Sale” for additional information regarding properties classified as “held for sale” as of June 30, 2015.
ABR from Class A Assets in AAA Locations
75%
of ARE’s
Total ABR


Summary of occupancy percentages in North America

The following table sets forth the occupancy percentages for our operating assets and our assets under redevelopment in each of our North America markets as of the following dates:
 
 
Operating Properties
 
Operating and Redevelopment Properties
Market
 
6/30/15
 
3/31/15
 
6/30/14
 
6/30/15 (1)
 
3/31/15
 
6/30/14
Greater Boston
 
96.5
%
(2) 
98.9
%
 
98.5
%
 
96.5
%

96.4
%
 
95.5
%
San Francisco
 
100.0

 
98.5

 
98.4

 
100.0

 
98.5

 
98.4

New York City
 
99.6

 
99.5

 
98.4

 
99.6

 
99.5

 
98.4

San Diego
 
94.5

 
94.9

 
97.2

 
94.5

 
93.9

 
94.4

Seattle
 
96.0

 
96.2

 
93.3

 
96.0

 
96.2

 
93.3

Maryland
 
93.6

 
93.2

 
92.7

 
93.6

 
93.2

 
92.7

Research Triangle Park
 
91.0

(3) 
98.8

 
99.5

 
91.0

 
98.8

 
99.5

Subtotal
 
96.0

(4) 
97.0

 
97.1

 
96.0

 
96.1

 
95.7

Canada
 
99.3

 
99.0

 
97.6

 
99.3

 
99.0

 
97.6

Non-cluster markets
 
68.0

 
68.0

 
74.9

 
68.0

 
68.0

 
74.9

North America
 
95.9
%
(4) 
96.8
%
 
96.9
%
 
95.9
%
 
95.9
%
 
95.6
%
 
(1)
There were no properties undergoing redevelopment as of June 30, 2015.
(2)
Consistent with our prior disclosures, the decline from March 31, 2015, is primarily driven by a 128,325 RSF full-building lease that expired at 19 Presidential Way in our Route 128 submarket. We are in the process of marketing the property for multi-tenancy office/laboratory use.
(3)
Consistent with our prior disclosures, the decline from March 31, 2015, is primarily driven by an 81,580 RSF full-building lease that expired at 2525 East NC Highway 54 in our Research Triangle Park market. We are in the process of marketing the property for multi-tenancy office/laboratory use.
(4)
See footnotes 2 and 3 above.


54



Client tenants

Our properties are leased to a high-quality and diverse group of client tenants, with no individual client tenant accounting for more than 5.6% of our annualized base rent. The following table sets forth information regarding leases with our 20 largest client tenants based upon annualized base rent as of June 30, 2015 (dollars in thousands):
 
 
 
 
Remaining Lease Term in Years (1)
 
Aggregate RSF
 
ABR
 
Percentage of Aggregate ABR
 
 
 
 
 
 
 
 
 
 
Investment-Grade Ratings
 
 
Client Tenant
 
 
 
 
 
Fitch
 
Moody’s
 
S&P
1

 
Novartis AG
 
 
2.5

 
 
697,814

 
$
33,890

 
5.6
%
 
AA
 
Aa3
 
AA-
2

 
ARIAD Pharmaceuticals, Inc.
 
 
14.8

 
 
386,111

 
29,994

 
4.9

 
—
 
—
 
—
3

 
Illumina, Inc.
 
 
14.7

 
 
595,886

 
25,452

 
4.2

 
—
 
—
 
BBB
4

 
New York University
 
 
15.3

 
 
209,224

 
19,897

 
3.3

 
—
 
Aa3
 
AA-
5

 
Roche
 
 
5.2

 
 
343,472

 
16,490

 
2.7

 
AA
 
A1
 
AA
6

 
Eli Lilly and Company
 
 
7.1

 
 
257,119

 
16,144

 
2.7

 
A
 
A2
 
AA-
7

 
Dana-Farber Cancer Institute, Inc.
 
 
15.0

 
 
203,090

 
15,038

 
2.5

 
—
 
A1
 
—
8

 
United States Government
 
 
9.9

 
 
263,147

 
14,769

 
2.4

 
 AAA
 
 Aaa
 
 AA+
9

 
Amgen Inc.
 
 
8.3

 
 
401,623

 
14,278

 
2.4

 
BBB
 
Baa1
 
A
10

 
FibroGen, Inc.
 
 
8.4

 
 
234,249

 
14,278

 
2.4

 
—
 
—
 
—
11

 
Biogen Inc.
 
 
12.9

 
 
313,872

 
13,735

 
2.3

 
—
 
Baa1
 
 A-
12

 
Massachusetts Institute of Technology
 
 
4.4

 
 
208,274

 
10,971

 
1.8

 
—
 
Aaa
 
AAA
13

 
The Regents of the University of California
 
 
8.3

 
 
230,633

 
10,354

 
1.7

 
AA
 
Aa2
 
AA
14

 
Bristol-Myers Squibb Company
 
 
3.7

 
 
251,316

 
10,175

 
1.7

 
A-
 
A2
 
A+
15

 
Celgene Corporation
 
 
6.1

 
 
273,086

 
10,093

 
1.7

 
—
 
Baa1
 
BBB+
16

 
The Scripps Research Institute
 
 
2.6

 
 
218,031

 
10,023

 
1.7

 
AA-
 
Aa3
 
—
17

 
GlaxoSmithKline plc
 
 
4.0

 
 
208,394

 
9,571

 
1.6

 
A+
 
A2
 
A+
18

 
Sanofi
 
 
6.1

 
 
179,697

 
8,001

 
1.3

 
AA-
 
A1
 
AA
19

 
Alnylam Pharmaceuticals, Inc.
 
 
6.3

 
 
129,424

 
7,314

 
1.2

 
—
 
—
 
—
20

 
Sumitomo Dainippon Pharma Co., Ltd.
 
 
7.8

 
 
106,232

 
6,441

 
1.1

 
—
 
—
 
—
 
 
Total/weighted-average
 
 
8.9

 
 
5,710,694

 
$
296,908

 
49.2
%
 
 
 
 
 
 

(1)
Based on percentage of aggregate annualized base rent in effect as of June 30, 2015.


The following chart sets forth information regarding client tenant mix by annualized base rent as of June 30, 2015:
 
Investment-Grade
Client Tenants:
53%
of ARE’s
Total ABR
 
 

55



Value-creation projects and external growth

Key real estate metrics
2015 Disciplined Allocation of Capital (1)
 
12% of Gross Investment in Real Estate in Value-Creation Pipeline
 
 
 
 
LEED-Certified Percentage of ABR (2)
 
Pre-Leased (3) Percentage of Ground-Up Developments Since January 1, 2009
 
Single-Tenant

100%
Pre-leased

2.0M RSF

Multi-Tenant

36%
Pre-leased

2.1M RSF


(1)
Includes actual and projected construction and acquisitions for the year ending December 31, 2015. Refer to page 63 and page 64 for additional details.
(2)
Upon completion of our in-process LEED certification projects.
(3)
Represents average pre-leased percentage at the time development commenced.

56



Investments in real estate

Our investments in real estate consisted of the following as of June 30, 2015 (dollars in thousands, except per square foot amounts):
 
 
Investments in Real Estate
 
 
 
 
 
 
 
 
 
 
Consolidated
 
ARE
Share of Unconsolidated Joint Ventures (1)
 
Total
 
Square Feet
 
 
 
 
 
 
 
 
 
Unconsolidated Joint Ventures
 
 
 
Per SF (2)

 
Page
 
 
Amount
 
%
 
Consolidated
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental properties
$
7,608,220

 
$
57,254

 
$
7,665,474

 
88
%
 
16,612,566

 
209,628

 
16,822,194

 
$
463

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current value-creation projects/
Construction in progress (CIP):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current development projects

409,619

 
105,870

 
515,489

 
6
%
 
1,368,841

 
626,888

 
1,995,729

 
341

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental properties and current value-creation projects
 
8,017,839

 
163,124

 
8,180,963

 
 
 
17,981,407

 
836,516

 
18,817,923

 
450

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Near-term value-creation projects (CIP)
246,111

 
—

 
246,111

 
3
%
 
2,026,669

 
—

 
2,026,669

 
121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Future value-creation projects:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
183,984

 
—

 
183,984

 
2
%
 
3,807,375

 
—

 
3,807,375

 
48

Asia
78,911

 
—

 
78,911

 
1
%
 
6,419,707

 
—

 
6,419,707

 
12

 
 
262,895

 
—

 
262,895

 
 
 
10,227,082

 
—

 
10,227,082

 
26

Near-term and future value-creation projects
 
509,006

 
—

 
509,006

 
 
 
12,253,751

 
—

 
12,253,751

 
42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Value-creation pipeline
 
918,625

 
105,870

 
1,024,495

 
12
%
 
13,622,592

 
626,888

 
14,249,480

 
84

Gross investments in real estate
 
8,526,845

 
163,124

 
$
8,689,969

 
100
%
 
30,235,158

 
836,516

 
31,071,674

 
$
289

Equity method of accounting – unconsolidated joint ventures
121,055

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
Gross investments in real estate – incl. unconsol. joint ventures
8,647,900

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
Less: accumulated depreciation
 
(1,205,025
)
 
(874
)
 
 
 
 
 
 
 
 
 
 
 
 
Investments in real estate
 
$
7,442,875

 
$
162,250

 
 
 
 
 
 
 
 
 
 
 
 

(1)
We believe the information on our share of investments in unconsolidated joint ventures is useful information for investors as it provides our proportional share of the investments in real estate from all properties. This information also allows investors to estimate the impact of real estate investments at the joint venture level.
(2)
Items that include our share of unconsolidated joint ventures are not calculated directly from amounts shown on this page. The per square foot amount represents the total cost of our rental properties and value-creation projects, including our partners’ share, divided by the total rentable or developable square feet of the respective property.


57



Development, redevelopment, and future value-creation projects

A key component of our business model is our disciplined allocation of capital to Class A development and redevelopment projects located in highly dynamic and collaborative campuses in key coastal gateway cities that inspire science and technology innovation. These projects are focused on providing high-quality, generic, and reusable space to meet the real estate requirements of, and that are reusable by, a wide range of client tenants. During the period of construction, these assets are non-income-producing assets. A significant number of our active development and redevelopment projects are leased and expected to be substantially placed into service in the near term. Upon completion, each value-creation project is expected to generate significant revenues and cash flows. Our development and redevelopment projects are generally in locations that are highly desirable to high-quality science and technology entities, which we believe results in higher occupancy levels, longer lease terms, and higher rental income and returns.

Development projects consist of the ground-up development of generic and reusable facilities. Redevelopment projects consist of the permanent change in use of office, warehouse, and shell space into office/laboratory or tech office space. We generally will not commence new development projects for aboveground construction of Class A office/laboratory or tech office space without first securing significant pre-leasing for such space, except when there is solid market demand for high-quality Class A facilities. Predevelopment activities include entitlements, permitting, design, site work, and other activities preceding commencement of construction of aboveground building improvements. The advancement of predevelopment efforts is focused on reducing the time required to deliver projects to prospective client tenants. These critical activities add significant value for future ground-up development and are required for the vertical construction of buildings. Ultimately, these projects will provide high-quality facilities and are expected to generate significant revenue and cash flows.

Our initial stabilized yield is calculated as the quotient of the estimated amounts of NOI upon stabilization and our investment in the property and excludes the impact of leverage. Our cash rents related to our value-creation projects are expected to increase over time, and our average cash yields are expected, in general, to be greater than our initial stabilized yields (cash basis). Our estimates for initial stabilized yields, initial stabilized yields (cash basis), and total costs at completion represent our initial estimates at the commencement of the project. We expect to update this information upon completion of the project, or sooner if there are significant changes to the expected project yields or costs. Initial stabilized yield reflects rental income, including contractual rent escalations and any rent concessions over the term (s) of the lease(s), calculated on a straight-line basis. Initial stabilized yield (cash basis) reflects cash rents at the stabilization date after initial rental concessions, if any, have elapsed. Average cash yield reflects cash rents, including contractual rent escalations after initial rental concessions have elapsed, calculated on a straight-line basis. The stabilized occupancy date represents the estimated date on which the project is expected to reach occupancy of 95% or greater.


58



Overview of current and near-term value-creation pipeline

A substantial portion of our value-creation pipeline is expected to be placed into service in the near term. The completion of these highly-leased projects is expected to contribute additional operating cash flow and significant growth in NOI and EBITDA. The following table sets forth the expected year in which our current and near-term value-creation development projects are forecasted to contribute incremental NOI:
 
 
 
CIP
Square Feet
 
Total Project
 
Year of NOI Contribution – Forecast
 
 
 
 
Square
Feet
 
Leased
 
Negotiating
 
Leased/Negotiating
 
2015
2016
2017
2018 and Beyond
 
Property – Market/Submarket
 
 
 
 
 
 
 
Current value-creation development projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360 Longwood Avenue – Greater Boston/Longwood Medical
 
203,908

 
413,536

 
63
%
 
—
%
 
63
%
 
 
430 East 29th Street – New York City/Manhattan
 
130,402

 
418,639

 
76

 
22

 
98

 
 
3013/3033 Science Park Road – San Diego/Torrey Pines
 
63,000

 
165,938

 
81

 
—

 
81

 
 
5200 Illumina Way–Bldg 6 – San Diego/University Town Center
 
295,609

 
295,609

 
100

 
—

 
100

 
 
6040 George Watts Hill Drive – Research Triangle Park/RTP
 
61,547

 
61,547

 
100

 
—

 
100

 
 
50/60 Binney Street – Greater Boston/Cambridge
 
530,477

 
530,477

 
50

 
48

 
98

 
 
1455/1515 Third Street – San Francisco/Mission Bay
 
422,980

 
422,980

 
100

 
—

 
100

 
 
400 Dexter Avenue North – Seattle/Lake Union
 
287,806

 
287,806

 
31

 
33

(1) 
64

 
 
Total/weighted-average
 
1,995,729

 
2,596,532

 
71
%
 
17
%
 
88
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subsequent acquisitions of value-creation redevelopment projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10290 Campus Point Drive – San Diego/University Town Center
 
304,326

 
304,326

 
100
%
 
—
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Near-term value-creation development projects (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4796 Executive Drive – San Diego/University Town Center
 
61,755

 
61,755

 
100
%
 
—
%
 
100
%
 
 
100 Binney Street – Greater Boston/Cambridge
 
431,483

 
431,483

 
48

 
50

 
98

 
 
510 Townsend Street – San Francisco/SoMa
 
300,000

 
300,000

 
100

 
—

 
100

 
 
505 Brannan Street – San Francisco/SoMa
 
135,000

 
135,000

 
—

 
—

 
—

 
 
5200 Illumina Way – San Diego/University Town Center
 
386,044

 
386,044

 
—

 
—

 
—

 
 
10300 Campus Point Drive–Bldg 2 – San Diego/University Town Center
 
292,387

 
292,387

 
—

 
—

 
—

 
 
East 29th Street – New York City/Manhattan
 
420,000

 
420,000

 
—

 
—

 
—

(3) 
 
Total/weighted-average
 
2,026,669

 
2,026,669

 
28
%
 
11
%
 
39
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)    Includes expansion for 23,726 RSF currently under lease negotiation with Juno Therapeutics, Inc. Also, includes an option for Juno Therapeutics, Inc. to expand in the project by up to an additional 70,204 RSF.
(2)    Refer to page 53 for RSF targeted for redevelopment.
(3)    We hold an option to ground lease a parcel supporting the future ground-up development of approximately 420,000 SF at the Alexandria Center® for Life Science. We have begun discussions with the City of New York regarding this option and the potential to increase the site density beyond 420,000 SF.


 


59



Current value-creation development projects – consolidated
    
The following table sets forth our consolidated development projects as of June 30, 2015 (dollars in thousands):
 
 
 
 
 
 
 
 
Leased Status
 
Project Start
Date
 
Initial Occupancy Date
 
Stabilized Occupancy Date
 
 
Project RSF
 
Leased
 
Negotiating
 
Total Leased/Negotiating
 
 
 
Property – Market/Submarket
 
In Service
 
CIP
 
Total
 
RSF
 
%
 
RSF
 
%
 
RSF
 
%
 
 
 
Consolidated development projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50/60 Binney Street – Greater Boston/Cambridge
 
—

 
530,477

 
530,477

 
267,277

 
50
%
 
253,103

 
48
%
 
520,380

 
98
%
 
1Q15
 
3Q17
 
2017
430 East 29th Street – New York City/Manhattan
 
288,237

 
130,402

 
418,639

 
318,645

 
76
%
 
90,886

 
22
%
 
409,531

 
98
%
 
4Q12
 
4Q13
 
2015
5200 Illumina Way–Building 6 –
San Diego/University Town Center
 
—

 
295,609

 
295,609

 
295,609

 
100
%
 
—

 
—
%
 
295,609

 
100
%
 
3Q14
 
3Q16
 
2016
3013/3033 Science Park Road – San Diego/Torrey Pines
 
102,938

 
63,000

 
165,938

 
135,002

 
81
%
 
—

 
—
%
 
135,002

 
81
%
 
2Q14
 
4Q14
 
2016
400 Dexter Avenue North – Seattle/Lake Union
 
—

 
287,806

 
287,806

 
90,423

 
31
%
 
93,930

 
33
%
 
184,353

 
64
%
 
2Q15
 
1Q17
 
2018
6040 George Watts Hill Drive –
Research Triangle Park/Research Triangle Park
 
—

 
61,547

 
61,547

 
61,547

 
100
%
 
—

 
—
%
 
61,547

 
100
%
 
4Q14
 
1Q16
 
2016
Consolidated development projects
 
391,175

 
1,368,841

 
1,760,016

 
1,168,503

 
66
%
 
437,919

 
25
%
 
1,606,422

 
91
%
 
 
 
 
 
 

 
 
Investment
 
Unlevered
 
Property – Market/Submarket
 
 
 
Cost to Complete
 
 
 
 
Average Cash
Yield
 
Initial Stabilized Yield
(Cash Basis)
 
Initial Stabilized Yield
 
 
In Service
 
CIP
 
2015
 
Thereafter
 
Total at Completion
 
 
 
 
Consolidated development projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50/60 Binney Street – Greater Boston/Cambridge
 
$
—

 
$
230,895

 
$
68,331

 
$
 TBD

 
$
TBD

 
 TBD
(1) 
 TBD
(1) 
 TBD
(1) 
430 East 29th Street – New York City/Manhattan
 
$
313,574

 
$
122,687

 
$
26,984

 
$
—

 
$
463,245

 
7.1%
 
6.6%
 
6.5%
 
5200 Illumina Way–Building 6 –
San Diego/University Town Center
 
$
—

 
$
19,494

 
$
20,476

 
$
29,930

 
$
69,900

 
8.6%
 
7.0%
 
8.4%
 
3013/3033 Science Park Road – San Diego/Torrey Pines
 
$
53,669

 
$
5,464

 
$
13,366

 
$
32,291

 
$
104,790

 
7.7%
 
7.2%
 
7.1%
 
400 Dexter Avenue North – Seattle/Lake Union
 
$
—

—

$
21,267

 
$
37,465

 
$
 TBD

 
$
 TBD

 
 TBD
(1) 
TBD
(1) 
 TBD
(1) 
6040 George Watts Hill Drive –
Research Triangle Park/Research Triangle Park
 
$
—

 
$
9,812

 
$
14,378

 
$
1,610

 
$
25,800

 
8.1%
 
7.3%
 
8.1%
 
Consolidated development projects
 
$
367,243

 
$
409,619

 
$
181,000

 
$
TBD

 
$
TBD

 
 
 
 
 
 
 

(1)
The design and budget of this project are in process, and the estimated project costs with related yields are expected to be disclosed in the near future.


60



Current value-creation development projects – unconsolidated joint ventures

The following table sets forth our unconsolidated joint venture development projects as of June 30, 2015 (dollars in thousands):
 
 
 
 
 
 
 
 
Leased Status
 
Project Start
Date
 
Initial Occupancy Date
 
Stabilized Occupancy Date
 
 
Project RSF
 
Leased
 
Negotiating
 
Total Leased/Negotiating
 
 
 
Property – Market/Submarket
 
In Service
 
CIP
 
Total
 
RSF
 
%
 
RSF
 
%
 
RSF
 
%
 
 
 
Unconsolidated joint venture development projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360 Longwood Avenue –
Greater Boston/Longwood Medical
 
209,628

 
203,908

 
413,536

 
259,859

 
63
%
 
1,667

 
—
%
 
261,526

 
63
%
 
2Q12
 
3Q14
 
2016
1455/1515 Third Street –
San Francisco/Mission Bay
 
—

 
422,980

 
422,980

 
422,980

 
100
%
 
—

 
—
%
 
422,980

 
100
%
 
3Q14
 
1Q17
 
2017
Total
 
209,628

 
626,888

 
836,516

 
682,839

 
82
%
 
1,667

 
—
%
 
684,506

 
82
%
 
 
 
 
 
 

 
 
Investment
 
 
 
 
 
 
 
 
 
 
 
Cost to Complete
 
 
 
 
Unlevered (1)
 
 
 
 
 
2015
 
Thereafter
 
 
 
 
Average Cash
Yield
 
Initial Stabilized Yield
(Cash Basis)
 
Initial Stabilized Yield
 
Property – Market/Submarket
 
 
Construction
Financing
 
Internal Funding
 
Construction
Financing
 
Internal Funding
 
Total at Completion
 
 
 
 
In Service
 
CIP
 
 
 
 
 
 
 
 
Unconsolidated joint venture development projects (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100% of joint venture: 360 Longwood Avenue –
Greater Boston/Longwood Medical
 
$
153,356

 
$
154,430

 
$
24,336

 
$
—

 
$
17,878

 
$
—

 
$
350,000

 
 
 
 
 
 
 
100% of joint venture: 1455/1515 Third Street –
San Francisco/Mission Bay (3)
 
$
21,150

 
$
110,344

 
$
—

 
$
35,192

 
$
—

 
$
 TBD

 
$
TBD

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ARE share of unconsolidated joint venture development projects (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27.5% of joint venture: 360 Longwood Avenue –
Greater Boston/Longwood Medical
 
$
46,467

 
$
46,852

 
$
6,692

 
$
550

 
$
4,916

 
$
3,488

 
$
108,965

 
8.2%
(3) 
7.3%
(3) 
7.8%
(3) 
51.0% of joint venture: 1455/1515 Third Street –
San Francisco/Mission Bay
 
$
10,787

 
$
59,018

 
$
—

 
$
19,450

 
$
—

 
$
 TBD

 
$
TBD

 
TBD
(4) 
TBD
(4) 
TBD
(4) 
Total ARE share of unconsolidated joint venture
development projects
 
$
57,254

 
$
105,870

 
$
6,692

 
$
20,000

 
$
4,916

 
$
TBD

 
$
TBD

 
 
 
 
 
 
 

(1)
Our projected unlevered initial stabilized yield (cash basis) is based upon our share of the investment in real estate, including costs incurred directly by us outside of the joint venture. Development management fees earned from these development projects have been excluded from our estimate of unlevered yields.
(2)
Refer to pages 69 for additional information regarding our unconsolidated joint ventures.
(3)
The unlevered initial stabilized yields have been updated to reflect rental rates achieved on recently executed leases as well as our expectations for future rental rates for the remaining 152,010 RSF that we are currently marketing.  The yields decreased from previously disclosed estimated yields of 9.3% average cash yield, 8.3% for initial stabilized yield (cash basis), and 8.9% for initial stabilized yield.
(4)
The design and budget of this project are in process, and the estimated project costs with related yields are expected to be disclosed in the near future.


61



Near-term and future value-creation development projects in North America
The following table summarizes the components of the book value and square footage of our near-term and future value-creation development projects in North America as of June 30, 2015 (dollars in thousands, except per square foot amounts):
 
 
 
 
Square Feet
 
 
Property – Market/Submarket
 
Book Value
 
Value-Creation Project
 
Embedded Land (1)
 
Total
 
Cost Per
Square Foot
Near-Term Value-Creation Development Projects –
Land undergoing predevelopment activities (CIP)
 
 
 
 
 
 
 
 
 
 
100 Binney Street – Greater Boston/Cambridge (2)
 
$
140,488

 
431,483

 
—

 
431,483

 
$
326

510 Townsend Street – San Francisco/SoMa
 
61,268

 
300,000

 
—

 
300,000

 
204

505 Brannan Street – San Francisco/SoMa
 
23,195

 
135,000

 
—

 
135,000

 
172

East 29th Street – New York City/Manhattan
 
—

 
—

 
420,000

(3) 
420,000

 
—

5200 Illumina Way – San Diego/University Town Center
 
9,487

 
386,044

 
—

 
386,044

 
25

10300 Campus Point Drive–Bldg 2 – San Diego/University Town Center
 
6,302

 
292,387

(4) 
—

 
292,387

 
22

4796 Executive Drive – San Diego/University Town Center
 
5,371

 
61,755

 
—

 
61,755

 
87

Near-term value-creation development projects
 
246,111

 
1,606,669

 
420,000

 
2,026,669

 
121

 
 
 
 
 
 
 
 
 
 
 
Future Value-Creation Development Projects – Land held for development
 
 
 
 
 
Alexandria Technology Square® – Greater Boston/Cambridge
 
7,721

 
100,000

 
—

 
100,000

 
77

505 Brannan Street Expansion – San Francisco/SoMa
 
11,855

 
165,000

 
—

 
165,000

 
72

Grand Avenue – San Francisco/South San Francisco (5)
 
45,056

 
397,132

 
—

 
397,132

 
113

560 Eccles Avenue – San Francisco/South San Francisco (6)
 
17,655

 
144,000

 
—

 
144,000

 
123

ARE Sunrise – San Diego/Torrey Pines
 
—

 
—

 
133,000

 
133,000

 
—

1150/1165/1166 Eastlake Avenue East – Seattle/Lake Union (7)
 
33,995

 
266,266

 
—

 
266,266

 
128

1818 Fairview Avenue East – Seattle/Lake Union
 
8,381

 
188,490

 
—

 
188,490

 
44

Other
 
59,321

 
1,927,487

 
486,000

 
2,413,487

 
25

Future value-creation development projects
 
183,984

 
3,188,375

 
619,000

 
3,807,375

 
48

 
 
 
 
 
 
 
 
 
 
 
Total near-term and future value-creation development projects in North America
 
$
430,095

 
4,795,044

 
1,039,000

 
5,834,044

 
$
74


(1)
Embedded land generally represents adjacent land acquired in connection with the acquisition of operating properties. As a result, the real estate basis attributable to these land parcels is primarily classified in rental properties.
(2)
Includes infrastructure-related costs consisting of utility access and roads, installation of storm drain systems, infiltration systems, traffic lighting/signals, streets, and sidewalks.
(3)
We hold a right to ground-lease a parcel supporting the future ground-up development of approximately 420,000 SF at the Alexandria Center® for Life Science pursuant to an option under our ground lease. We have begun discussions regarding this option and the potential to increase the site density beyond 420,000 SF.
(4)
In July 2015, we acquired 10290 Campus Point Drive, a property aggregating 304,326 RSF. This highly strategic acquisition is located adjacent to our uniquely positioned life science campus at the Alexandria Center® for Life Science at Campus Pointe with high-quality on-site amenities in the heart of our University Town Center submarket. The acquired property is 100% leased to the previous owner through September 30, 2015. In June 2015, we leased the entire 304,326 RSF to Eli Lilly and Company for 15.5 years. In October 2015, we expect to commence conversion of the space into Class A office/laboratory space through redevelopment. Upon completion of this redevelopment project, Eli Lilly and Company will relocate its existing presence at 10300 Campus Point Drive of 125,409 RSF and the previously announced 106,173 RSF expansion, into our recently acquired 10290 Campus Point Drive. These changes resulted in a net increase of 72,744 RSF leased to Eli Lilly and Company at the campus. Our campus will ultimately contain an aggregate of 1,046,472 RSF, including 292,387 RSF of capacity for future ground-up development.
(5)
Represents two additional land parcels located adjacent to/surrounding the recently developed 249/259/269 East Grand Avenue campus leased to Amgen Inc. in South San Francisco.
(6)
Represents an additional land parcel located nearby our 341/343 Oyster Point Boulevard properties and within walking distance of Roche’s campus in South San Francisco.
(7)
The cost per square foot for 1165 Eastlake Avenue East includes an existing structure that can substantially be incorporated into the development plans.

62



Summary of capital expenditures

The following table summarizes the total projected construction spending for the year ending December 31, 2015, which includes interest, property taxes, insurance, payroll, and other indirect project costs (in thousands):
Projected Construction Spending
 
Six Months Ending December 31, 2015
 
Current value-creation projects:
 
 
 
 
 
 
 
 
Development (consolidated)
 
$
181,000

 
 
 
 
 
Development (unconsolidated joint venture)
 
 
20,000

 
 
 
 
 
Developments/redevelopments recently transferred to rental properties
 
 
60,000

(1) 
 
 
 
Generic laboratory infrastructure/building improvement projects
 
 
40,000

(2) 
 
 
 
 
Current value-creation projects
 
 
 
 
 
301,000
 
 
Near-term value-creation projects
 
 
 
 
 
144,000
 
(3) 
Value-creation projects
 
 
 
 
 
445,000
 
 
 
Non-revenue-enhancing capital expenditures and tenant improvements
 
 
 
 
 
7,000
 
 
Projected construction spending for the six months ending
December 31, 2015 (midpoint)
 
 
 
 
$
452,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Full-Year Construction Spending Guidance
 
 
 
 
Year Ending December 31, 2015
 
Projected construction spending for the six months ending
December 31, 2015 (range)
 
 
 
 
$
402,000

–
502,000

 
Actual construction spending for the six months ended June 30, 2015
 
 
 
 
 
197,672
 
 
Guidance range for the year ending December 31, 2015
 
 
 
 
$
600,000

–
700,000

 

(1)
Includes spending for projects recently placed into service, including 11055/11065/11075 Roselle Street, 4757 Nexus Center Drive, and 1616 Eastlake Avenue East, that may require additional construction prior to occupancy, generally ranging from 15,000 to 30,000 RSF of the project, plus amounts related to 75/125 Binney Street.
(2)
Includes, among others, 3535 General Atomics Court, 9373 Town Center Drive, 5810/5820/6175 Nancy Ridge Drive, 44 Hartwell Avenue, 19 Presidential Way, and 2525 East NC Highway 54.
(3)
See overview of our near-term value-creation projects on pages 59 and 62.



63



Our construction spending for the six months ended June 30, 2015, consisted of the following (in thousands):
Actual Construction Spending
 
Six Months Ended June 30, 2015
Development
 
$
114,678

Redevelopment
 
24,687

Predevelopment
 
20,162

Generic laboratory infrastructure/building improvement projects (1)
 
32,299

Asia
 
5,846

Total construction spending
 
$
197,672


(1)
Includes revenue-enhancing projects and non-revenue-enhancing capital expenditures shown in the table below.

The table below reconciles construction spending on an accrual basis to our additions to properties on a cash basis (in thousands):
Actual Construction Spending
 
Six Months Ended June 30, 2015
Construction spending (accrual basis)
 
$
197,672

Change in accrued construction
 
27,469

Other
 
1,161

Additions to real estate (cash basis)
 
$
226,302


The tables below show the average per RSF of property-related non-revenue-enhancing capital expenditures, tenant improvements, and leasing costs, excluding capital expenditures and tenant improvements that are recoverable from client tenants, revenue-enhancing, or related to properties that have undergone redevelopment (in thousands, except RSF and per RSF amounts):
Non-Revenue-Enhancing Capital Expenditures, Tenant Improvements, and Leasing Costs
 
Six Months Ended June 30, 2015
 
Recent Average
Per RSF (1)
 
Amount
 
RSF
 
Per RSF
 
Non-revenue-enhancing capital expenditures
 
$
5,021

 
15,913,666

 
$
0.32

 
$
0.35

 
 
 
 
 
 
 
 
 
Tenant improvements and leasing costs:
 
 
 
 
 
 
 
 
Re-tenanted space
 
$
4,650

 
316,361

 
$
14.70

 
$
13.40

Renewal space
 
7,554

 
955,967

 
7.90

 
6.69

Total tenant improvements and leasing costs/weighted-average
 
$
12,204

 
1,272,328

 
$
9.59

 
$
8.25


(1)
Represents the average of the years ended December 31, 2011, through December 31, 2014, and the six months ended June 30, 2015, annualized.

Value-creation projects – commencement of development projects in North America

During the six months ended June 30, 2015, we commenced two value-creation ground-up development projects in North America, consisting of our development of (i) a 530,477 RSF project at 50/60 Binney Street in our Cambridge submarket, which is 98% leased or under negotiation, including 267,277 RSF, or 50% of the project, leased to Sanofi, and (ii) a 287,806 RSF project at 400 Dexter Avenue North in our Lake Union submarket, which is currently 31% leased to Juno Therapeutics, Inc., which also has an expansion option to lease an additional 70,204 RSF. Refer to further information under “Current Value-Creation Development Projects – Consolidated” appearing elsewhere in Item 2 of this report.


64




External growth – value-creation development and redevelopment projects placed into service

The following table presents key value-creation development and redevelopment projects placed into service, including our unconsolidated joint ventures, during the six months ended June 30, 2015 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
%
of Project
in Service
 
 
 
 
 
Unlevered
 
 
 
 
RSF in Service
 
 
 
 
 
 
Average
Cash
Yield
 
Initial Stabilized Yield
(Cash Basis)
 
Initial Stabilized Yield
 
 
Date of Latest Placed into Service
 
Placed into Service Prior to 1/1/15
 
2015 Projects Placed into Service
 
Total Placed into Service
 
 
Total Project
 
 
 
Property – Market/Submarket
 
 
 
First Quarter
 
Second Quarter
 
 
 
Leased/
Negotiating
 
Investment
 
 
 
Consolidated development projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75/125 Binney Street – Greater Boston/Cambridge
 
March 2015
 
—

 
388,270

 
—

 
388,270

 
100%
 
99%
 
$
361,000

(1) 
9.3
%
(1) 
 
 
8.4
%
(1) 
 
 
8.3
%
(1) 
430 East 29th Street – New York City/Manhattan
 
April 2015
 
241,417

 
43,209

 
3,611

 
288,237

 
69%
 
98%
 
$
463,245

 
 
7.1
%
(2) 
 
 
6.6
%
(2) 
 
 
6.5
%
(2) 
3013/3033 Science Park Road – San Diego/Torrey Pines
 
February 2015
 
42,047

 
60,891

 
—

 
102,938

 
62%
 
81%
 
$
104,790

 
 
7.7
%
(2) 
 
 
7.2
%
(2) 
 
 
7.1
%
(2) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated joint venture development project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360 Longwood Avenue –
Greater Boston/Longwood Medical
 
June 2015
 
155,524

 
2,107

 
51,997

 
209,628

 
51%
 
63%
 
$
108,965

(3) 
8.2
%
(4) 
 
 
7.3
%
(4) 
 
 
7.8
%
(4) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated redevelopment projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
225 Second Avenue – Greater Boston/Route 128
 
May 2015
 
—

 
—

 
112,500

 
112,500

 
100%
 
100%
 
$
47,172

 
 
9.0
%
(2) 
 
 
8.3
%
(2) 
 
 
8.4
%
(5) 
11055/11065/11075 Roselle Street –
San Diego/Sorrento Valley
 
June 2015
 
23,936

 
—

 
31,277

 
55,213

 
100%
 
75%
 
$
18,193

 
 
8.1
%
(6) 
 
 
7.9
%
(6) 
 
 
8.0
%
(6) 

(1)
Previously disclosed estimated yields were 9.1% average cash yield, 8.0% for initial stabilized yield (cash basis), and 8.2% for initial stabilized yield and cost of completion was $351.4 million. The increase in yields and investment into the project reflect the final terms of our lease with ARIAD Pharmaceuticals, Inc., and excludes an additional $25 per RSF tenant improvement allowance available to the tenant in the future. If the tenant elects to use this allowance, the total cost at completion could increase up to an additional $10 million with an increase in rental income and an estimated 0.1% increase in our initial stabilized yield from 8.3% to 8.4%.
(2)
Consistent with previously disclosed estimated yields.
(3)
Represents only ARE’s investment at completion related to its 27.5% interest in this unconsolidated joint venture. See pages 61 and 69 for additional information.
(4)
The unlevered initial stabilized yields have been updated to reflect rental rates achieved on recently executed leases as well as our expectations for future rental rates for the remaining 152,010 RSF that we are currently marketing.  The yields decreased from previously disclosed estimated yields of 9.3% average cash yield, 8.3% for initial stabilized yield (cash basis), and 8.9% for initial stabilized yield.
(5)
Increased from previously disclosed estimated yield of 8.3% for initial stabilized yield. The increase in the initial stabilized yield and investment into the project reflect the final terms of our lease with the client tenant.
(6)
Increased from previously disclosed estimated yields of 8.0% for average cash yield, 7.8% for initial stabilized yield (cash basis), and 7.9% for initial stabilized yield. The increase in the yields reflects the final project costs.

65



External growth – acquisitions

The following table presents acquisitions completed during the six months ended June 30, 2015, and an acquisition completed in July 2015 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unlevered
Property – Market/Submarket
 
 
 
Date Acquired
 
Number of Properties
 
Gross Purchase Price
 
Loan Assumption
 
 
 
Percentage
 
Average
Cash Yield
 
Initial
Stabilized Yield (Cash)
 
Initial
Stabilized Yield
 
Type
 
 
 
 
 
RSF
 
Leased
 
Negotiating
 
 
 
640 Memorial Drive –
Greater Boston/Cambridge
 
Operating
 
1/21/15
 
1
 
$
176,500

 
$
82,000

(1) 
225,504

 
100.0%
 
—%
 
 
6.8%
 
 
 
6.4%
 
 
 
7.5%
 
Alexandria Technology Square® 
(10% noncontrolling interest) – Greater Boston/Cambridge
 
Operating
 
1/21/15
 
N/A
(2) 
108,250

(2) 
—

 
1,181,635

 
99.5%
 
—%
 
 
6.1%
(3) 
 
 
5.4%
(3) 
 
 
6.1%
(3) 
505 Brannan Street – San Francisco/SoMa
 
Land
 
4/30/15
 
—
 
34,000

 
—

 
300,000

(4) 
—%
 
—%
 
 
TBD
 
 
 
TBD
 
 
 
TBD
 
1818 Fairview Avenue East – Seattle/Lake Union
 
Land
 
5/6/15
 
—
 
8,444

(5) 
—

 
188,490

 
—%
 
—%
 
 
TBD
 
 
 
TBD
 
 
 
TBD
 
 
 
 
 
 
 
1
 
$
327,194

 
$
82,000

 
1,895,629

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subsequent acquisitions of redevelopment project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10290 Campus Point Drive –
San Diego/
University Town Center
 
Redevelopment
 
7/1/15
 
1
 
$
105,000

 
$
—

 
304,326

 
100.0%
 
—%
 
 
TBD
(6) 
 
 
TBD
(6) 
 
 
TBD
(6) 

(1)
Represents a secured note payable with a contractual rate of 3.93% and a maturity date in 2023.
(2)
During the three months ended March 31, 2015, we executed an agreement to purchase the outstanding 10% noncontrolling interest in our 1.2 million RSF flagship campus at Alexandria Technology Square® for $108.3 million. Upon execution of the purchase agreement, we recognized a liability representing the fair value of the aggregate consideration, primarily consisting of the $108.3 million purchase price. The first installment of $54.3 million was paid on April 1, 2015, and the second installment of $54.0 million is due on April 1, 2016. For additional information, refer to Note 11 – “Noncontrolling Interests” to our unaudited consolidated financial statements under Item 1 of this report.
(3)
We believe there is further upside in our projected returns as we anticipate significant rent growth from 81% of the leases contractually ending in the five years following the date of acquisition. Additionally, we believe we can increase our 1.2 million RSF campus by an additional 100,000 RSF and further increase NOI. The campus is currently 100% occupied and subject to a long-term ground lease. After considering the $108.3 million purchase of the outstanding 10% noncontrolling interest in this flagship campus and the anticipated near- and medium-term upside in NOI from rental rate growth and campus expansion, we estimate that we can enhance our unlevered yields on our aggregate investment in the campus over the next five years to 8.5% and 8.1% (cash).
(4)
Ground-up development of a tech office building at 505 Brannan Street. This site is fully entitled under Proposition M for 135,000 RSF, and subject to market conditions, we expect to commence construction on the first phase of the project in the near term. We are also pursuing entitlements for a second phase aggregating 165,000 RSF, which will be built on top of the first phase. We expect to disclose the estimated investment and yields upon commencement of each phase of the ground-up development.
(5)
We acquired this site for future development, and the land parcel is subject to a long-term ground lease. The land parcel is located adjacent to one of our existing campuses in the Lake Union submarket.
(6)
In July 2015, we acquired 10290 Campus Point Drive, a property aggregating 304,326 RSF. This highly strategic acquisition is located adjacent to our uniquely positioned life science campus at the Alexandria Center® for Life Science at Campus Pointe with high-quality on-site amenities in the heart of our University Town Center submarket. The acquired property is 100% leased to the previous owner through September 30, 2015. In June 2015, we leased the entire 304,326 RSF property to Eli Lilly and Company for 15.5 years. In October 2015, we expect to commence conversion of the space into Class A office/laboratory space through redevelopment. Upon completion of this redevelopment project, Eli Lilly and Company will relocate its existing presence at 10300 Campus Point Drive of 125,409 RSF and the previously announced 106,173 RSF expansion, into our recently acquired 10290 Campus Point Drive. These changes resulted in a net increase of 72,744 RSF leased to Eli Lilly and Company at the campus. Our campus will ultimately contain an aggregate of 1,046,472 RSF, including 292,387 RSF of capacity for future ground-up development.

66

Dispositions and other sources of capital

The following table presents real estate asset sales completed during the six months ended June 30, 2015, and pending and projected remainder/asset sales for the balance of 2015 (dollars in thousands):
Property – Market/Submarket
 
Date Sold
 
Number of Operating Properties
 
Square Feet
 
Annual NOI (1)
 
Sales Price (2)
Dispositions completed in the first quarter of 2015
 
 
 
 
 
 
 
 
661 University Avenue – Canada/Toronto
 
January
 
1
 
N/A

 
$
(1,363
)
 
$
54,104
Other
 
January/ March
 
2
 
196,859

 
(595
)
 
 
14,335
Dispositions completed in first quarter of 2015
 
 
 

 

 
$
(1,958
)
 
 
68,439
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dispositions completed in the second quarter of 2015
 
 
 
 
 
 
 
 
 
 
270 Third Street – Greater Boston/Cambridge (3)
 
 
 
 
 
 
 
 
 
 
 
Sales price
 
June
 
—
 
N/A

 
$
—

 
 
43,000
Construction funding assumed by buyer
 
 
 
 
 
 
 
 
 
 
(17,523)
Net proceeds
 
 
 
 
 
 
 
 
 
 
25,477
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pending/targeted asset sales
 
 
 
 
 
 
 
 
 
 
 
 
 
225 Binney Street – Greater Boston/Cambridge
(sale of 70% interest at 4.5% cash cap rate) (4)
 
1
 
305,212

 
$
9,332

(4) 
 
190,110
500 Forbes Boulevard – San Francisco/South San Francisco
1
 
155,685

 
$
5,628

 
 
240,974
to
290,974

Other
 
 
 
 
 
240,000

 
$
8,200

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Completed and pending/targeted asset sales
 
 
 
 
 
 
 
525,000
to
575,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Projected – remainder/asset sales
 
 
TBD

 
TBD

 
 
195,000

to
245,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total dispositions completed and other sources of capital (5)
 
 
 
 
 
 
$
720,000

to
$
820,000


(1)
Annualized using actual results for the quarter ended prior to the date of sale or the second quarter of 2015 for pending/targeted asset sales as of June 30, 2015.
(2)
Represents the sales price for completed dispositions and the estimated sales price for pending/targeted asset sales as of June 30, 2015.
(3)
Represents a residential project under construction totaling 91 units at the Alexandria Center® at Kendall Square. Our projected key sources and uses of capital reflect the savings of $17.5 million in projected construction spending.
(4)
In July 2015, we executed an agreement to sell a 70% interest in our 225 Binney Street property to a high-quality institutional investor for $190.1 million at a 4.5% cash cap rate. We expect to complete the sale in the fourth quarter of 2015. Annual NOI represents a 70% share of annualized second quarter 2015 NOI of $13.3 million (including straight-line rent) for this property. Annualized NOI for the three months ended June 30, 2015, excluding straight-line rent, was $8.7 million.
(5)
We anticipate a portion of dispositions and other sources of capital will come from the sale of equity investments in publicly traded entities. As of June 30, 2015, our $172.6 million of equity investments in publicly traded entities had unrealized gains aggregating $138.7 million.

67



Investments in unconsolidated joint ventures

360 Longwood Avenue

We are currently developing a building aggregating 413,536 RSF in the Longwood Medical submarket of the Greater Boston market through an unconsolidated joint venture. We expect to earn unlevered yields on our share of the gross real estate in the joint venture as follows: (i) an initial stabilized yield of 7.8%, (ii) an initial stabilized yield (cash basis) of 7.3%, and (iii) an average cash yield during the term of the initial leases of 8.2%. Our projected unlevered yields are based upon our share of the investment in real estate of the joint venture at completion of approximately $109.0 million, including costs incurred directly by us outside the joint venture. In addition to these yields, we will receive recurring monthly property management fees thereafter from this project. Construction management and other fees have been excluded from our estimate of unlevered yields. Refer to Note 3 – “Investments in Real Estate.”

1455/1515 Third Street

Alexandria and Uber entered into a joint venture agreement and acquired two land parcels supporting the development of two buildings aggregating 422,980 RSF at 1455/1515 Third Street in the Mission Bay submarket in San Francisco for a total purchase price of $125.0 million. We are in the process of finalizing the design and construction budget with Uber, and we expect to provide the total estimated cost at completion and estimate of yields in the near future. Refer to Note 3 – “Investments in Real Estate.”


68



The following table sets forth the information related to our unconsolidated joint ventures as of June 30, 2015 (dollars in thousands):
Three months ended June 30, 2015
 
 
360 Longwood Avenue
 
1455/1515 Third Street
 
Total ARE
Share
 
 
100%
 
ARE’s 27.5%
Share
 
100%
 
ARE’s 51%
Share
 
Revenue
 
$
4,491

 
$
1,300

(1) 
$
47

 
$
24

 
$
1,324

Rental operations
 
(1,167
)
 
(320
)
 
(142
)
 
(73
)
 
(393
)
Interest
 
(139
)
 
(38
)
 
—

 
—

 
(38
)
Depreciation and amortization
 
(831
)
 
(285
)
 
(132
)
 
(67
)
 
(352
)
Net income (loss)
 
$
2,354

 
$
657

 
$
(227
)
 
$
(116
)
 
$
541

Six months ended June 30, 2015
 
 
360 Longwood Avenue
 
1455/1515 Third Street
 
Total ARE
Share
 
 
100%
 
ARE’s 27.5%
Share
 
100%
 
ARE’s 51%
Share
 
Revenue
 
$
8,476

 
$
2,474

(1) 
$
138

 
$
71

 
$
2,545

Rental operations
 
(2,230
)
 
(615
)
 
(272
)
 
(139
)
 
(754
)
Interest
 
(150
)
 
(42
)
 
—

 
—

 
(42
)
Depreciation and amortization
 
(1,410
)
 
(499
)
 
(264
)
 
(135
)
 
(634
)
Net income (loss)
 
$
4,686

 
$
1,318

 
$
(398
)
 
$
(203
)
 
$
1,115

As of June 30, 2015
 
 
360 Longwood Avenue
 
1455/1515 Third Street
 
Total ARE
   Share (2)
 
 
100%
 
ARE’s 27.5%
Share (2)
 
100%
 
ARE’s 51%
  Share (2)
 
Rental properties
 
$
153,356

 
$
46,467

 
$
21,150

 
$
10,787

 
$
57,254

Construction in progress
 
154,430

 
46,852

 
110,344

 
59,018

 
105,870

Gross investments in real estate
 
307,786

 
93,319

 
131,494

 
69,805

 
163,124

Less: accumulated depreciation
 
(1,919
)
 
(649
)
 
(441
)
 
(225
)
 
(874
)
Investments in real estate
 
305,867

 
92,670

 
131,053

 
69,580

 
162,250

Other assets
 
16,620

 
5,433

 
8,439

 
4,447

 
9,880

Total assets
 
$
322,487

 
$
98,103

 
$
139,492

 
$
74,027

 
$
172,130

 
 
 
 
 
 
 
 
 
 


Secured notes payable
 
$
170,531

(3) 
$
46,896

 
$
—

 
$
—

 
$
46,896

Other liabilities
 
5,407

 
1,487

 
5,279

 
2,692

 
4,179

Total liabilities
 
175,938

 
48,383

 
5,279

 
2,692

 
51,075

Equity
 
146,549

 
49,720

 
134,213

 
71,335

 
121,055

Total liabilities and equity
 
$
322,487

 
$
98,103

 
$
139,492

 
$
74,027

 
$
172,130

 
 
 
 
 
 
 
 
 
 
 
 
 
RSF
 
 
 
RSF
 
 
 
 
Rental properties
 
209,628

 
 
 
—

 
 
 
 
Active development (CIP) (4)
 
203,908

 
 
 
422,980

 
 
 
 
Total
 
413,536

 
 
 
422,980

 
 
 
 

(1)
Includes development and property management fees earned.
(2)
Amounts include costs incurred directly by us outside of the joint ventures. We believe the information on our share of investments in unconsolidated joint ventures is useful information for investors as it provides our proportional share of the investments in real estate from all properties, including our share of the assets and liabilities of our unconsolidated joint ventures. This information also allows investors to estimate the impact of real estate investments and debt financing at the joint venture level.
(3)
Secured construction loan with an aggregate commitment of $213.2 million, which bears interest at LIBOR+3.75%, with a floor of 5.25%. The maturity date of the loan is April 1, 2017, with two, one-year options to extend the stated maturity date to April 1, 2019, subject to certain conditions.
(4)
Refer to page 61 for further detail of our unconsolidated joint venture development projects.

69



Real estate investments in Asia

Our investments in real estate in Asia consisted of the following as of June 30, 2015:
 
Number of Properties
 
ABR
(in thousands)
 
Occupancy Percentage
 
Book Value (1) 
(in thousands)
 
Square Feet
Rental properties in China
2
 
$
1,222

 
53.6
%
 
$
80,618

 
634,328

Rental properties in India
6
 
5,641

 
65.5

 
70,037

 
565,386

Rental properties in Asia
8
 
$
6,863

 
59.2
%
 
150,655

 
1,199,714

 
 
 
 
 
 
 
 
 
 
Land held for future development in India
 
78,911

 
6,419,707

Total investments in real estate in Asia
 
$
229,566

(1) 
7,619,421


(1) Includes cumulative unrealized foreign currency translation losses of approximately $42.4 million as of June 30, 2015.


70



Results of operations

Key operating metrics
Favorable Lease Structure
 
Same Property NOI Increase
 
 
 
Percentage of
triple net leases
96%
 
Percentage of leases
containing annual
rent escalations
94%
 
Percentage of leases
providing for
the recapture of
capital expenditures
94%
 
 
 
 
NOI – Key Driver of NAV Growth
 
Occupancy of Operating Properties
North America (2)
 
 
 
 
 
Rental Rate Increases:
Renewed/Re-leased Space
 
Adjusted EBITDA Margin (1)
 
65%

(1)
Represents the three months ended June 30, 2015, annualized.
(2)
As of the end of each respective period.

71



Same Properties

As a result of changes within our total property portfolio, the financial data presented in the table in “Comparison of the Three Months Ended June 30, 2015, to the Three Months Ended June 30, 2014,” and “Comparison of the Six Months Ended June 30, 2015, to the Six Months Ended June 30, 2014,” show significant changes in revenue and expenses from period to period. In order to supplement an evaluation of our results of operations, we analyze the operating performance for all properties that were operating for the periods presented (“Same Properties”) separate from properties acquired subsequent to the beginning of the earliest period presented, properties currently undergoing development or redevelopment, and corporate entities (legal entities performing general and administrative functions), which are excluded from Same Properties’ results (“Non-Same Properties”). Additionally, rental revenues from lease termination fees, if any, are excluded from the results of Same Properties.

The following table presents information regarding our Same Properties for the three and six months ended June 30, 2015:
 
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
Percentage change in NOI over comparable period from prior year
 
0.5%

 
1.4%
Percentage change in NOI (cash basis) over comparable period from prior year
 
4.7%

 
6.2%

Operating margin
 
70%

 
70%
Number of Same Properties
 
168

 
164

RSF
 
14,156,773

 
13,997,651

Occupancy – current-period average
 
95.7%
 
95.9%
Occupancy – same-period prior-year average
 
95.8%
 
95.6%

The following table reconciles the number of Same Properties to total properties for the six months ended June 30, 2015:
Development – current
 
Properties
50/60 Binney Street
 
2

430 East 29th Street
 
1

5200 Illumina Way – Building 6
 
1

3013/3033 Science Park Road
 
2

400 Dexter Avenue North
 
1

6040 George Watts Hill Drive
 
1

360 Longwood Avenue (unconsol. joint venture)
 
1

1455/1515 Third Street (unconsol. joint venture)
 
2

 
 
11

 
 
 
Development – placed into service after January 1, 2014
 
Properties
269 East Grand Avenue
 
1

499 Illinois Street
 
1

75/125 Binney Street
 
1

 
 
3

 
 
 
Redevelopment – placed into service after January 1, 2014
 
Properties
225 Second Avenue
 
1

11055/1065/11075 Roselle Street
 
3

10121 Barnes Canyon Road
 
1

 
 
5

 
 
 
Summary
 
Properties
Development – current
 
11

Projects placed into service after
January 1, 2014:
 
 
Development
 
3

Redevelopment
 
5

 
 
 
Development – Asia
 
2

 
 
 
Acquisitions after January 1, 2014:
3545 Cray Court
 
1

4025/4031/4045 Sorrento Valley Boulevard
 
3

9625 Towne Centre Drive
 
1

640 Memorial Drive
 
1

 
 
 
Properties “held-for-sale” in current or
preceding periods
 
3

Total properties excluded from Same Properties
 
30

 
 
 
Same Properties
 
164

 
 
 
Total properties for the six months ended
June 30, 2015
 
194

 
 
 

72



Comparison of the three months ended June 30, 2015, to the three months ended June 30, 2014

The following table presents a comparison of the components of NOI for our Same Properties and Non-Same Properties for the three months ended June 30, 2015, compared to the three months ended June 30, 2014, and a reconciliation of NOI to income from continuing operations, the most directly comparable financial measure (dollars in thousands):
 
 
Three Months Ended June 30,
 
 
 
 
 
 
2015
 
2014
 
$ Change
 
% Change
Revenues:
 
 
 
 
 
 
 
 
Rental – Same Properties
 
$
127,800

 
$
127,658

 
$
142

 
0.1
 %
Rental – Non-Same Properties
 
24,005

 
7,334

 
16,671

 
227.3

Total rental
 
151,805

 
134,992

 
16,813

 
12.5

 
 
 
 
 
 
 
 
 
Tenant recoveries – Same Properties
 
43,253

 
39,757

 
3,496

 
8.8

Tenant recoveries – Non-Same Properties
 
6,341

 
1,187

 
5,154

 
434.2

Total tenant recoveries
 
49,594

 
40,944

 
8,650

 
21.1

 
 
 
 
 
 
 
 
 
Other income – Same Properties
 
21

 
234

 
(213
)
 
(91.0
)
Other income – Non-Same Properties
 
2,736

 
232

 
2,504

 
1,079.3

Total other income
 
2,757

 
466

 
2,291

 
491.6

 
 
 
 
 
 
 
 
 
Total revenues – Same Properties
 
171,074

 
167,649

 
3,425

 
2.0

Total revenues – Non-Same Properties
 
33,082

 
8,753

 
24,329

 
278.0

Total revenues
 
204,156

 
176,402

 
27,754

 
15.7

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Rental operations – Same Properties
 
51,759

 
48,961

 
2,798

 
5.7

Rental operations – Non-Same Properties
 
10,491

 
3,392

 
7,099

 
209.3

Total rental operations
 
62,250

 
52,353

 
9,897

 
18.9

 
 
 
 
 
 
 
 
 
Our share of NOI from unconsolidated joint ventures:
 
 
 
 
 
 
 
 
Joint venture NOI – Same Properties
 
—

 
—

 
—

 
—

Joint venture NOI – Non-Same Properties
 
931

 
—

 
931

 
100.0

Our share of NOI from unconsolidated joint ventures
 
931

 
—

 
931

 
100.0

 
 
 
 
 
 
 
 
 
NOI from continuing operations:
 
 
 
 
 
 
 
 
NOI – Same Properties
 
119,315

 
118,688

 
627

 
0.5

NOI – Non-Same Properties
 
23,522

 
5,361

 
18,161

 
338.8

Total NOI from continuing operations
 
142,837

 
124,049

 
18,788

 
15.1

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
 
General and administrative
 
14,989

 
13,836

 
1,153

 
8.3

Interest
 
26,668

 
17,433

 
9,235

 
53.0

Depreciation and amortization
 
62,171

 
57,314

 
4,857

 
8.5

Loss on early extinguishment of debt
 
189

 
—

 
189

 
100.0

 
 
104,017

 
88,583

 
15,434

 
17.4

Less: our share of NOI from unconsolidated joint ventures
 
(931
)
 
—

 
(931
)
 
(100.0
)
Equity in earnings of unconsolidated joint ventures
 
541

 
—

 
541

 
100.0

Income from continuing operations
 
$
38,430

 
$
35,466

 
$
2,964

 
8.4
 %
 
 
 
 
 
 
 
 
 
NOI – Same Properties
 
$
119,315

 
$
118,688

 
$
627

 
0.5
 %
Less: straight-line rent adjustments
 
(3,818
)
 
(8,412
)
 
4,594

 
(54.6
)
NOI (cash basis) – Same Properties
 
$
115,497

 
$
110,276

 
$
5,221

 
4.7
 %


73



Rental revenues

Total rental revenues for the three months ended June 30, 2015, increased by $16.8 million, or 12.5%, to $151.8 million, compared to $135.0 million for the three months ended June 30, 2014. The increase was primarily due to rental revenues from our Non-Same Properties, including highly leased development and redevelopment projects aggregating 1,138,483 RSF that were placed into service subsequent to April 1, 2014, and operating properties aggregating 359,235 RSF that were acquired subsequent to April 1, 2014, and consisted of the following (in thousands):
 
 
Three Months Ended June 30,
 
 
 
 
2015
 
2014
 
Change
Development related
 
$
19,186

 
$
5,359

 
$
13,827

Acquisitions related
 
4,010

 
—

 
4,010

Other
 
809

 
1,975

 
(1,166
)
Rental revenues – Non-Same Properties
 
$
24,005

 
$
7,334

 
$
16,671


In addition, rental revenues from our Same Properties were $127.8 million and $127.7 million for the three months ended June 30, 2015 and 2014, respectively, due to the consistent occupancy of 95.7% and 95.8%, respectively, over the comparable periods.

Tenant recoveries

Tenant recoveries for the three months ended June 30, 2015, increased by $8.7 million, or 21.1%, to $49.6 million, compared to $40.9 million for the three months ended June 30, 2014. This increase is relatively consistent with the increase in our rental operating expenses of $9.9 million, or 18.9%. Same Properties’ tenant recoveries increased by $3.5 million, or 8.8%, primarily as a result of an increase in Same Properties’ rental operating expenses of $2.8 million, or 5.7%. Same Properties’ rental operating expenses increased during the three months ended June 30, 2015, compared to the three months ended June 30, 2014, primarily related to (i) higher property taxes resulting from annual property tax reassessments and (ii) higher utilities due to increases in utility rates for properties in the San Francisco and San Diego markets. Non-Same Properties’ tenant recoveries increased by $5.2 million as a result of a Non-Same Properties’ rental operating expense increase of $7.1 million, primarily related to development and redevelopment projects placed into service subsequent to April 1, 2014, and operating properties acquired subsequent to April 1, 2014, as noted above.

Other income

Other income for the three months ended June 30, 2015 and 2014, consisted of the following (in thousands):
 
 
Three Months Ended June 30,
 
 
 
 
2015
 
2014
 
Change
Management fee income
 
$
257

 
$
916

 
$
(659
)
Interest and other income
 
379

 
911

 
(532
)
Investment income (loss)
 
2,121

 
(1,361
)
 
3,482

Total other income
 
$
2,757

 
$
466

 
$
2,291


Rental operating expenses

Total rental operating expenses for the three months ended June 30, 2015, increased by $9.9 million, or 18.9%, to $62.3 million, compared to $52.4 million for the three months ended June 30, 2014. Approximately $7.1 million of the increase was due to an increase in rental operating expenses from our Non-Same Properties, primarily related to development and redevelopment projects placed into service subsequent to April 1, 2014, and operating properties acquired subsequent to April 1, 2014, as mentioned above. The increase in Same Properties rental operating expenses of $2.8 million was primarily due to higher property taxes and higher utility costs as described in “Tenant Recoveries” above.


74



General and administrative expenses

General and administrative expenses for the three months ended June 30, 2015, increased by $1.2 million, or 8.3%, to $15.0 million, compared to $13.8 million for the three months ended June 30, 2014. General and administrative expenses increased primarily due to growth in both the depth and breadth of our operations in multiple markets. As a percentage of total assets, our general and administrative expenses were consistent at 0.7% and 0.7% for the 12 months ended June 30, 2015 and 2014, respectively.

Interest expense

Interest expense for the three months ended June 30, 2015 and 2014, consisted of the following (in thousands):
 
 
Three Months Ended June 30,
 
 
Component
 
2015
 
2014
 
Change
Secured notes payable
 
$
7,911

 
$
7,087

 
$
824

Unsecured senior notes payable
 
17,406

 
11,241

 
6,165

Unsecured senior line of credit
 
2,651

 
2,698

 
(47
)
Unsecured senior bank term loans
 
3,435

 
3,757

 
(322
)
Interest rate swaps
 
710

 
1,123

 
(413
)
Amortization of loan fees and other interest
 
2,992

 
2,829

 
163

Total interest incurred
 
35,105

 
28,735

 
6,370

Capitalized interest
 
(8,437
)
 
(11,302
)
 
2,865

Total interest expense
 
$
26,668

 
$
17,433

 
$
9,235


Total interest expense increased by $9.2 million during the three months ended June 30, 2015, compared to the three months ended June 30, 2014, primarily as a result of a $6.4 million increase in interest incurred and a $2.9 million decrease in the amount of interest capitalized as a result of our highly leased development and redevelopment projects placed into service subsequent to April 1, 2014, as noted above.

The increase of $6.4 million in total interest incurred was primarily due to an approximate $758.1 million increase in outstanding debt used to fund the construction of our development and redevelopment projects since June 30, 2014. In July 2014, we completed an offering of $700 million of unsecured senior notes payable with a weighted-average interest rate of 3.50% and a maturity of 9.6 years. Proceeds from our July 2014 offering were used to repay $125 million under our unsecured senior bank term loans and to reduce amounts outstanding under our unsecured senior line of credit. Interest from our unsecured senior bank term loans and interest rate swaps decreased by an aggregate $735 thousand, as we continued to transition from variable-rate bank debt to long-term unsecured fixed-rate debt. In addition, interest rate swaps aggregating $200.0 million with rates averaging 5.0% expired on March 31, 2014, which decreased related interest costs.

Depreciation and amortization

Depreciation and amortization for the three months ended June 30, 2015, increased by $4.9 million, or 8.5%, to $62.2 million, compared to $57.3 million for the three months ended June 30, 2014. Depreciation increased primarily due to additional depreciation from development and redevelopment projects placed into service subsequent to April 1, 2014, and operating properties acquired subsequent to April 1, 2014, as noted above.

Loss on early extinguishment of debt

During the three months ended June 30, 2015, we recognized a loss on early extinguishment of debt to expense a portion of unamortized loan fees aggregating $189 thousand upon our $25.0 million partial principal repayment under our unsecured senior bank term loan.


75



Equity in earnings from unconsolidated joint ventures

Equity in earnings of unconsolidated joint ventures of $541 thousand for the three months ended June 30, 2015, primarily includes the operating results of our property at 360 Longwood Avenue in Greater Boston that was placed into service during the three months ended December 31, 2014. As of June 30, 2015, we had 209,628 RSF, or 51% of this property, in service at 100% occupancy and 203,908 RSF, or 49% of this project, under development.

Gain on sales of real estate – land parcels

During the three months ended June 30, 2014, we completed the sale of one parcel of land in our Seattle market, aggregating 150,000 RSF for an aggregate sales price of $19.0 million, and recognized an aggregate gain on sales of $797 thousand. These gains are classified in gain on sales of real estate – land parcels below income from discontinued operations in the accompanying consolidated statements of income.

The land parcels sold did not meet the criteria for classification as discontinued operations since the parcels did not have any significant operations prior to disposition. Pursuant to the presentation and disclosure literature on gains/losses on sales or disposals by REITs required by the SEC, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below income from discontinued operations in the income statement. Accordingly, we classified the gain on sale of land parcel below income from discontinued operations, in the consolidated statements of income, and included the gain in income from continuing operations attributable to Alexandria’s common stockholders in the “control number,” or numerator for the computation of EPS.


76



Comparison of the six months ended June 30, 2015, to the six months ended June 30, 2014

The following table presents a comparison of the components of NOI for our Same Properties and Non-Same Properties for the six months ended June 30, 2015, compared to the six months ended June 30, 2014, and a reconciliation of NOI to income from continuing operations, the most directly comparable financial measure (dollars in thousands):
 
 
Six Months Ended June 30,
 
 
 
 
 
 
2015
 
2014
 
$ Change
 
% Change
Revenues:
 
 
 
 
 
 
 
 
Rental – Same Properties
 
$
251,321

 
$
249,383

 
$
1,938

 
0.8
 %
Rental – Non-Same Properties
 
44,092

 
16,179

 
27,913

 
172.5

Total rental
 
295,413

 
265,562

 
29,851

 
11.2

 
 
 
 
 
 
 
 
 
Tenant recoveries – Same Properties
 
85,937

 
79,889

 
6,048

 
7.6

Tenant recoveries – Non-Same Properties
 
12,051

 
2,737

 
9,314

 
340.3

Total tenant recoveries
 
97,988

 
82,626

 
15,362

 
18.6

 
 
 
 
 
 
 
 
 
Other income – Same Properties
 
33

 
270

 
(237
)
 
(87.8
)
Other income – Non-Same Properties
 
7,475

 
4,130

 
3,345

 
81.0

Total other income
 
7,508

 
4,400

 
3,108

 
70.6

 
 
 
 
 
 
 
 
 
Total revenues – Same Properties
 
337,291

 
329,542

 
7,749

 
2.4

Total revenues – Non-Same Properties
 
63,618

 
23,046

 
40,572

 
176.0

Total revenues
 
400,909

 
352,588

 
48,321

 
13.7

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Rental operations – Same Properties
 
102,902

 
98,402

 
4,500

 
4.6

Rental operations – Non-Same Properties
 
20,571

 
6,458

 
14,113

 
218.5

Total rental operations
 
123,473

 
104,860

 
18,613

 
17.8

 
 
 
 
 
 
 
 
 
Our share of NOI from unconsolidated joint ventures:
 
 
 
 
 
 
 
 
Joint venture NOI – Same Properties
 
—

 
—

 
—

 
—

Joint venture NOI – Non-Same Properties
 
1,791

 
—

 
1,791

 
100.0

Our share of NOI from unconsolidated joint ventures
 
1,791

 
—

 
1,791

 
100.0

 
 
 
 
 
 
 
 
 
NOI from continuing operations:
 
 
 
 
 
 
 
 
NOI – Same Properties
 
234,389

 
231,140

 
3,249

 
1.4

NOI – Non-Same Properties
 
44,838

 
16,588

 
28,250

 
170.3

Total NOI from continuing operations
 
279,227

 
247,728

 
31,499

 
12.7

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
 
General and administrative
 
29,376

 
27,060

 
2,316

 
8.6

Interest
 
49,904

 
36,556

 
13,348

 
36.5

Depreciation and amortization
 
121,091

 
107,735

 
13,356

 
12.4

Impairment of real estate
 
14,510

 
—

 
14,510

 
100.0

Loss on early extinguishment of debt
 
189

 
—

 
189

 
100.0

 
 
215,070

 
171,351

 
43,719

 
25.5

Less: our share of NOI from unconsolidated joint ventures
 
(1,791
)
 
—

 
(1,791
)
 
(100.0
)
Equity in earnings of unconsolidated joint ventures
 
1,115

 
—

 
1,115

 
100.0

Income from continuing operations
 
$
63,481

 
$
76,377

 
$
(12,896
)
 
(16.9
)%
 
 
 
 
 
 
 
 
 
NOI – Same Properties
 
$
234,389

 
$
231,140

 
$
3,249

 
1.4
 %
Less: straight-line rent adjustments
 
(6,559
)
 
(16,643
)
 
10,084

 
(60.6
)
NOI (cash basis) – Same Properties
 
$
227,830

 
$
214,497

 
$
13,333

 
6.2
 %


77



Rental revenues

Total rental revenues for the six months ended June 30, 2015, increased by $29.9 million, or 11.2%, to $295.4 million, compared to $265.6 million for the six months ended June 30, 2014. The increase was primarily due to rental revenues from our Non-Same Properties, including highly leased development and redevelopment projects aggregating 1,138,483 RSF that were placed into service subsequent to January 1, 2014, and operating properties aggregating 518,357 RSF that were acquired subsequent to January 1, 2014, and consisted of the following (in thousands):
 
 
Six Months Ended June 30,
 
 
 
 
2015
 
2014
 
Change
Development related
 
$
30,727

 
$
9,749

 
$
20,978

Acquisitions related
 
10,194

 
2,304

 
7,890

Other
 
3,171

 
4,126

 
(955
)
Rental revenues – Non-Same Properties
 
$
44,092

 
$
16,179

 
$
27,913


In addition, rental revenues from our Same Properties increased to $251.3 million for the six months ended June 30, 2015, compared to $249.4 million for the six months ended June 30, 2014, primarily due to a 30 bps increase in occupancy from 95.6% to 95.9% for these properties over the comparable periods.

Tenant recoveries

Tenant recoveries for the six months ended June 30, 2015, increased by $15.4 million, or 18.6%, to $98.0 million, compared to $82.6 million for the six months ended June 30, 2014. This increase is relatively consistent with the increase in our rental operating expenses of $18.6 million, or 17.8%. Same Properties’ tenant recoveries increased by $6.0 million, or 7.6%, primarily as a result of an increase in Same Properties’ rental operating expenses of $4.5 million, or 4.6%, and the increase in occupancy described above. Same Properties’ rental operating expenses increased during the six months ended June 30, 2015, compared to the six months ended June 30, 2014, primarily related to (i) higher property taxes resulting from annual property tax reassessments, (ii) higher repairs and maintenance, and (iii) higher utility costs. Repairs and maintenance and utility costs increased in 2015 due to an increase in heating and snow removal expenses due to a more severe winter in 2015 and higher utility rates in 2015 for properties in the San Francisco and San Diego markets. Non-Same Properties’ tenant recoveries increased by $9.3 million as a result of a Non-Same Properties’ rental operating expense increase of $14.1 million primarily related to development and redevelopment projects placed into service subsequent to January 1, 2014, and operating properties acquired subsequent to January 1, 2014, as noted above.

Other income

Other income for the six months ended June 30, 2015 and 2014, consisted of the following (in thousands):
 
 
Six Months Ended June 30,
 
 
 
 
2015
 
2014
 
Change
Management fee income
 
$
811

 
$
1,642

 
$
(831
)
Interest and other income
 
864

 
1,773

 
(909
)
Investment income
 
5,833

 
985

 
4,848

Total other income
 
$
7,508

 
$
4,400

 
$
3,108


Rental operating expenses

Total rental operating expenses for the six months ended June 30, 2015, increased by $18.6 million, or 17.8%, to $123.5 million, compared to $104.9 million for the six months ended June 30, 2014. Approximately $14.1 million of the increase was due to an increase in rental operating expenses from our Non-Same Properties, primarily related to development and redevelopment projects placed into service subsequent to January 1, 2014, and operating properties acquired subsequent to January 1, 2014, as mentioned above. The increase in Same Properties rental operating expenses of $4.5 million was primarily due to higher property taxes, higher repairs and maintenance, and higher utility costs, as described in “Tenant Recoveries” above.


78



General and administrative expenses

General and administrative expenses for the six months ended June 30, 2015, increased by $2.3 million, or 8.6%, to $29.4 million, compared to $27.1 million for the six months ended June 30, 2014. General and administrative expenses increased primarily due to growth in both the depth and breadth of our operations in multiple markets. As a percentage of total assets, our general and administrative expenses were consistent at 0.7% and 0.7% for the 12 months ended June 30, 2015 and 2014, respectively.

Interest expense

Interest expense for the six months ended June 30, 2015 and 2014, consisted of the following (in thousands):
 
 
Six Months Ended June 30,
 
 
Component
 
2015
 
2014
 
Change
Secured notes payable
 
$
15,620

 
$
15,058

 
$
562

Unsecured senior notes payable
 
34,811

 
22,481

 
12,330

Unsecured senior line of credit
 
4,724

 
4,737

 
(13
)
Unsecured senior bank term loans
 
6,776

 
7,499

 
(723
)
Interest rate swaps
 
1,215

 
4,613

 
(3,398
)
Amortization of loan fees and other interest
 
6,166

 
5,483

 
683

Total interest incurred
 
69,312

 
59,871

 
9,441

Capitalized interest
 
(19,408
)
 
(23,315
)
 
3,907

Total interest expense
 
$
49,904

 
$
36,556

 
$
13,348


Total interest expense increased by $13.3 million during the six months ended June 30, 2015, compared to the six months ended June 30, 2014, primarily as a result of a $9.4 million increase in interest incurred and a $3.9 million decrease in the amount of interest capitalized as a result of our highly leased development and redevelopment projects placed into service subsequent to January 1, 2014, as noted above.

The increase of $9.4 million in total interest incurred was primarily due to an approximate $758.1 million increase in outstanding debt used to fund the construction of our development and redevelopment projects since June 30, 2014. In July 2014, we completed an offering of $700 million of unsecured senior notes payable with a weighted-average interest rate of 3.50% and a maturity of 9.6 years. Proceeds from our July 2014 offering were used to repay $125 million under our unsecured senior bank term loans and to reduce amounts outstanding under our unsecured senior line of credit. Interest from our unsecured senior bank term loans and interest rate swaps decreased by an aggregate $4.1 million, as we continued to transition from variable-rate bank debt to long-term unsecured fixed-rate debt. In addition, interest rate swaps aggregating $200.0 million with rates averaging 5.0% expired on March 31, 2014, which decreased related interest costs.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2015, increased by $13.4 million, or 12.4%, to $121.1 million, compared to $107.7 million for the six months ended June 30, 2014. Depreciation increased primarily due to additional depreciation from development and redevelopment projects placed into service subsequent to January 1, 2014, and operating properties acquired subsequent to January 1, 2014, as noted above.

Impairment of real estate

In March 2015, we determined that a 175,000 RSF life science building in Hyderabad, India, met the criteria for classification as “held for sale” and consequently recognized an impairment charge of $14.5 million to lower the carrying costs of the real estate to its estimated fair value less cost to sell, including an estimated $4.2 million foreign exchange loss. On March 26, 2015, we completed the sale of the vacant building for $12.4 million. For additional information, refer to the section titled “Sales of Real Estate Assets and Related Impairment Charges” in Note 3 – “Investments in Real Estate” to our accompanying unaudited consolidated financial statements under Item 1 of this report.

79



Loss on early extinguishment of debt

During the six months ended June 30, 2015, we recognized a loss on early extinguishment of debt to expense a portion of unamortized loan fees aggregating $189 thousand upon our $25.0 million partial principal repayment under our unsecured senior bank term loan.

Equity in earnings from unconsolidated joint ventures

Equity in earnings of unconsolidated joint ventures of $1.1 million for the six months ended June 30, 2015, primarily includes the operating results of our property at 360 Longwood Avenue in Greater Boston that was placed into service during the three months ended December 31, 2014. As of June 30, 2015, we had 209,628 RSF, or 51% of this property, in service at 100% occupancy and 203,908 RSF, or 49% of this project, under development.

Gain on sales of real estate – land parcels

During the six months ended June 30, 2014, we completed the sale of one parcel of land in our Seattle market, aggregating 150,000 RSF for an aggregate sales price of $19.0 million, and recognized an aggregate gain on sales of $797 thousand. These gains are classified in gain on sales of real estate – land parcel below income from discontinued operations in the accompanying consolidated statements of income.

The land parcels sold did not meet the criteria for classification as discontinued operations since the parcels did not have any significant operations prior to disposition. Pursuant to the presentation and disclosure literature on gains/losses on sales or disposals by REITs required by the SEC, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below income from discontinued operations in the income statement. Accordingly, we classified the gain on sale of land parcel below income from discontinued operations, in the consolidated statements of income, and included the gain in income from continuing operations attributable to Alexandria’s common stockholders in the “control number,” or numerator for the computation of EPS.


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Projected results

Based on our current view of existing market conditions and certain current assumptions, we have updated guidance for EPS attributable to Alexandria’s common stockholders – diluted and FFO per share attributable to Alexandria’s common stockholders – diluted, each for the year ending December 31, 2015, as set forth in the table below.  The table below provides a reconciliation of FFO per share attributable to Alexandria’s common stockholders – diluted, a non-GAAP measure, to EPS, the most directly comparable GAAP measure, and other key assumptions included in our guidance for the year ending December 31, 2015.
Summary of Key
Changes in Guidance
 
 
Description
FFO per share – diluted
+ $0.02

 
Ÿ
Midpoint of range increased by $0.02 to $5.24, driven by strong leasing activity, and narrowed range from $0.10 to $0.06
 
 
 
 
(in thousands)
 
 
Description
Sources of capital:
Midpoint
 
Ÿ
Increase in income-producing asset sales generates higher proceeds resulting in a reduction in incremental debt. A portion of the incremental proceeds will fund the acquisition of a redevelopment opportunity at 10290 Campus Point Drive.
Incremental debt
$
(75,000
)
 
 
Acquisition (non-cash)
(135,000
)
 
 
Remainder/asset sales
115,000

 
 
Reduction in projected construction spending includes, among other items, approximately $17.5 million of construction funding assumed by the buyer of 270 Third Street (see page 67)
Net decrease in sources of capital
$
(95,000
)
 
Ÿ
 
 
 
 
Uses of capital:
 
 
 
Construction
$
(45,000
)
 
Ÿ
Decrease in acquisitions primarily due to change in timing of non-cash acquisition from 2015 to 2016, offset by purchase in July 2015, of 10290 Campus Point Drive, a 100% pre-leased redevelopment project

Acquisition
(50,000
)
 
 
Decrease in uses of capital
$
(95,000
)
 
 
EPS and FFO Per Share Attributable to Alexandria’s Common Stockholders – Diluted
Earnings per share
 
$1.44 to $1.50
Add: depreciation and amortization
 
3.59
Add: impairment of real estate
 
0.20
Other
 
(0.02)
FFO per share
 
$5.21 to $5.27
Key Assumptions (Dollars in thousands)
 
Low
 
High
Occupancy percentage for operating properties in North America as of December 31, 2015
 
96.9%

 
97.4%

 
 
 
 
 
Same Properties’ performance:
 
 
 
 
NOI increase
 
0.5%

 
2.5%

NOI increase (cash basis)
 
5.0%

 
7.0%

 
 
 
 
 
Lease renewals and re-leasing of space:
 
 
 
 
Rental rate increases
 
14.0%

 
17.0%

Rental rate increases (cash basis)
 
8.0%

 
10.0%

 
 
 
 
 
Straight-line rent revenue
 
$
47,000

 
$
52,000

General and administrative expenses
 
$
55,000

 
$
59,000

Capitalization of interest
 
$
35,000

 
$
45,000

Interest expense
 
$
106,000

 
$
116,000

Key Credit Metrics
 
 
Net debt to Adjusted EBITDA – fourth quarter of 2015 annualized
 
<7.0x
Fixed-charge coverage ratio – fourth quarter of 2015 annualized
 
3.0x to 3.5x
Value-creation pipeline as a percentage of gross investments in real estate as of December 31, 2015
 
10% to 15%

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Key Credit Metrics
Net Debt to Adjusted EBITDA (1)
 
Unencumbered NOI (2)
 
 
 
78%
 
 
Fixed-Charge Coverage Ratio (1)
 
Liquidity
 

(1)
Quarter annualized.
(2)
For the three months ended June 30, 2015.

As of June 30, 2015, we had construction in progress related to our eight development projects in North America. The completion of these projects, along with projects recently placed into service, certain future projects, and operations from Same Properties, is expected to contribute significant increases in rental income, NOI, and cash flows. Operating performance assumptions related to the completion of our development projects in North America, including the timing of initial occupancy, stabilization dates, and initial stabilized yield, are included in the “Value-Creation Projects and External Growth” section in Item 2 of this report. Certain key assumptions regarding our projections, including the impact of various development and redevelopment projects, are included in the “Projected Construction Spending” table in the “Summary of Capital Expenditures” subsection of the “Value-Creation Projects and External Growth” section in Item 2 of this report.


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The completion of our development and redevelopment projects will result in an increase in interest expense and other project costs, because these project costs will no longer qualify for capitalization and these costs will be expensed as incurred. Our projection assumptions for Same Properties’ NOI increase, rental rate increases, straight-line rents, general and administrative expenses, capitalization of interest, interest expense, and key credit metrics are included in the tables and charts above and are subject to a number of variables and uncertainties, including those discussed under the “Forward-Looking Statements” section of Part I, the “Risk Factors” section of Item 1A, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section under Item 7 of our annual report on Form 10-K for the year ended December 31, 2014. To the extent our full-year earnings guidance is updated during the year, we will provide additional disclosure supporting reasons for any significant changes to such guidance.

Liquidity and capital resources

Overview

We expect to meet certain long-term liquidity requirements, such as requirements for development, redevelopment, other construction projects, capital improvements, tenant improvements, property acquisitions, leasing costs, non-revenue-enhancing capital expenditures, and scheduled debt maturities, through net cash provided by operating activities, periodic asset sales, strategic joint venture capital, and long-term secured and unsecured indebtedness, including borrowings under our unsecured senior line of credit, unsecured senior bank term loans, and the issuance of additional debt and/or equity securities.

We expect to continue meeting our short-term liquidity and capital requirements, as further detailed in this section, generally through our working capital and net cash provided by operating activities.  We believe that the net cash provided by operating activities will continue to be sufficient to enable us to make the distributions necessary to continue qualifying as a REIT.

Over the next several years, our balance sheet, capital structure, and liquidity objectives are as follows:

•
Retain positive cash flows from operating activities after payment of dividends for reinvestment in acquisitions and/or development and redevelopment projects;
•
Maintain adequate liquidity from net cash provided by operating activities, cash and cash equivalents, and available borrowing capacity under our unsecured senior line of credit and available commitments under our secured construction loans;
•
Reduce the amount of our unsecured bank debt;
•
Maintain diverse sources of capital, including sources from net cash provided by operating activities, unsecured debt, secured debt, selective asset sales, joint venture capital, preferred stock, and common stock;
•
Manage the amount of debt maturing in a single year;
•
Mitigate unhedged variable-rate debt through the reduction of short-term and medium-term variable-rate bank debt;
•
Maintain a large unencumbered asset pool to provide financial flexibility;
•
Fund preferred stock and common stock dividends from net cash provided by operating activities;
•
Manage a disciplined level of value-creation projects as a percentage of our gross investments in real estate;
•
Maintain high levels of pre-leasing in value-creation projects; and
•
Maintain solid key credit metrics, including net debt to Adjusted EBITDA and fixed-charge coverage ratio, with some variation from quarter to quarter and from year to year.


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Unsecured senior line of credit and unsecured senior bank term loans
    
The table below reflects the outstanding balances, maturity dates, applicable rates, and facility fees for each of these facilities.
 
 
Balance as of
June 30, 2015
 
As of June 30, 2015
Facility
 
 
Maturity Date (1)
 
Applicable Rate
 
Facility Fee
2019 Unsecured Senior Bank Term Loan
 
$
600
 million
 
January 2019
 
L+1.20%
 
N/A
2021 Unsecured Senior Bank Term Loan
 
$
350
 million
 
January 2021
 
L+1.10%
 
N/A
$1.5 billion unsecured senior line of credit
 
$
624
 million
 
January 2019
 
L+1.10%
 
0.20%

(1)
Includes any extension options that we control.

The maturity date of the unsecured senior line of credit is January 2019, assuming we exercise our sole right to extend the stated maturity date, twice, by an additional six months after each exercise.  Borrowings under the unsecured senior line of credit bear interest at LIBOR or the base rate specified in the amended unsecured senior line of credit agreement, plus, in either case, a specified margin (“Applicable Margin”).  The Applicable Margin for LIBOR borrowings under the unsecured senior line of credit is based on our existing credit rating as set by certain rating agencies. Our unsecured senior line of credit contains a feature that allows lenders to competitively bid on the interest rate for borrowings under the facility. This may result in an interest rate that is below the stated rate of LIBOR+1.10%. In addition to the Applicable Margin, our unsecured senior line of credit is subject to an annual facility fee of 0.20% based upon aggregate outstanding commitments.

The requirements of, and our actual performance with respect to, the key financial covenants under our unsecured senior line of credit and unsecured senior bank term loans as of June 30, 2015, were as follows:
Covenant Ratios (1)
 
Requirement
 
Actual (2)
Leverage Ratio
 
Less than or equal to 60.0%
 
38.1%
Secured Debt Ratio
 
Less than or equal to 45.0%
 
7.1%
Fixed-Charge Coverage Ratio
 
Greater than or equal to 1.50x
 
3.15x
Unsecured Leverage Ratio
 
Less than or equal to 60.0%
 
43.5%
Unsecured Interest Coverage Ratio
 
Greater than or equal to 1.50x
 
7.02x

(1)
For definitions of the ratios, refer to the amended unsecured senior line of credit and unsecured senior bank term loan agreements, including (i) the agreement dated as of August 30, 2013, which was filed as an exhibit to our quarterly report on Form 10-Q filed with the SEC on November 7, 2013, and (ii) the agreement dated June 30, 2015, which is filed as an exhibit to this quarterly report on Form 10-Q.
(2)
Actual covenants are calculated pursuant to the specific terms of our unsecured senior line of credit and unsecured senior bank term loan agreements.

Unsecured senior notes payable

The requirements of, and our actual performance with respect to, the key financial covenants under our 2.75% unsecured senior notes (“2.75% Unsecured Senior Notes”), 3.90% unsecured senior notes (“3.90% Unsecured Senior Notes”), 4.60% unsecured senior notes (“4.60% Unsecured Senior Notes”), and 4.50% unsecured senior notes (“4.50% Unsecured Senior Notes”) as of June 30, 2015, were as follows:
Covenant Ratios (1)
 
Requirement
 
Actual
Total Debt to Total Assets
Less than or equal to 60%
 
43%
Secured Debt to Total Assets
Less than or equal to 40%
 
8%
Consolidated EBITDA to Interest Expense
Greater than or equal to 1.5x
 
6.0x
Unencumbered Total Asset Value to Unsecured Debt
Greater than or equal to 150%
 
227%

(1)
For definitions of the ratios, refer to the indenture at Exhibit 4.3 and related supplemental indentures at Exhibits 4.4, 4.7, 4.9, and 4.11, which are each listed in Item 6 of this report.

In addition, the terms of the indentures, among other things, limit the ability of the Company, Alexandria Real Estate Equities, L.P., and the Company’s subsidiaries to (i) consummate a merger, or consolidate or sell all or substantially all of the Company’s assets, and (ii) incur certain secured or unsecured indebtedness.

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Sources and uses of capital

We expect that our principal liquidity needs for the year ending December 31, 2015, will be satisfied by the following multiple sources of capital, as shown in the table below. There can be no assurance that our sources and uses of capital will not be materially higher or lower than these expectations.
Key Sources and Uses of Capital
(in thousands)
 
Completed During the Six Months Ended June 30, 2015
 
2015 Guidance
 
 
Low
 
High
Sources of capital:
 
 
 
 
 
 
Net cash provided by operating activities after dividends
 
$
61,000

 
$
115,000

 
$
135,000

Incremental debt
 
316,000

 
115,000

 
195,000

Remainder/asset sales (1)
 
94,000

 
720,000

 
820,000

Total sources of capital
 
$
471,000

 
$
950,000

 
$
1,150,000

 
 
 
 
 
 
 
Uses of capital:
 
 
 
 
 
 
Construction
 
$
198,000

 
$
600,000

 
$
700,000

Acquisitions (2)
 
273,000

 
350,000

 
450,000

Total uses of capital
 
$
471,000

 
$
950,000

 
$
1,150,000

 
 
 
 
 
 
 
Incremental debt:
 
 
 
 
 
 
Issuance of unsecured senior and other notes payable
 
$
82,000

 
$
370,000

 
$
450,000

Borrowings under existing secured construction loans
 
43,000

 
80,000

 
130,000

Repayments of secured notes payable
 
(10,000
)
 
(61,000
)
 
(137,000
)
Activity on unsecured senior line of credit/other
 
201,000

 
(274,000
)
 
(248,000
)
Incremental debt
 
$
316,000

 
$
115,000

 
$
195,000


(1)
Refer to page 67 for discussion on dispositions and other sources of capital.
(2)
Includes the acquisition in July 2015, of 10290 Campus Point Drive, a property aggregating 304,326 RSF, for $105.0 million. See pages 50 and 66 for additional information.

The key assumptions behind the sources and uses of capital in the table above are a favorable capital market environment, performance of our core operating properties, lease-up and completion of current and future development and redevelopment projects, and leasing activity. Our expected sources and uses of capital are subject to a number of variables and uncertainties, including those discussed under the “Forward-Looking Statements” section of Part I, the “Risk Factors” section of Item 1A, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section under Item 7 of our annual report on Form 10-K for the year ended December 31, 2014. We expect to update our forecast of sources and uses of capital on a quarterly basis.

Sources of capital

Net cash provided by operating activities after dividends

We expect to retain $115.0 million to $135.0 million of net cash flows from operating activities after payment of common stock and preferred stock dividends. For the year ending December 31, 2015, we expect that our highly leased value-creation projects, along with projects recently placed into service, certain future projects, and operations from Same Properties, will contribute significant increases as compared to the year ended December 31, 2014, in rental income, NOI, and cash flows. Refer to the “Cash Flows” section appearing elsewhere in this section of this quarterly report on Form 10-Q for a discussion of net cash provided by operating activities for the six months ended June 30, 2015.

Real estate sales

We expect to continue to sell land, non-core operating assets, high-value “core-like” operating properties, and joint venture interests in high-value operating properties located in high-barrier-to-entry submarkets. The amount of asset sales necessary to meet our forecasted sources of capital will vary depending upon the amount of EBITDA associated with the assets sold.


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For additional information, refer to the section titled “Sales of Real Estate Assets and Related Impairment Charges” in Note 3 – “Investments in Real Estate” to our unaudited consolidated financial statements under Item 1 of this report and the “Dispositions and Other Sources of Capital” subsection of the “Value-Creation Projects and External Growth” section in Item 2 of this report. The sale of non-strategic assets in our value-creation pipeline and non-core/“core-like” operating assets provides a significant source of capital to fund our highly pre-leased value-creation development and redevelopment projects described above.

Liquidity

The following table presents the availability under our unsecured senior line of credit, secured construction loans, and cash and cash equivalents as of June 30, 2015 (dollars in thousands):
Description
 
Stated
Rate
 
Total
Commitments
 
Outstanding
Balance
 
Remaining Commitments
$1.5 billion unsecured senior line of credit
 
LIBOR+1.10%
 
$
1,500,000

 
$
624,000

 
$
876,000

Secured construction loan
 
LIBOR+1.40%
 
36,000

 
20,631

 
15,369

Secured construction loan
 
LIBOR+1.50%
 
55,000

 
47,183

 
7,817

Secured construction loan
 
LIBOR+1.35%
 
250,400

 
147,281

 
103,119

 
 
 
 
$
1,841,400

 
$
839,095

 
1,002,305

Cash and cash equivalents
 
 
 
 
 
 
 
68,617

Total liquidity
 
 
 
 
 
 
 
$
1,070,922


Debt

We expect to fund a significant portion of our capital needs in 2015 from the issuance of unsecured senior notes payable, borrowings available under existing secured construction loans, an unsecured senior line of credit, new secured construction loans, and acquired secured notes payable.

In June 2015, we completed a partial principal repayment of $25.0 million and extended the maturity of the remaining $350.0 million 2021 Unsecured Senior Bank Term Loan from July 31, 2015, to June 30, 2019, subject to our option to extend the maturity up to three times upon the satisfaction of certain conditions, for an additional term of six months for the first and second extensions and for an additional term ending on January 15, 2021, for the third extension. In addition, we reduced the applicable interest rate margin with respect to borrowings outstanding under the loan to LIBOR+1.10% from LIBOR+1.20%. In conjunction with the amendment of our 2021 Unsecured Senior Bank Term Loan and the principal repayment, we recognized a loss on early extinguishment of debt aggregating $189 thousand related to the write-off of a portion of unamortized loan fees.

In July 2014, we completed public offerings of $400 million in aggregate principal amount and $300 million in aggregate principal amount of unsecured senior notes payable at stated interest rates of 2.75% and 4.50%, respectively, at a weighted-average interest rate of 3.50% and a weighted-average maturity of 9.6 years. The 2.75% Unsecured Senior Notes were priced at 99.793% of the principal amount with a yield to maturity of 2.791% and are due January 15, 2020. The 4.50% Unsecured Senior Notes were priced at 99.912% of the principal amount with a yield to maturity of 4.508% and are due July 30, 2029. Both the 2.75% Unsecured Senior Notes and the 4.50% Unsecured Senior Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed by Alexandria Real Estate Equities, L.P., a 100% owned subsidiary of the Company. Both the 2.75% Unsecured Senior Notes and the 4.50% Unsecured Senior Notes rank equally in right of payment with all other senior unsecured indebtedness. However, the 2.75% Unsecured Senior Notes and the 4.50% Unsecured Senior Notes are subordinated to existing and future mortgages and other secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future preferred equity and liabilities, whether secured or unsecured, of the Company’s subsidiaries, other than Alexandria Real Estate Equities, L.P. Net proceeds of $694 million from the offering were used to reduce variable-rate debt, consisting of the partial repayment of $125 million of our unsecured senior bank term loan and the reduction of $569 million of borrowings outstanding on our unsecured senior line of credit. In connection with the partial repayment of $125 million of our unsecured senior bank term loan, we recognized a loss on the early extinguishment of debt related to the write-off of a portion of unamortized loan fees totaling $525 thousand.

Refer to the “Liquidity” subsection for a discussion of our secured construction loans and unsecured senior line of credit.



86



Secured construction loans

Refer to Note 6 – “Secured and Unsecured Senior Debt” to our unaudited consolidated financial statements under Item 1 of this report for a discussion of our secured construction loans.

Unsecured senior line of credit

We use our unsecured senior line of credit to fund working capital, construction activities, and, from time to time, acquisition of properties.

Borrowings under the unsecured senior line of credit will bear interest at a “Eurocurrency Rate” or a “Base Rate” specified in the amended unsecured line of credit agreement, plus, in either case, the Applicable Margin. The “Eurocurrency Rate” specified in the amended unsecured line of credit agreement is, as applicable, the rate per annum equal to (i) the LIBOR or a successor rate thereto as approved by the administrative agent for loans denominated in a LIBOR quoted currency (i.e., U.S. dollars, euro, sterling, or yen), (ii) the average annual yield rates applicable to Canadian dollar bankers’ acceptances for loans denominated in Canadian dollars, (iii) the Bank Bill Swap Reference Bid rate for loans denominated in Australian dollars, or (iv) the rate designated with respect to the applicable alternative currency for loans denominated in a non-LIBOR quoted currency (other than Canadian or Australian dollars). The Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the federal funds rate plus 1/2 of 1.00%, (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (iii) the Eurocurrency Rate plus 1.00%. Our unsecured senior line of credit contains a feature that allows lenders to competitively bid on the interest rate for borrowings under the facility. This may result in an interest rate that is below the stated rate of LIBOR+1.10%. In addition to the cost of borrowing, the facility is subject to an annual facility fee of 0.20% based on the aggregate commitments outstanding.

Cash and cash equivalents

As of June 30, 2015, and December 31, 2014, we had $68.6 million and $86.0 million, respectively, of cash and cash equivalents.  We expect existing cash and cash equivalents, cash flows from operating activities, proceeds from asset sales, borrowings under our unsecured senior line of credit, secured construction loan borrowings, issuances of unsecured notes payable, and issuances of common stock to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, scheduled debt repayments, and certain capital expenditures, including expenditures
related to construction activities.

Restricted cash

Restricted cash consisted of the following as of June 30, 2015, and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
Funds held in trust under the terms of certain secured notes payable
$
21,268

 
$
19,350

Funds held in escrow related to construction projects and investing activities
20,040

 
4,539

Other restricted funds
2,883

 
2,995

Total
$
44,191

 
$
26,884


The funds held in escrow related to construction projects will be used to pay for certain construction costs.

Other sources

We may issue and publicly offer common stock, preferred stock, debt, and other securities from time to time at our discretion, based on our needs and market conditions, including, as necessary, to balance our use of incremental debt capital.

We hold interests, together with certain third parties, in companies that we consolidate in our financial statements.  These third parties may contribute equity into these entities primarily related to their share of funds for construction-related and financing-related activities.


87



We also hold interests, together with certain third parties, in joint ventures that are not consolidated in our financial statements. The following table presents information related to debt held by one of our unconsolidated joint ventures (dollars in thousands):
Loan Collateral
 
Total Commitments
 
Total Outstanding
 
Partners’ Share
 
ARE’s
27.5% Share
 
Maturity Date
 
Interest Rate
360 Longwood Avenue
 
$
213,200

 
$
170,531

 
$
123,635

 
$
46,896
 
 
 
4/1/17
(1) 
 
 
5.25
%
(2) 

(1)
We have two, one-year options to extend the stated maturity date to April 1, 2019, subject to certain conditions.
(2)
Secured construction loan bears interest at LIBOR+3.75%, with a floor of 5.25%.

Uses of capital

Summary of capital expenditures

Our primary use of capital relates to the development, redevelopment, predevelopment, and construction of properties. In North America, we currently have development projects in process aggregating 2.6 million RSF, with 2.0 million RSF of construction in progress of office/laboratory and tech office space, including two unconsolidated joint venture development projects. We incur capitalized construction costs related to development, redevelopment, predevelopment, and other construction activities. We also incur additional capitalized project costs, including interest, property taxes, insurance, and other costs directly related and essential to the development or construction of a project. Refer to “Summary of Capital Expenditures” in Item 2 of this report for more information on our capital expenditures.

We capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided that expenditures for the asset have been made and interest cost has been incurred.  Capitalized interest for the six months ended June 30, 2015 and 2014, of $19.4 million and $23.3 million, respectively, is classified in investments in real estate.  Indirect project costs, including construction administration, legal fees, and office costs that clearly relate to projects under development or construction, are capitalized as incurred during the period an asset is undergoing activities to prepare it for its intended use.  We capitalized payroll and other indirect project costs related to development, redevelopment, and construction projects, aggregating $6.9 million and $8.9 million for the six months ended June 30, 2015 and 2014, respectively. Additionally, should we cease activities necessary to prepare an asset for its intended use, the interest, taxes, insurance, and certain other direct project costs related to this asset would be expensed as incurred.  When construction activities cease, the asset is classified as rental property.  Also, if vertical aboveground construction is not initiated at completion of predevelopment activities, the land parcel is classified as land held for future development.  Expenditures for repairs and maintenance are expensed as incurred.

Fluctuations in our development, redevelopment, predevelopment, and construction activities could result in significant changes to total expenses and net income.  For example, had we experienced a 10% reduction in development, redevelopment, and construction activities without a corresponding decrease in indirect project costs, including interest and payroll, total expenses would have increased by approximately $2.9 million for the six months ended June 30, 2015.

We also capitalize and defer initial direct costs to originate leases with independent third parties related to evaluating a prospective lessee’s financial condition, negotiating lease terms, preparing the lease agreement, and closing the lease transaction. Costs that we capitalized and deferred relate to successful leasing transactions, result directly from and are essential to the lease transaction, and would not have been incurred had that lease transaction not occurred. The initial direct costs capitalized and deferred also include the portion of our employees’ total compensation and payroll-related fringe benefits directly related to time spent performing activities previously described and related to the respective lease that would not have been performed but for that lease. Total initial direct leasing costs capitalized during the six months ended June 30, 2015 and 2014, were $26.8 million and $19.2 million, respectively, of which $5.8 million and $6.5 million, respectively, represented capitalized and deferred payroll costs directly related and essential to our leasing activities during such periods.

Acquisitions

Refer to the “External Growth – Acquisitions” section in Item 2 of this report.


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Contractual obligations and commitments

Contractual obligations as of June 30, 2015, consisted of the following (in thousands):
 
 
 
Payments by Period
 
Total
 
2015
 
2016-2017
 
2018-2019
 
Thereafter
Secured and unsecured debt (1) (2)
$
4,090,731

 
$
4,322

 
$
536,187

 
$
1,234,064

 
$
2,316,158

Estimated interest payments on fixed-rate and hedged variable-rate debt (3)
687,119

 
56,607

 
193,882

 
166,455

 
270,175

Estimated interest payments on variable-rate debt (4)
39,090

 
2,519

 
15,385

 
16,683

 
4,503

Ground lease obligations
595,120

 
6,338

 
23,459

 
22,376

 
542,947

Other obligations
7,528

 
744

 
3,047

 
3,737

 
—

Total
$
5,419,588

 
$
70,530

 
$
771,960

 
$
1,443,315

 
$
3,133,783


(1)
Amounts represent principal amounts due and exclude unamortized premiums/discounts reflected on the consolidated balance sheets.
(2)
Payment dates include any extension options that we control.
(3)
Estimated interest payments on our fixed-rate debt and hedged variable-rate debt are based upon contractual interest rates, including the impact of interest rate swap agreements, interest payment dates, and scheduled maturity dates.
(4)
The interest payments on variable-rate debt are based on the interest rates in effect as of June 30, 2015.

Secured notes payable

Secured notes payable as of June 30, 2015, consisted of 13 notes secured by 33 properties. Our secured notes payable typically require monthly payments of principal and interest and had a weighted-average interest rate of approximately 4.25% as of June 30, 2015. The total book values of rental properties, land held for future development, and CIP securing debt were approximately $1.4 billion as of June 30, 2015. As of June 30, 2015, our secured notes payable, including unamortized discounts, were composed of approximately $480.3 million and $291.1 million of fixed- and variable-rate debt, respectively.

Estimated interest payments

Estimated interest payments on our fixed-rate debt and hedged variable-rate debt were calculated based upon contractual interest rates, including the impact of interest rate swap agreements, interest payment dates, and scheduled maturity dates. As of June 30, 2015, approximately 78% of our debt was fixed-rate debt or variable-rate debt subject to interest rate swap agreements.  Refer to Note 7 – “Interest Rate Swap Agreements” to our unaudited consolidated financial statements appearing under Item 1 of this report for further information. The remaining 22% of our debt as of June 30, 2015, was unhedged variable-rate debt based primarily on LIBOR.  Interest payments on our unhedged variable-rate debt have been calculated based on interest rates in effect as of June 30, 2015.  Refer to additional information regarding our debt under Note 6 – “Secured and Unsecured Senior Debt” to our unaudited consolidated financial statements appearing under Item 1 of this report.

Interest rate swap agreements

We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates primarily associated with our unsecured senior line of credit and unsecured senior bank term loans. These agreements involve the receipt of variable-rate amounts from a counterparty in exchange for our payment of fixed-rate amounts to the counterparty over the life of the agreement without the exchange of the underlying notional amount. Interest received under all our interest rate swap agreements is based on the one-month LIBOR. The net difference between the interest paid and the interest received is reflected as an adjustment to interest
expense in our consolidated statements of income.


89



We have entered into master derivative agreements with each counterparty. These master derivative agreements (all of which are adapted from the standard International Swaps and Derivatives Association, Inc. form) define certain terms between us and each of our counterparties to address and minimize certain risks associated with our interest rate swap agreements. In order to limit our risk of non-performance by an individual counterparty under our interest rate swap agreements, these agreements are spread among various counterparties. As of June 30, 2015, the largest aggregate notional amount in effect at any single point in time with an individual counterparty under our interest rate swap agreements was $250.0 million. If one or more of our counterparties fail to perform under our interest rate swap agreements, we may incur higher costs associated with our variable-rate LIBOR-based debt than the interest costs we originally anticipated. We have not posted any collateral related to our interest rate swap agreements.

Ground lease obligations

Ground lease obligations as of June 30, 2015, included leases for 28 of our properties, which accounted for approximately 14% of our total number of properties and three land development parcels.  Excluding one ground lease related to one operating property that expires in 2036 with a net book value of $9.8 million as of June 30, 2015, our ground lease obligations have remaining lease terms ranging from 40 to 100 years, including extension options.

Commitments

As of June 30, 2015, remaining aggregate costs under contract for the construction of properties undergoing development, redevelopment, and improvements under the terms of leases approximated $651.6 million. We expect payments for these obligations to occur over one to three years, subject to capital planning adjustments from time to time. We may have the ability to cease the construction of certain properties, which would result in the reduction of our commitments. We are also committed to funding approximately $83.7 million for certain investments over the next several years. We have one joint venture with a commitment to contribute our share of equity into this joint venture to complete the project. The additional funding commitment as of June 30, 2015, for this joint venture was pending completion of the final design of the building. Our other joint venture does not have a commitment to contribute additional equity. In addition, we have letters of credit and performance obligations of $11.0 million primarily related to our construction management requirements.

We have minimum development requirements under project development agreements with government entities for some of our future value-creation projects. As of June 30, 2015, we had land and land improvements with an aggregate book value of $23.2 million for which we had construction commitment obligations aggregating approximately 300,000 RSF and 100,000 RSF that need to be fulfilled by 2016 and 2017, respectively. The estimated cost to develop these projects is approximately $125 to $175 per square foot. If we do not meet, extend, or eliminate these commitments, we may default under our existing agreements. The government entities, in turn, have certain obligations to us under those project development agreements. We are working with these entities to fulfill or amend certain existing obligations in a mutually beneficial manner.

Exposure to environmental liabilities

In connection with the acquisition of all of our properties, we have obtained Phase I environmental assessments to ascertain the existence of any environmental liabilities or other issues.  The Phase I environmental assessments of our properties have not revealed any environmental liabilities that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole, nor are we aware of any material environmental liabilities that have occurred since the Phase I environmental assessments were completed.  In addition, we carry a policy of pollution legal liability insurance covering exposure to certain environmental losses at substantially all of our properties.

Cash flows

We report and analyze our cash flows based on operating activities, investing activities, and financing activities.  The following table summarizes changes in our cash flows (in thousands):
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
Change
Net cash provided by operating activities
$
151,400

 
$
144,491

 
$
6,909

Net cash used in investing activities
$
(316,040
)
 
$
(273,177
)
 
$
(42,863
)
Net cash provided by financing activities
$
147,119

 
$
131,854

 
$
15,265



90



Operating activities

Cash flows provided by operating activities for the six months ended June 30, 2015 and 2014, consisted of the following amounts (in thousands):
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
Change
Net cash provided by operating activities
$
151,400

 
$
144,491

 
$
6,909

Add: changes in operating assets and liabilities
29,681

 
24,018

 
5,663

Net cash provided by operating activities before changes in operating assets and liabilities
$
181,081

 
$
168,509

 
$
12,572


Cash flows provided by operating activities are primarily dependent on the occupancy level of our asset base, the rental rates of our leases, the collectability of rent and recovery of operating expenses from our client tenants, the timing of completion of development projects, the timing of completion of redevelopment projects, and the timing of acquisitions of operating properties. Net cash provided by operating activities for the six months ended June 30, 2015, increased to $151.4 million, compared to $144.5 million for the six months ended June 30, 2014.  Net cash provided by operating activities before changes in operating assets and liabilities for the six months ended June 30, 2015, increased by $12.6 million, or 7.5%, to $181.1 million, compared to $168.5 million for the six months ended June 30, 2014.  This increase was primarily attributable to an increase in our Same Properties’ NOI (cash basis) of $13.3 million, or 6.2%, to $227.8 million for the six months ended June 30, 2015, compared to $214.5 million for the six months ended June 30, 2014. In addition, the increase in operating cash flows was attributable to our development and redevelopment projects aggregating 1,138,483 RSF placed into service after January 1, 2014, and operating properties aggregating 518,357 RSF that were acquired in North America after January 1, 2014. These increases were partially offset by the sale of five non-strategic properties aggregating 259,205 RSF over the same period.

Investing activities

Cash flows used in investing activities for the six months ended June 30, 2015 and 2014, consisted of the following (in thousands):
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
Change
Proceeds from sales of real estate
$
92,455

 
$
17,868

 
$
74,587

Additions to real estate
(226,302
)
 
(210,792
)
 
(15,510
)
Purchase of real estate
(137,493
)
 
(97,785
)
 
(39,708
)
Deposits for investing activities
(15,501
)
 
—

 
(15,501
)
Additions to investments
(52,738
)
 
(25,358
)
 
(27,380
)
Sales of investments
22,474

 
8,794

 
13,680

Repayment of notes receivable
4,247

 
29,851

 
(25,604
)
Other
(3,182
)
 
4,245

 
(7,427
)
Net cash used in investing activities
$
(316,040
)
 
$
(273,177
)
 
$
(42,863
)

The change in net cash used in investing activities for the six months ended June 30, 2015, is primarily due to a higher use of cash for property acquisitions offset by a higher source of cash from property dispositions.

Value-creation opportunities and external growth

For information on our key development and redevelopment projects for the six months ended June 30, 2015, refer to “Development, Redevelopment, and Future Value-Creation Projects” located earlier within Item 2 of this report.


91



Financing activities

Cash flows provided by financing activities for the six months ended June 30, 2015 and 2014, consisted of the following (in thousands):
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
Change
Borrowings from secured notes payable
$
42,867

 
$
77,762

 
$
(34,895
)
Repayments of borrowings from secured notes payable
(10,075
)
 
(219,427
)
 
209,352

Borrowings from unsecured senior line of credit
915,000

 
637,000

 
278,000

Repayments of borrowings from unsecured senior line of credit
(595,000
)
 
(270,000
)
 
(325,000
)
Repayments of borrowings from unsecured senior bank term loans
(25,000
)
 
—

 
(25,000
)
Total changes related to debt
327,792

 
225,335

 
102,457

 
 
 
 
 
 
Dividend payments
(119,096
)
 
(111,810
)
 
(7,286
)
Contributions by noncontrolling interests
340

 
19,410

 
(19,070
)
Distributions to and purchases of noncontrolling interests
(61,890
)
 
(1,983
)
 
(59,907
)
Other
(27
)
 
902

 
(929
)
Net cash provided by financing activities
$
147,119

 
$
131,854

 
$
15,265


Dividends

During the six months ended June 30, 2015 and 2014, we paid the following dividends (in thousands):
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
Change
Common stock dividends
$
106,603

 
$
98,867

 
$
7,736

Series D Preferred Stock dividends
8,301

 
8,750

 
(449
)
Series E Preferred Stock dividends
4,192

 
4,193

 
(1
)
 
$
119,096

 
$
111,810

 
$
7,286


The increase in dividends paid on our common stock was primarily due to an increase in the related dividends to $1.48 per common share for the six months ended June 30, 2015, from $1.38 per common share for the six months ended June 30, 2014. 

Inflation

As of June 30, 2015, approximately 96% of our leases (on an RSF basis) were triple net leases, requiring client tenants to pay substantially all real estate taxes, insurance, utilities, common area expenses, and other operating expenses (including increases thereto) in addition to base rent.  Approximately 94% of our leases (on an RSF basis) contained effective annual rent escalations that were either fixed (generally ranging from 3.0% to 3.5%) or indexed based on a consumer price index or other indices.  Accordingly, we do not believe that our cash flows or earnings from real estate operations are subject to significant risks from inflation.  An increase in inflation, however, could result in an increase in the cost of our variable-rate borrowings, including borrowings related to our unsecured senior line of credit and unsecured senior bank term loans.

Critical accounting policies

Refer to our annual report on Form 10-K for the year ended December 31, 2014, for a discussion of our critical accounting policies, which include rental properties; land held for future development; CIP; discontinued operations; impairment of long-lived assets; capitalization of costs; accounting for investments; interest rate swap agreements; recognition of rental income and tenant recoveries; and monitoring of client tenant credit quality.  There were no significant changes to these policies during the six months ended June 30, 2015.


92



Non-GAAP measures

FFO and FFO, as adjusted

GAAP-basis accounting for real estate assets utilizes historical cost accounting and assumes that real estate values diminish over time.  In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, the Board of Governors of the NAREIT established the measurement tool of FFO.  Since its introduction, FFO has become a widely used non-GAAP financial measure among equity REITs.  We believe that FFO is helpful to investors as an additional measure of the performance of an equity REIT.  Moreover, we believe that FFO, as adjusted, is also helpful because it allows investors to compare our performance to the performance of other real estate companies on a consistent basis, without having to account for differences caused by investment and disposition decisions, financing decisions, terms of securities, capital structures, and capital market transactions.  We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its April 2002 White Paper and related implementation guidance (“NAREIT White Paper”).  The NAREIT White Paper defines FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciable real estate and land parcels and impairments of depreciable real estate (excluding land parcels), plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  Impairments of real estate relate to decreases in the fair value of real estate due to changes in general market conditions and do not necessarily reflect the operating performance of the properties during the corresponding period.  Impairments of real estate represent the write-down of assets when fair value over the recoverability period is less than the carrying value.  We compute FFO, as adjusted, as FFO calculated in accordance with the NAREIT White Paper, plus losses on early extinguishment of debt, preferred stock redemption charges, impairments of real estate – land parcels, impairments of investments, and the amount of such items that is allocable to our unvested restricted stock awards.  Our calculations of both FFO and FFO, as adjusted, may differ from those methodologies utilized by other equity REITs for similar performance measurements and, accordingly, may not be comparable to those of other equity REITs.  Our computation of FFO, as adjusted, further adds back impairment write-downs of non-depreciable real estate. Neither FFO nor FFO, as adjusted, should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of liquidity, nor are they indicative of the availability of funds for our cash needs, including funds available to make distributions.

AFFO

AFFO is a non-GAAP financial measure that we use as a supplemental measure of our performance.  We compute AFFO by adding to or deducting from FFO, as adjusted: (i) non-revenue-enhancing building improvements (excluding amounts recoverable from our client tenants), non-revenue-enhancing tenant improvements and leasing commissions (excluding revenue-enhancing and development and redevelopment expenditures); (ii) effects of straight-line rent revenue and straight-line rent expense on ground leases; (iii) capitalized income from development projects; (iv) amortization of acquired above- and below-market leases, loan fees, and debt premiums/discounts; (v) stock compensation expense; and (vi) allocation of AFFO attributable to unvested restricted stock awards.

We believe that AFFO is a useful supplemental performance measure because it further adjusts FFO to (i) deduct certain expenditures that, although capitalized and classified in depreciation expense, do not enhance the revenue or cash flows of our properties; (ii) eliminate the effect of straight-lining our rental income and capitalizing income from development projects; and (iii) eliminate the effect of items that are not indicative of our core operations and that do not actually reduce the amount of cash generated by our operations.  We believe that eliminating the effect of charges related to share-based compensation facilitates a comparison of our operations across periods and among other equity REITs without the variances caused by different valuation methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that a company can use.  We believe that AFFO provides useful information by excluding certain items that are not representative of our core operating results because such items are dependent upon historical costs or subject to judgmental valuation inputs and the timing of our decisions.

AFFO is not intended to represent cash flow for the period, and is intended only to provide an additional measure of performance. We believe that net income attributable to Alexandria’s common stockholders is the GAAP financial measure most comparable to AFFO.  We believe that AFFO is a widely recognized measure of the operations of equity REITs, and presenting AFFO will enable investors to assess our performance in comparison to other equity REITs.  However, other equity REITs may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to AFFO calculated by other equity REITs.  AFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

93




The following table presents a reconciliation of net income attributable to Alexandria’s common stockholders – basic, the most directly comparable financial measure calculated and presented in accordance with GAAP, to FFO attributable to Alexandria’s common stockholders – basic, FFO attributable to Alexandria’s common stockholders – diluted, as adjusted, and AFFO attributable to Alexandria’s common stockholders – diluted, for the periods below. Amounts in the table below include our share of unconsolidated joint venture amounts.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
Net income attributable to Alexandria’s common stockholders
 
$
31,291

 
$
27,932

 
$
49,077

 
$
60,641

Depreciation and amortization
 
62,523

 
57,314

 
121,725

 
107,735

Impairment of real estate – rental properties
 
—

 
—

 
14,510

 
—

Gain on sales of real estate – land parcels
 
—

 
(797
)
 
—

 
(797
)
Amount attributable to noncontrolling interests/
unvested restricted stock awards:
 
 
 
 
 
 
 
 
Net income
 
893

 
1,712

 
1,868

 
3,281

FFO
 
(1,274
)
 
(1,648
)
 
(2,415
)
 
(3,277
)
FFO attributable to Alexandria’s common stockholders – basic and diluted (1)
 
93,433

 
84,513

 
184,765

 
167,583

Loss on early extinguishment of debt
 
189

 
—

 
189

 
—

Allocation to unvested restricted stock awards
 
(2
)
 
—

 
(2
)
 
—

FFO attributable to Alexandria’s common stockholders –
diluted, as adjusted
 
93,620

 
84,513

 
184,952

 
167,583

Non-revenue-enhancing capital expenditures:
 
 
 
 
 
 
 
 
Building improvements
 
(2,743
)
 
(1,255
)
 
(5,021
)
 
(3,035
)
Tenant improvements and leasing commissions
 
(6,429
)
 
(3,934
)
 
(12,204
)
 
(7,987
)
Straight-line rent revenue
 
(14,159
)
(2) 
(12,737
)
 
(24,856
)
 
(24,619
)
Straight-line rent expense on ground leases
 
510

 
697

 
873

 
1,408

Amortization of acquired below-market leases
 
(1,006
)
 
(618
)
 
(1,939
)
 
(1,434
)
Amortization of loan fees
 
2,921

 
2,743

 
5,756

 
5,304

Amortization of debt (premiums) discounts
 
(100
)
 
(69
)
 
(182
)
 
136

Stock compensation expense
 
4,054

 
3,076

 
7,744

 
6,304

Allocation to unvested restricted stock awards
 
152

 
90

 
272

 
184

AFFO attributable to Alexandria’s common stockholders – diluted
 
$
76,820

 
$
72,506

 
$
155,395

 
$
143,844


(1)
Calculated in accordance with standards established by the Board of Governors of the NAREIT in its April 2002 White Paper and related implementation guidance.
(2)
Increase in straight-line rent revenue in the second quarter of 2015 compared to the first quarter of 2015 is primarily due to the completion of the development of 75/125 Binney Street located in Cambridge, Massachusetts, on March 24, 2015. Straight-line rent is expected to decline quarter to quarter through the remainder of 2015.

94



The following table presents a reconciliation of earnings per share attributable to Alexandria’s common stockholders – basic, to FFO per share attributable to Alexandria’s common stockholders – diluted, FFO per share attributable to Alexandria’s common stockholders – diluted, as adjusted, and AFFO per share attributable to Alexandria’s common stockholders – diluted, for the periods below. Amounts in the table below include our share of unconsolidated joint venture amounts.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Earnings per share attributable to Alexandria’s common stockholders – basic and diluted
 
$
0.44

 
$
0.39

 
$
0.69

 
$
0.85

Depreciation and amortization 
 
0.87

 
0.81

 
1.70

 
1.52

Impairment of real estate – rental properties
 
—

 
—

 
0.20

 
—

Gain on sales of real estate – land parcels
 
—

 
(0.01
)
 
—

 
(0.01
)
FFO per share attributable to Alexandria’s common stockholders – basic and diluted (1) and diluted, as adjusted
 
1.31

 
1.19

 
2.59

 
2.36

Non-revenue-enhancing capital expenditures:
 
 
 
 
 
 
 
 
Building improvements
 
(0.04
)
 
(0.02
)
 
(0.07
)
 
(0.04
)
Tenant improvements and leasing commissions
 
(0.09
)
 
(0.06
)
 
(0.17
)
 
(0.11
)
Straight-line rent revenue 
 
(0.20
)
 
(0.18
)
 
(0.35
)
 
(0.35
)
Straight-line rent expense on ground leases
 
0.01

 
0.01

 
0.01

 
0.02

Amortization of acquired below-market leases
 
(0.01
)
 
(0.01
)
 
(0.02
)
 
(0.02
)
Amortization of loan fees 
 
0.04

 
0.04

 
0.08

 
0.07

Stock compensation expense
 
0.06

 
0.05

 
0.11

 
0.09

AFFO per share attributable to Alexandria’s common stockholders – diluted
 
$
1.08

 
$
1.02

 
$
2.18

 
$
2.02

 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding for calculating FFO, FFO, as adjusted, and AFFO per share attributable to Alexandria’s common stockholders – basic and diluted
 
71,412

 
71,126

 
71,389

 
71,100


(1)
Calculated in accordance with standards established by the Board of Governors of the NAREIT in its April 2002 White Paper and related implementation guidance.


95



Adjusted EBITDA

EBITDA represents earnings before interest, taxes, depreciation, and amortization. EBITDA is a non-GAAP financial measure and is used by us and others as a supplemental measure of performance.  We use Adjusted EBITDA to assess the performance of our core operations, for financial and operational decision making, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis.  Adjusted EBITDA is calculated as EBITDA, excluding stock compensation expense, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, deal costs, and impairments (“Adjusted EBITDA”). We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view income from our operations on an unleveraged basis before the effects of taxes, depreciation and amortization, stock compensation expense, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, and impairments, including our share from our unconsolidated joint ventures.  By excluding interest expense and gains or losses on early extinguishment of debt, EBITDA and Adjusted EBITDA allow investors to measure our performance independent of our capital structure and indebtedness and, therefore, allow for a more meaningful comparison of our performance to that of other companies, both in the real estate industry and in other industries.  We believe that excluding charges related to share-based compensation facilitates a comparison of our operations across periods and among other equity REITs without the variances caused by different valuation methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that a company can use.  We believe that adjusting for the effects of gains or losses on sales of real estate and land parcels, deal costs, and impairments provides useful information by excluding certain items that are not representative of our core operating results.  These items are dependent upon historical costs and are subject to judgmental inputs and the timing of our decisions.  EBITDA and Adjusted EBITDA have limitations as measures of our performance.  EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements for capital expenditures or contractual commitments.  While EBITDA and Adjusted EBITDA are relevant and widely used measures of performance, they do not represent net income or cash flows from operations as defined by GAAP, and they should not be considered as alternatives to those indicators in evaluating performance or liquidity.  Further, our computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by other companies.

The following table reconciles net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to EBITDA and Adjusted EBITDA (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
38,430

 
$
36,116

 
$
63,438

 
$
76,865

Interest expense:
 
 
 
 
 
 
 
Consolidated
26,668

 
17,433

 
49,904

 
36,556

Our share of unconsolidated joint ventures
38

 
—

 
42

 
—

Interest expense
26,706

 
17,433

 
49,946

 
36,556

Income taxes
1,324

 
—

 
2,446

 
—

Depreciation and amortization:
 
 
 
 
 
 
 
Consolidated
62,171

 
57,314

 
121,091

 
107,735

Our share of unconsolidated joint ventures
352

 
—

 
634

 
—

Depreciation and amortization
62,523

 
57,314

 
121,725

 
107,735

EBITDA
128,983

 
110,863

 
237,555

 
221,156

Stock compensation expense
4,054

 
3,076

 
7,744

 
6,304

Loss on early extinguishment of debt
189

 
—

 
189

 
—

Gain on sales of real estate – land parcels
—

 
(797
)
 
—

 
(797
)
Impairment of real estate
—

 
—

 
14,510

 
—

Adjusted EBITDA
$
133,226

 
$
113,142

 
$
259,998

 
$
226,663



96



Adjusted EBITDA margins
 
We calculate Adjusted EBITDA margins by dividing Adjusted EBITDA by total revenues. Because our total revenues exclude revenues from discontinued operations, for the purposes of calculating the margin ratio, we exclude the Adjusted EBITDA generated by our discontinued operations for each period presented. We believe excluding Adjusted EBITDA for discontinued operations improves the consistency and comparability of the Adjusted EBITDA margins from period to period. The following table reconciles Adjusted EBITDA to Adjusted EBITDA – excluding discontinued operations (dollars in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Adjusted EBITDA
$
133,226

 
$
113,142

 
$
259,998

 
$
226,663

Add back: operating loss from discontinued operations
—

 
147

 
43

 
309

Adjusted EBITDA – excluding discontinued operations
$
133,226

 
$
113,289

 
$
260,041

 
$
226,972

 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Consolidated
$
204,156

 
$
176,402

 
$
400,909

 
$
352,588

Our share of unconsolidated joint ventures
1,324

 
—

 
1,324

 
—

Revenues
$
205,480

 
$
176,402

 
$
402,233

 
$
352,588

 
 
 
 
 
 
 
 
Adjusted EBITDA margins
65%

 
64%

 
65%

 
64%



97



Fixed-charge coverage ratio

The fixed-charge coverage ratio is the ratio of Adjusted EBITDA to fixed charges. This ratio is useful to investors as a supplemental measure of our ability to satisfy financing obligations and preferred stock dividends.  Cash interest is equal to interest expense calculated in accordance with GAAP, plus capitalized interest and unconsolidated joint venture cash interest, less amortization of loan fees and amortization of debt premiums/discounts. The fixed-charge coverage ratio calculation below is not directly comparable to the computation of “Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends” included in Exhibit 12.1 to this quarterly report on Form 10-Q for the six months ended June 30, 2015, and on our annual report on Form 10-K for the year ended December 31, 2014.

The following table presents a reconciliation of interest expense, the most directly comparable GAAP financial measure to cash interest and fixed charges (dollars in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Adjusted EBITDA
 
$
133,226

 
$
113,142

 
$
259,998

 
$
226,663

 
 
 
 
 
 
 
 
 
Interest expense
 
$
26,706

 
$
17,433

 
$
49,946

 
$
36,556

Capitalized interest:
 
 
 
 
 
 
 
 
Consolidated
 
8,437

 
11,302

 
19,408

 
23,315

Our share of unconsolidated joint ventures
 
617

 
—

 
1,205

 
—

Capitalized interest
 
9,054

 
11,302

 
20,613

 
23,315

Amortization of loan fees:
 
 
 
 
 
 
 
 
Consolidated
 
(2,889
)
 
(2,743
)
 
(5,723
)
 
(5,304
)
Our share of unconsolidated joint ventures
 
(32
)
 
—

 
(33
)
 
—

Amortization of loan fees
 
(2,921
)
 
(2,743
)
 
(5,756
)
 
(5,304
)
Amortization of debt premiums (discounts)
 
100

 
69

 
182

 
(136
)
Cash interest
 
32,939

 
26,061

 
64,985

 
54,431

Dividends on preferred stock
 
6,246

 
6,472

 
12,493

 
12,943

Fixed charges
 
$
39,185

 
$
32,533

 
$
77,478

 
$
67,374

 
 
 
 
 
 
 
 
 
Fixed-charge coverage ratio:
 
 
 
 
 
 
 
 
– period annualized
 
3.4x

 
3.5x

 
3.4x

 
3.4x

– trailing 12 months
 
3.3x

 
3.2x

 
3.3x

 
3.2x



98



Net debt to Adjusted EBITDA

Net debt to Adjusted EBITDA is a non-GAAP financial measure that we believe is useful to investors as a supplemental measure in evaluating our balance sheet leverage.  Net debt is equal to the sum of total consolidated debt less cash, cash equivalents, and restricted cash.  See “Adjusted EBITDA” for further information on the calculation of Adjusted EBITDA.

The following table summarizes the calculation of net debt to Adjusted EBITDA as of June 30, 2015, and December 31, 2014 (dollars in thousands):
 
As of
 
As of
 
June 30, 2015
 
December 31, 2014
Secured notes payable:
 
 
 
Consolidated
$
771,435

 
$
652,209

Our share of unconsolidated joint ventures
46,896

 
—

Secured notes payable
818,331

 
652,209

Unsecured senior notes payable
1,747,531

 
1,747,370

Unsecured senior line of credit
624,000

 
304,000

Unsecured senior bank term loans
950,000

 
975,000

Cash and cash equivalents:
 
 
 
Consolidated
(68,617
)
 
(86,011
)
Our share of unconsolidated joint ventures
(4,006
)
 
—

Cash and cash equivalents
(72,623
)
 
(86,011
)
Less: restricted cash
(44,191
)
 
(26,884
)
Net debt
$
4,023,048

 
$
3,565,684

 
 
 
 
Adjusted EBITDA:
 
 
 
– quarter annualized
$
532,904

 
$
493,432

– trailing 12 months
$
501,827

 
$
468,492

 
 
 
 
Net debt to Adjusted EBITDA:
 
 
 
– quarter annualized
7.5
x
 
7.2
x
– trailing 12 months
8.0
x
 
7.6
x

NOI

NOI is a non-GAAP financial measure equal to income from continuing operations, the most directly comparable GAAP financial measure, excluding loss on early extinguishment of debt, impairment of real estate, depreciation and amortization, interest expense, and general and administrative expense, including our share from our unconsolidated joint ventures.  We believe NOI provides useful information to investors regarding our financial condition and results of operations because it primarily reflects those income and expense items that are incurred at the property level.  Therefore, we believe NOI is a useful measure for evaluating the operating performance of our real estate assets.  NOI on a cash basis is NOI, adjusted to exclude the effect of straight-line rent adjustments required by GAAP.  We believe that NOI on a cash basis is helpful to investors as an additional measure of operating performance because it eliminates straight-line rent adjustments to rental revenue.


99



Further, we believe NOI is useful to investors as a performance measure because when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, and operating costs, which provides perspective not immediately apparent from income from continuing operations.  NOI can be used to measure the initial stabilized yields of our properties by calculating the quotient of NOI generated by a property on a straight-line basis, and our investment in the property, excluding the impact of leverage. NOI excludes certain components from income from continuing operations in order to provide results that are more closely related to the results of operations of our properties.  For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level rather than at the property level.  In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level.  Impairments of real estate have been excluded in deriving NOI because we do not consider impairments of real estate to be property-level operating expenses.  Impairments of real estate relate to changes in the values of our assets and do not reflect the current operating performance with respect to related revenues or expenses.  Our impairments of real estate represent the write-down in the value of the assets to the estimated fair value less cost to sell.  These impairments result from investing decisions and the deterioration in market conditions that adversely impact underlying real estate values.  Our calculation of NOI also excludes charges incurred from changes in certain financing decisions, such as losses on early extinguishment of debt, as these charges often relate to the timing of corporate strategy.  Property operating expenses that are included in determining NOI consist of costs that are related to our operating properties, such as utilities, repairs and maintenance; rental expense related to ground leases; contracted services, such as janitorial, engineering, and landscaping; property taxes and insurance; and property-level salaries.  General and administrative expenses consist primarily of accounting and corporate compensation, corporate insurance, professional fees, office rent, and office supplies that are incurred as part of corporate office management.  NOI presented by us may not be comparable to NOI reported by other equity REITs that define NOI differently.  We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with income from continuing operations as presented in our consolidated statements of income.  NOI should not be considered as an alternative to income from continuing operations as an indication of our performance, or as an alternative to cash flows as a measure of liquidity or our ability to make distributions.

Same Properties’ NOI

See discussion of Same Properties and reconciliation of NOI to income from continuing operations in the “Results of Operations” section earlier in Item 2 of this report.

Unencumbered NOI as a percentage of total NOI from continuing operations
 
Unencumbered NOI as a percentage of total NOI from continuing operations is a non-GAAP financial measure that we believe is useful to investors as a performance measure of the results of operations of our unencumbered real estate assets, as it primarily reflects those income and expense items that are incurred at the unencumbered property level.  We use unencumbered NOI as a percentage of total NOI from continuing operations, including our share from unconsolidated joint ventures, in order to assess our compliance with our financial covenants under our debt obligations, because the measure serves as a proxy for a financial measure under such debt obligations.  Unencumbered NOI is derived from assets classified in continuing operations, including our share from unconsolidated joint ventures, that are not subject to any mortgage, deed of trust, lien, or other security interest as of the period for which income is presented.  See the reconciliation of NOI to income from continuing operations in the “Results of Operations” section earlier in Item 2 of this report.

The following table summarizes unencumbered NOI as a percentage of total NOI for the three and six months ended June 30, 2015 and 2014 (dollars in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Unencumbered NOI
$
110,820

 
$
103,951

 
$
222,777

 
$
207,047

Encumbered NOI
32,017

 
20,098

 
56,450

 
40,681

NOI from continuing operations
$
142,837

 
$
124,049

 
$
279,227

 
$
247,728

Unencumbered NOI as a percentage of total NOI
78%

 
84%

 
80%

 
84%




100



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

The primary market risk to which we believe we are exposed is interest rate risk, which may result from many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control.

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 swap agreements, caps, floors, and other interest rate exchange contracts.  The use of these types of instruments to hedge a portion of our exposure to changes in interest rates carries additional risks, such as counterparty credit risk and the legal enforceability of hedging contracts.

Our future earnings and fair values relating to financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR.  However, our interest rate swap agreements are intended to reduce the effects of interest rate changes.  The following table illustrates the effect of a 1% change in interest rates, assuming a LIBOR floor of 0%, on our variable-rate debt, including our unsecured senior line of credit and unsecured senior bank term loans, after considering the effect of our interest rate swap agreements, secured debt, and unsecured senior notes payable as of June 30, 2015 (in thousands):

Annualized impact to future earnings due to variable-rate debt:
 
Rate increase of 1%
$
(7,151
)
Rate decrease of 1%
$
1,334

 
 
Effect on fair value of total consolidated debt and interest rate swap agreements:
 
Rate increase of 1%
$
(151,979
)
Rate decrease of 1%
$
148,847


These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost and our interest rate swap agreements in existence on June 30, 2015.  These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment.  Further, in the event of a change of such magnitude, we would consider taking actions to further mitigate our exposure to the change.  However, because of the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analyses assume no changes in our capital structure.

Equity price risk

We have exposure to equity price market risk because of our equity investments in certain publicly traded companies and privately held entities.  We classify investments in publicly traded companies as “available for sale” and consequently recognize them in the accompanying consolidated balance sheets at fair value, with unrealized gains or losses reported as a component of accumulated other comprehensive income (loss).  Investments in privately held entities are generally accounted for under the cost method because we do not influence any of the operating or financial policies of the entities in which we invest.  For all investments, we recognize other-than-temporary declines in value against earnings in the same period during which the decline in value was deemed to have occurred.  There is no assurance that future declines in value will not have a material adverse impact on our future results of operations.  The following table illustrates the effect that a 10% change in the fair value of our equity investments would have on earnings as of June 30, 2015 (in thousands):

Equity price risk:
 
Fair value increase of 10%
$
36,061

Fair value decrease of 10%
$
(36,061
)


101



Foreign currency exchange rate risk

We have exposure to foreign currency exchange rate risk related to our subsidiaries operating in Canada and Asia.  The functional currencies of our foreign subsidiaries are the respective local currencies.  Gains or losses resulting from the translation of our foreign subsidiaries’ balance sheets and statements of income are classified in accumulated other comprehensive income (loss) as a separate component of total equity.  Gains or losses will be reflected in our statements of income when there is a sale or partial sale of our investment in these operations or upon a complete or substantially complete liquidation of the investment.  The following table illustrates the effect that a 10% change in foreign currency rates relative to the U.S. dollar would have on our potential future earnings, and the fair value of our net investment in foreign subsidiaries based on our current operating assets outside the U.S. as of June 30, 2015 (in thousands):

Impact of potential future earnings due to foreign currency exchange rate:
 
Rate increase of 10%
$
17

Rate decrease of 10%
$
(17
)
 
 
Effect on the fair value of net investment in foreign subsidiaries due to foreign currency exchange rate:
 
Rate increase of 10%
$
25,528

Rate decrease of 10%
$
(25,528
)

This sensitivity analysis assumes a parallel shift of all foreign currency exchange rates with respect to the U.S. dollar; however, foreign currency exchange rates do not typically move in such a manner and actual results may differ materially.

Our exposure to market risk elements for the six months ended June 30, 2015, was consistent with the risk elements presented above, including the effects of changes in interest rates, equity prices, and foreign currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

As of June 30, 2015, we had performed an evaluation, under the supervision of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures.  These controls and procedures have been designed to ensure that information required for disclosure is recorded, processed, summarized, and reported within the requisite time periods.  Based on our evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2015.

Changes in internal control over financial reporting

There has not been any change in our internal control over financial reporting during the three months ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



102



PART II – OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the information set forth in this quarterly report on Form 10-Q, one should also carefully review and consider the information contained in our other reports and periodic filings that we make with the SEC, including, without limitation, the information contained under the caption “Item 1A.  Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2014.  Those risk factors could materially affect our business, financial condition, and results of operations.  The risks that we describe in our public filings are not the only risks that we face.  Additional risks and uncertainties not currently known to us, or that we presently deem to be immaterial, also may materially adversely affect our business, financial condition, and results of operations.



103



ITEM 6. EXHIBITS

Exhibit
Number
 
Exhibit Title
 
 
 
3.1*
 
Articles of Amendment and Restatement of the Company, filed as an exhibit to the Company’s quarterly report on Form 10-Q filed with the SEC on August 14, 1997.
3.2*
 
Certificate of Correction of the Company, filed as an exhibit to the Company’s quarterly report on Form 10-Q filed with the SEC on August 14, 1997.
3.3*
 
Bylaws of the Company (as amended May 7, 2015), filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on May 11, 2015.
3.4*
 
Articles Supplementary, dated June 9, 1999, relating to the 9.50% Series A Cumulative Redeemable Preferred Stock, filed as an exhibit to the Company’s quarterly report on Form 10-Q filed with the SEC on August 13, 1999.
3.5*
 
Articles Supplementary, dated February 10, 2000, relating to the election to be subject to Subtitle 8 of Title 3 of the Maryland General Corporation Law, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on February 10, 2000.
3.6*
 
Articles Supplementary, dated February 10, 2000, relating to the Series A Junior Participating Preferred Stock, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on February 10, 2000.
3.7*
 
Articles Supplementary, dated January 18, 2002, relating to the 9.10% Series B Cumulative Redeemable Preferred Stock, filed as an exhibit to the Company’s Form 8-A for registration of certain classes of securities filed with the SEC on January 18, 2002.
3.8*
 
Articles Supplementary, dated June 22, 2004, relating to the 8.375% Series C Cumulative Redeemable Preferred Stock, filed as an exhibit to the Company’s Form 8-A for registration of certain classes of securities filed with the SEC on June 28, 2004.
3.9*
 
Articles Supplementary, dated March 25, 2008, relating to the 7.00% Series D Cumulative Convertible Preferred Stock, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 25, 2008.
3.10*
 
Articles Supplementary, dated March 12, 2012, relating to the 6.45% Series E Cumulative Redeemable Preferred Stock, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 14, 2012.
4.1*
 
Specimen certificate representing shares of common stock, filed as an exhibit to the Company’s quarterly report on Form 10-Q filed with the SEC on May 5, 2011.
4.2*
 
Specimen certificate representing shares of 7.00% Series D Cumulative Convertible Preferred Stock, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 25, 2008.
4.3*
 
Indenture, dated as of February 29, 2012, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on February 29, 2012.
4.4*
 
Supplemental Indenture No. 1, dated as of February 29, 2012, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on February 29, 2012.
4.5*
 
Form of 4.60% Senior Note due 2022 (included in Exhibit 4.4 above).
4.6*
 
Specimen certificate representing shares of 6.45% Series E Cumulative Redeemable Preferred Stock, filed as an exhibit to the Company’s Form 8-A for registration of certain classes of securities filed with the SEC on March 12, 2012.
4.7*
 
Supplemental Indenture No. 2, dated as of June 7, 2013, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on June 7, 2013.
4.8*
 
Form of 3.90% Senior Note due 2023 (included in Exhibit 4.7 above).
4.9*
 
Supplemental Indenture No. 3, dated as of July 18, 2014, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on July 18, 2014.
4.10*
 
Form of 2.750% Senior Note due 2020 (included in Exhibit 4.9 above).
4.11*
 
Supplemental Indenture No. 4, dated as of July 18, 2014, among the Company, as Issuer, Alexandria Real Estate Equities, L.P., as Guarantor, and the Bank of New York Mellon Trust Company, N.A., as Trustee, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on July 18, 2014.
4.12*
 
Form of 4.500% Senior Note due 2029 (included in Exhibit 4.11 above).

104



10.1*
 
Amended and Restated Executive Employment Agreement, effective as of January 1, 2015, by and between the Company and Joel S. Marcus, filed as an exhibit to the Company’s current report on Form 8-K filed with the SEC on April 7, 2015.
10.2
 
Third Amended and Restated Term Loan Agreement, dated as of June 30, 2015, among the Company, as Borrower,
Alexandria Real Estate Equities, L.P., as Guarantor, Citibank, N.A., as Administrative Agent, Royal Bank of Canada
and The Bank of Nova Scotia, as Co-Syndication Agents, Compass Bank, Regions Bank, MUFG Union Bank, N.A.,
SunTrust Bank, TD Bank, N.A., Mizuho Bank (USA) and PNC Bank National Association, as Co-Documentation
Agents, and Citigroup Global Markets Inc., RBC Capital Markets, and The Bank of Nova Scotia, as Joint Lead
Arrangers and Joint Book Running Managers.
12.1
 
Computation of Consolidated Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends.
31.1
 
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.
32.0
 
Certification 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.
101
 
The following materials from the Company’s quarterly report on Form 10-Q for the six months ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2015, and December 31, 2014 (unaudited), (ii) Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 (unaudited), (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (unaudited), (iv) Consolidated Statement of Changes in Stockholders’ Equity and Noncontrolling Interests for the six months ended June 30, 2015 (unaudited), (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited).

(*) Incorporated by reference.

105



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, on July 29, 2015.

 
ALEXANDRIA REAL ESTATE EQUITIES, INC.
 
 
 
 
 
/s/ Joel S. Marcus
 
Joel S. Marcus
Chairman/Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
 
/s/ Dean A. Shigenaga
 
Dean A. Shigenaga
Chief Financial Officer
(Principal Financial Officer)



106
2Q15 - EX 10.2



EXHIBIT 10.2



THIRD AMENDED AND RESTATED TERM LOAN AGREEMENT

Dated as of June 30, 2015

among

ALEXANDRIA REAL ESTATE EQUITIES, INC.,
as the Borrower,

ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
as a Guarantor,

CITIBANK, N.A.,
as Administrative Agent,

and

The Lenders Party Hereto

with

ROYAL BANK OF CANADA

and

THE BANK OF NOVA SCOTIA,
as Co-Syndication Agents,

and

COMPASS BANK, REGIONS BANK, MUFG UNION BANK, N.A., SUNTRUST BANK, TD BANK, N.A., MIZUHO BANK (USA) and PNC BANK NATIONAL ASSOCIATION,
as Co-Documentation Agents,

and

CITIGROUP GLOBAL MARKETS INC.,
RBC CAPITAL MARKETS and THE BANK OF NOVA SCOTIA,
as Joint Lead Arrangers and Joint Book Running Managers






TABLE OF CONTENTS

Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS1
1.01Defined Terms    1
1.02Other Interpretive Provisions    25
1.03Accounting Terms/Financial Covenants    25
1.04Times of Day.    26
ARTICLE II THE COMMITMENTS AND BORROWINGS26
2.01Term Loans    26
2.02Borrowings, Conversions and Continuations of Loans    27
2.03[Reserved]    28
2.04[Reserved]    28
2.05Prepayments    28
2.06[Reserved]    28
2.07Repayment of Loans    28
2.08Interest    29
2.09Fees    29
2.10Computation of Interest and Fees    29
2.11Evidence of Debt    30
2.12Payments Generally; Administrative Agent’s Clawback    30
2.13Sharing of Payments by Lenders    31
2.14Extensions of Maturity Date    32
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY33
3.01Taxes    33
3.02Illegality.    36
3.03Inability to Determine Rates.    36
3.04Increased Costs; Reserves on Eurodollar Rate Loans.    37
3.05Compensation for Losses.    39
3.06Mitigation Obligations; Replacement of Lenders.    39
AGREEMENT AND THE BORROWING
40
4.01Conditions of Effectiveness of this Agreement.    40
4.02Additional Conditions to Effectiveness.    41
ARTICLE V REPRESENTATIONS AND WARRANTIES42
5.01Existence, Qualification and Power; Compliance with Laws.    42
5.02Authorization; No Contravention.    42
5.03Governmental Authorization; Other Consents.    42
5.04Binding Effect.    42
5.05Financial Statements; No Material Adverse Effect.    43
5.06Litigation.    43

i



5.07No Default.    43
5.08Ownership of Property; Liens.    43
5.09Environmental Compliance.    44
5.10Insurance.    44
5.11Taxes.    44
5.12ERISA Compliance.    44
5.13Margin Regulations; Investment Company Act; REIT Status.    45
5.14Disclosure.    45
5.15Compliance with Laws.    45
5.16Intellectual Property; Licenses, Etc.    45
5.17Property.    46
5.18OFAC.    46
5.19Solvency.    46
ARTICLE VI AFFIRMATIVE COVENANTS46
6.01Financial Statements.    46
6.02Certificates; Other Information.    47
6.03Payment of Obligations.    49
6.04Preservation of Existence, Etc.    49
6.05Maintenance of Properties.    49
6.06Maintenance of Insurance.    49
6.07Compliance with Laws.    49
6.08Books and Records.    49
6.09Inspection Rights.    50
6.10Use of Proceeds.    50
ARTICLE VII NEGATIVE COVENANTS50
7.01Liens.    50
7.02Investments.    52
7.03Fundamental Changes.    53
7.04Restricted Payments.    53
7.05Change in Nature of Business.    54
7.06Transactions with Affiliates.    54
7.07Burdensome Agreements.    54
7.08[Reserved].    54
7.09Financial Covenants.    54
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES55
8.01Events of Default    55
8.02Remedies Upon Event of Default.    57
8.03Application of Funds.    57
ARTICLE IX ADMINISTRATIVE AGENT58
9.01Appointment and Authority.    58
9.02Rights as a Lender.    58

ii



9.03Exculpatory Provisions.    58
9.04Reliance by Administrative Agent.    59
9.05Delegation of Duties.    59
9.06Successor Administrative Agent.    60
9.07Non‑Reliance on Administrative Agent and Other Lenders.    60
9.08No Other Duties, Etc.    60
9.09Administrative Agent May File Proofs of Claim.    61
9.10Collateral and Borrower Matters.    61
9.11No Obligations of Credit Parties.    62
ARTICLE X MISCELLANEOUS62
10.01Amendments, Etc.    62
10.02Notices; Effectiveness; Electronic Communication.    63
10.03No Waiver; Cumulative Remedies.    65
10.04Expenses; Indemnity; Damage Waiver.    65
10.05Payments Set Aside.    66
10.06Successors and Assigns.    67
10.07Treatment of Certain Information; Confidentiality.    70
10.08Right of Setoff.    72
10.09Interest Rate Limitation.    72
10.10Counterparts; Integration; Effectiveness.    72
10.11Survival of Representations and Warranties.    73
10.12Severability.    73
10.13Replacement of Lenders.    73
10.14Governing Law; Jurisdiction; Etc.    74
10.15Waiver of Jury Trial.    75
10.16USA PATRIOT Act Notice.    75
10.17[Reserved].    75
10.18ENTIRE AGREEMENT.    75
10.19[Reserved].    76
10.20Release of a Guarantor.    76
10.21No Advisory or Fiduciary Responsibility.    76
ARTICLE XI GUARANTY77
11.01The Guaranty.    77
11.02Obligations Unconditional.    77
11.03Reinstatement.    78
11.04Certain Additional Waivers.    78
11.05Remedies.    78
11.06Rights of Contribution.    79
11.07Guarantee of Payment; Continuing Guarantee.    79
11.08Additional Guarantors.    79


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SCHEDULES

1.01        Tech Square
2.01        Commitments and Applicable Percentages
10.02        Administrative Agent’s Office; Certain Addresses for Notices


EXHIBITS

A    Form of Loan Notice
B    Reserved
C    Form of Note
D    Form of Compliance Certificate
E    Form of Assignment and Assumption
F    Form of Joinder Agreement



iv



THIRD AMENDED AND RESTATED TERM LOAN AGREEMENT


This THIRD AMENDED AND RESTATED TERM LOAN AGREEMENT is entered into as of June 30, 2015, among Alexandria Real Estate Equities, Inc., a Maryland corporation (the “Borrower”), Alexandria Real Estate Equities, L.P., a Delaware limited partnership (“Operating Partnership”), the other guarantors, if any, that from time to time become party to this Agreement pursuant to Section 11.08 (collectively, together with Operating Partnership, the “Guarantors”); each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”); and Citibank, N.A., as Administrative Agent, with reference to the following Recitals:

RECITALS

WHEREAS, pursuant to that certain Second Amended and Restated Term Loan Agreement dated as of July 26, 2013 by and among the Borrower, the Operating Partnership, the Lenders (as defined therein) party thereto and Citibank, N.A., as administrative agent for such Lenders (as amended prior to the date hereof, the “Existing Term Loan Agreement”), such Lenders made a $600,000,000 loan to the Borrower and the Borrower has since prepaid an aggregate of $250,000,000 in principal amount of such loan;

WHEREAS, the Borrower and the other parties to the Existing Term Loan Agreement desire to amend and restate the Existing Term Loan Agreement to, among other things, change the Applicable Rate and otherwise modify the terms and conditions thereof as set forth herein; and

WHEREAS, the Lenders are willing to so modify the terms and conditions of the Existing Term Loan Agreement subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Existing Term Loan Agreement to read in its entirety as follows:


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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

1.01    Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquisition” means, with respect to any Person, the acquisition by such Person, in a single transaction or in a series of related transactions, of either (a) all or any substantial portion of the property of, or a line of business or division of, or any other property of, another Person or (b) at least a majority of the voting Equity Interests of another Person, in each case whether or not involving a merger or consolidation with such other Person.

“Act” has the meaning set forth in Section 10.16.

“Adjusted EBITDA” means, for any period of determination and without duplication, an amount equal to (a) EBITDA of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, minus (b) the Capital Improvement Reserve for the Real Property of the Borrower and its Subsidiaries, minus (c) (without duplication to the extent already deducted in the calculation of EBITDA) any Minority Interest’s share of the EBITDA of the Borrower and its Subsidiaries for such period.

“Adjusted Interest Expense” means, with respect to any Person as of the last day of any fiscal period and without duplication, an amount equal to Interest Expense less any financing fees to the extent amortized and any amortization thereof (including fees payable under a Swap Contract), prepayment penalties, cost or expense associated with the early extinguishment of Indebtedness or deferred financing costs.

“Adjusted NOI” means, for any period and with respect to a Revenue-Producing Property, an amount equal to (a) NOI of that Revenue-Producing Property, minus (b) the Capital Improvement Reserve for such Revenue-Producing Property, minus (c) any Minority Interest’s share of the NOI of that Revenue-Producing Property; provided that for purposes of calculating Adjusted NOI, any Revenue-Producing Property that has a negative Adjusted NOI for the period shall be deemed to have an Adjusted NOI of zero.

“Adjusted Tangible Assets” means, as of any date of determination, without duplication, an amount equal to (a) Total Assets of the Borrower and its Subsidiaries as of that date, minus (b) Intangible Assets of the Borrower and its Subsidiaries as of that date, plus (c) any Minority Interest’s share of Intangible Assets minus (d) any Minority Interest’s share of Total Assets as of that date.

“Adjusted Total Indebtedness” means, as of any date of determination, without duplication, an amount equal to (a) the aggregate Total Indebtedness of the Borrower and its Subsidiaries as of such date of determination, minus (b) Excluded Indebtedness; provided, in no event shall such Excluded Indebtedness exceed an amount equal to (i) cash and Cash Equivalents of the Borrower and its Subsidiaries that are not subject to pledge, lien or control agreement (excluding statutory liens or rights of set-off in favor of any depositary bank or institution where such cash or Cash Equivalents are maintained) minus (ii) $35,000,000 (it being agreed that Excluded Indebtedness shall in no event be deemed a negative number).

“Adjusted Unencumbered Asset Value” means, as of any date of determination, (a) the Unencumbered Asset Value minus (b) any value attributable to Qualified Land and Qualified Development Assets in excess of 35% of the Unencumbered Asset Value minus (c) any value attributable to Qualified

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Revenue-Producing Properties, Qualified Land, Qualified Development Assets and Qualified Joint Ventures that are located outside the United States or Canada in excess of 30% of the Unencumbered Asset Value.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.

“Administrative Agent” means Citibank in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Agent Parties” has the meaning set forth in Section 10.02(c).
    
“Aggregate Commitments” means the Commitments of all the Lenders. As of the Closing Date, the Aggregate Commitments are equal to $350,000,000.

“Agreement” means this Third Amended and Restated Term Loan Agreement, as it may be amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time.

“Applicable Percentage” means, with respect to any Lender at any time, the following percentages (carried out to the ninth decimal place), as of the date of determination:

(a)
with respect to a Lender’s right to receive payments of interest, fees, and principal with respect to Loans made by such Lender, the percentage obtained by dividing (i) the aggregate outstanding principal amount of such Lender’s Loans by (ii) the Loan Amount; and

(b)    the Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, or in the records of the Administrative Agent, as applicable.

“Applicable Rate” means, from time to time, the following percentages per annum, based on the Debt Rating as set forth below:

Pricing
Level
Debt Rating
Eurodollar
Rate +
Base Rate +
1
> A / A2
0.85%
0.0%
2
A- / A3
0.90%
0.0%
3
BBB+ / Baal
0.95%
0.0%
4
BBB / Baa2
1.10%
0.10%
5
BBB- / Baa3
1.35%
0.35%
6
Unrated or < BBB- / Baa3
1.75%
0.75%

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On the Closing Date, the Applicable Rate shall be set at Pricing Level 4 above. Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the day immediately preceding the effective date of the next such change.

“Appraised Value” means, as of any date of determination, without duplication, with respect to any Real Property, the appraised value (if any) thereof based on its unimproved as‑is basis determined pursuant to an appraisal prepared by an M.A.I. certified appraisal and otherwise reasonably satisfactory to Administrative Agent (it being understood and agreed that in no event shall the Borrower (or any applicable Subsidiary) be required to deliver updated appraisals more frequently than once during any 24‑month period).

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Arrangers” means CGMI, RBC Capital Markets and ScotiaBank in their capacities as joint lead arrangers and joint book running managers.

“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

“Attributable Indebtedness” means, on any date, in respect of any Capital Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP.

“Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2014, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.

“Base Qualifications” means, for any Real Property, the following criteria:

(a)    to the best of the Borrower’s knowledge and belief, such Real Property is in good repair and condition, subject to ordinary wear and tear, and does not have any title, survey, environmental or other defects that would give rise to a materially adverse effect as to the value, use of or ability to sell or refinance such Real Property (it being understood and agreed that construction and redevelopment in the ordinary course do not constitute a material adverse effect on the value, use of or ability to sell or refinance such Real Property);

(b)    such Real Property is Unencumbered;

(c)    such Real Property is either (i) owned in fee simple absolute (or, in the case of Qualified Development Assets and Qualified Revenue-Producing Properties, through ownership of

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a condominium unit) or (ii) occupied by means of a leasehold interest or similar arrangement providing the right to occupy Real Property pursuant to a Mortgageable Ground Lease;

(d)    such Real Property is owned or leased by (i) the Borrower, (ii) a Guarantor or (iii) a Subsidiary of the Borrower (other than an Obligor Subsidiary); and

(e)    such Real Property is located in the United States, Canada, Scotland, the United Kingdom, Germany, Austria, France, Switzerland, the Netherlands, Belgium, Sweden, Denmark, Norway, Finland, Ireland or Japan.

“Base Rate” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Citibank as its “base rate,” and (c) the Eurodollar Rate plus 1.00%. The “base rate” is a rate set by Citibank based upon various factors including Citibank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such prime rate announced by Citibank shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Loan that bears interest based on the Base Rate.

“Borrower” has the meaning set forth in the introductory paragraph hereto.

“Borrower Materials” has the meaning set forth in Section 6.02.

“Borrowing” means a borrowing consisting of simultaneous Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by the Lenders pursuant to Section 2.01.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and if such day relates to any interest rate settings as to a Eurodollar Rate Loan, any fundings, disbursements, settlements and payments in respect of any such Eurodollar Rate Loan, or any other dealings to be carried out pursuant to this Agreement in respect of any such Eurodollar Rate Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market.

“Capital Improvement Reserve” means, with respect to any Real Property now or hereafter owned by the Borrower or its Subsidiaries, an amount equal to twenty cents ($.20) multiplied by the Net Rentable Area of the Real Property.

“Capital Lease Obligations” means all monetary obligations of a Person under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease.

“Capitalization Rate” means 6.50%.

“Cash” means money, currency or a credit balance in any demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.

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“Cash Equivalents” means:

(a)    securities issued or fully guaranteed or insured by the United States Government or any agency thereof and backed by the full faith and credit of the United States having maturities of not more than one year from the date of acquisition;

(b)    certificates of deposit, time deposits, demand deposits, eurodollar time deposits, repurchase agreements, reverse repurchase agreements, or bankers’ acceptances, having in each case a term of not more than one year, issued by Administrative Agent or any Lender, or by any U.S. commercial bank (or any branch or agency of a non-U.S. bank licensed to conduct business in the U.S.) having combined capital and surplus of not less than $100,000,000 whose short-term securities are rated (at the time of acquisition thereof) at least A‑1 by S&P and P‑1 by Moody’s;

(c)    demand deposits on deposit in accounts maintained at commercial banks having membership in the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder;

(d)    commercial paper of an issuer rated (at the time of acquisition thereof) at least A‑2 by S&P or P‑2 by Moody’s and in either case having a term of not more than one year; and

(e)    money market mutual or similar funds that invest primarily in assets satisfying the requirements of clauses (a) through (d) of this definition.

“Cash Interest Expense” means Adjusted Interest Expense of a Person that is paid or currently payable in Cash.

“CGMI” means Citigroup Global Markets Inc. and its successors.

“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption, or taking effect of any law, rule, regulation, guideline, decision, directive or treaty, (b) any change in any law, rule, regulation, directive, guideline, decision or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline, law, rule, treaty or directive (whether or not having the force of law) by any Governmental Authority; provided that for purposes of this Agreement, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, guidelines, and directives in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to have gone into effect and been adopted after the date of this Agreement.

“Change of Control” means (a) any transaction or series of related transactions in which any Unrelated Person or two or more Unrelated Persons acting in concert acquire beneficial ownership (within the meaning of Rule 13d 3(a)(l) under the Securities Exchange Act of 1934, as amended), directly or indirectly, of 40% or more of the outstanding voting Common Stock, or (b) during any period of 12 consecutive months, individuals who at the beginning of such period constituted the board of directors of the Borrower (together with any new or replacement directors whose election by the board of directors, or whose nomination for election, was approved by a vote of at least a majority of the directors then still in office who were either

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directors at the beginning of such period or whose election or nomination for reelection was previously so approved) cease for any reason to constitute a majority of the directors then in office.

“Citibank” means Citibank, N.A. and its successors.

“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Commitment” means, as to each Lender, its obligation to make a Loan available to the Borrower pursuant Section 2.01, in an aggregate principal amount on the Closing Date not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 hereto or the amount set forth in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

“Common Stock” means the common stock of the Borrower.

“Compliance Certificate” means a certificate substantially in the form of Exhibit D.
    
“Confidential Information” means (a) all of the terms, covenants, conditions or agreements set forth in any letters of intent or in this Agreement or any amendments hereto and any related agreements of whatever nature, (b) the information and reports provided in compliance with the terms of this Agreement, (c) any and all information provided, disclosed or otherwise made available to the Administrative Agent and the Lenders including, without limitation, any and all plans, maps, studies (including market studies), reports or other data, operating expense information, as-built plans, specifications, site plans, drawings, notes, analyses, compilations, or other documents or materials relating to the properties or their condition or use, whether prepared by the Borrower or others, which use, or reflect, or that are based on, derived from, or are in any way related to the foregoing, and (d) any and all other information of the Borrower or any of its Subsidiaries that the Administrative Agent or any Lender may have access to including, without limitation, ideas, samples, media, techniques, sketches, specifications, designs, plans, forecasts, financial information, technical information, drawings, works of authorship, models, inventions, know-how, processes, apparatuses, equipment, algorithms, financial models and databases, software programs, software source documents, manuals, documents, properties, names of tenants or potential tenants, vendors, suppliers, distributors and consultants, and formulae related to the current, future, and proposed products and services of the Borrower or any of its Subsidiaries or tenants or potential tenants (including, without limitation, information concerning research, experimental work, development, design details and specifications, engineering, procurement requirements, purchasing, manufacturing, customer lists, investors, employees, clients, business and contractual relationships, business forecasts, and sales and marketing plans). Confidential Information may be disclosed or accessible to the Administrative Agent and the Lenders as embodied within tangible material (such as documents, drawings, pictures, graphics, software, hardware, graphs, charts, or disks), orally, or visually.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

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“Credit Party” means the Borrower or any Guarantor and “Credit Parties” means, collectively, the Borrower and the Guarantors.
    
“Debt Rating” means, as of any date of determination, the rating as determined by either Rating Agency of the Borrower's long term non-credit enhanced senior unsecured debt; provided that (a) if the Debt Ratings issued by the Rating Agencies differ, the higher of such Debt Ratings shall apply, (b) if the Borrower only has one Debt Rating, such Debt Rating shall apply and (c) if the Borrower does not have a Debt Rating, Pricing Level 6 shall apply.

“Debt Service” means, for any period with respect to a Person’s Indebtedness, the sum of all Interest Charges and regularly scheduled principal payments due and payable during such period, excluding any balloon payments due upon maturity of the Indebtedness, refinancing of the Indebtedness or repayments thereof in connection with asset sales; provided that Debt Service shall not include any Minority Interest’s share of any of the foregoing. Debt Service shall include the portion of rent payable by a Person during such period under Capital Lease Obligations that should be treated as principal in accordance with GAAP but shall exclude Interest Charges related to committed construction loans.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum.

“Departing Lender” has the meaning set forth in Section 10.13.

“Development Investments” means, as of any date of determination, direct or indirect investments in Real Property which, as of such date, is the subject of ground‑up development to be used principally for office, laboratory, research, health sciences, technology, manufacturing or warehouse purposes and related real property (and appurtenant amenities); provided, that, such Real Property or any portion thereof will only constitute a Development Investment from the date construction has commenced thereon until the date on which the Real Property and applicable improvements receive a final certificate of occupancy or equivalent certification allowing legal occupancy for its intended purpose.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction and dispositions due to casualty or condemnation) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.


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“Documentation Agents” means Compass Bank, Regions Bank, MUFG Union Bank, N.A., SunTrust Bank, TD Bank, N.A., Mizuho Bank (USA) and PNC Bank National Association, each in its capacity as co-documentation agent.

“Dollar” and “$”mean lawful money of the United States.

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

“EBITDA” means, with respect to any Person (or any asset of a Person) for any fiscal period and without double counting, the sum of (a) the Net Income of such Person (or attributable to assets of the Person) for that period, plus (b) the following to the extent deducted in calculating Net Income of such Person (or attributable to assets of such Person) (i) any non-recurring loss, plus (ii) Interest Expense for that period, plus (iii) the aggregate amount of federal and state taxes on or measured by income of such Person for that period (whether or not payable during that period), plus (iv) depreciation, amortization and all other non-cash expenses (including non-cash officer compensation and any write-down of goodwill pursuant to GAAP) of such Person for that period, in each case as determined in accordance with GAAP, plus (v) transaction costs, fees and expenses in connection with any capital markets offering, debt financing or amendment thereto, redemption or exchange of Indebtedness, Disposition, merger or acquisition (in each case, whether or not consummated), plus (vi) severance and restructuring charges plus (vii) charges related to the early extinguishment of Indebtedness minus (c) any non-operating, non-recurring gain to the extent included in calculating Net Income of such Person (or attributable to assets of such Person).

“Eligible Assignee” means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) unless an Event of Default has occurred and is continuing, the Borrower (on behalf of the Credit Parties) (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

“Environmental Laws” means any and all applicable Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions governing pollution and the protection of the environment or the release of any Hazardous Materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement by the Borrower or any of its Subsidiaries pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interest” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, and other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

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“Equity Offering” means the issuance and sale by the Borrower or the Operating Partnership of any equity securities.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan or Multiemployer Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (g) the determination that any Pension Plan or Multiemployer Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA to the extent that such determination could reasonably be expected to give rise to a Material Adverse Effect; or (h) the imposition of any material liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

“Eurodollar Rate” means:

(a)    for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the ICE Benchmark Administration Limited (or any other Person which takes over the administration of that rate) LIBOR Rate (“LIBOR”), as published by Reuters (or other commercially available source providing quotations of LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Citibank and with a term equivalent to such Interest Period would be offered by Citibank’s London Branch (or other Citibank branch or Affiliate) to major banks in the London interbank market for Dollars at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period; and

(b)    for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to (i) LIBOR, at approximately 11:00 a.m., London time determined two Business Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination

10
    


in same day funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by Citibank’s London Branch to major banks in the London interbank Eurodollar market at their request at the date and time of determination.

“Eurodollar Rate Loan” means a Loan that bears interest at a rate based on clause (a) of the definition of “Eurodollar Rate.”

“Event of Default” has the meaning set forth in Section 8.01.

“Exchange Proceeds” means the net issuance proceeds from Equity Offerings, which the Borrower has designated or otherwise stated that it intends to use to make Restricted Payments on account of then existing Preferred Equity.

“Excluded Indebtedness” means, as of any date of determination, the aggregate principal amount of any Indebtedness of the Borrower and its Subsidiaries included in the definition of Total Indebtedness, as of such date of determination, either (a) which by its terms matures within twenty-four (24) months after such date of determination or (b) as to which the Borrower or any Subsidiary has the right to convert or any holder of such Indebtedness has the right to put or convert such Indebtedness within twenty-four (24) months after such date of determination.

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located, or in which it is doing business, or in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located, (c) other than with respect to an assignee pursuant to a request by the Borrower under Section 10.13, any United States Federal withholding tax that is imposed on amounts payable to such Person at the time such Person becomes a party hereto (or designates a new Lending Office), except to the extent that such Person (or its assignor, if any) was entitled, at the time of its appointment or designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a), (d) any taxes attributable to such Person’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), and (e) any United States Federal withholding tax imposed by the requirements of Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, or any agreement entered into pursuant to Section 1471(b)(1) of the Code (“FATCA”).

“Existing Maturity Date” has the meaning set forth in Section 2.14(a).

“Existing Term Loan Agreement” has the meaning specified in the Recitals to this Agreement.

“FATCA” has the meaning specified in the definition of Excluded Taxes.    

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (a) if such day is not a Business Day, the Federal Funds Rate

11
    


for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Citibank on such day on such transactions as determined by the Administrative Agent.

“Fee Letter” means any letter agreement dated as of June 8, 2015 executed and delivered by the Borrower and/or the Operating Partnership in connection with this Agreement and to which any of the Arrangers and/or the Administrative Agent are party, as the same may be amended from time to time.

“First Extension” has the meaning set forth in Section 2.14(a).

“Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter, the ratio obtained by dividing (a) Adjusted EBITDA for the period consisting of that fiscal quarter and the three immediately preceding fiscal quarters by (b) an amount equal to (i) Debt Service of the Borrower and its Subsidiaries for such period, plus (ii) all Preferred Distributions (other than redemptions) of the Borrower and its Subsidiaries during such period.

“Foreign Lender” means any Lender that is not a United States person as defined in Section 7701(a)(30) of the Code.

“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“Funds From Operations” means, with respect to any fiscal period and without double counting, an amount equal to the Net Income (or deficit) of the Borrower and its Subsidiaries for that period computed on a consolidated basis in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures; provided that Funds From Operations shall exclude one time or non-recurring charges and impairment charges, charges from the early extinguishment of indebtedness and other non-cash charges. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect Funds From Operations on the same basis. Funds From Operations shall be reported in accordance with the NAREIT Policy Bulletin dated April 5, 2002, as amended, restated, supplemented or otherwise modified from time to time.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision or instrumentality thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).


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“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness of the payment or performance of such Indebtedness, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“Guarantors” means the Operating Partnership and, if requested by the Borrower, any other Wholly-Owned Domestic Subsidiary of the Borrower who becomes a Guarantor pursuant to Section 11.08.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated under any Environmental Law.

“Impacted Loans” has the meaning set forth in Section 3.03.
    
“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with
GAAP:

(a)    all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b)    all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances and bank guaranties;

(c)    net obligations of such Person under any Swap Contract;

(d)    all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(e)    indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f)    Capital Lease Obligations; and

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(g)    all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, (i) the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or is otherwise liable for such Indebtedness, except to the extent such Indebtedness is expressly made non-recourse to such Person and (ii) Indebtedness shall not include any Minority Interest’s share of any of the foregoing. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any Capital Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

“Indemnified Taxes” means Taxes other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document.

“Indemnitee” has the meaning specified in Section 10.04(b).

“Intangible Assets” means the value of all assets of a Person and its Subsidiaries (without duplication), determined on a consolidated basis in accordance with GAAP, that are considered to be intangible assets under GAAP, including customer lists, goodwill, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.

“Interest Charges” means, as of the last day of any fiscal period and without double counting, the sum of (a) Cash Interest Expense of a Person, plus (b) all interest currently payable in Cash by a Person which is incurred during that fiscal period and capitalized under GAAP, minus (c) any Minority Interest’s share of Cash Interest Expense.

“Interest Expense” means, with respect to any Person as of the last day of any fiscal period and without duplication, an amount equal to (a) all interest, fees, charges and related expenses paid or payable (without duplication) for that fiscal period by that Person to a lender in connection with borrowed money (including any obligations for fees, charges and related expenses payable to the issuer of any letter of credit) or the deferred purchase price of assets that are considered “interest expense” under GAAP, plus (b) the portion of rent paid or payable (without duplication) for that fiscal period by that Person under Capital Lease Obligations, minus (or plus, as applicable) (c) amounts received (or paid) under Swap Contracts plus (d) all other amounts considered to be “interest expense” under GAAP.

“Interest Payment Date” means the fifth (5th) calendar day of each month; provided that if the fifth (5th) calendar day of any month falls on a day other than a Business Day, then the Interest Payment Date shall be the immediately succeeding Business Day or, if any such date would be after the Maturity Date, the Maturity Date.

“Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or, in the case of any Eurodollar Rate Loan, converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, or such other period that is twelve months or less requested by the Borrower and consented to by all the Lenders, as selected by the Borrower in the applicable Loan Notice, as the case may be; provided that:


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(i)    any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii)    any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(iii)    no Interest Period shall extend beyond the Maturity Date.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment, but reduced by any amounts received in respect of such Investment which constitute capital distributions, principal, sale proceeds or otherwise in respect thereof.

“IP Rights” has the meaning specified in Section 5.16.

“IRS” means the United States Internal Revenue Service.

“Joinder Agreement” means a joinder agreement substantially in the form attached hereto as Exhibit F.

“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Lender” has the meaning specified in the introductory paragraph.

“Lender Party” has the meaning set forth in Section 10.07.

“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

“Leverage Ratio” means, as of the last day of each fiscal quarter, the ratio (expressed as a percentage) obtained by dividing (a) Adjusted Total Indebtedness as of such date by (b) (i) the Adjusted Tangible Assets

15
    


as of such date minus (ii) the amount of Excluded Indebtedness deducted in connection with the determination of Adjusted Total Indebtedness as of such date.

“LIBOR” has the meaning specified in the definition of Eurodollar Rate.    

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, deposit arrangement, encumbrance, lien (statutory or other), charge, or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing, other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest).

“Loan” means a term loan of any Type made to the Borrower by the Lenders pursuant to Section 2.01.

“Loan Amount” means, at any time, the aggregate principal amount of the Loans then outstanding, which on the Closing Date is equal to $350,000,000.

“Loan Documents” means this Agreement, each Note, each Fee Letter and any other instrument, document or agreement from time to time delivered by a Credit Party in connection with this Agreement.

“Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

“Material Acquisition” means an Acquisition by the Borrower or any of its Subsidiaries in which the value of the assets acquired in such Acquisition exceeds five percent (5%) of Total Assets of the Borrower and its Subsidiaries (after giving effect to such Acquisition).

“Material Adverse Effect” means a material adverse effect on (a) the validity or enforceability of any Loan Document (other than as a result of any action or inaction of the Administrative Agent or any Lender), (b) the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis or (c) the ability of the Credit Parties to perform the payment and other material Obligations under the Loan Documents.

“Material Unsecured Indebtedness” means outstanding third party unsecured borrowed money Indebtedness (including guaranties thereof), in a principal amount equal to or greater than $25,000,000.

“Maturity Date” means the later of (a) June 30, 2019 and (b) if the Existing Maturity Date is extended pursuant to Section 2.14, such extended Maturity Date as determined pursuant to such Section 2.14.

“Maximum Rate” has the meaning set forth in Section 10.09.

“Minority Interest” means, with respect to any non-Wholly-Owned Subsidiary, direct or indirect, of the Borrower, any ownership interest of a third party in such Subsidiary.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Mortgageable Ground Lease” means on any date of determination, a lease or similar arrangement providing the right to occupy Real Property (a) which is granted by the fee owner of Real Property, (b) which

16
    


has a remaining term (calculated only once on the Closing Date or the date the Real Property subject to such lease becomes a Qualified Asset Pool Property) of not less than twenty-five (25) years, including extension options exercisable solely at the discretion of the Borrower or any applicable Subsidiary, (c) under which no material default has occurred and is continuing and (d) with respect to which a security interest may be granted (i) without the consent of the lessor or (ii) pursuant to the consent of the lessor, which consent has been granted.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Negative Pledge” means a Contractual Obligation that contains a covenant binding on the Borrower and its Subsidiaries that prohibits Liens on any of their Property, other than (a) any such covenant contained in a Contractual Obligation granting or relating to a particular Lien which affects only the property that is the subject of such Lien and (b) any such covenant that does not apply to, or otherwise permits, Liens which may secure the Obligations now or in the future.

“Net Income” means, for any period and for any Person, the net income of the Person for that period, determined in accordance with GAAP; provided that there shall be excluded therefrom the net amount of any real estate gains or losses.

“Net Rentable Area” means with respect to any Real Property, the floor area of any buildings, structures or improvements available for leasing to tenants (excluding storage lockers and parking spaces) determined in accordance with the Borrower’s or its applicable Subsidiary’s rent roll for such Real Property, the manner of such determination shall be consistently applied for all Real Property, unless otherwise approved by the Administrative Agent.

“NOI” means, with respect to any Revenue-Producing Property and with respect to any fiscal period, the sum of (a) the net income of that Revenue-Producing Property for that period, plus (b) Interest Expense of that Revenue-Producing Property for that period, plus (c) the aggregate amount of federal and state taxes on or measured by income of that Revenue‑Producing Property for that period (whether or not payable during that period), plus (d) depreciation, amortization and all other non-cash expenses of that Revenue-Producing Property for that period, in each case as determined in accordance with GAAP.

“Non-Recourse Debt” means Indebtedness of any Person for which the liability of such Person (except with respect to fraud, Environmental Laws liability, misapplication of funds, bankruptcy, transfer of collateral in violation of the applicable loan documents, failure to obtain consent for subordinate financing in violation of the applicable loan documents and other exceptions customary in like transactions at the time of the incurrence of such Indebtedness) either is contractually limited to collateral securing such Indebtedness or is so limited by operation of Laws.

“Note” means a promissory note made by the Borrower in favor of, and payable to the order of, a Lender evidencing that portion of the Loan made by such Lender substantially in the form of Exhibit C. A Note shall be executed by the Borrower in favor of each Lender requesting such Note.

“Obligations” means all advances to, and debts, liabilities, obligations of, any Credit Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Credit Party or any Affiliate thereof of any proceeding under any

17
    


Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

“Obligor Subsidiary” means any Subsidiary (other than the Operating Partnership) that is not a Guarantor but is obligated with respect to any Material Unsecured Indebtedness.

“Obligor Subsidiary Debt” means third party unsecured borrowed money Indebtedness (including guaranties) of any Obligor Subsidiary.

“OFAC” means the Office of Foreign Assets Control of the United States Department of the
Treasury.

“Operating Partnership” has the meaning set forth in the introductory paragraph hereto.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document; provided, however, that “Other Taxes” shall not include such amounts to the extent imposed as a result of any transfer by any Lender or the Administrative Agent of any interest in or under any Loan Document.

“Overnight Rate” means, for any day, the greater of (i) the Federal Funds Rate and (ii) an overnight rate as reasonably determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

“Participant” has the meaning set forth in Section 10.06(d).

“Participant Register” has the meaning set forth in Section 10.06(d).

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA) including a multiple employer plan but not including a Multiemployer Plan; that is maintained

18
    


or is contributed to by the Borrower or its Subsidiaries and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.

“Permitted Purposes” has the meaning set forth in Section 10.07(a).

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(2) of ERISA) established by the Borrower, or with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Platform” has the meaning set forth in Section 6.02.

“Preferred Distributions” means for any period, the amount of any and all Restricted Payments due and payable in cash by the Borrower or any of its Subsidiaries during such period to the holders of Preferred Equity but shall not include (i) any Minority Interest’s share of any such Restricted Payments or (ii) any such Restricted Payments paid to the Borrower or any of its Subsidiaries.

“Preferred Equity” means any form of preferred stock (whether perpetual, convertible or otherwise) or other ownership or beneficial interest in the Borrower or any of its Subsidiaries that entitles the holders thereof to preferential payment or distribution priority with respect to dividends, assets or other payments over the holders of any other stock or other ownership or beneficial interest in such Person.

“Property” means all assets of the Borrower and its Subsidiaries, whether real property or personal property.

“Public Lender” has the meaning set forth in Section 6.02.

“Qualified Asset Pool Property” means Qualified Land, Qualified Revenue-Producing Property, Qualified Development Assets and Qualified Joint Venture Property.

“Qualified Development Asset” means a Real Property that:

(a)
satisfies the Base Qualifications;

(b)
constitutes a Development Investment; and

(c)
does not otherwise constitute a Qualified Revenue-Producing Property or Qualified Land.

“Qualified Joint Venture Property” means a Real Property, owned and controlled by a direct or indirect non-wholly-owned Subsidiary, that is any of a Qualified Revenue-Producing Property, Qualified Land and/or a Qualified Development Asset. For purposes of this definition “controlled” means exclusive control of any disposition, refinancing and operating activity without the consent of any other party (other than (i) the Borrower or (ii) any of its Subsidiaries, as long as such Subsidiary does not need the consent of any minority equity holder thereof to consent to any disposition, refinancing or operating activity). Notwithstanding the foregoing, the Tech Square Project shall be deemed a Qualified Joint Venture Property so long as it meets the criteria set forth above other than those matters set forth on Schedule 1.01.

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“Qualified Land” means, as of any date of determination, without duplication, Real Property that:

(a)
satisfies the Base Qualifications;

(b)
is entitled; and

(c)
does not otherwise constitute a Qualified Revenue-Producing Property or Qualified Development Asset.

“Qualified Revenue‑Producing Property” means a Revenue‑Producing Property that:

(a)
satisfies the Base Qualifications;

(b)
is occupied or available for occupancy (subject to final tenant improvements); and

(c)
does not otherwise constitute a Qualified Development Asset or Qualified Land.

“Rating Agencies” means (a) S&P and (b) Moody’s.

“Real Property” means, as of any date of determination, real property (together with the underlying real property interests and appurtenant real property rights) then owned, leased or occupied by any Credit Party or any of its Subsidiaries.

“Register” has the meaning specified in Section 10.06(c).

“REIT Status” means, with respect to any Person, (a) the qualification of such Person as a real estate investment trust under Sections 856 through 860 of the Code, and (b) the applicability to such Person and its shareholders of the method of taxation provided for in Sections 857 et seq. of the Code.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

“Replacement Lender” has the meaning set forth in Section 10.13.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

“Required Lenders” means, as of any date of determination, Lenders holding in the aggregate more than 50% of the Loan Amount.

“Responsible Officer” means, (a) with respect to delivery of executed copies of this Agreement or any Compliance Certificate, the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or any executive vice president of the applicable Credit Party (or the partner or member or manager, as applicable) and (b) for all other purposes, the chief executive officer, president, chief financial officer, treasurer, assistant treasurer, secretary, assistant secretary or any executive vice president of the applicable Credit Party (or the partner or member or manager, as applicable). Any document delivered hereunder that

20
    


is signed by a Responsible Officer of a Credit Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Credit Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Credit Party.

“Restricted Payment” means, with respect to any equity interest or any warrant or option to purchase an equity interest issued by the Borrower or any of its Subsidiaries, (a) the retirement, redemption, purchase or other acquisition for Cash or for Property by the Borrower or such Subsidiary of any such security or interest (excluding any Indebtedness which by its terms is convertible into an Equity Interest), (b) the declaration or (without duplication) payment by the Borrower or such Subsidiary of any dividend in Cash or in Property on or with respect to any such security or interest and (c) any other payment in Cash or Property by the Borrower or such Subsidiary constituting a distribution under applicable Laws with respect to such security or interest.

“Revenue-Producing Property” means an identifiable improved Real Property that is used principally for office, laboratory, research, health sciences, technology, manufacturing or warehouse purposes and related real property (and appurtenant amenities), or for such other revenue-producing purposes as the Required Lenders may approve.

“Royal Bank” means Royal Bank of Canada and its successors.

“S&P” means Standard & Poor’s Ratings Services, a division of McGraw‑Hill Financial, Inc. and any successor thereto.

“Same Day Funds” means immediately available funds.

“Sanction(s)” means any international economic sanction(s) administered or enforced by OFAC or other applicable sanction authorities of the United States Government.

“ScotiaBank” means The Bank of Nova Scotia and its successors.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“SEC Report” means all filings on Form 10‑K, Form 10-Q or Form 8-K with the SEC made by the Borrower pursuant to the Securities Exchange Act of 1934.

“Second Extension” has the meaning set forth in Section 2.14(a).

“Secured Debt” means, without duplication, (a) Indebtedness of the Borrower or any of its Subsidiaries that is secured by a Lien and (b) Obligor Subsidiary Debt; provided, that Secured Debt shall not include any of the Obligations.

“Secured Debt Ratio” means, as of the last day of any fiscal quarter, the ratio (expressed as a percentage) obtained by dividing (a) the Secured Debt of the Borrower and its Subsidiaries as of such date by (b) the Adjusted Tangible Assets, as of such date.

“Solvent” means, as to any Person, that, as of any date of determination, (a) the amount of the present fair saleable value of the assets of such Person will, as of such date, exceed the amount of all liabilities of such Person, contingent or otherwise, as of such date, (b) the present fair saleable value of the assets of such

21
    


Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its existing or anticipated debts as such debts become absolute and matured, and (c) such Person will not have as of such date, an unreasonably small amount of capital with which to conduct its business.

“SPC” has the meaning set forth in Section 10.06(h).

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross‑currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark‑to‑market value(s) for such Swap Contracts, as determined based upon one or more mid‑market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Syndication Agents” means Royal Bank and ScotiaBank, each in its capacity as co-syndication agent.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Tech Square Project” means the seven building campus located in Cambridge, Massachusetts aggregating approximately 1.2 million square feet.

“Third Extension” has the meaning set forth in Section 2.14(a).


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“Total Assets” means the value of all assets of a Person and its Subsidiaries (without duplication), determined on a consolidated basis in accordance with GAAP; provided that all Real Property shall be valued based on its Unencumbered Asset Value (it being understood that the Unencumbered Asset Value for any Real Property that is not a Qualified Asset Pool Property shall be calculated as if it was a Qualified Asset Pool Property). In the event that a Person has an ownership or other equity interest in any other Person, which investment is not consolidated in accordance with GAAP (that is, such interest is a “minority interest”), then the assets of a Person and its Subsidiaries shall include such Person’s or its Subsidiaries’ allocable share of all assets of such Person in which a minority interest is owned based on such Person’s respective ownership interest in such other Person.

“Total Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a)    all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b)    all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances and bank guaranties;

(c)    net obligations of such Person under any Swap Contract;

(d)    all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(e)    indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f)    Capital Lease Obligations; and

(g)    all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, Total Indebtedness shall not include any Minority Interest’s share of any of the foregoing. The amount of any net obligation under any Swap Contract on any date shall be deemed to be (i) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (ii) for any date prior to the date referenced in clause (i), zero. The amount of any Capital Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

“to the best knowledge of” means, when modifying a representation, warranty or other statement of any Person, that the fact or situation described therein is known by the Person (or, in the case of a Person other than a natural Person, known by a Responsible Officer of that Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) would

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have been known by the Person (or, in the case of a Person other than a natural Person, would have been known by a Responsible Officer of that Person).

“Trade Date” has the meaning set forth in Section 10.06(b).

“Type” means with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

“Unencumbered” means, with respect to any Revenue‑Producing Property, Qualified Land or Qualified Development Assets, that such Revenue‑Producing Property, Qualified Land or Qualified Development Assets (a) is not subject to any Lien other than Liens permitted under Section 7.01 (other than Sections 7.01(q)(ii), (r) and (t)), (b) is not subject to any Negative Pledge and (c) is not held by a Person any of whose direct or indirect equity interests are subject to a Lien or Negative Pledge.

“Unencumbered Asset Value” means, as of any date of determination and without double counting any item, the following amounts for the following types of Real Property:

(a)    with respect to any Qualified Revenue-Producing Property owned for a full four consecutive fiscal quarter period or longer, an amount equal to (i) the Adjusted NOI of such Real Property for the prior four full consecutive fiscal quarters divided by (ii) the Capitalization Rate; provided that in the event any such Real Property sustains any material damage, the value of any business interruption insurance proceeds owed to or received by the Borrower during such period with respect to such Qualified Revenue-Producing Property shall be included in the Adjusted NOI of such Real Property for the periods from the date of such material damage until such time as such Qualified Revenue-Producing Property becomes fully operational.

(b)    with respect to any Qualified Revenue-Producing Property owned for less than four full consecutive fiscal quarters, an amount equal to (i) the Adjusted NOI of such Real Property for the period which the Borrower or applicable Subsidiary has owned and operated such Real Property, adjusted by the Borrower to an annual Adjusted NOI in a manner reasonably acceptable to the Administrative Agent, divided by (ii) the Capitalization Rate; provided that in the event any such Real Property sustains any material damage, the value of any business interruption insurance proceeds owed to or received by the Borrower during such period with respect to such Qualified Revenue-Producing Property shall be included in the Adjusted NOI of such Real Property for the periods from the date of such material damage until such time as such Qualified Revenue-Producing Property becomes fully operational.

(c)    with respect to Qualified Revenue-Producing Property that is being renovated or with respect to which a partial or total renovation was recently completed, an amount as determined at the sole election of the Administrative Agent based on (i) the annualized Adjusted NOI with respect to such Real Property, annualized based on bona fide, arms length signed tenant leases which are in full force and effect requiring current rental payments, divided by the Capitalization Rate, or (ii) the cost basis of such Real Property determined in accordance with GAAP multiplied by the Borrower’s or its Subsidiaries’ percentage ownership interest in such Qualified Revenue Property.

(d)    with respect to any Real Property that constitutes Qualified Land, an amount equal to, at the option of the Borrower, (i) the cost basis as determined in accordance with GAAP or the

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Appraised Value (if any) of such Qualified Land multiplied by (ii) the Borrower’s or its Subsidiaries’ percentage ownership interest in such Qualified Land.

(e)    with respect to any Real Property that constitutes Qualified Development Assets, an amount equal to (i) the cost basis as determined in accordance with GAAP of such Qualified Development Asset multiplied by (ii) the Borrower’s or its Subsidiaries’ percentage ownership interest in such Qualified Development Asset; provided that if all or any portion of a Qualified Development Asset is materially damaged, the value of such Qualified Development Asset shall be the amount assigned to such Qualified Development Asset prior to the damage less the amount (as determined by the Borrower in good faith) by which the casualty insurance proceeds that are owed or received in respect of such casualty event are insufficient to restore such Qualified Development Asset for a period of up to the lesser of (x) 365 days following such casualty event and (y) the date such Qualified Development Asset is restored and fully functional.

“United States” and “U.S.” mean the United States of America.

“Unrelated Person” means any Person other than (i) a Subsidiary of Borrower, (ii) an employee stock ownership plan or other employee benefit plan covering the employees of the Borrower and its Subsidiaries or (iii) any Person that held Common Stock on the day prior to the effective date of the Borrower’s registration statement under the Securities Act of 1933 covering the initial public offering of Common Stock.

“Unsecured Interest Coverage Ratio” means, as of the last day of any fiscal quarter, the ratio obtained by dividing (a) the sum of the aggregate Adjusted NOI from the Qualified Asset Pool Properties for that fiscal quarter and the preceding three full fiscal quarters, by (b) the aggregate Interest Charges for such period in respect of the unsecured Indebtedness of the Borrower and its Subsidiaries (other than Obligor Subsidiary Debt). The Unsecured Interest Coverage Ratio shall be determined by the Borrower and such determination shall be reasonably satisfactory to the Administrative Agent and shall exclude interest during construction to the extent capitalized.

“Unsecured Leverage Ratio” means, as of the last day of each fiscal quarter, the ratio (as expressed as a percentage) of (a) (i) aggregate unsecured Adjusted Total Indebtedness as of such date minus (ii) Obligor Subsidiary Debt as of such date to (b) (i) the Adjusted Unencumbered Asset Value as of such date minus (ii) the amount of unsecured Excluded Indebtedness (other than Obligor Subsidiary Debt) deducted in the calculation of aggregate unsecured Adjusted Total Indebtedness pursuant to clause (a)(i) above.

“Wholly‑Owned Subsidiary” means a Subsidiary of the Borrower, 100% of the capital stock or other equity interest of which is owned, directly or indirectly, by the Borrower, except for director’s qualifying shares required by applicable Laws.

1.02    Other Interpretive Provisions.

With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a)    The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i)

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any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, amended and restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof; (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, amended and restated, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b)    In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c)    Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

1.03    Accounting Terms/Financial Covenants.

(a)    Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, the effects of FASB ASC 825 on financial liabilities shall be disregarded.

(b)    Changes in GAAP or Funds From Operations. If at any time any change in GAAP or the calculation of Funds From Operations would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP or Funds From Operations (subject to the approval of the Required Lenders, the Administrative Agent and the Borrower); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP or Funds From Operations, as applicable, prior to such change therein and (ii) upon written request, the Borrower shall provide to the Administrative Agent (for distribution to the Lenders) financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP or Funds From Operations.

(c)    Calculation of Financial Covenants. For purposes of calculation of the applicable financial covenants, the Borrower and its Subsidiaries shall be given credit for properties held by an “exchange accommodation titleholder” pursuant to an exchange that qualifies as a reverse exchange under Section 1031 of the Code (including in the event any such property is subject to a mortgage in favor of, or for the benefit of, the Borrower or any of its Subsidiaries).

1.04    Times of Day.

Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable).

ARTICLE II

THE COMMITMENTS AND BORROWINGS
2.01    Term Loans.

Subject to the terms and conditions set forth herein, each Lender severally agrees to make the portion of the Loan Amount represented by its Commitment available to the Borrower on the Closing Date in an aggregate amount not to exceed such Lender’s Commitment or the Loan Amount; provided, however, that the $350,000,000 currently outstanding under the Existing Term Loan Agreement shall be deemed to be advanced under this Agreement and reallocated among the Lenders as set forth in Schedule 2.01 on the Closing Date, without executing any Assignment and Assumption or any other documentation. In addition, the existing Interest Period for the $350,000,000 currently outstanding under the Existing Term Loan Agreement (immediately after giving effect to any optional prepayments made thereunder on the Closing Date) shall end on the Closing Date and such Loans shall be continued or converted on the Closing Date as set forth in the Loan Notice delivered by the Borrower to the Administrative Agent in accordance with Section 2.02(a). Each Lender hereby waives any right to request compensation from the Borrower pursuant to Section 3.05 for any loss, cost or expense incurred by it as a result of the ending of the existing Interest Period on the Closing Date. The Loans shall be in Dollars and, except as set forth in the first sentence of this Section, drawn in a single Borrowing on the Closing Date. The Lenders shall have no commitments hereunder to fund any additional Loans after the initial Borrowing. To the extent all or any portion of the Loans are repaid or prepaid, they may not be reborrowed.

2.02    Borrowings, Conversions and Continuations of Loans.

(a)    The Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than (i) 12:00 Noon three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans, and (ii) 12:00 Noon on the Business Day prior to the requested date of any Borrowing of Base Rate Loans, and (iii) 12:00 Noon on the Business Day prior to the requested date of any conversion of Eurodollar Rate Loans to Base Rate Loans; provided, however, that if the Borrower wishes to request Eurodollar Rate Loans having an Interest Period other than one, two, three or six months in duration as provided in the definition of “Interest Period”, (x) the applicable notice must be received by the Administrative Agent not later than 12:00 Noon four Business Days prior to the requested date of such Borrowing, conversion to or continuation of Eurodollar Rate Loans, whereupon the Administrative Agent shall give prompt notice to the Lenders of such request and determine whether the requested Interest Period is acceptable to all of them and (y) not later than 12:00 Noon, three Business Days before the requested date of such Borrowing, conversion or continuation of Eurodollar Rate Loans, the Administrative Agent shall notify the Borrower (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all the Lenders. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof. Each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Loan Notice, but fail to specify an Interest Period, they will be deemed to have specified an Interest Period of one month.

(b)    Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans as described in the preceding subsection. In the case of a Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than 2:00 p.m. on the Business Day specified in the applicable Loan Notice.

(c)    Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default or Event of Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.

(d)    The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Citibank’s base rate used in determining the Base Rate promptly following the public announcement of such change.

(e)    After giving effect to all Borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than 20 Interest Periods in effect with respect to Loans.

2.03    [Reserved].

2.04    [Reserved].

2.05    Prepayments.

The Borrower may, upon written notice to the Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 12:00 Noon (A) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) on the Business Day prior to the date of prepayment of Base Rate Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $500,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date, the amount of such prepayment, and the Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of each such notice and the contents thereof and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided, however, that a notice of voluntary prepayment pursuant to this Section 2.05 may state that such notice is conditioned upon an event or other transaction, such as the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of Indebtedness, in which case such notice of prepayment pursuant to this Section 2.05 may be revoked by the Borrower if such condition is not satisfied (subject to Section 3.05(b) for any notice of a prepayment of Eurodollar Rate Loans that is revoked). Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Loans of the Lenders in accordance with their respective Applicable Percentages. Notwithstanding anything to the contrary contained in this Section 2.05, to the extent the reallocation of Commitments set forth in Section 2.01 results in a Lender having a decreased Commitment or no Commitment under this Agreement, such Lender shall be entitled to all accrued interest on the amount by which such Lender’s Commitment is decreased, together with any additional amounts required pursuant to Section 3.05 (to the extent requested by any such Lender, in the manner set forth in Section 3.05), on the Closing Date.

2.06    [Reserved].

2.07    Repayment of Loans.

The Borrower shall repay on the Maturity Date the aggregate principal amount of the Loans outstanding on such date, together with all interest and accrued fees related thereto.

2.08    Interest.

(a)    Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

(b)    (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(ii)    If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iii)    Upon the request of the Required Lenders, while any Event of Default exists (other than as set forth in clauses (b)(i) and (b)(ii) above), the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iv)    Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c)    Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto (for interest accrued through the last day of the prior month) and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.09    Fees.

(a)    The Borrower shall pay to the Administrative Agent for its own account and for the account of the Lenders fees, in Dollars, in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

(b)    The Borrower shall pay to the Administrative Agent and the Lenders such fees, in Dollars, as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

2.10    Computation of Interest and Fees.

All computations of interest for Base Rate Loans (including Base Rate Loans determined by reference to the Eurodollar Rate) shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360‑day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365‑day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

2.11    Evidence of Debt.

The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) the applicable Note(s), which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount, currency and maturity of its Loans and payments with respect thereto.

2.12    Payments Generally; Administrative Agent’s Clawback.

(a)    General. All payments to be made by a Credit Party shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by a Credit Party hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agent’s Office in Dollars and in Same Day Funds not later than 11:00 a.m. on the date specified herein. Without limiting the generality of the foregoing, the Administrative Agent may require that any payments due under this Agreement be made in the United States. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 11:00 a.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

(b)
(i)    Funding by Lenders: Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of the Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in Same Day Funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the Overnight Rate, plus any reasonable administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to such Borrowing. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(ii)    Payments by Borrower: Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment and without relieving the Borrower’s obligation to make such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, in Same Day Funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Overnight Rate.

A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

(c)    Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Borrowing set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall promptly return such funds (in like funds as received from such Lender) to such Lender, without interest.

(d)    Obligations of Lenders Several. The obligations of the Lenders hereunder to make Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or to make its payment under Section 10.04(c).

(e)    Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

2.13    Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Loans made by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Loans and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:

(a)    if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

(b)    the provisions of this Section shall not be construed to apply to (x) any payment made by or on behalf of a Credit Party pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section shall apply).

Each Credit Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Credit Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Credit Party in the amount of such participation.

2.14    Extensions of Maturity Date.
(a)    Requests for Extension of Maturity Date. The Borrower may request, (i) by written notice to the Administrative Agent provided not earlier than 90 days prior to, and not later than 30 days prior to, the Maturity Date then in effect hereunder (the “Existing Maturity Date”), a six-month extension of the Existing Maturity Date (the “First Extension”) with respect to the Loan Amount then outstanding, (ii) thereafter, by written notice to the Administrative Agent provided not earlier than 90 days prior to, and not later than 30 days prior to the Existing Maturity Date (as extended pursuant to clause (i) of this sentence), an additional six-month extension of the Existing Maturity Date (the “Second Extension”) with respect to the Loan Amount then outstanding and (iii) thereafter, by written notice to the Administrative Agent provided not earlier than 90 days prior to, and not later than 30 days prior to the Existing Maturity Date (as extended pursuant to clause (ii) of this sentence), an additional extension of the Existing Maturity Date until January 15, 2021 (the “Third Extension”) with respect to the Loan Amount then outstanding (each such notice, an “Extension Request”). The Administrative Agent shall promptly notify each Lender of each Extension Request, and each Lender shall extend such Lender’s Maturity Date for the applicable time period in accordance with this Section 2.14(a) and subject to clause (b) below.

(b)    Conditions to Effectiveness of Extensions. Notwithstanding the foregoing, an extension of the then Existing Maturity Date pursuant to this Section shall not be effective unless:

(i)    no Default or Event of Default shall have occurred and be continuing on the date of such extension and after giving effect thereto;

(ii)    the representations and warranties contained in this Agreement are true and correct in all material respects, on and as of the date of such extension and after giving effect thereto, as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, only as of such specific date), and except that the representations and warranties contained in subsections (a) and (d) of Section 5.05 shall be deemed to refer to the most recent statements and projections furnished pursuant to Sections 6.01(a) and 6.02(b), respectively;

(iii)    the Borrower pays the Administrative Agent, for distribution to the Lenders, based on their Applicable Percentages, an extension fee on or prior to the Existing Maturity Date in an amount equal to the product of (i) 0.075%, multiplied by (ii) the Loan Amount at the time of the extension;

(iv)    with respect to the Second Extension pursuant to clause (a) above, the Borrower shall have previously exercised its First Extension right under such clause (a); and

(v)    with respect to the Third Extension pursuant to clause (a) above, the Borrower shall have previously exercised its Second Extension right under such clause (a).

(c)    Conflicting Provisions. This Section shall supersede any provisions in Section 2.13 or 10.01 to the contrary.


ARTICLE III

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01    Taxes.

(a)    Payments Free of Taxes; Obligation to Withhold.

(i)    Any and all payments by or on account of any obligation of the Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Laws. If any applicable Laws require the deduction or withholding of any Tax from any such payment by the Administrative Agent or the Borrower, then the Administrative Agent or the Borrower shall be entitled to make such deduction or withholding in accordance with Section 3.01(a)(ii).

(ii)    If the Borrower or the Administrative Agent shall be required by applicable Laws (including, without limitation, the Code) to withhold or deduct any Taxes, including both United States Federal backup withholding and withholding taxes, from any payment, then (A) the Borrower or the Administrative Agent, as applicable, shall withhold or make such deductions as are determined in the good faith discretion of the Borrower or the Administrative Agent, as applicable, to be required by applicable Law, (B) the Borrower or the Administrative Agent, as applicable, shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with the applicable Laws, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the Borrower shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01(a)(ii)) the applicable Lender receives an amount equal to the sum it would have received had no such withholding or deduction been made.

(b)    Payment of Other Taxes by the Borrower. Without limiting the provisions of subsection (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Law.

(c)    Indemnification for Taxes. (i) The Borrower shall and does hereby indemnify the Administrative Agent and each Lender, and shall make payment in respect thereof within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01) paid by the Administrative Agent or such Lender, as the case may be, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, setting forth in reasonable detail the basis for such amounts, shall be conclusive absent manifest error. The Borrower shall, and does hereby indemnify the Administrative Agent, and shall make payment in respect thereof within 10 days after demand therefor, for any amount which a Lender for any reason fails to pay indefeasibly to the Administrative Agent as required pursuant to Section 3.01(c)(ii) below.

(ii) Each Lender shall, and does hereby, severally indemnify, and shall make payment in respect thereof within 10 days after demand therefor, (x) the Administrative Agent against any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (y) the Administrative Agent and the Borrower, as applicable, against any Taxes attributable to such Lender's failure to comply with the provisions of Section 10.06(d) relating to the maintenance of a Participant Register and (z) the Administrative Agent and the Borrower, as applicable, against any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent or the Borrower in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this clause (ii).

(d)    Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e)    Status of Lenders. (i) Any of the Administrative Agent or a Lender that is entitled to an exemption from or reduction of withholding tax under the Law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable Law and reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, the Administrative Agent or any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law and reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not the Administrative Agent or such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.01(e)(ii)(A), (B), (C), (D), (E) and (F) below) shall not be required if in the applicable Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii)    Without limiting the generality of the foregoing the Administrative Agent or any Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Person becomes a party to this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent), but only if such Person is legally entitled to do so, whichever of the following is applicable:

(A)    duly completed copies of IRS Form W‑8BEN or W-8BEN-E, as applicable, claiming eligibility for benefits of an income tax treaty to which the United States is a party,

(B)    duly completed copies of IRS Form W‑8ECI,

(C)    in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of any Credit Party within the meaning of Section 881 (c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code and (y) duly completed copies of IRS Form W‑8BEN or W-8BEN-E, as applicable,

(D)    in the case of a Foreign Lender that is not the beneficial owner of payments made under any Loan Documents, duly completed copies of IRS Form W-8IMY, accompanied by IRS Form W‑8ECI, IRS Form W‑8BEN or W-8BEN-E, as applicable, IRS Form W-9 and/or other certification documents from each beneficial owner, as applicable,

(E)    in the case of the Administrative Agent or any Lender that is a “United States person” within the meaning of Section 7701(a)(30) of the Code, duly completed copies of IRS W‑9, establishing a complete exemption from backup withholding taxes,

(F)    if a payment made to a Lender under any Loan Document would be subject to U.S. Federal withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment, and/or

(G)    any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax (or indicating whether such withholding tax is applicable) duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower and the Administrative Agent to determine the withholding or deduction required to be made.

Each Lender and the Administrative Agent agree that if any form or certification it previously delivered becomes inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and/or the Administrative Agent in writing of its legal inability to do so.

(f)    Treatment of Certain Refunds. Unless required by applicable Laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender, or have any obligation to pay to any Lender, any refund of Taxes withheld or deducted from funds paid for the account of such Lender. If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 3.01, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out‑of‑pocket expenses and net of any loss or gain realized in the conversion of such funds from or to another currency of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This subsection shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person or to file for or otherwise pursue on behalf of any Credit Party any refund of any Taxes.

3.02    Illegality.

If any Lender determines in good faith that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the applicable interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (i) any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the Eurodollar Rate component of the Base Rate, the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (x) the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Eurodollar Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the Eurodollar Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Eurodollar Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.

3.03    Inability to Determine Rates.

If the Administrative Agent or the Required Lenders determine in good faith that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion thereto or continuation thereof that (a) deposits are not being offered to banks in the applicable offshore interbank market for Dollars for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan (in each case with respect to clauses (a) and (b) above, “Impacted Loans”), or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Eurodollar Rate Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans (to the extent of the affected Eurocurrency Rate Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.

Notwithstanding the foregoing, if the Administrative Agent has made the determination described in clause (a) or clause (b) of the first sentence of this section, the Administrative Agent, in consultation with the Borrower and the Required Lenders, may establish an alternative interest rate for the Impacted Loans, in which case, such alternative rate of interest shall apply with respect to the Impacted Loans until (x) the Administrative Agent revokes the notice delivered with respect to the Impacted Loans under clause (a) or clause (b) of the first sentence of this section, (y) the Administrative Agent or the Required Lenders notify the Administrative Agent and the Borrower that such alternative interest rate does not adequately and fairly reflect the cost to such Lenders of funding the Impacted Loans, or (z) any Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to such alternative rate of interest or to determine or charge interest rates based upon such rate or any Governmental Authority has imposed material restrictions on the authority of such Lender to do any of the foregoing and provides the Administrative Agent and the Borrower written notice thereof.

3.04    Increased Costs; Reserves on Eurodollar Rate Loans.

(a)    Increased Costs Generally. If any Change in Law shall:

(i)    impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e)); or

(ii)    subject any Lender to any Taxes (except for Indemnified Taxes, Other Taxes, and Excluded Taxes); or

(iii)    impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or participation therein (other than with respect to Taxes, which shall be governed solely by Section 3.01);

and the result of any of the foregoing shall be to increase the cost to such Lender , which such Lender deems material in its reasonable discretion, of making or maintaining any Loan the interest on which is determined by reference to the Eurodollar Rate (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender, as the case may be, for such additional costs incurred or reduction suffered.

(b)    Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity ratios or requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy or liquidity), by an amount deemed by such Lender to be material in its reasonable discretion, then from time to time the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c)    Certificates for Reimbursement. A certificate of a Lender setting forth in reasonable detail the basis for and the calculation of the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d)    Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the provisions of this Section shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to the provisions of this Section for any increased costs incurred or reductions suffered more than three months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the three‑month period referred to above shall be extended to include the period of retroactive effect thereof).

(e)    Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender (i) as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive absent manifest error) and (ii) as long as such Lender shall be required to comply with any reserve ratio requirement or analogous requirement of any other central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Eurodollar Rate Loans, such additional costs (expressed as a percentage per annum and rounded upwards, if necessary, to the nearest five decimal places) equal to the actual costs allocated to such Commitment or Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive absent manifest error), which in each case, shall be due and payable on each date on which interest is payable on such Loan; provided, the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest or costs from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest or costs shall be due and payable 10 days from receipt of such notice. Any Lender which gives notice under this Section 3.04(e) shall promptly withdraw such notice (by written notice of withdrawal given to the Administrative Agent and the Borrower) in the event such Lender is no longer required to maintain such reserves or the circumstances giving rise to such notice shall otherwise cease to exist.

Notwithstanding anything contained in this Section 3.04, the Borrower shall not be obligated to pay any greater amounts than such Lender(s) is (are) generally charging other borrowers on loans similarly situated to the Borrower that are parties to similar credit agreements.

3.05    Compensation for Losses.

Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a)    any continuation, conversion, payment or prepayment of any Eurodollar Rate Loan on a day other than the last day of the Interest Period for such Eurodollar Rate Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

(b)    any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert to any Eurodollar Rate Loan on the date or in the amount notified by the Borrower;

(c)    any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13; or

(d)    the reallocation of Commitments as set forth in Section 2.01;

including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract (but excluding any loss of anticipated profits). The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate used in determining the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the offshore interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), setting forth in reasonable detail the basis and calculation for such amounts, shall be conclusive absent manifest error.

3.06    Mitigation Obligations; Replacement of Lenders.

(a)    Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then at the request of Borrower, such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b)    Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if material amounts are paid to such Lender under Section 3.05, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 10.13.

3.07    Survival.

All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.


ARTICLE IV

CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF
THIS AGREEMENT AND THE BORROWING

4.01    Conditions of Effectiveness of this Agreement.

The effectiveness of this Agreement and the obligation of each Lender to make its Loan available on the Closing Date is subject to satisfaction of the following conditions precedent:

(a)    The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies or other electronic imaging transmission (e.g. “pdf” via e-mail) (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Credit Party (to the extent applicable), each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

(i)    executed counterparts of this Agreement;

(ii)    a Note executed by the Borrower in favor of each Lender requesting a Note;

(iii)    such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Credit Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized as of the date hereof to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Credit Party is a party;

(iv)    such documents and certifications as the Administrative Agent may reasonably require to evidence that each Credit Party is duly organized or formed (including, without limitation, articles or certificates of incorporation or other charter documents and bylaws or other governance documents of each Credit Party), and that each Credit Party is validly existing and in good standing in its jurisdiction of organization and the tax identification number for each Credit Party;

(v)    favorable opinions of each counsel to the Credit Parties, addressed to the Administrative Agent and each Lender, as to the matters concerning the Credit Parties and the Loan Documents as the Required Lenders may reasonably request;

(vi)    a certificate of a Responsible Officer of the Credit Parties either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by each Credit Party and the validity against such Credit Party of the Loan Documents to which it is a party (other than such consents and approvals delivered pursuant to Section 4.01(a)(iii)), and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required (other than such consents and approvals delivered pursuant to Section 4.01(a)(iii));

(vii)    a certificate signed by a Responsible Officer of the Credit Parties certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied and (B) that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and

(viii)    such other assurances, certificates, documents, consents or opinions as the Administrative Agent or the Required Lenders reasonably may require.

(b)    Any fees required to be paid by the Borrower to the Administrative Agent or the Lenders on or before the Closing Date shall have been, or concurrently with the Closing Date are being, paid.

(c)    Unless waived by the Administrative Agent, the Borrower shall have paid all reasonable and documented fees, charges and disbursements of counsel to the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).

Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

4.02    Additional Conditions to Effectiveness.

The obligation of each Lender to make its Loan available on the Closing Date is subject to satisfaction of the following conditions precedent:

(a)    The representations and warranties of each Credit Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the Closing Date in all material respects, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date.

(b)    No Default or Event of Default shall exist, or would result from the proposed Borrowing on the Closing Date or from the application of the proceeds thereof.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

Each Credit Party represents and warrants to the Administrative Agent and the Lenders that:

5.01    Existence, Qualification and Power; Compliance with Laws.

Each Credit Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization except to the extent permitted by Sections 7.03 or 10.20, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license, and (d) is in compliance with all Laws; except in each case referred to in clause  (a) (solely as to Subsidiaries that are not Credit Parties), (b)(i), (c) or (d), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

5.02    Authorization; No Contravention.

The execution, delivery and performance by each Credit Party of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law, except, in each case referred to in clause (b) or (c), as contemplated hereunder or to the extent such conflict, breach, contravention or violation, or creation of any such Lien or required payment could not reasonably be expected to have a Material Adverse Effect.

5.03    Governmental Authorization; Other Consents.

No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Credit Party of this Agreement or any other Loan Document other than those that have already been made or obtained and remain in full force and effect or those which, if not made or obtained, could not reasonably be expected to have a Material Adverse Effect.

5.04    Binding Effect.

This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Credit Party party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of each Credit Party party thereto, enforceable against each such Credit Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

5.05    Financial Statements; No Material Adverse Effect.

(a)    The Audited Financial Statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein.

(b)    The unaudited consolidated balance sheet of the Borrower and its Subsidiaries delivered pursuant to Section 6.01(b) for the most recent fiscal quarter end, and the related consolidated statements of income or operations and cash flows for the fiscal quarter ended on that date fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, subject to the absence of footnotes and to normal year end audit adjustments.

(c)    Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

(d)    The consolidated financial projections of the Borrower previously delivered to the Administrative Agent as to the projected compliance with the financial covenants contained in Section 7.09 for the 2015, 2016 and 2017 fiscal years were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts (it being understood that such financial projections are subject to uncertainties and contingencies, which may be beyond the control of the Borrower and its Subsidiaries and that no assurance is given by the Borrower that such projections will be realized).

5.06    Litigation.

There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Credit Parties, threatened in writing, at law, in equity, in arbitration or before any Governmental Authority, by or against any Credit Party or any of their Subsidiaries or against any of their properties or revenues that (a) affect or pertain to this Agreement or any other Loan Document or (b) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.

5.07    No Default.

Neither any Credit Party nor any Subsidiary is in default under or with respect to any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

5.08    Ownership of Property; Liens.

Each of the Credit Parties and their Subsidiaries has good record and marketable title in fee simple (subject to the rights of other parties as owners of condominium units) to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Credit Parties and their Subsidiaries is subject to no Liens, other than Liens permitted by Section 7.01.

5.09    Environmental Compliance.

The Credit Parties and their Subsidiaries are not in violation of any Environmental Laws and not subject to liabilities or claims thereunder that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.10    Insurance.

The properties of each Credit Party and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Credit Parties, in such amounts and with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where such Credit Party or the applicable Subsidiary operates.

5.11    Taxes.

The Credit Parties and their Subsidiaries have filed all Federal, state and other tax returns and reports required to be filed and have paid all Federal, state and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except (a) those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP (to the extent required by GAAP) or (b) where failure to comply with the foregoing could not reasonably be expected to have a Material Adverse Effect. There is no proposed tax assessment against a Credit Party or any of their Subsidiaries that would, if made, have a Material Adverse Effect.

5.12    ERISA Compliance.

(a)    Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state laws. Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service to the effect that the form of such Pension Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service. To the best knowledge of the Credit Parties, nothing has occurred that would prevent or cause the loss of such tax-qualified status.

(b)    There are no pending or, to the best knowledge of the Credit Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)    (i) No ERISA Event has occurred, and neither any Credit Party nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) each Credit Party and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is 60% or higher except where the failure to attain such funding target attainment percentage could not reasonably be expected to give rise to a Material Adverse Effect, and neither any Credit Party nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of the most recent valuation date except where such drop in funding target attainment percentage could not reasonably be expected to give rise to a Material Adverse Effect; and (iv) neither any Credit Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA.

5.13    Margin Regulations; Investment Company Act; REIT Status.

(a)    Neither the making of any Loan hereunder nor the use of proceeds thereof will violate the provisions of Regulations T, U or X of the FRB.

(b)    None of the Credit Parties is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

(c)    The Borrower currently has REIT Status.

5.14    Disclosure.

Each Credit Party has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished by or on behalf of any Credit Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, taken as a whole and as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that, with respect to projected financial information, the Credit Parties represent only that such information was prepared in good faith based upon assumptions believed by the Credit Parties to be reasonable at the time made (it being understood that such financial projections are subject to uncertainties and contingencies, which may be beyond the control of the Borrower and its Subsidiaries and that no assurance is given by the Borrower that such projections will be realized).

5.15    Compliance with Laws.

Each Credit Party and each of its Subsidiaries are in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.16    Intellectual Property; Licenses, Etc.

Each Credit Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person except to the extent that failure to so own or possess such IP Rights or any such conflict, could not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Borrower, threatened in writing, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.17    Property.

All of the Credit Parties’ and their respective Subsidiaries’ Properties are in good repair and condition, subject to ordinary wear and tear, other than with respect to deferred maintenance existing as of the date of acquisition of such Property and except for such defects relating to properties which, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.18    OFAC.

Neither the Borrower, nor any of its Subsidiaries, or, to the knowledge of the Borrower and its Subsidiaries, any director, officer, employee, agent or affiliate thereof, is an individual or entity currently the subject of any Sanctions, nor is the Borrower or any Subsidiary located, organized or resident in a country or territory that is the subject of Sanctions.

5.19    Solvency.

As of the Closing Date and after giving effect to the transactions contemplated by this Agreement and the other Loan Documents, including all of the Loans made hereunder, the Borrower and its Subsidiaries (on a consolidated basis) are Solvent.


ARTICLE VI

AFFIRMATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder (other than contingent indemnity obligations) shall remain unpaid or unsatisfied, the Credit Parties shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02 and 6.03) cause each Subsidiary to:

6.01    Financial Statements.

Deliver to the Administrative Agent (and the Administrative Agent shall deliver to each Lender):

(a)    As soon as practicable, and in any event within 90 days after the end of each fiscal year, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the consolidated statements of operations, stockholders’ equity and cash flows, in each case of the Borrower and its Subsidiaries for such fiscal year, all in reasonable detail. Such financial statements shall be prepared in accordance with GAAP, consistently applied, audited and shall be accompanied by a report of Ernst & Young LLP or other independent public accountants of recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any “going concern” or like qualifications or exception or any qualification or exception as to the scope of the audit; and

(b)    As soon as practicable, and in any event within 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter in any fiscal year), the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter and the consolidated statements of operations and cash flows for such fiscal quarter, and the portion of the fiscal year ended with such fiscal quarter, all in reasonable detail. Such financial statements shall be certified by a Responsible Officer of the Borrower as fairly presenting in all material respects the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP (other than footnote disclosures), consistently applied, as at such date and for such periods, subject only to normal year‑end accruals and audit adjustments.

6.02    Certificates; Other Information.

Deliver to the Administrative Agent (and the Administrative Agent shall deliver to each Lender), in form and detail reasonably satisfactory to the Administrative Agent:

(a)    Concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer;

(b)    No later than 90 days after the commencement of each fiscal year, an annual forecast for the then-current fiscal year in reasonable detail;

(c)    Promptly after request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any of its Subsidiaries, or any audit of any of them;

(d)    Promptly after the same are available, and in any event within five (5) Business Days after filing with the SEC, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, and copies of all publicly available annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and not otherwise required to be delivered to the Administrative Agent pursuant to Section 6.01 or other provisions of this Section 6.02;

(e)    Promptly upon a Responsible Officer becoming aware of the occurrence of any (i) Reportable Event or (ii) non‑exempt “prohibited transaction” (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) involving any Pension Plan or any trust created thereunder that could reasonably be expected to give rise to a material liability, written notice thereof and specifying what action the Borrower is taking or proposes to take with respect thereto, and, when known, any action taken by the IRS with respect thereto;

(f)    Promptly upon a Responsible Officer becoming aware of the existence of any condition or event which constitutes a Default or Event of Default, written notice thereof and specifying what action the Borrower is taking or proposes to take with respect thereto;

(g)    Promptly upon a Responsible Officer becoming aware that any Person has commenced a legal proceeding with respect to a claim against the Credit Parties or their respective Subsidiaries that could reasonably be expected to have a Material Adverse Effect, written notice describing the pertinent facts relating thereto and what action Borrower or its Subsidiaries are taking or propose to take with respect thereto;

(h)    Promptly upon a Responsible Officer becoming aware of a change in the Debt Rating, written notice of such change;

(i)    Promptly upon a Responsible Officer becoming aware, notice of any material change in accounting policies by the Borrower or any other Credit Party (except to the extent disclosed in the financial statements next delivered pursuant to Section 6.01); and

(j)    Such other data and information with respect to the Borrower or any Subsidiary as from time to time may be reasonably requested by the Administrative Agent.

Documents required to be delivered pursuant to this Agreement (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Credit Parties post such documents, or provide a link thereto on the Credit Parties’ website on the Internet at the website address listed on Schedule 10.02 or (ii) on which such documents are posted on the Credit Parties’ behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third‑party website or whether sponsored by the Administrative Agent), including the SEC’s EDGAR website; provided that the Credit Parties shall deliver paper copies of such documents to the Administrative Agent for any Lender that requests in writing to the Borrower and the Administrative Agent that the Credit Parties deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender. The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Credit Parties with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

The Credit Parties hereby acknowledge that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders materials and/or information provided by or on behalf of the Credit Parties hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public‑side” Lenders (i.e., Lenders that do not wish to receive material non‑public information with respect to the Credit Parties or their securities) (each, a “Public Lender”). The Credit Parties hereby agree that (w) all Borrower Materials (other than SEC Reports) that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof, (x) by marking Borrower Materials “PUBLIC,” the Credit Parties shall be deemed to have authorized the Administrative Agent, the Arrangers and the Lenders to treat such Borrower Materials as either publicly available information or not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States Federal and state securities laws; (y) all SEC Reports and all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials (other than SEC Reports) that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.” The Credit Parties shall be in compliance with all requirements to deliver information under this Agreement if they have made such information available to the Administrative Agent and, to the extent required, Lenders other than Public Lenders, and the failure of Public Lenders to receive information made available to other Lenders shall not result in any breach of this Agreement.

6.03    Payment of Obligations.

Pay and discharge as the same shall become due and payable, all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless (a) the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Credit Parties or such Subsidiary prior to the imposition of such Lien or (b) the failure to do so could not reasonably be expected to have a Material Adverse Effect.

6.04    Preservation of Existence, Etc.

(a)    Preserve, renew and maintain in full force and effect the legal existence and good standing of the Credit Parties under the Laws of the jurisdiction of their organization except in a transaction permitted by Sections 7.03 or 10.20; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non‑preservation or non-renewal of which could reasonably be expected to have a Material Adverse Effect.

6.05    Maintenance of Properties.

(a)    Maintain, preserve and protect all of its properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted and subject to exceptions for extraordinary or reasonably unforeseeable events in each case except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (b) make all necessary repairs thereto and renewals and replacements thereof in a reasonably timely manner except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

6.06    Maintenance of Insurance.

Maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is customarily carried by companies engaged in similar businesses and owning similar assets in the general areas in which the Credit Parties or such Subsidiaries, as applicable, operate.

6.07    Compliance with Laws.

Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

6.08    Books and Records.

(a)    Maintain proper books of record and account, in which entries true and correct in all material respects are made in conformity with GAAP consistently applied; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Credit Parties and their Subsidiaries, as the case may be.

6.09    Inspection Rights.

Permit the Lenders, through the Administrative Agent or any representative designated by the Administrative Agent, at the Credit Parties’ expense, to visit and inspect any of the properties of the Credit Parties or any of their respective Subsidiaries (subject to the rights of any tenants), to examine the books of account of the Credit Parties and their respective Subsidiaries (and to make copies thereof and extracts therefrom) and to discuss the affairs, finances and accounts of the Credit Parties and their respective Subsidiaries with, and to be advised as to the same by, their Responsible Officers, all at such reasonable times (typically during normal business hours) and intervals as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request upon not less than four (4) Business Days’ notice; provided, however, that inspections made at the Credit Parties’ expense shall be limited to once per year, unless an Event of Default shall have occurred and be continuing. The Lenders shall use good faith efforts to coordinate such visits and inspections so as to minimize the interference with and disruption to the Credit Parties’ or such Subsidiaries’ normal business operations. Notwithstanding anything to the contrary in this Section 6.09, no Credit Party nor any of their Subsidiaries will be required to disclose, permit the inspection, examination or making of extracts, or discussion of, any document, information or other matter that (i) in respect of which disclosure to the Administrative Agent (or its designated representative) or any Lender is then prohibited by law or any agreement binding on any Credit Party or any of its Subsidiaries or (ii) is subject to attorney‑client or similar privilege or constitutes attorney work product.

6.10    Use of Proceeds.

Use the proceeds of the Loans for working capital and general corporate purposes (including repayments of Indebtedness) not in contravention of any Laws or any Loan Documents.

ARTICLE VII

NEGATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder (other than contingent indemnity obligations) shall remain unpaid or unsatisfied, each Credit Party shall not, nor shall it permit any Subsidiary to, directly or indirectly:

7.01    Liens.

Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:

(a)    inchoate Liens incident to construction on or maintenance of Property; or Liens incident to construction on or maintenance of Property now or hereafter filed of record for which adequate reserves have been set aside, to the extent required by GAAP (or deposits made pursuant to applicable Law) and which are not overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of nonpayment of the obligations secured by such Liens, no such Property is subject to a material impending risk of loss or forfeiture;

(b)    Liens for taxes and assessments on Property which are not yet past due; or Liens for taxes and assessments on Property for which adequate reserves have been set aside, to the extent required by GAAP, and are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of nonpayment of the obligations secured by such Liens, no such Property is subject to a material impending risk of loss or forfeiture;

(c)    defects and irregularities in title to any Property which would not reasonably be expected to result in a Material Adverse Effect;

(d)    easements, exceptions, reservations, or other agreements for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting Property in the ordinary course;

(e)    easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of Property in or adjacent to a shopping center, business or office park or similar project affecting Property in the ordinary conduct of the business of the applicable Person;

(f)    rights reserved to or vested in any Governmental Authority to control or regulate, or obligations or duties to any Governmental Authority with respect to, the use of any Property;

(g)    rights reserved to or vested in any Governmental Authority to control or regulate, or obligations or duties to any Governmental Authority with respect to, any right, power, franchise, grant, license, or permit;

(h)    present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of Property in the ordinary conduct of the business of the applicable Person;

(i)    statutory Liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business (but not in connection with the incurrence of any Indebtedness) with respect to obligations which are not delinquent or are being contested in good faith, provided that, if delinquent, adequate reserves have been set aside with respect thereto, to the extent required by GAAP, and, by reason of nonpayment, no Property is subject to a material impending risk of loss or forfeiture;

(j)    covenants, conditions, and restrictions affecting the use of Property which may not give rise to any Lien against such Property in the ordinary conduct of the business of the applicable Person;

(k)    rights of tenants as tenants only under leases and rental agreements covering Property entered into in the ordinary course of business of the Person owning such Property;

(l)    Liens consisting of pledges or deposits to secure obligations under workers’ compensation laws or similar legislation, including Liens of judgments thereunder which are not currently dischargeable;

(m)    Liens consisting of pledges or deposits of Property to secure performance in connection with operating leases made in the ordinary course of business;

(n)    deposits to secure the performance of bids, contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(o)    Liens consisting of any right of offset, or statutory bankers’ lien, on bank deposit accounts maintained in the ordinary course of business so long as such bank deposit accounts are not established or maintained for the purpose of providing such right of offset or bankers’ lien;

(p)    Liens consisting of deposits of Property to secure statutory obligations of any Credit Party or any Subsidiary;

(q)    (i) Liens created by or resulting from any litigation or legal proceeding in the ordinary course of business which is currently being contested in good faith by appropriate proceedings, provided that, adequate reserves have been set aside and no material Property is subject to a material impending risk of loss or forfeiture and (ii) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h) or securing appeal or other surety bonds related to such judgments;

(r)    other nonconsensual Liens incurred in the ordinary course of business but not in connection with the incurrence of any Indebtedness, which do not individually involve amounts in excess of $10,000,000 or in the aggregate involve amounts in excess of $20,000,000;

(s)    any Liens securing the Obligations; and

(t)    Liens securing Secured Debt (other than Obligor Subsidiary Debt) not prohibited by this Agreement.

7.02    Investments.

Make any Investments, except:

(a)    Investments held by any Credit Party or any of its Subsidiaries in the form of Cash, Cash Equivalents or short‑term marketable securities;

(b)    advances to officers, directors and employees of any Credit Party or any of its Subsidiaries for travel, entertainment, relocation and similar ordinary business purposes;

(c)    Investments of a Credit Party in any Subsidiary or any other Credit Party, Investments of any Subsidiary in a Credit Party or in another Subsidiary and Investments in any Person that, as a result of or in connection with such Investment, becomes or will become a Subsidiary of a Credit Party;

(d)    Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors;

(e)    Investments in Real Property of the Credit Parties and their Subsidiaries consisting of improved real estate property used principally for office, laboratory, research, health sciences, technology, manufacturing or warehouse purposes (and appurtenant amenities);

(f)    Investments in Real Property of the Credit Parties and their Subsidiaries consisting of (i) Development Investments (the amount of such Investment shall be an amount equal to the aggregate costs incurred in connection therewith), (ii) undeveloped land without improvements, or (iii) any other Real Property, other than an improved real estate property used principally for office, manufacturing, warehouse, research, laboratory, health sciences or technology purposes (and appurtenant amenities); provided, that, as of the most recently ended fiscal quarter, the aggregate book value of such Investments may not exceed 35% of the Adjusted Tangible Assets. To determine such book value of Investments described in this Section 7.02(f) which are not owned 100%, directly or indirectly, by the Borrower or any of its Subsidiaries, the book value of such Investment shall be adjusted by multiplying the same by the Borrower’s or such Subsidiaries’ interest therein during the fiscal quarter of the Borrower ending as of the date of determination of such book value;

(g)    other Investments, other than Investments in Real Property not otherwise permitted by Section 7.02; provided that as of the most recently ended fiscal quarter, the aggregate book value of such Investments pursuant to this Section 7.02(g) shall not exceed 15% of the Adjusted Tangible Assets. To determine such book value of Investments described in this Section 7.02(g) which are not owned 100%, directly or indirectly, by the Borrower or any of its Subsidiaries, the book value of such Investment shall be adjusted by multiplying the same by the Borrower’s or such Subsidiaries’ interest therein during the fiscal quarter of the Borrower ending as of the date of determination of such book value; and

(h)    Guarantees by any Credit Party or any Subsidiary in respect of Indebtedness not prohibited hereunder.

7.03    Fundamental Changes.

Merge, dissolve, liquidate or consolidate with or into another Person, except that, so long as no Default or Event of Default exists or would result therefrom and subject to the proviso below, (a) a Credit Party may merge or consolidate with or into one or more other Credit Parties, (b) any Subsidiary (other than the Operating Partnership) may merge or consolidate with or into a Credit Party or another Subsidiary or may dissolve or liquidate, or (c) any other merger, dissolution, liquidation or consolidation that does not result in a Change of Control shall be permitted; provided, that (i) if the Borrower or Operating Partnership is a party to any merger or consolidation permitted under this Section 7.03, it shall be the surviving entity, and (ii) in no event shall the Borrower and Operating Partnership be permitted to merge or consolidate with each other.


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7.04    Restricted Payments.

In the case of the Borrower, make any Restricted Payment except (a) so long as no Event of Default shall have occurred and be continuing under Section 8.01(a) or would result therefrom, such Restricted Payment shall be permitted (i) in an amount not to exceed the greater of (A) the amount which, when added to the amount of all other Restricted Payments paid by the Borrower in the same fiscal quarter and the preceding three fiscal quarters, would not exceed 95% of Funds From Operations of the Borrower and its Subsidiaries for the four consecutive fiscal quarters ending prior to the fiscal quarter in which such Restricted Payment is paid and (B) the minimum amount of Restricted Payments required (I) under the Code to maintain and preserve Borrower’s REIT Status or (II) to avoid the payment of federal or state income or excise tax, (ii) so long as no Event of Default shall have occurred and be continuing or would result therefrom, to the extent it relates to the retirement of Preferred Equity in an amount not to exceed any Exchange Proceeds so used notwithstanding the limitations set forth in clause (i), and (iii) so long as no Event of Default shall have occurred and be continuing or would result therefrom, with the proceeds of sales of property notwithstanding the limitation set forth in clause (i); provided however, that if an Event of Default under Section 8.01(a) has occurred and is continuing, the Borrower may only make Restricted Payments in the minimum amount necessary to comply with Section 857(a) of the Code and maintain the Borrower’s REIT Status.

7.05    Change in Nature of Business.

Make any material change in the principal nature of the business of the Credit Parties and their Subsidiaries, such business being the acquisition, ownership, management, development and renovation of real property and buildings for use as office, office/laboratory, research, health sciences, technology or manufacturing/warehouse properties and related real property (and appurtenant amenities).

7.06    Transactions with Affiliates.

Enter into any transaction of any kind with any Affiliate of the Credit Parties or their respective Subsidiaries other than (a) salary, bonus, employee stock option, relocation assistance and other compensation arrangements with directors or officers in the ordinary course of business, (b) transactions that are fully disclosed to the board of directors of the Borrower and expressly authorized by a resolution of the board of directors of the Borrower which is approved by a majority of the directors not having an interest in the transaction, (c) transactions permitted by this Agreement, (d) transactions between or among Credit Parties and Subsidiaries and (e) transactions on overall terms at least as favorable to Credit Parties or their Subsidiaries as would be the case in an arm’s length transaction between unrelated parties.

7.07    Burdensome Agreements.

Enter into any agreement, instrument or transaction which prohibits any Credit Party’s ability to pledge to Administrative Agent any Qualified Asset Pool Property. The Credit Parties, and their respective Subsidiaries, shall take such actions as are necessary to preserve the right and ability of the Credit Parties, and their respective Subsidiaries, to pledge to Administrative Agent for the benefit of Lenders the Qualified Asset Pool Properties without any such pledge after the date hereof causing or permitting the acceleration (after the giving of notice or the passage of time, or otherwise) of any other Indebtedness of the Credit Parties or any of their respective Subsidiaries.

7.08    [Reserved].

7.09    Financial Covenants.

(a)    Permit the Fixed Charge Coverage Ratio, as of the last day of any fiscal quarter, to be less than 1.50:1.00.

(b)    (i) Subject to clause (ii) below, permit the Secured Debt Ratio, as of the last day of any fiscal quarter, to exceed 45.0%; or

(ii)    subsequent to the consummation of a Material Acquisition, permit the Secured Debt Ratio, as of the last day of the fiscal quarter in which such Material Acquisition occurs and as of the last day of each of the three consecutive fiscal quarters following such Material Acquisition, to exceed 50.0%.

(c)    (i) Subject to clause (ii) below, permit the Leverage Ratio, as of the last day of any fiscal quarter, to exceed 60.0%; or

(ii)    subsequent to the consummation of a Material Acquisition, permit the Leverage Ratio, as of the last day of the fiscal quarter in which such Material Acquisition occurs and as of the last day of each of the three consecutive fiscal quarters following such Material Acquisition, to exceed 65.0%.

(d)    [Reserved].

(e)    Permit the Unsecured Interest Coverage Ratio, as of the last day of any fiscal quarter, to be less than 1.50 to 1.00.

(f)    (i) Subject to clause (ii) below, permit the Unsecured Leverage Ratio, as of the last day of any fiscal quarter, to exceed 60.0%; or

(ii)    subsequent to the consummation of a Material Acquisition, permit the Unsecured Leverage Ratio, as of the last day of the fiscal quarter in which such Material Acquisition occurs and as of the last day of each of the three consecutive fiscal quarters following such Material Acquisition, to exceed 65.0%.


ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

8.01    Events of Default.

Any of the following shall constitute an “Event of Default”:

(a)    Non‑Payment. Any Credit Party fails to pay (i) when and as required to be paid herein any amount of principal of any Loan, or (ii) within five Business Days after the same becomes due, any interest on any Loan, or any other amount payable hereunder or under any other Loan Document; or

(b)    Specific Covenants. Any Credit Party fails to perform or observe any term, covenant or agreement contained in Article VII; or

(c)    Other Defaults. Any Credit Party or Subsidiary fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 Business Days following written notice by Administrative Agent or, if such Default is not reasonably susceptible of cure within such period, within such longer period as is reasonably necessary to effect a cure so long as such Credit Party or such Subsidiary continues to diligently pursue cure of such Default but not in any event in excess of 60 Business Days; or

(d)    Representations and Warranties. Any representation or warranty by a Credit Party or any of its Subsidiaries made in any Loan Document, or in any certificate or other writing delivered by a Credit Party or any of its Subsidiaries pursuant to any Loan Document, proves to have been incorrect when made or reaffirmed in any respect that is materially adverse to the interests of the Lenders; or

(e)    Cross‑Default. Any Credit Party or any of its Subsidiaries (i) fails to pay the principal, or any principal installment, of any Indebtedness (other than Non‑Recourse Debt) of $50,000,000 or more required on its part to be paid when due (or within any stated grace period), whether at the stated maturity, upon acceleration, by reason of required prepayment or otherwise or (ii) fails to perform or observe any other term, covenant or agreement on its part to be performed or observed, or suffers any event of default to occur, in connection with any Indebtedness (other than Non‑Recourse Debt) of $50,000,000 or more, if as a result of such failure or sufferance any holder or holders thereof (or an agent or trustee on its or their behalf) has the right (after giving effect to any notice or grace periods applicable thereto) to declare such Indebtedness due before the date on which it otherwise would become due or the right (after giving effect to any notice or grace periods applicable thereto) to require a Credit Party or any such Subsidiary to redeem or purchase, or offer to redeem or purchase, all or any portion of such Indebtedness (provided, that for the purpose of this clause (e), the principal amount of Indebtedness consisting of a Swap Contract shall be the amount which is then payable by the counterparty to close out the Swap Contract); or

(f)    Insolvency Proceedings, Etc. Any Credit Party or any Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

(g)    Inability to Pay Debts; Attachment. (i) Any Credit Party or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or

(h)    Judgments. There is entered against any Credit Party or any Subsidiary a final judgment or order for the payment of money in an aggregate amount exceeding $50,000,000 (to the extent not covered by independent third party insurance as to which the insurer does not dispute coverage), and (i) enforcement proceedings are commenced by any creditor upon such judgment or order, or (ii) such judgment or order shall continue unsatisfied and in effect for a period of 30 consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; or

(i)    ERISA. An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Credit Parties or their Subsidiaries under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of 5% of the combined total assets of such Credit Parties or Subsidiaries as of the most recent fiscal quarter, or (ii) the Credit Parties or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of 5% of the combined total assets of such Credit Parties or Subsidiaries as of the most recent fiscal quarter; or

(j)    Invalidity of Loan Documents. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or relating to the satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Credit Party contests in any manner the validity or enforceability of any provision of any Loan Document; or any Credit Party denies that it has any liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document (except as specifically contemplated hereunder or thereunder); or

(k)    Change of Control. There occurs any Change of Control.

8.02    Remedies Upon Event of Default.

If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:

(a)    declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Credit Parties; and

(b)    exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to any one or more of the Credit Parties under the Bankruptcy Code of the United States, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, without further act of the Administrative Agent or any Lender.

8.03    Application of Funds.

After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lender) and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and

Last, the balance, if any, after all of the Obligations have been paid in full, to the Credit Parties or as otherwise required by Law.

ARTICLE IX

ADMINISTRATIVE AGENT

9.01    Appointment and Authority.

Each of the Lenders hereby irrevocably appoints Citibank to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and except as set forth in Section 9.06, neither the Borrower nor any other Credit Party shall have rights as a third party beneficiary of any of such provisions.

9.02    Rights as a Lender.

The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Credit Parties or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

9.03    Exculpatory Provisions.

The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

(a)    shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing;

(b)    shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

(c)    shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Credit Parties or any of their Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number, percentage or class of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until notice describing such Default or Event of Default is given to the Administrative Agent by the Borrower or a Lender.

The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

9.04    Reliance by Administrative Agent.

The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

9.05    Delegation of Duties.

The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub agents appointed by the Administrative Agent. The Administrative Agent and any such sub agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub agent and to the Related Parties of the Administrative Agent and any such sub agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

9.06    Successor Administrative Agent.

The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. The Required Lenders may remove the Administrative Agent from its capacity as Administrative Agent in the event of the Administrative Agent’s willful misconduct or gross negligence. Upon receipt of any such notice of resignation or the removal of the Administrative Agent as Administrative Agent hereunder, the Required Lenders shall have the right (with the consent of the Borrower provided there does not exist an Event of Default at such time), to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders (with the consent of the Borrower provided there does not exist an Event of Default at such time) and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation or the Required Lenders remove the Administrative Agent hereunder, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

9.07    Non‑Reliance on Administrative Agent and Other Lenders.

Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

9.08    No Other Duties, Etc.

Anything herein to the contrary notwithstanding, none of the Syndication Agents, the Documentation Agents or Arrangers listed on the cover page hereof or any additional titled agents which may be added thereto from time to time shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder.

9.09    Administrative Agent May File Proofs of Claim.

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Credit Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a)    to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, indemnification, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.09 and 10.04) allowed in such judicial proceeding; and

(b)    to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, indemnification, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

9.10    Collateral and Borrower Matters.

The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion and the Administrative Agent hereby agrees:

(a)    to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon payment in full of all Obligations (other than contingent indemnification obligations), (ii) that is sold or to be sold as part of or in connection with any sale not prohibited hereunder or under any other Loan Document, or (iii) subject to Section 10.01, if approved, authorized or ratified in writing by the Required Lenders; and

(b)    to release a Guarantor (other than the Operating Partnership) from liability for the Obligations in accordance with Section 10.20.

Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property.

9.11    No Obligations of Credit Parties.

Nothing contained in this Article IX shall be deemed to impose upon the Credit Parties any obligation in respect of the due and punctual performance by the Administrative Agent of its obligations to the Lenders under any provision of this Agreement, and the Credit Parties shall have no liability to the Administrative Agent or any of the Lenders in respect of any failure by the Administrative Agent or any Lender to perform any of its obligations to the Administrative Agent or the Lenders under this Agreement. Without limiting the generality of the foregoing, where any provision of this Agreement relating to the payment of any amounts due and owing under the Loan Documents provides that such payments shall be made by the Credit Parties to the Administrative Agent for the account of the Lenders, the Credit Parties’ obligations to the Lenders in respect of such payments shall be deemed to be satisfied upon the making of such payments to the Administrative Agent in the manner provided by this Agreement.


ARTICLE X

MISCELLANEOUS

10.01    Amendments, Etc.

No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Credit Parties therefrom, shall be effective unless in writing signed by the Required Lenders (or the Administrative Agent with the written concurrence of the Required Lenders) and the Credit Parties, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

(a)    waive any condition set forth in Section 4.01(a) without the written consent of each Lender;

(b)    extend or increase the Commitment of any Lender without the written consent of such Lender (subject to Section 2.14);

(c)    postpone any date fixed by this Agreement or any other Loan Document for any payment of principal or payment of interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby (subject to Section 2.14);

(d)    reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to clause (ii) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein);

(e)    change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;

(f)    change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; or

(g)    release (i) the Borrower or (ii) the Operating Partnership, as a Credit Party hereunder, without the written consent of each Lender;

and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.

10.02    Notices; Effectiveness; Electronic Communication.

(a)    Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

(i)    if to a Credit Party or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02 and

(ii)    if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been received upon the sender’s receipt of an acknowledgement from the intended recipient (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

(b)    Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e‑mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or a Credit Party may, in its discretion, agree to accept notices and other communications to such Person(s) hereunder by electronic communications pursuant to procedures approved by such Person(s), provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e‑mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e‑mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e‑mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(c)    The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR

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OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Credit Parties, any Lender, or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of any Credit Party’s or the Administrative Agent’s transmission of the Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to any Credit Party, any Lender, or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

(d)    Change of Address, Etc. Each of the Credit Parties and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

(e)    Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by or on behalf of the Credit Parties even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof as understood by the recipient, varied from any confirmation thereof. The Credit Parties shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Credit Parties except to the extent resulting from the gross negligence or willful misconduct of Administrative Agent, any Lender or any Related Party. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

10.03    No Waiver; Cumulative Remedies.

No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

10.04    Expenses; Indemnity; Damage Waiver.

(a)    Costs and Expenses. The Credit Parties shall pay (i) all reasonable out of pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent (limited to one counsel, and, if applicable, one local counsel in each material jurisdiction)), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out of pocket expenses incurred by the Administrative Agent or any Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made hereunder, including all such out of pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

(b)    Indemnification by the Credit Parties. The Credit Parties shall indemnify the Administrative Agent (and any sub‑agent thereof) and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Credit Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Credit Parties or any of their Subsidiaries, or any Environmental Liability related in any way to the Credit Parties or any of their Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by any Credit Party, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any Credit Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such Credit Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. This Section 10.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

(c)    Reimbursement by Lenders. To the extent that the Credit Parties for any reason fail to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub‑agent thereof) or any Related Party of any of the foregoing, and without limiting the obligation of the Credit Parties to do so, each Lender severally agrees to pay to the Administrative Agent (or any such sub‑agent) or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub‑agent) in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub‑agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).

(d)    Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, no party hereto shall assert, and each party hereto hereby waives, any claim against any Indemnitee and any other party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. Except as otherwise expressly set forth herein with respect to the waiver by the Indemnitees of claims for special, indirect, consequential or punitive damages (as opposed to direct or actual damages), such waiver by the Indemnitees shall not affect the indemnification obligations of the Credit Parties under this Section 10.04. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby except to the extent of actual or direct damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

(e)    Payments. All amounts due under this Section shall be payable not later than ten Business Days after demand therefor (accompanied by reasonable back‑up documentation).

(f)    Survival. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the passage of the Maturity Date and the repayment, satisfaction or discharge of all the other Obligations.

10.05    Payments Set Aside.

To the extent that any payment by or on behalf of the Credit Parties is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the applicable Overnight Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

10.06    Successors and Assigns.

(a)    Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that none of the Credit Parties may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment, or grant of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement

(b)    Assignments by Lenders. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans); provided that any such assignment shall be subject to the following conditions:

(i)    Minimum Amounts.

(A)    in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B)    in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;

(ii)    Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned;

(iii)    Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

(A)    the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and

(B)    the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.

(iv)    Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

(v)    No Assignment to Certain Persons. No such assignment shall be made to a Credit Party or any of the Credit Parties’ Affiliates or Subsidiaries.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note, as applicable, to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

(c)    Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of, and interest owing on, the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive (absent manifest error), and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by each of the Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d)    Participations. Any Lender may at any time, without the consent of, but with, subject to the proviso to the fourth sentence of the immediately succeeding paragraph prior written notice to, the Borrower and the Administrative Agent, sell participations to any Person (other than a natural person, a Credit Party or any of the Credit Parties’ Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Credit Parties, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Credit Parties agree that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section (subject to the requirements and limitations therein, including the requirements under Section 3.01(e)) (it being understood that the documentation required under Section 3.01(e) shall be delivered to the participating Lender)). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any commitments, loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(e)    Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Sections 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.

(f)    Certain Pledges. Any Lender may at any time pledge or assign, or grant a security interest in, all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment, or grant of a security interest, to secure obligations to a Federal Reserve Bank or other governmental entity; provided that no such pledge or assignment, or grant of a security interest, shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee or grantee for such Lender as a party hereto.

(g)    Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper‑based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York Uniform Electronic Transactions Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

10.07    Treatment of Certain Information; Confidentiality.

(a)    Confidentiality. Each Lender and the Administrative Agent (each, a “Lender Party”) hereby agrees for itself only that, except as specifically set forth herein, (i) such Lender Party shall not participate in or generate any press release or other release of information to the general public relating to the closing of the Loan without the prior written consent of the Borrower, (ii) such Lender Party shall hold the Confidential Information in accordance with such Lender Party’s customary procedures to prevent the misuse or disclosure of confidential information of this nature and in accordance with safe and sound banking practices, (iii) such Lender Party shall use the Confidential Information solely for the purposes of underwriting the Loan or acquiring an interest therein, carrying out such Lender Party’s rights or obligations under this Agreement, in connection with the syndication of the Loan, the enforcement of the Loan Documents, or other internal examination, supervision or oversight of the transactions contemplated hereby as reasonably determined by such Lender Party, or as otherwise permitted by the terms of this Section 10.07 (collectively, “Permitted Purposes”), and (iv) not disclose the Confidential Information to any party, except as expressly authorized in this Agreement or with prior written consent of the Borrower. Each Lender Party shall promptly notify the Borrower in the event that it becomes aware of any loss or unauthorized disclosure of any Confidential Information.

Each Lender Party shall not have any obligations under this Agreement with respect to a specific portion of the Confidential Information if such Lender Party can demonstrate that such Confidential Information (i) was publicly available at the time it was disclosed to such Lender Party, (ii) became publicly available subsequent to the time it was disclosed to such Lender Party, (iii) was in or comes into a Lender Party’s possession from a source not known to such Lender Party (after reasonable inquiry) to be in breach of an obligation of confidentiality owed to the Borrower in making such disclosure to such Lender Party, (iv) was in or comes into Lender Party’s possession free of any obligation of confidence owed to the Borrower at the time it was disclosed to them, or (v) was developed by the employees or agents of the Lender Party without the use of the Confidential Information.

(b)    Disclosures. Any Lender Party or its legal counsel may disclose the Confidential Information (i) to the Borrower, other Lenders, the Administrative Agent or any of their respective legal counsel, (ii) to its auditors in connection with bank audits or regulatory officials having jurisdiction over such Lender Party, (iii) to its legal counsel who need to know the Confidential Information for the purposes of representing or advising the Lender Parties, (iv) with prior written notice to the Chief Executive Officer of the Borrower, to its consultants, agents and advisors retained in good faith by such Lender Party with a need to know such information in connection with a Permitted Purpose, (v) as required by Law or legal process (subject to the terms below), or in connection with any legal proceeding in connection with the Loan Documents, or to the extent necessary or desirable to establish, enforce or assert any claims or defenses in connection with any legal proceeding by or against any such Lender Party, (vi) to another potential Lender or potential participant in connection with a disposition or proposed disposition to that Person of all or part of that Lender Party’s interests hereunder or a participation interest in its Notes, and (vii) to its directors, officers, employees and affiliates that control, are controlled by, or are under common control with such Lender Party or its parent or otherwise within the corporate umbrella of such Lender Party who need to know the confidential information for purposes of underwriting the Loan or becoming a party to this Agreement, the syndication of the Loan, the administration, interpretation, performance or exercise of rights under the Loan Documents, the enforcement of the Loan Documents, or other internal supervision, examination or oversight of the transactions contemplated hereby as reasonably determined by such Lender Party, provided that any Person to whom any of the Confidential Information is disclosed is informed by such Lender Party of the strictly confidential nature of the Confidential Information, and such Persons described in clauses (b)(iv) and (vi) shall agree in writing to be bound by confidentiality restrictions at least as restrictive as those contained herein. Notwithstanding the foregoing, a Lender Party may disclose Confidential Information to the extent such Lender Party is requested or required by any Law or any order of any court, governmental, regulatory or self‑regulatory body or other legal process to make any disclosure of or about any of the Confidential Information. In such event (except with respect to banking regulators or auditors), such Lender Party shall, if permitted by law, promptly notify the Borrower in writing so that the Borrower may seek an appropriate protective order or waive compliance with the provisions of this Agreement (provided that if a protective order or the receipt of a waiver hereunder has not been obtained, or if prior notice is not possible, and a Lender Party is, in the opinion of its counsel, compelled to disclose Confidential Information, such Lender Party may disclose that portion of the Confidential Information which its counsel advises it that such Lender Party is compelled to disclose, and provided further that in any event, such Lender Party will not oppose action by the Borrower to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information.) Each Lender Party shall be liable (but only to the extent it is finally determined to have breached the provisions of this Section 10.07(b)) for any actions by such Lender Party (but not any other Person) which are not in accordance with the provisions of this Section 10.07(b).

(c)    No Rights in Confidential Information. The Administrative Agent and each Lender recognizes and agrees that nothing contained in this Section 10.07 shall be construed as granting any property rights, by license or otherwise, to any Confidential Information (other than the Agreement or any amendments thereto or any related agreements), or to any invention or any patent, copyright, trademark, or other intellectual property right that has issued or that may issue, based on such Confidential Information (other than the Agreement or any amendments thereto or any related agreements). No Lender Party shall make, have made, use or sell for any purpose any product or other item using, incorporating or derived from any such Confidential Information; provided that the foregoing shall not limit or restrict in any way the creation, use or sale of banking or related services by any Lender Party.

(d)    Survival. All Confidential Information provided by or on behalf of the Borrower during the term of this Agreement or any predecessor agreements shall remain confidential indefinitely and shall continue to receive that level of confidential treatment customarily provided by commercial banks dealing with confidential information of their borrower customers, subject, however, to the specific exceptions to confidential treatment provided herein. For a period of one year after the Termination Date, the affected Lender Party shall continue to make reasonable inquiry of any third party providing Confidential Information as to whether such third party is subject to an obligation of confidentiality owed to the Borrower or its Subsidiaries and if such Lender Party obtains knowledge that such third party is violating a confidentiality agreement with the Borrower, such Lender Party shall treat the Confidential Information received from such third party as strictly confidential in accordance with the provisions of this Section 10.07. For purposes of this Section 10.07(d), the Termination Date shall mean the earlier of the termination of this Agreement or, with respect to a specific Lender Party, the date such Person no longer holds an interest in the Loan.

(e)    Injunctive Relief. Each Lender Party hereby agrees that breach of this Section 10.07 will cause the Borrower irreparable damage for which recovery of damages would be inadequate, and that the Borrower shall therefore be entitled to obtain timely injunctive relief under this Agreement, as well as such further relief as may be granted by a court of competent jurisdiction.

(f)    No Fiduciary Duty. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of the Administrative Agent or the Lenders to a Credit Party.

(g)    Separate Action. Each Credit Party covenants and agrees not to, and hereby expressly waives any right to, raise as a defense, affirmative defense, set off, recoupment or otherwise against any Lender Party any claim arising from or relating to an alleged breach of this Section 10.07 in any action, claim or proceeding relating to a breach of the Loan Documents by the Credit Parties or other action to enforce or recover the Obligations, and covenant and agree that any claim against a Lender Party arising from or relating to an alleged breach of this Section 10.07 by a Lender Party shall only be asserted as an affirmative claim in a separate action against the applicable Lender Party.

10.08    Right of Setoff.

If an Event of Default shall have occurred and be continuing, each Lender and each of its respective Affiliates is hereby authorized at any time and from time to time to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of a Credit Party against any and all of the obligations of the Credit Parties now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Credit Parties may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Lender and each of its respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or each of its respective Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

10.09    Interest Rate Limitation.

Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non‑usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

10.10    Counterparts; Integration; Effectiveness.

This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic imaging transmission (e.g. “pdf” via e-mail) shall be effective as delivery of a manually executed counterpart of this Agreement.


28
    


10.11    Survival of Representations and Warranties.

All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or Event of Default at the time of any Borrowing, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

10.12    Severability.

If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.13    Replacement of Lenders.

If (a) any Lender requests compensation under Section 3.04, (b) any Credit Party is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, (c) any Lender refuses to consent to an amendment, modification or waiver of this Agreement that, pursuant to Section 10.01, (i) requires the consent of 100% of the Lenders and the consent of the Required Lenders has been obtained or (ii) requires the consent of each Lender directly affected thereby, or (d) any other circumstance exists hereunder that gives the Credit Parties the right to replace a Lender as a party hereto, then the Credit Parties may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender (a “Departing Lender”) to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06 except as provided in this Section 10.13), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee (a “Replacement Lender”) that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(a)    the Borrower or the Replacement Lender shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b) (unless waived by the Administrative Agent);

(b)    such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Sections 3.04, 3.05 and 10.04) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

(c)    in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and

(d)    such assignment does not conflict with applicable Laws.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Credit Parties to require such assignment and delegation cease to apply. Each Departing Lender required to make an assignment pursuant to this Section 10.13 shall promptly execute and deliver an Assignment and Assumption with the applicable Replacement Lender. If such Departing Lender does not execute and deliver to the Administrative Agent a duly completed Assignment and Assumption and/or any other documentation reasonably necessary to reflect such replacement within a period of time deemed reasonable by the Administrative Agent after the later of (i) the date on which the Replacement Lender executes and delivers such Assignment and Assumption and/or such other documentation and (ii) the date on which the Departing Lender receives all payments described in clause (b) of this Section 10.13, then such Departing Lender shall be deemed to have executed and delivered such Assignment and Assumption and/or such other documentation as of such date and the Borrower shall be entitled (but not obligated) to execute and deliver such Assignment and Assumption and/or such other documentation on behalf of such Departing Lender.

10.14    Governing Law; Jurisdiction; Etc.

(a)    GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

29
    



(b)    SUBMISSION TO JURISDICTION. EACH OF THE CREDIT PARTIES IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY CREDIT PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c)    WAIVER OF VENUE. EACH OF THE CREDIT PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)    SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

10.15    WAIVER OF JURY TRIAL.

EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

10.16    USA PATRIOT Act Notice.

Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107‑56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. The Borrower shall, following a request by the Administrative Agent or any Lender, promptly provide all documentation and other information that the Administrative Agent or such Lender reasonably requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the USA Patriot Act.”

10.17    [Reserved].


10.18    ENTIRE AGREEMENT.

THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

10.19    [Reserved].


10.20    Release of a Guarantor.

(a)    Notwithstanding anything to the contrary contained in this Agreement, the Borrower may (i) sell, assign, transfer or dispose of its interest in a Guarantor (other than the Operating Partnership) that is a Subsidiary of the Borrower or (ii) request that any Guarantor (other than the Operating Partnership) be released from its obligations under the Loan Documents; provided, that, on or before (A) the closing of such sale, assignment, transfer or disposition or (B) the effectiveness of such requested release, the Borrower shall have delivered to the Administrative Agent a certification, together with such other evidence as the Administrative Agent may require, that the Credit Parties will be in compliance with all terms of this Agreement after giving effect to such sale, assignment, transfer, disposition or release. The Administrative Agent shall promptly notify the Lenders of any such sale, assignment, transfer, disposition or release permitted hereunder.

(b)    Upon a sale, assignment, transfer, disposition or request for release in accordance with clause (a) above, the Administrative Agent shall, at the expense of the Borrower, take such action as is reasonably appropriate to effect such release.


30
    


10.21    No Advisory or Fiduciary Responsibility.

In connection with all aspects of each transaction contemplated hereby, the Credit Parties acknowledge and agree, and acknowledge their Subsidiaries’ understanding, that: (i) the credit facilities provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Credit Parties and their respective Subsidiaries, on the one hand, and the Administrative Agent, the Arrangers and the Lenders, on the other hand, and the Credit Parties are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each of the Administrative Agent, each Arranger and each Lender is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Credit Parties or any of their respective Affiliates, stockholders, creditors or employees or any other Person; (iii) none of the Administrative Agent, the Arrangers or any Lender has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Credit Parties with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent, the Arrangers or any Lender has advised or is currently advising the Credit Parties or any of their respective Affiliates on other matters) and none of the Administrative Agent, the Arrangers or any Lender has any obligation to the Credit Parties or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent, the Arrangers and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Credit Parties and their respective Affiliates, and none of the Administrative Agent, the Arrangers or any Lender has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent, the Arrangers and the Lenders have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Credit Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent, the Arrangers and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty arising out of the transactions contemplated hereby.



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ARTICLE XI

GUARANTY

11.01    The Guaranty.

Each of the Guarantors hereby jointly and severally, absolutely and unconditionally guarantees to each Lender and each other holder of the Obligations as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal.

Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents or the other documents relating to the Obligations, the obligations of each Guarantor under this Agreement and the other Loan Documents shall not exceed an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under applicable Debtor Relief Laws.

11.02    Obligations Unconditional.

The obligations of the Guarantors under Section 11.01 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents or other documents relating to the Obligations, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable Laws, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor (other than payment in full of the Obligations), it being the intent of this Section 11.02 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor for amounts paid under this Article XI until such time as the Obligations (other than contingent indemnity obligations) have been paid in full and the Commitments have expired or terminated. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by Law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as described above.

(a)    at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;

(b)    any of the acts mentioned in any of the provisions of any of the Loan Documents or other documents relating to the Obligations shall be done or omitted;

(c)    the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents or other documents relating to the Obligations shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with;

(d)    any Lien granted to, or in favor of, the Administrative Agent or any other holder of the Obligations as security for any of the Obligations shall fail to attach or be perfected; or

(e)    any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).

With respect to its obligations hereunder, each Guarantor hereby expressly waives, to the extent permitted by Law, diligence, presentment, demand of payment, protest and all notices whatsoever, acceptance hereof, and any requirement that the Administrative Agent or any other holder of the Obligations exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents or any other document relating to the Obligations, or against any other Person under any other guarantee of, or security for, any of the Obligations.

11.03    Reinstatement.

The obligations of the Guarantors under this Article XI shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any Debtor Relief Law or otherwise, and each Guarantor agrees that it will indemnify the Administrative Agent, each Lender and each other holder of the Obligations on demand for all reasonable costs and expenses (including, without limitation, the fees, charges and disbursements of counsel) incurred by the Administrative Agent, such Lender or such other holder of the Obligations in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any Debtor Relief Law.

11.04    Certain Additional Waivers.

Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Obligations, except through the exercise of rights of subrogation pursuant to Section 11.02 and through the exercise of rights of contribution pursuant to Section 11.06.

11.05    Remedies.

The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Administrative Agent, the Lenders and the other holders of the Obligations, on the other hand, the Obligations may be declared to be forthwith due and payable as specified in Section 8.02 (and shall be deemed to have become automatically due and payable in the circumstances specified in Section 8.02) for purposes of Section 11.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 11.01.

11.06    Rights of Contribution.

The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under applicable Laws. Such contribution rights shall be subordinate and subject in right of payment to the obligations of such Guarantors under the Loan Documents and no Guarantor shall exercise such rights of contribution until all Obligations have been paid in full and the Commitments have terminated.

11.07    Guarantee of Payment; Continuing Guarantee.

The guarantee in this Article XI is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.

11.08    Additional Guarantors.

The Borrower may at any time and from time to time, upon written request to the Administrative Agent, cause a Domestic Subsidiary that is a Wholly-Owned Subsidiary to become a Guarantor under this Agreement by (a) executing a Joinder Agreement and (b) delivering such other documentation as the Administrative Agent may reasonably request in connection therewith, including, without limitation, certified resolutions and other organizational and customary authorizing documents of such Person, all in form, content and scope reasonably satisfactory to the Administrative Agent.



[Signature pages follow]


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers of the day and year first above written.

BORROWER:
ALEXANDRIA REAL ESTATE EQUITIES, INC.,
a Maryland corporation
By:    /s/ Dean A. Shigenaga    
Name:    Dean A. Shigenaga
Title:    Executive Vice President
Chief Executive Officer
GUARANTOR:
ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
a Delaware limited partnership
By:    ARE-ORS Corp., a Maryland corporation,
general Partner
By:    /s/ Dean A. Shigenaga    
Name:    Dean A. Shigenaga
Title:    Executive Vice President
Chief Executive Officer
    


CITIBANK, N.A.,
as Administrative Agent
By:    /s/ Michael Chlopak    
Name:    Michael Chlopak
Title: Vice President    

Citibank NA,
as Lender
By:    /s/ Michael Chlopak    
Name:    Michael Chlopak
Title: Vice President    

ROYAL BANK OF CANADA,
as Lender
By:    /s/ Brian Gross    
Name:    Brian Gross
Title:    Authorized Signatory
THE BANK OF NOVA SCOTIA,
as Lender
By:    /s/ Eugene Dempsey    
Name:    Eugene Dempsey
Title: Director    


32
    


Compass Bank,
as Lender
By:    /s/ Brian Tuerff    
Name:    Brian Tuerff
Title:    Senior Vice President

REGIONS BANK,
as Lender
By:    /s/ Michael R. Mellott    
Name:    Michael R. Mellott
Title:    Director

MUFG Union Bank, N.A.,
a national banking association
,
as Lender
By:    /s/ Nancy Dal Bello    
Name:    Nancy Dal Bello
Title:    Director

SUNTRUST BANK,
as Lender
By:    /s/ Danny Stover    
Name:    Danny Stover
Title:    Vice President


ARE – Third A&R Term Loan Agreement


TD Bank, N.A.,
as Lender
By:    /s/ Mauricio Duran    
Name:    Mauricio Duran
Title:    Vice President
Mizuho Bank (USA)    ,
as Lender
By:    /s/ Noel Purcell    
Name:    Noel Purcell
Title:    Senior Vice President

ARE – Third A&R Term Loan Agreement


PNC Bank, National Association, a National Banking Association as Lender
By:    /s/ Nicolas Zitelli    
Name:    Nicolas Zitelli
Title:    Senior Vice President

CAPITAL ONE, NATIONAL ASSOCIATION,
as Lender
By:    /s/ Frederick H. Denecke    
Name:    Frederick H. Denecke
Title:    Senior Vice President


ARE – Third A&R Term Loan Agreement


Sumitomo Mitsui Banking Corporation    
as Lender
By:    /s/ Keith J. Connolly    
Name:    Keith J. Connolly
Title:    Managing Director

Bank of the West, a California banking corporation,
as Lender
By:    /s/ Irina Galieva    
Name:    Irina Galieva
Title:    Vice President

Santander Bank, N.A.    ,
as Lender
By:    /s/ Frederick H. Murphy, Jr.    
Name:    Frederick H. Murphy, Jr.
Title:    Vice President



ARE – Third A&R Term Loan Agreement


SCHEDULE 1.01
TECH SQUARE
The existence of the consent rights of the Massachusetts Institute of Technology with respect to (a) leases over 150,000 square feet, (b) alteration of the Real Property affecting more than 150,000 square feet and having an expense of $20,000,000 or more in any single project, (c) leverage exceeding 80% of loan to value with respect to such Real Property, (d) transactions with any affiliate of the Parent, (e) acquisition of assets other than such Real Property and related items of property and (f) changing the purpose of the company.

Sch 1.01




SCHEDULE 2.01
COMMITMENTS AND APPLICABLE PERCENTAGES
Lender
Commitment
Applicable Percentage
Lending Office Address
Citibank, N.A.
$40,000,000
11.428571000
%
1615 Brett Road, Ops III
New Castle, DE 19720
Attn: Annemarie E. Pavco
Telephone: 302-323-2475
Facsimile: 212-994-0961
Email: annemarie.e.pavco@citi.com

Royal Bank of Canada
$40,000,000
11.428571000
%
20 King Street, 4th Floor
Toronto, Canada M5H 1C4
Attn: Chandni Pambu
Telephone: 416 974-1061
Fax: 212 428-2372
Email: chandni.pambu@rbc.com

The Bank of Nova Scotia
$40,000,000
11.428571000
%
720 King Street West, 2nd Floor Toronto, Ontario M5V 2T3, Canada Attn: Oliver Berry
Telephone: 416 649-4041
Facsimile: 212 225-5709
Email: oliver.berry@scotiabank.com

Compass Bank
$26,000,000
7.428571000
%
2200 Post Oak, 16th Floor
Houston, Texas 77056
Attn: Sandra Vega
Telephone: 713-993-8502
Facsimile: 205-524-0385
Email: ldfclargecorporatewholesale.us@Bbva.com

Regions Bank
$26,000,000
7.428571000
%
1900 5th Avenue N., 15th Floor Birmingham, AL 35203
Attn: Amanda Thomas
Telephone: 205 581-7645
Facsimile: 205 261-7939
Email: amanda.thomas@regions.com

MUFG Union Bank, N.A.
$26,000,000
7.428571000
%
1980 Saturn Street
V01-120
Monterey Park, CA 91755
Attn: Daniel Camacho
Telephone: 323 720-2877
Facsimile: 800 446-9951 or 323 724-6198
Email: #clo_synd@unionbank.com

SunTrust Bank
$26,000,000
7.428571000
%
211 Perimeter Center Parkway,
Suite 100 Atlanta, GA 30346
Attn: Stephen Huff
Telephone: 770 352-5159
Facsimile: 801 567-6257
Email: stephen.gaccs@rightfax.com


Schedule 2.01


Lender
Commitment
Applicable Percentage
Lending Office Address
TD Bank, N.A.
$26,000,000
7.428571000
%
6000 Atrium Way
Mt. Laurel, NJ 08054
Attn: Commercial Loan Servicing/Investor Processing Telephone: 856 533-4885
Facsimile: 856 533-7128
Email: investorprocessing@yesbank.com

Mizuho Bank (USA)
$26,000,000
7.428571000
%
1800 Plaza Ten
Harborside Financial Center
Jersey City, NJ 07311
Attn: Nicole S. Ferrara
Telephone: 201 626-9341
Facsimile: 201 626-9941
Email: lau_uscorp3@mizuhocbus.com

PNC Bank, National Association
$26,000,000
7.428571000
%
500 First Avenue, 4th Floor
Pittsburgh, PA 15219
Attn: Jared Hardt
Telephone: 412 762-3546
Facsimile: 412 705-2124
Email: jared.hardt@pnc.com

Capital One, National Association
$12,000,000
3.428571000
%
6200 Chevy Chase Drive
Laurel, MD 20707
Attn: Christian Cho
Telephone: 301 939-5955
Facsimile: 855 267-0849
Email: CLSSyndicationMember@CapitalOne.com

Sumitomo Mitsui Banking Corporation
$12,000,000
3.428571000
%
277 Park Avenue, 6th Floor
New York, NY 10172
Attn: Stanley Praimnath
Telephone: 212 224-4595
Facsimile: 212 224-4391
Email: stanley_praimnath@smbcgroup.com

Bank of the West
$12,000,000
3.428571000
%
2527 Camino Ramon
NC-B07 3E-I
San Ramon, CA 94583
Attn: LMO Reid Disbursements
Tele.: 925 843-4606 (Randi Bosset) Facsimile: 402 918-7875
Email: LMO-REID-Disbursements@bankofthewest.com

Santander Bank, N.A.
$12,000,000
3.428571000
%
601 Penn Street
10-6438-CO8
Reading, PA 19601
Attn: Amanda Ray, COML Ops LD Spec.
Telephone: 610 378-6840
Facsimile: 484 338-2831
Email: participations@santander.us

TOTAL:
$350,000,000
100%
 


SCHEDULE 10.02
ADMINISTRATIVE AGENT’S OFFICE; CERTAIN ADDRESSES FOR NOTICES
To the Administrative Agent:
Citibank, N.A.
1615 Brett Road, Ops III
New Castle, DE 19720
Attn: Annemarie E. Pavco
Telephone: 302-323-2475
Facsimile: 212-994-0961
Email: annemarie.e.pavco@citi.com
To the Borrower / Credit Parties:
Alexandria Real Estate Equities, Inc.
385 E. Colorado Blvd., Suite 299
Pasadena, CA 91101
Attn: Corporate Secretary
Telephone: 626-578-0777
Facsimile: 626-578-0770
Email: dshigenaga@are.com



EXHIBIT A

FORM OF LOAN NOTICE


Date: [___________]


To:    Citibank, N.A., as Administrative Agent


Ladies and Gentlemen:


Reference is made to that certain Third Amended and Restated Term Loan Agreement, dated as of June 30, 2015 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Alexandria Real Estate Equities, Inc., a Maryland corporation (the “Borrower”), Alexandria Real Estate Equities, L.P., a Delaware limited partnership, as a guarantor, the other guarantors (if any) party thereto, the Lenders from time to time party thereto, and Citibank, N.A., as Administrative Agent.

The undersigned hereby requests (select one):

A Borrowing of Loans     A conversion or continuation of
Loans

1.    On _________________________________ (a Business Day).

2.    In the principal amount of $_____________.

3.
Type of Loan requested to be borrowed or to which existing Loans are to be continued or converted:

Base Rate Loan

Eurodollar Rate Loans: with an Interest Period of ____ month(s).


[After giving effect to the Borrowing requested herein, the aggregate outstanding principal amount of all Loans shall not exceed the Aggregate Commitments.]


[Signature page follows]

ALEXANDRIA REAL ESTATE EQUITIES, INC.,
a Maryland corporation


By:    _____________________________
Name:
Title:




EXHIBIT C

FORM OF NOTE


New York, New York    $[______________]
[_________], 20[__]


FOR VALUE RECEIVED, the undersigned, Alexandria Real Estate Equities, Inc. (the “Borrower”) hereby promises to pay to                  (or its registered assigns) (the “Lender”), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of ________________ Dollars ($__________) or, if less, the aggregate unpaid principal balance of the Loan made by the Lender to the Borrower (the “Loan”) under that certain Third Amended and Restated Term Loan Agreement, dated as of June 30, 2015 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” capitalized terms used but not defined herein are used herein as defined in the Agreement), among the Borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and Citibank, N.A., as Administrative Agent.

The Borrower promises to pay interest on the unpaid principal amount of the Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest in respect of the Loan shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agent’s Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand in accordance with the terms of the Agreement, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.

This Note is one of the Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Agreement.

The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.


[Signature page follows]


Schedule 2.01


THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

ALEXANDRIA REAL ESTATE EQUITIES, INC.,
a Maryland corporation


By:        
Name:
Title:


EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE

[___________], 20[__]

To:    Citibank N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Third Amended and Restated Term Loan Agreement, dated as of June 30, 2015 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Alexandria Real Estate Equities, Inc., a Maryland corporation (the “Borrower”), Alexandria Real Estate Equities, L.P., a Delaware limited partnership, as a Guarantor, the other Guarantors (if any) party thereto, the Lenders from time to time party thereto, and Citibank N.A., as Administrative Agent.

The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the ______________________________ of the Borrower, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on the behalf of the Borrower, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

1.    Attached hereto as Schedule 1 are the consolidated year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower and its Subsidiaries ended as of [_______] (the “Statement Date”), together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraphs for fiscal quarter-end financial statements]

2.    Attached hereto as Schedule 1 are the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of [_______] (the “Statement Date”). Such financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP (other than footnote disclosures), consistently applied, as at such date and for such period, subject only to normal year‑end accruals and audit adjustments.

3.    The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a review of the transactions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements.

4.    The financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the Statement Date.

5.    As of the date hereof, the Borrower’s Debt Rating (if any) is ________.

6.    A review of the activities of the Credit Parties during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Credit Parties performed and observed all of their respective Obligations under the Loan Documents, and

[select one:]

[to the best knowledge of the undersigned during such fiscal period, no Default or Event of Default exists.]
--or--
[the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]


[Signature page follows]


IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of the date first written above.

ALEXANDRIA REAL ESTATE EQUITIES, INC.,
a Maryland corporation


By:    __________________________________
Name:
Title:

SCHEDULE 1 TO COMPLIANCE CERTIFICATE

FINANCIAL STATEMENTS

[See attached pages]

S


SCHEDULE 2 TO COMPLIANCE CERTIFICATE

FINANCIAL COVENANT ANALYSIS


For the Quarter/Year ended [_________] (“Statement Date”)

($ in 000’s)

I.        Section 7.09(a) — Fixed Charge Coverage Ratio.

A.    Adjusted EBITDA for the four quarter period ended on
Statement Date:    $__________

B.
Debt Service of the Borrower and its Subsidiaries for the four quarter $_________
period ended on Statement Date:

C.    Preferred Distributions (other than redemptions) of the Borrower and its                              Subsidiaries during the four quarter period ended on Statement Date: $_________

D.    Line I.B. + Line I.C.:     $__________

E.    Fixed Charge Coverage Ratio (Line I.A. ÷ Line I.D.):    ____ : 1.00

F.    Compliance Ratio:    > 1.50:1.00

G.    Covenant Compliance:    Yes __ No __

II.    Section 7.09(b) — Secured Debt Ratio.

A.
Secured Debt of the Borrower and its Subsidiaries at Statement Date:    $__________

B.    Adjusted Tangible Assets at Statement Date:         $_________

C.    Secured Debt to Adjusted Tangible Assets (Line II.A. ÷ Line II.B.): _________%

D.    Compliance Ratio:     < 45.0%
    
For the four quarters ending subsequent to     
the consummation of a Material Acquisition:      < 50.0%

E.    Covenant Compliance:    Yes __ No __

III.    Section 7.09(c) — Leverage Ratio.

A.
Adjusted Total Indebtedness at Statement Date:          $__________

B.    Adjusted Tangible Assets at Statement Date:    $__________

Sch 2-5


    
C.    Excluded Indebtedness deducted in connection with the determination
of Adjusted Total Indebtedness at Statement Date:              $_________

D.    Line III.B. - Line III.C.:    $_________

E.    Line III.A. ÷ Line III.D.:    ________%

F.    Compliance Ratio:    < 60.0%
    
For the four quarters ending subsequent to
the consummation of a Material Acquisition:     < 65.0%                        

G.    Covenant Compliance:    Yes __ No __

IV.    Section 7.09(e) — Unsecured Interest Coverage Ratio.

A.    Aggregate Adjusted NOI from the Qualified Asset Pool Properties for
the four fiscal quarter period ending on the Statement Date:     $__________
            
B.    Aggregate Interest Charges for the four quarter period ended on the
Statement Date in respect of the unsecured Indebtedness of the
Borrower and its Subsidiaries (other than Obligor Subsidiary Debt):    $__________

C.    Line IV.A. ÷ Line IV.B.:    ______:1.00

D.    Compliance Ratio:    > 1.50:1.00

E.    Covenant Compliance:    Yes __ No __

V.    Section 7.09(f) — Unsecured Leverage Ratio.

A.
Aggregate unsecured Adjusted Total Indebtedness of the Borrower
and its Subsidiaries at Statement Date:                      $__________

B.    Obligor Subsidiary Debt:                         $__________    

C.    Adjusted Unencumbered Asset Value at Statement Date:              $__________

D.    Amount of Excluded Indebtedness (other than Obligor Subsidiary Debt)
deducted in connection with the     determination of aggregate unsecured
Adjusted Total Indebtedness of the Borrower and its Subsidiaries at
Statement Date:                                  $__________

E.    Line V.A. - Line V.B.                             $__________

Sch 2-6



F.    Line V.C. – Line V.D.                          $__________

G.    Unsecured Leverage Ratio (Line V.E. ÷ Line V.F.):    __________%

H.    Compliance Ratio:    < 60.0%
    
For the four quarters ending subsequent to
    the consummation of a Material Acquisition:     < 65.0%                

I.    Covenant Compliance:                         Yes __ No __

VI.    Section 7.04 — Restricted Payments.

A.    Restricted Payments by Borrower for the four quarter period ended on
the Statement Date:    $__________

B.    Funds From Operations of Borrower and its
Subsidiaries for the four quarter period ending on the Statement Date:    $__________

C.    (Line VI.A. ÷ Line VI.B.):    _________%

D.    Compliance Percentage:    < 95%

E.    Covenant Compliance:    Yes __ No __

Compliance based on Line VI.D. percentage

Compliance based on REIT Status or to avoid payment of federal
or state income or excise tax

VII.    Section 7.02(f) and (g) — Investments.

A.    Development Investments at the Statement Date:    $__________

B.    Undeveloped land without improvements at the Statement Date:    $__________

C.    Real Property (other than an improved real estate property used
principally for office, manufacturing, warehouse, research, laboratory,
health sciences or technology purposes (and appurtenant amenities)
at the Statement Date:                              $__________

D.    Sum of Line VII.A. + Line VII.B. + Line VII.C.:    $__________

E.    Adjusted Tangible Assets at the Statement Date:    $__________


Sch 2-7


F.    Line VII.D. ÷ Line VII.E.:    _________%

G.    Compliance Percentage:    < 35%

H.    Covenant Compliance:    Yes __ No __

I.    Other non-Real Property Investments at the Statement Date
(not otherwise permitted under Section 7.02):    $__________

J.    Line VII.I. ÷ Line VII.E.:    _________%

K.    Compliance Percentage:    < 15%

L.    Covenant Compliance:                         Yes __ No __

EXHIBIT E

FORM OF ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [the][each] Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each] Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] hereunder are several and not joint.] Capitalized terms used but not defined herein shall have the meanings given to them in the Third Amended and Restated Term Loan Agreement identified below (the “Loan Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Loan Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Loan Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the term loan facility established by the Loan Agreement and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

1.    Assignor:                        

2.    Assignee:                         [and is an Affiliate/Approved Fund
of [identify Lender]]

3.
Borrower: Alexandria Real Estate Equities, Inc.

4.
Administrative Agent: Citibank, N.A., as the administrative agent under the Loan Agreement.

5.
Loan Agreement: Third Amended and Restated Term Loan Agreement, dated as of June 30, 2015, among Alexandria Real Estate Equities, Inc., as the Borrower, Alexandria Real Estate Equities, L.P., as a Guarantor, the other Guarantors (if any) party thereto, the Lenders from time to time party thereto and Citibank, N.A., as Administrative Agent.

6.
Assigned Interest:

Facility Assigned
Aggregate Amount of Commitment/Loans for all Lenders*
Amount of Commitment/Loans Assigned*
Percentage Assigned of Commitment/Loans
CUSIP Number
Term Loan
$      
$      
         %
 
      
$      
$      
         %
 
      
$      
$      
         %
 

[7.    Trade Date:                ]

Effective Date: _____________, 20__ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]


[Signature pages follow]

The terms set forth in this Assignment and Assumption are hereby agreed to:


ASSIGNOR
[NAME OF ASSIGNOR]

By:                    
Name:
Title:

ASSIGNEE
[NAME OF ASSIGNEE]

By:                    
Name:
Title:


[Signatures continue on next page]

Consented to, if applicable, and Accepted:

CITIBANK, N.A.,
as Administrative Agent


By:                    
Name:
Title:


Consented to, if applicable:

ALEXANDRIA REAL ESTATE EQUITIES, INC.,
a Maryland corporation


By:                    
Name:
Title:


[Signatures end]

ANNEX 1 TO ASSIGNMENT AND ASSUMPTION

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1.    Representations and Warranties.

1.1.    Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2.    Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Loan Agreement, (ii) it meets all the requirements to be an assignee under Section 10.06 of the Loan Agreement (subject to such consents, if any, as may be required under Section 10.06 of the Loan Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Loan Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Loan Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Foreign Lender, attached hereto is any documentation required to be delivered by it pursuant to the terms of the Loan Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2.    Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.

3.    General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.


EXHIBIT F

FORM OF JOINDER AGREEMENT

THIS JOINDER AGREEMENT (this “Agreement”), dated as of [date], is by and between _______________, a _______________ [corporation] a Domestic Subsidiary that is a Wholly-Owned Subsidiary (the “Subsidiary”), the Borrower (as hereinafter defined) and the Administrative Agent (as hereinafter defined) pursuant to that certain Third Amended and Restated Term Loan Agreement, dated as of June 30, 2015 (as amended, restated, amended and restated, supplemented, extended or otherwise modified in writing from time to time, the “Loan Agreement”), among Alexandria Real Estate Equities, Inc., a Maryland corporation (the “Borrower”), Alexandria Real Estate Equities, L.P., a Delaware limited partnership (“Operating Partnership”), the other guarantors (if any) party thereto (together with the Operating Partnership, collectively the “Guarantors” and individually a “Guarantor”), each lender from time to time party thereto (individually, a “Lender” and collectively, the “Lenders”) and Citibank, N.A., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”). Capitalized terms not otherwise defined herein are defined in the Loan Agreement.

The Borrower has, pursuant to Section 11.08 of the Loan Agreement, requested that the Subsidiary become a Guarantor. Accordingly, the Subsidiary hereby agrees as follows with the Administrative Agent, for the benefit of the Lenders:

1.    The Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Subsidiary will be deemed to be a party to the Loan Agreement and a “Guarantor” for all purposes of the Loan Agreement, and shall have all of the obligations of a Guarantor thereunder as if it had executed the Loan Agreement. The Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions applicable to the Guarantors contained in the Loan Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the Subsidiary hereby jointly and severally together with the other Guarantors, guarantees to each Lender and the Administrative Agent, as provided in Article XI of the Loan Agreement, the prompt payment and performance of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof.

2.    The Subsidiary acknowledges and confirms that it has received a copy of the Loan Agreement and the Schedules and Exhibits thereto.

3.    The Borrower, on behalf of the Credit Parties, confirms that all of the Obligations under the Loan Agreement are, and upon the Subsidiary becoming a Guarantor shall continue to be, in full force and effect.

4.    The Borrower and the Subsidiary agree that at any time and from time to time, upon the written request of the Administrative Agent, each of the Borrower and the Subsidiary will execute and deliver such further documents and do such further acts and things as the Administrative Agent may reasonably request in order to effectuate the purposes of this Agreement.

5.    This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract.

6.    This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York.


[Signature page follows]

IN WITNESS WHEREOF, each of the Subsidiary and the Borrower has caused this Joinder Agreement to be duly executed by its authorized officer, and the Administrative Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written.

[                        ]


By:                            
Name:
Title:


CITIBANK, N.A.,
as Administrative Agent for itself and the other Lenders


By:                            
Name:
Title:


Consented to:

ALEXANDRIA REAL ESTATE EQUITIES, INC.,
a Maryland corporation


By:                        
Name:
Title:




Sch 2-8
2Q15 - EX 12.1


EXHIBIT 12.1
ALEXANDRIA REAL ESTATE EQUITIES, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(in thousands, except ratios)
 
 
Six Months Ended June 30, 2015
 
Years Ended December 31,
 
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before noncontrolling interests (a)
 
$
62,366

 
$
104,991

 
$
139,349

 
$
96,712

 
$
117,316

 
$
122,038

 
Add: interest expense
 
49,904

 
79,299

 
67,952

 
69,184

 
63,373

 
66,341

 
Subtract: Noncontrolling interests in income of subsidiaries that have not incurred fixed charges
 
(755
)
 
(4,856
)
 
(954
)
 
(955
)
 
(1,323
)
 
(1,156
)
 
Earnings available for fixed charges (b)
 
$
111,515

 
$
179,434

 
$
206,347

 
$
164,941

 
$
179,366

 
$
187,223

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest incurred
 
$
69,312

 
$
126,287

 
$
128,038

 
$
131,424

 
$
120,610

 
$
132,345

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock dividends
 
12,493

 
25,698

 
25,885

 
27,328

 
28,357

 
28,357

 
Preferred stock redemption charge
 
—

 
1,989

 
—

 
5,978

 
—

 
—

 
Total combined fixed charges and preferred stock dividends
 
$
81,805

 
$
153,974

 
$
153,923

 
$
164,730

 
$
148,967

 
$
160,702

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated ratio of earnings to fixed charges
 
1.61

(c) 
1.42

(d) 
1.61

 
1.26

(e) 
1.49

 
1.41

(f) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated ratio of earnings to combined fixed charges and preferred stock dividends
 
1.36

(c) 
1.17

(d) 
1.34

 
1.00

(e) 
1.20

 
1.17

(f) 

(a)
Includes gains on sales of land parcels that are not attributable to discontinued operations and excludes equity in earnings from unconsolidated joint ventures.

(b)
For purposes of calculating the consolidated ratio of earnings to fixed charges and consolidated ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income from continuing operations before noncontrolling interests and interest expense less noncontrolling interests in income of subsidiaries that have not incurred fixed charges. Fixed charges consist of interest incurred (including amortization of deferred financing costs and capitalized interest).

(c)
Ratios for the six months ended June 30, 2015, include the effect of impairment of real estate of $14.5 million. Excluding the impact of the impairment of real estate, the consolidated ratio of earnings to fixed charges and consolidated ratio of earnings to combined fixed charges and preferred stock dividends for the six months ended June 30, 2015, were 1.82 and 1.54, respectively.

(d)
Ratios for the year ended December 31, 2014, include the effect of losses on early extinguishment of debt aggregating $525 thousand, a preferred stock redemption charge of $2.0 million, impairment of land parcel of $24.7 million, and impairment of real estate of $27.0 million. Excluding the impact of losses on early extinguishment of debt, the preferred stock redemption charge, the impairment of land parcel, and the impairment of real estate, the consolidated ratio of earnings to fixed charges and consolidated ratio of earnings to combined fixed charges and preferred stock dividends for the year ended December 31, 2014, were 1.83 and 1.52, respectively.

(e)
Ratios for the year ended December 31, 2012, include the effect of losses on early extinguishment of debt aggregating $2.2 million, a preferred stock redemption charge of $6.0 million, impairment of land parcel of $2.1 million, and impairment of real estate of $11.4 million. Excluding the impact of losses on early extinguishment of debt, the preferred stock redemption charge, the impairment of land parcel, and the impairment of real estate, the consolidated ratio of earnings to fixed charges and consolidated ratio of earnings to combined fixed charges and preferred stock dividends for the year ended December 31, 2012, were 1.42 and 1.13, respectively.

(f)
Ratios for the year ended December 31, 2010, include the effect of loss on early extinguishment of debt aggregating $45.2 million. Excluding the impact of loss on early extinguishment of debt, the consolidated ratio of earnings to fixed charges and the consolidated ratio of earnings to combined fixed charges and preferred stock dividends for the year ended December 31, 2010, were 1.76 and 1.45, respectively.


2Q15 - EX 31.1


EXHIBIT 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Joel S. Marcus, certify that:
 
1.              I have reviewed this quarterly report on Form 10-Q of Alexandria Real Estate Equities, Inc.;
 
2.              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.              The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.              Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.              The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
 
b.              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: July 29, 2015
 
 
/s/ Joel S. Marcus
 
Joel S. Marcus
 
Chief Executive Officer



2Q15 - EX 31.2


EXHIBIT 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Dean A. Shigenaga, certify that:
 
1.              I have reviewed this quarterly report on Form 10-Q of Alexandria Real Estate Equities, Inc.;
 
2.              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.              The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  
 
a.              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.              Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.              The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
 
b.              Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: July 29, 2015
 
 
/s/ Dean A. Shigenaga
 
Dean A. Shigenaga
 
Chief Financial Officer



2Q15 - EX 32


EXHIBIT 32.0
 
CERTIFICATION 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
 
I, Joel S. Marcus, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Alexandria Real Estate Equities, Inc. for the quarter ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Alexandria Real Estate Equities, Inc.

 
Date: July 29, 2015
 
 
/s/ Joel S. Marcus
 
Joel S. Marcus
 
Chief Executive Officer
 
I, Dean A. Shigenaga, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Alexandria Real Estate Equities, Inc. for the quarter ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Alexandria Real Estate Equities, Inc.

Date: July 29, 2015
 
 
/s/ Dean A. Shigenaga
 
Dean A. Shigenaga
 
Chief Financial Officer



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