ARE 8-K

Alexandria Real Estate Equities, Inc. (ARE)

8-K 2009-02-09 For: 2009-02-09

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Maryland		1-12993		95-4502084
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

385 East Colorado Boulevard, Suite 299
Pasadena, California		91101
(Address of principal executive offices)		(Zip Code)

	ALEXANDRIA REAL ESTATE EQUITIES, INC.


February 9, 2009	By:	/s/ Joel S. Marcus
		Joel S. Marcus
		Chairman/Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ Dean A. Shigenaga
		Dean A. Shigenaga
		Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)

Exhibit Number		Exhibit Title
99.1		Press Release dated February 9, 2009

Contact:		Joel S. Marcus
		Chairman/Chief Executive Officer
		Alexandria Real Estate Equities, Inc.
		(626) 578-9693

ARE 8-K

SIGNATURES

EXHIBIT INDEX

		2009
FFO per share (diluted) (1)		$6.26 (1)
Earnings per share (diluted) (1)		$2.73 (1)

	Three Months Ended December 31,					Year Ended December 31,
	2008			2007		2008		2007
Income statement data
Total revenues	$	126,572		$	107,596	$	460,668	$	397,062

Expenses
Rental operations	29,078			26,923		114,543		97,103
General and administrative	8,973			8,127		34,796		32,316
Interest	19,686			23,451		78,791		86,126
Depreciation and amortization	28,368			26,474		108,233		95,008
Non-cash impairment on investments	11,266			–		13,251		–
	97,371			84,975		349,614		310,553

Minority interest	971			951		3,799		3,669
Income from continuing operations	28,230			21,670		107,255		82,840

Income from discontinued operations, net	(70		)	3,322		15,614		10,884

Net income	28,160			24,992		122,869		93,724

Dividends on preferred stock	7,089			2,715		24,225		12,020
Preferred stock redemption charge	–			–		–		2,799
Net income available to common stockholders	$	21,071		$	22,277	$	98,644	$	78,905

Weighted average shares of common stock outstanding
Basic	31,757,072			31,446,999		31,653,829		29,668,231
Diluted	31,883,885			31,729,054		31,907,956		30,004,462

Earnings per share – basic
Continuing operations (net of preferred stock dividends and preferred stock redemption charge)	$	0.66		$	0.60	$	2.63	$	2.29
Discontinued operations, net	–			0.11		0.49		0.37
Earnings per share – basic	$	0.66		$	0.71	$	3.12	$	2.66

Earnings per share – diluted
Continuing operations (net of preferred stock dividends and preferred stock redemption charge)	$	0.66		$	0.60	$	2.60	$	2.27
Discontinued operations, net	–			0.10		0.49		0.36
Earnings per share – diluted	$	0.66		$	0.70	$	3.09	$	2.63

Reconciliation of net income available to common stockholders to FFO available to common stockholders	Three Months Ended December 31, 2008			Three Months Ended December 31, 2007			Year Ended December 31, 2008			Year Ended December 31, 2007

Net income available to common stockholders	$	21,071		$	22,277		$	98,644		$	78,905
Add: Depreciation and amortization (1)	28,483			26,969			108,743			97,335
Add: Minority interest	971			951			3,799			3,669
Subtract: Gain on sales of property (2)	(6		)	(2,901		)	(20,401		)	(7,976		)
Subtract: FFO allocable to minority interest	(1,069		)	(972		)	(4,108		)	(3,733		)
FFO available to common stockholders	$	49,450		$	46,324		$	186,677		$	168,200
FFO per share (diluted)
Basic	$	1.56		$	1.47		$	5.90		$	5.67
Diluted	$	1.55		$	1.46		$	5.85	(3)	$	5.61	(4)

Reconciliation of earnings per share (diluted) to FFO per share (diluted)
Earnings per share (diluted)	$	0.66		$	0.70		$	3.09		$	2.63
Depreciation and amortization (1)	0.89			0.85			3.41			3.25
Minority interest	0.03			0.03			0.12			0.12
Gain on sales of property (2)	–			(0.09		)	(0.64		)	(0.27		)
FFO allocable to minority interest	(0.03		)	(0.03		)	(0.13		)	(0.12		)
FFO per share (diluted)	$	1.55		$	1.46		$	5.85		$	5.61

(1)		Includes depreciation and amortization for assets “held for sale” reflected as discontinued operations for the periods prior to when such assets were classified as “held for sale”.
(2)		Gain on sales of property relates to the disposition of one property sold during the fourth quarter 2008, one property sold during the second quarter 2008, six properties sold during the first quarter 2008, one property sold during the fourth quarter of 2007, four land parcels and one property sold during the third quarter of 2007, one property sold during the second quarter of 2007 and one property sold during the first quarter of 2007. Gain on sales of property is included in the income statement in income from discontinued operations, net.
(3)		For the year ended December 31, 2008, we recognized additional rental income aggregating $11,268,000 related to a modification of a lease and a write-off of deferred rent and non-cash impairment charges aggregating $17,901,000. The non-cash impairment charges consisted of $4,650,000 related to two properties and $13,251,000 for other-than-temporary declines in the fair value of certain investments. FFO per share (diluted) for the year ended December 31, 2008 excluding these items was $6.06.
(4)		During the first quarter of 2007, we redeemed our 9.10% series B cumulative redeemable preferred stock. Accordingly, in compliance with FASB Emerging Issues Task Force D-42 (“EITF Topic D-42”), we recorded a charge of $2,799,000, or $0.09 per share (diluted), for costs related to the redemption of our series B preferred stock. FFO per share (diluted) for the year ended December 31, 2007 excluding this item was $5.70.

	For the Three Months Ended
Operational data	12/31/2008			9/30/2008			6/30/2008			3/31/2008			12/31/2007
Rental income	$	97,778		$	85,503		$	82,861		$	81,841		$	81,379
Tenant recoveries	26,347			26,726			23,904			24,471			22,252
Other income	2,447			2,648			2,892			3,250			3,965
Total revenues (continuing operations) (a)	$	126,572		$	114,877		$	109,657		$	109,562		$	107,596

Funds from operations per share (diluted) (b)	$	1.55		$	1.53		$	1.51		$	1.27	(c)	$	1.46
Dividends per share on common stock	$	0.80		$	0.80		$	0.80		$	0.78		$	0.78
Dividend payout ratio (common stock) (d)	52.3%			52.7%			53.4%			62.0%			53.9%
Straight-line rent	$	2,547		$	3,274		$	3,437		$	3,015		$	4,615
Capitalized interest	$	19,235	(e)	$	17,646		$	18,437		$	17,262		$	16,609
Number of properties (f)
Acquired/added/completed during period	–			–			2			–			2
Sold/transferred (g)	(1		)	–			(1		)	(7		)	(3		)
At end of period	159			160			160			159			166
Rentable square feet (f)
Acquired/added/completed during period	–			–			60,000			–			404,986
Sold/transferred (g)	(24,867		)	–			(49,437		)	(475,976		)	(92,927		)
At end of period	11,685,912			11,710,779			11,710,779			11,700,216			12,176,192

	*As of*
Other data	12/31/2008			9/30/2008			6/30/2008			3/31/2008			12/31/2007
Number of shares of common stock outstanding	31,899,037			31,839,622			31,773,117			31,673,359			31,603,344
Closing price of common stock	$	60.34		$	112.50		$	97.34		$	92.72		$	101.67

Debt to total market capitalization (h)
Total debt	$	2,966,963		$	2,804,551		$	2,693,333		$	2,625,852		$	2,787,904
Less minority interest share of debt	(44,984		)	(42,384		)	(40,762		)	(39,838		)	(39,320		)
Our share of total debt	2,921,979			2,762,167			2,652,571			2,586,014			2,748,584
Preferred stock	353,658			368,489			377,616			352,127			136,845
Common stock market capitalization	1,924,788			3,581,957			3,092,795			2,936,754			3,213,112
Total market capitalization	$	5,200,425		$	6,712,613		$	6,122,982		$	5,874,895		$	6,098,541
Debt to total market capitalization	56.2%			41.1%			43.3%			44.0%			45.1%

(a)		The historical results above exclude the results of assets “held for sale” which have been classified as discontinued operations.
(b)		See page 6 for a reconciliation of earnings per share (diluted) to FFO per share (diluted).
(c)		In March 2008, we recognized aggregate non-cash impairment charges of approximately $1,985,000 for other-than-temporary declines in the fair value of certain investments and non-cash impairment charges of approximately $4,650,000 on two properties which were sold in May and October 2008. FFO per share (diluted) for the first quarter of 2008 before these items was $1.48.
(d)		Dividend payout ratio (common stock) is the ratio of the absolute dollar amount of dividends on our common stock (common stock shares outstanding on the respective record date multiplied by the related dividend per share) to funds from operations.
(e)		As of December 31, 2008, assets for which capitalization of interest is required pursuant to Statement of Financial Accounting Standards No. 34, “Capitalization of Interest Cost” (“SFAS 34”), approximated $1.4 billion. This amount is classified as properties undergoing development and redevelopment, and land held for development on our balance sheet. The weighted average interest rate used in the calculation of capitalized interest required pursuant to SFAS 34 was approximately 5.37% for the three months ended December 31, 2008. SFAS 34 requires the interest rate for capitalization to be based on applicable interest costs related to borrowings outstanding during the period, including the impact of interest rate swap agreements, debt premiums/discounts and amortization of loan fees.
(f)		Includes properties “held for sale” during the applicable periods such assets were “held for sale.” As of December 31, 2008, three properties aggregating 64,218 rentable square feet were classified as “held for sale.”
(g)		During the fourth quarter of 2008, we sold one asset located in the Eastern Massachusetts market. During the second quarter of 2008, we sold one asset located in the San Diego market. During the first quarter of 2008, we sold six properties and transferred one property from operating assets to embedded future development opportunities. During the fourth quarter of 2007, we sold one property and transferred two properties from operating assets to embedded future development opportunities.
(h)		Debt to total market capitalization is the ratio of our share of total debt (secured notes payable, unsecured line of credit and unsecured term loan and unsecured convertible notes) to total market capitalization. Total market capitalization is equal to outstanding shares of series C preferred stock and common stock multiplied by the related closing price at the end of each period presented, plus series D cumulative convertible preferred stock at liquidation value, plus our share of total debt.

	For the Year Ended
Operational data	12/31/2008			12/31/2007			12/31/2006			12/31/2005			12/31/2004
Rental income	$	347,983		$	300,011		$	229,636		$	172,755		$	128,467
Tenant recoveries	101,448			82,232			60,630			45,205			31,180
Other income	11,237			14,819			11,795			4,757			3,486
Total revenues (continuing operations) (a)	$	460,668		$	397,062		$	302,061		$	222,717		$	163,133

Funds from operations per share (diluted) (b)	$	5.85	(c)	$	5.61	(d)	$	5.16		$	4.82		$	4.41	(e)
Dividends per share on common stock	$	3.18		$	3.04		$	2.86		$	2.72		$	2.52
Dividend payout ratio (common stock) (f)	54.8%			55.4%			58.8%			57.9%			56.7%
Number of properties (g)
Acquired/added/completed during period	2			17			29			22			23
Sold/transferred to development	(9		)	(9		)	(3		)	(1		)	(1		)
Owned at end of period	159			166			158			132			111
Rentable square feet (g)
Acquired/added/completed during period	60,000			1,503,322			2,683,211			1,392,299			1,714,573
Sold/transferred to development	(550,280		)	(580,539		)	(268,099		)	(16,500		)	2,891
Owned at end of period	11,685,912			12,176,192			11,253,409			8,838,297			7,462,498

	*As of*
	12/31/2008			12/31/2007			12/31/2006			12/31/2005			12/31/2004
Other data
Number of shares of common stock outstanding	31,899,037			31,603,344			29,012,135			22,441,294			19,594,418
Closing price of common stock	$	60.34		$	101.67		$	100.40		$	80.50		$	74.42

Debt to total market capitalization (h)
Total debt	$	2,966,963		$	2,787,904		$	2,024,866		$	1,406,666		$	1,186,946
Less minority interest share of debt	(44,984		)	(39,320		)	(22,064		)	–			–
Our share of debt	2,921,979			2,748,584			2,002,802			1,406,666			1,186,946
Preferred stock market capitalization	353,658			136,845			193,360			192,419			199,360
Common stock market capitalization	1,924,788			3,213,112			2,912,818			1,806,524			1,458,217
Total market capitalization	$	5,200,425		$	6,098,541		$	5,108,980		$	3,405,609		$	2,844,523
Debt to total market capitalization	56.2%			45.1%			39.2%			41.3%			41.7%

(a)		The historical results above exclude the results of assets “held for sale” which have been reflected as discontinued operations.
(b)		See page 6 for a reconciliation of earnings per share (diluted) to FFO per share (diluted).
(c)		In 2008, we recognized additional rental income aggregating $11,268,000 related to a modification of a lease and a write-off of deferred rent and non-cash impairment charges aggregating $17,901,000. The non-cash impairment charges consisted of $4,650,000 related to two properties and $13,251,000 for other-than-temporary declines in the fair value of certain investments. FFO per share (diluted) before these items was $6.06.
(d)		During the first quarter of 2007, we elected to redeem our 9.10% Series B cumulative redeemable preferred stock. Accordingly, in compliance with EITF Topic D-42, we recorded a charge of $2,799,000 for costs related to the redemption of our Series B Preferred Stock. FFO per share (diluted) before this item was $5.70.
(e)		During the second quarter of 2004, we redeemed our 9.50% Series A cumulative redeemable preferred stock. Accordingly, in compliance with EITF Topic D-42, we recorded a charge of $1,876,000 recorded in the second quarter of 2004 for costs related to the redemption of our Series A Preferred Stock. FFO per share (diluted) before this item was $4.51.
(f)		Dividend payout ratio (common stock) is the ratio of the absolute dollar amount of dividends on our common stock (common stock shares outstanding on the respective record date multiplied by the related dividend per share) to funds from operations.
(g)		Includes assets “held for sale” during the applicable periods such assets were “held for sale.” As of December 31, 2008, three properties with approximately 64,218 rentable square feet were classified as “held for sale.”
(h)		Debt to total market capitalization is the ratio of our share of total debt (secured notes payable, unsecured line of credit and unsecured term loan and unsecured convertible notes) to total market capitalization. Total market capitalization is equal to outstanding shares of series C preferred stock and common stock multiplied by the related closing price at the end of each period presented, plus series D cumulative convertible preferred stock at liquidation value, plus our share of total debt.

	December 31,
	2008			2007
	(Unaudited)
Assets
Rental properties, net	$	3,325,047		$	3,146,915
Properties undergoing development and redevelopment, and land held for development	1,397,423			1,143,302
Cash and cash equivalents	71,161			8,030
Tenant security deposits and other restricted cash	67,782			51,911
Tenant receivables	6,453			6,759
Deferred rent	85,733			81,496
Investments	61,861			84,322
Other assets	115,636			119,359
Total assets	$	5,131,096		$	4,642,094

Liabilities and Stockholders’ Equity
Secured notes payable	$	1,081,963		$	1,212,904
Unsecured line of credit and unsecured term loan	1,425,000			1,115,000
Unsecured convertible notes	460,000			460,000
Accounts payable, accrued expenses and tenant security deposits	386,811			247,289
Dividends payable	32,105			27,575
Total liabilities	3,385,879			3,062,768

Minority interest	75,021			75,506

Stockholders’ equity:
Series C preferred stock	129,638			129,638
Series D convertible preferred stock	250,000			–
Common stock	319			316
Additional paid-in capital	1,377,448			1,365,773
Accumulated other comprehensive (loss) income	(87,209		)	8,093
Total stockholders’ equity	1,670,196			1,503,820
Total liabilities and stockholders’ equity	$	5,131,096		$	4,642,094

	Secured Debt										Unsecured Debt
Year	Our Share		Minority Share			Total			Weighted Average Interest Rate (1)		Amount
2009	$	72,004	$	22,994		$		94,998	5.26	%	$	–
2010	257,768		270			258,038			5.23		–
2011	190,679		286			190,965			5.69		675,000		(2)(3)
2012	37,280		302			37,582			5.95		1,210,000		(2)(3)(4)
2013	49,500		319			49,819			5.89		–
Thereafter	429,748		20,813			450,561			5.85		–
Total	$	1,036,979	$		44,984	$	1,081,963				$	1,885,000

	Balance		Percentage of Balance		Weighted Average Interest Rate (5)		Weighted Average Maturity
Secured Debt	$	1,081,963	36.5	%	5.26	%	3.9 Years
Unsecured Debt	1,885,000		63.5		4.15		2.5 Years	(6)
Total Debt	$	2,966,963	100.0	%	4.56	%	3.0 Years	(6)

	Balance		Percentage of Balance		Weighted Average Interest Rate (5)		Weighted Average Maturity
Fixed Rate Debt	$	1,245,516	42.0	%	5.17	%	4.2 Years
Floating Rate Debt – Hedged	953,500		32.1		5.71		2.6 Years	(7)
Floating Rate Debt – Unhedged	767,947		25.9		2.14		1.5 Years	(7)
Total Debt	$	2,966,963	100.0	%	4.56	%	3.0 Years	(7)

Transaction Dates	Effective Dates	Termination Dates	Interest Pay Rates (1)		Notional Amounts		Effective at December 31, 2008

June 2006	June 30, 2006	September 30, 2009	5.299	%	$	125,000	$	125,000

December 2005	December 29, 2006	November 30, 2009	4.730		50,000		50,000

December 2005	December 29, 2006	November 30, 2009	4.740		50,000		50,000

December 2006	December 29, 2006	March 31, 2014	4.990		50,000		50,000

December 2006	January 2, 2007	January 3, 2011	5.003		28,500		28,500

October 2007	October 31, 2007	September 30, 2012	4.546		50,000		50,000

October 2007	October 31, 2007	September 30, 2013	4.642		50,000		50,000

December 2005	January 2, 2008	December 31, 2010	4.768		50,000		50,000

May 2005	June 30, 2008	June 30, 2009	4.509		50,000		50,000

June 2006	June 30, 2008	June 30, 2010	5.325		50,000		50,000

June 2006	June 30, 2008	June 30, 2010	5.325		50,000		50,000

October 2007	July 1, 2008	March 31, 2013	4.622		25,000		25,000

October 2007	July 1, 2008	March 31, 2013	4.625		25,000		25,000

October 2008	October 10, 2008	December 31, 2009	2.750		75,000		75,000

October 2008	October 16, 2008	January 31, 2010	2.755		100,000		100,000

June 2006	October 31, 2008	December 31, 2010	5.340		50,000		50,000

June 2006	October 31, 2008	December 31, 2010	5.347		50,000		50,000

May 2005	November 28, 2008	November 30, 2009	4.615		25,000		25,000

October 2008	September 30, 2009	January 31, 2011	3.119		100,000		–

	December 31, 2008
	Number of	Rentable Square Feet			Annualized		Occupancy Percentage
Markets	Properties	Operating	Redevelopment	Total	Base Rent (1)		12/31/08 (1) (2)	12/31/07 (3)	9/30/08 (4)
California – Los Angeles Metro	1	31,343	–	31,343	$	820	88.3%	70.8%	88.3%
California – San Diego	31	1,494,551	148,657	1,643,208	43,594		92.6	94.9	94.2
California – San Francisco Bay	17	1,478,660	–	1,478,660	56,542		98.4	95.8	98.7
Eastern Massachusetts	38	3,147,365	308,931	3,456,296	116,017		96.7	94.7	97.1
New Jersey/Suburban Philadelphia	8	441,504	–	441,504	8,341		87.5	96.6	87.5
Southeast	13	621,586	65,834	687,420	12,446		94.7	86.0(5)	94.5
Suburban Washington, D.C.	31	2,428,466	66,635	2,495,101	48,608		90.5	90.1	92.4
Washington – Seattle	13	1,045,768	–	1,045,768	32,244		98.7	97.2	99.0
International – Canada	4	342,394	–	342,394	8,773		100.0	100.0	100.0
Total Properties (Continuing Operations)	156	11,031,637	590,057	11,621,694	$	327,385	94.8%	93.8%	95.6%

(1)		The weighted average interest rate is calculated based on outstanding debt as of December 31st of the year immediately preceding the year presented.
(2)		Our borrowing capacity and financial covenants under our unsecured line of credit and unsecured term loan are not directly dependent or variable based upon our stock price. Interest on outstanding borrowings under our unsecured credit facility is based upon LIBOR plus 1.00% to 1.45% depending on our leverage or the higher of the Federal Funds rate plus 0.50% or Bank of America’s (“BofA”) prime rate plus 0.0% to 0.25% depending on our leverage. As of December 31, 2008, one-month LIBOR was 0.44%, the Federal Funds rate was 0-0.25%, and BofA’s prime rate was 3.25%.
(3)		Assumes we exercise our sole right to extend the maturity date of our unsecured line of credit from October 2010 to October 2011 and our unsecured term loan from October 2011 to October 2012. As of December 31, 2008, cash and cash equivalents were approximately $71.2 million.
(4)		On or after January 15, 2012, we have the right to redeem our 3.70% unsecured convertible notes, in whole or in part, at any time from time to time, for cash equal to 100% of the principal amounts of the notes to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. Holders of the notes may require us to repurchase their notes, in whole or in part, on January 15, 2012, 2017 and 2022 for cash equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the repurchase date. Additional information regarding our unsecured convertible notes is contained in our Form 10-K filed with the Securities and Exchange Commission.
(5)		Represents the weighted average contractual interest rate 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. See page 11 for further details of our interest rate swap agreements.
(6)		Assuming we elect to extend our unsecured line of credit and unsecured term loan to October 2011 and October 2012, respectively, the weighted average maturity on our unsecured debt and total debt would be 3.3 years and 3.5 years, respectively.
(7)		Assuming we elect to extend our unsecured line of credit and unsecured term loan to October 2011 and October 2012, respectively, the weighted average maturity on our hedged floating rate debt, unhedged floating rate debt and total debt would be 3.6 years, 2.1 years and 3.5 years, respectively. The interest rate related to outstanding borrowings for our unhedged floating rate debt is based upon one-month LIBOR. The interest rate resets periodically and will vary in future periods.

(1)		Excludes spaces at properties totaling approximately 590,057 rentable square feet undergoing a permanent change in use to office/laboratory space through redevelopment and three properties with approximately 64,218 rentable square feet that are classified as “held for sale.”
(2)		Including spaces undergoing a permanent change in use to office/laboratory space through redevelopment, occupancy as of December 31, 2008 was 90.0%. See page 18 for additional information on our redevelopment program.
(3)		Excludes spaces at properties totaling approximately 774,519 rentable square feet undergoing a permanent change in use to office/laboratory space through redevelopment and two properties with approximately 136,399 rentable square feet that was classified as “held for sale” as of December 31, 2007. Including spaces undergoing a permanent change in use to office/laboratory space through redevelopment, occupancy as of December 31, 2007 was approximately 87.8%. See page 18 for additional information on our redevelopment program.
(4)		Excludes spaces at properties totaling approximately 708,473 rentable square feet undergoing a permanent change in use to office/laboratory space through redevelopment and one property with approximately 24,867 rentable square feet that was classified as “held for sale” as of September 30, 2008. Including spaces undergoing a permanent change in use to office/laboratory space through redevelopment, occupancy as of September 30, 2008 was approximately 89.8%. See page 18 for additional information on our redevelopment program.
(5)		Substantially all of the vacant space was office or warehouse space.

	*GAAP Basis (1)*						*Cash Basis (1)*
	Quarter Ended						Quarter Ended

	12/31/2008		12/31/2007		% Change		12/31/2008		12/31/2007		% Change

Revenue (2)	$	96,324	$	92,378	4.3	%	$	94,540	$	88,186	7.2	%
Operating expenses	24,091		23,103		4.3		24,091		23,103		4.3
Revenue less operating expenses	$	72,233	$	69,275	4.3	%	$	70,449	$	65,083	8.2	%

	*GAAP Basis (1)*						*Cash Basis (1)*
	Year Ended						Year Ended

	12/31/2008		12/31/2007		% Change		12/31/2008		12/31/2007		% Change

Revenue (2)	$	328,341	$	315,106	4.2	%	$	323,189	$	301,591	7.2	%
Operating expenses	85,188		79,715		6.9		85,188		79,715		6.9
Revenue less operating expenses	$	243,153	$	235,391	3.3	%	$	238,001	$	221,876	7.3	%

(1)		Revenue less operating expenses computed in accordance with GAAP is total revenue associated with the Fourth Quarter Same Properties and 2008 Same Properties, as applicable (excluding lease termination fees, if any), less property operating expenses. Under GAAP, rental revenue is recognized on a straight-line basis over the respective lease terms. Revenue less operating expenses on a cash basis is total revenue associated with the Fourth Quarter Same Properties and 2008 Same Properties (excluding lease termination fees, if any), less property operating expenses, adjusted to exclude the effect of straight-line rent adjustments required by GAAP. Straight-line rent adjustments for the quarters ended December 31, 2008 and 2007 for the Fourth Quarter Same Properties were $1,784,000 and $4,192,000, respectively. Straight-line rent adjustments for the year ended December 31, 2008 and 2007 for the 2008 Same Properties were $5,152,000 and $13,515,000, respectively. We believe that revenue less operating expenses 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.

(2)		Fees received from tenants in connection with termination of their leases, if any, are excluded from revenue in the Summary of Same Property Comparisons. As of December 31, 2008, approximately 89% of our leases (on a rentable square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses, including increases thereto. In addition, as of December 31, 2008, approximately 8% of our leases (on a rentable square footage basis) required the tenants to pay a majority of operating expenses.

							Annualized Base Rent
			Rentable Square		Percentage of		of Expiring Leases
Year of Lease	Number of		Footage of		Aggregate		(per rentable
Expiration	Leases Expiring		Expiring Leases		Leased Square Feet		square foot)

2009	75	(1)	982,312	(1)	9.5	%	$30.55
2010	62		1,088,066		10.5		27.41
2011	70		1,700,099		16.4		29.21
2012	60		1,384,688		13.3		34.39
2013	50		1,057,435		10.2		31.67
2014	25		815,970		7.9		28.72
2015	14		688,865		6.6		29.60
2016	14		751,560		7.2		26.79
2017	12		600,032		5.8		36.73
2018	11		726,844		7.0		43.64

	Rentable Square Footage of Expiring Leases
Markets	2009		2010

California – Los Angeles Metro	8,360		–
California – San Diego	192,001		189,887
California – San Francisco Bay	260,535		208,186
Eastern Massachusetts	152,353		280,578
New Jersey/Suburban Philadelphia	21,000		42,460
Southeast	111,796		94,467
Suburban Washington, D.C.	201,895		140,386
Washington – Seattle	34,372		132,102
International – Canada	–		–

Total	982,312	(1)	1,088,066

	Acquisition	Month of	Rentable
Markets	Amount	Acquisition	Square Feet

Total Additions to Properties Under Redevelopment/Operating Properties:	N/A	N/A	N/A

	Acquisition	Month of	Developable
Markets	Amount	Acquisition	Square Feet

Additions to Land:	N/A	N/A	N/A

	Disposition		Month of	Rentable
Markets	Amount		Disposition	Square Feet

Dispositions:

Eastern Massachusetts	$	1,896	October	24,867

				Rentable
				Square Footage
	Placed	Estimated	Estimated	Undergoing
	in	In-Service	Investment	Redevelopment/
Markets/Submarkets	Redevelopment	Dates	Per Square Foot	Total Property	Status

California – San Diego/Torrey Pines	2007	2009/2010	$100-120	84,504 / 84,504	Design/Construction (1)

California – San Diego/Torrey Pines	2006	2009	$80-100	13,591 / 43,600	Construction

California – San Diego/Torrey Pines	2007	2009	$80-100	11,338 / 107,709	Construction

California – San Diego/Torrey Pines	2007	2009	$80-100	39,224 / 76,084	Construction

Eastern Massachusetts/Cambridge	2006	2009	$120-175	75,045 / 177,101	Design/Construction

Eastern Massachusetts/Cambridge	2007	2009	$100-130	90,841 / 369,831	Design/Construction

Eastern Massachusetts/Suburban	2007	2009/2010	$70-80	113,045 / 113,045	Design/Construction

Eastern Massachusetts/Suburban	2008	2010	$120-140	30,000 / 30,000	Design/Construction

Southeast/Florida	2006	2009	$80-100	42,712 / 44,855	Construction

Southeast/North Carolina	2008	2009	$80-100	6,729 / 60,519	Construction

Southeast/North Carolina	2007	2008 (2)	$100-120	16,393 / 77,395	Construction

Suburban Washington, D.C./Gaithersburg	2007	2008 (3)	$40-50	15,504 / 44,464	Construction

Suburban Washington, D.C./Shady Grove	2007	2009	$70-80	51,131 / 123,501	Construction

				590,057 / 1,352,608

(1)		This project also includes site work and a multi-story below and above ground parking structure to support both the existing building undergoing redevelopment and an additional building targeted for development in the future. The entitlement process for this project was completed in 2007.
(2)		The project will be delivered to the tenant for occupancy in February 2009.
(3)		The project was delivered to the tenant for occupancy in January 2009.

Markets/Submarkets	Building Descriptions	Construction Start Dates	Estimated In-Service Dates	Estimated Investment Per Square Foot (1)	Rentable Square Feet	Development Status	Leasing Status

California – San Francisco Bay/ Mission Bay	Multi-tenant Bldg.	2007	2010	$350	158,000	Construction	100% Leased or Committed

California – San Francisco Bay/ So. San Francisco	Two Bldgs., Single or Multi-tenant	2006	2009	$350	162,000	Construction	16% Leased; Marketing

California – San Francisco Bay/ So. San Francisco	Single Tenant Bldg.	2006	2009	$350	130,000	Construction	55% Leased with Option for Remaining Space Through 2009

New York – New York City – East Tower	Multi-tenant Bldg.	2007	2010/2011	$500	310,000	Construction	Marketing; Negotiating Substantial LOI

Washington – Seattle	Single Tenant Bldg. with 5% Retail	2007	2010	$390	115,000	Construction	92% Leased with Option for Additional 3%; 5% Retail

Total Properties Undergoing Ground-Up Development (1)					875,000

Markets	Total Embedded Development Square Footage (1)		Embedded Future Redevelopment Square Footage	Total

California – San Diego	443,000		178,000	621,000

California – San Francisco Bay/Mission Bay	2,386,000		–	2,386,000

California – San Francisco Bay/So. San Francisco	921,000		25,000	946,000

Eastern Massachusetts	2,275,000		540,000	2,815,000

Suburban Washington, D.C.	787,000		466,000	1,253,000

Washington – Seattle	1,077,000		135,000	1,212,000

International – Canada	827,000		–	827,000

Other	905,000		221,000	1,126,000

Total	9,621,000	(2)	1,565,000	11,186,000

(1)		Development/pre-construction square footage is included in Total Embedded Development Square Footage shown above.
(2)		In addition, we have the right to develop an additional parcel in New York City with approximately 442,000 rentable square feet. This square footage is not included in the embedded future development square footage shown above.

		Date:		February 9, 2009

		Time:		3:00 P.M. Eastern Time/12:00 P.M. Noon Pacific Time

		Phone Number:		(719) 325-4835

		Confirmation Code:		7288432